Britannia Radio

It’s like living with Alice in Wonderland - or 'Looking Glass Land' .  Nothing is what it seems and when one does grasp hold of an idea it vanishes altogether leaving only a grin behind.   

Three days ago we were told that we lagged the world in getting out of recession now NIESR (a think tank with a bit of a dodgy track record) has jumped the gin to trumpet the end of recession while admitting that that its figures are not reliable.  This doesn’t stop the hacks from going overboard causing the stock market to leap without much justification.

The first thing that must be pointed out is that the technical ‘end of recession’ is a totally arbitrary line-in-the-sand.  From +0.1 to -0.1 pc is meaningless especially when the figures are only provisional.  The second thing is that such a movement doesn’t mean any diminution in the scale of the debts we have piled up by throwing money away futilely in an attempt to stem the collapse.  Sometime soon we have to repay all that - even Darling (if not Brown) has cottoned on to that! - including reselling all the billions in Bonds that Quantitative Easing has made the Treasury buy!  (And we are still doing it).  

The pain of clearing up the mess will be much worse than the initial collapse.  For public money will be tighter than any of us remember (and I go back to pre-war days) - jobs will still vanish, planned pensions disappear,  wage rates will stagnate and looming in the wings is the savage inflation that is to be expected after such a profligate period of mismanagement of our affairs.   

As Alice was told of Humpty Dumpty after he had had “a great fall” : - “All the King’s horses, and all the King’s men, Couldn’t put Humpty together again” 

It is good that Moody’s has noticed that our politicians are gradually waking to reality and promise ‘cuts’ (even if Darling dresses them up as ‘hard choices’) .  To lose our credit rating would have been almost the last straw.  

As for the World Economic Forum’s economic stability index, I should consider this with a degree of scepticism.  The individual sector comments are worthwhile but the index is constructed mainly with a view to the headline it could generate.  

Christina

FINANCIAL TIMES 9.9.09

Spending cut pledges bolster UK rating

By Chris Giles and David Oakley

A growing political consensus on the need to cut public spending as the economy recovers is set to preserve Britain’s top-notch triple-A credit rating.

Moody’s, the rating agency, said on Wednesday that a downgrade was unlikely even thoughBritain’s budget deficit will soon be the worst among advanced economies.

The rating agency said the rise in debt appeared affordable, particularly given signs that all political parties now agreed on the need to reduce public spending.

Moody’s move comes after both the chancellor and the leader of the opposition on Tuesday signalled a determination to cut back.

The growing consensus will add to relief at the Treasury over signs the economy is emerging from deep recession.

Strong industrial production figures on Tuesday prompted the National Institute of Economic and Social Research to estimate that the economy expanded in the three months to August, the first quarterly increase since May last year.

Although the credibility of credit rating agencies has been damaged over the financial crisis, Moody’s view that “it does not expect ratings downgrades in the near future” for any triple A minus rated economy will come as a relief to several governments.

The move reduces the risk that investors might be deterred from buying UK government debt, sending its cost soaring.

Speaking about Britain, Pierre Cailleteau, head of sovereign risk at Moody’s, said the country’s public finances had clearly deteriorated, but the triple-A status was “resilient”.

In spite of an economy weakened by the credit crunch and a recession, a downgrade was “very unlikely”, he said.

Moody’s downgraded Ireland’s triple A status in July. But it said Britain had significant advantages that were likely to ensure its debt remained affordable even though it was set to double to 80 per cent of national income in coming years.

A high proportion of UK debt is long-dated, which will keep costs down even if interest rates rise. The average maturity of UK sovereign debt, at about 14 years, is twice as long as France’s and Germany’s and three times as long as the US’s, so its cost will not rise rapidly if interest rates rise.

The Treasury and the Bank of England have also retained their credibility through the crisis, Moody’s analysts said, and both the public and politicians accept the need for action to cut borrowing.

In speeches on Tuesday, Alistair Darling, chancellor of the exchequer, and David Cameron, leader of the opposition Conservative party, signalled their desire to get to grips with borrowing after an election.

Moody’s decision to reaffirm the top-notch ratings of leading economies contrasts with Standard &Poor’s warning in May that Britain risked losing its triple-A rating

TELEGRAPH  9.9.09

Britain's economy less stable than Peru

Britain has a less stable economy than Montenegro or Peru, as a result of the mountain of government debt raised to bail out the banks, according to the World Economic Forum.

 

By Josephine Moulds

The global think-tank ranked the UK 71st in the world for macro-economic stability in a report addressing the relative competitiveness of different countries.

The slide in stability pushed the UK down one place to be ranked the 13th most competitive market in the world, after China, based on its institutions, infrastructure, health and primary education, among many other factors.

 

The report's authors said: "A significant and growing weakness remains the UK's macro-economic instability, with low national savings, an exploding public-sector deficit (related in large part to recent efforts to bail out the financial sector), and consequential public indebtedness."

The soundness of British banks was ranked 126th in the world, after war-torn Burundi and only four places above Iceland.

The report said the UK does benefit from the efficiency of its labour market, compared with the rest of Europe. Its readiness to embrace technological advances to improve productivity was also praised.

Switzerland topped the table, edging out the US from the number one slot after it was damaged by weaker financial markets.

The Forum's findings conflict with those of the World Bank, which today ranked the UK fifth in the world for ease of doing business, making it the best-placed country in Europe. Its ranking is based on the procedures, time and cost of starting a business, as well as the tax regime, and access to credit.

The World Bank said the UK had eased the process of dealing with construction permits and reduced the time to register property.