Financial Times warning on UK economy

Are we heading back to the economic malaise of the 70s and 80s ? Here's an ominous warning from todays FT ..........
Ominous signs of a slide back to the bad old times
By Philip Coggan Financial Times. Published: May 28 2005 03:00
Tony Blair may be regretting the reduction in his UK parliamentary majority. But it could have been a lot worse. It is beginning to look as if he clinched re-election just before the economy turned sour.
The UK economy has had an extraordinarily good run, without a single negative quarter for output since 1992. For once, a devaluation (sterling's ejection from the Exchange Rate Mechanism) did not lead to a surge in inflation. The transfer of monetary policy to the Bank of England has been a resounding success. Unemployment has drifted down to much lower levels than in France and Germany.
Some of this success has reflected worldwide trends. Inflation, interest rates and bond yields have been low around the globe. Nevertheless, growth has been far stronger than in Britain's European rivals, averaging almost 3 per cent since Labour came to office.
But the impressive overall performance has not been without its weaknesses. The long-term decline of manufacturing has continued. Productivity has not significantly improved. Economic growth has depended too much on consumer spending, which in turn has relied on rising debt levels and a buoyant housing market. There has been a persistent trade deficit and the government's fiscal position, strong in Labour's first term, has deteriorated sharply in its second.
But while such problems cause concern, judging the size and scale of their impact is very difficult. The government may be running a budget deficit but the overall ratio of debt to gross domestic product is lower than that of many other countries. As the Bank has noted, consumer spending might have been even stronger if homeowners had taken full account of the rise in house prices. Debt has risen but low interest rates mean there have been few signs of distress.
All this may be about to change. Perhaps the most extraordinary economic statistic of recent weeks was the announcement by the British Bankers Association that consumers repaid more on their credit cards than they borrowed in April; the first such occasion in 10 years.
Could this be a sign that consumers have finally reached the limit of their willingness to borrow? Some confirmation emerged on Thursday when Barclays, the UK's third largest bank, said bad debts on credit cards were rising more rapidly than expected.
The signs of consumer exhaustion have been around for some time. Consumer spending rose only 0.3 per cent in this year's first quarter, after 0.2 per cent in the fourth quarter of 2004. That took the annual growth rate down to 2 per cent, its lowest level in four years.
This weakness has shown up on the high street. It has been easy to lose count of the retailers that have announced that sales growth has been disappointing. The CBI retail survey in April reported the worst level of activity since 1992. The official retail sales numbers showed an increase in April but the annual rate of growth was just 2.4 per cent; in 2004, it was 6.1 per cent.
As Richard Jeffrey of Bridgewell Securities points out, the news is not all bad. Consumer confidence, as measured by surveys, has held up very well. One reason why retailers have been suffering is that they have been expanding their selling space very rapidly, leading to intense competition. Jeffrey believes the recent weakness in consumer spending is the lagged effect of interest rate rises between late 2003 and the summer of 2004. As that effect fades, consumer spending will recover.
Perhaps. The housing market, which has an important effect on consumer confidence, has stalled rather than collapsed. But it would be remarkable if such a long boom ended so tamely; speculators do not tend to have patience with markets that are going nowhere.
The usual threats to consumer spending are higher interest rates and higher unemployment. Interest rates look unlikely to rise but the jobs market is harder to call. Measures of employment are still positive; but the claimant count of the unemployed has risen for three successive months.
A lingering worry is that the strength of employment in recent years has depended heavily on public sector recruitment. As Gordon Brown starts to run out of taxpayers' money, this support will run out.
Who will take up the slack? Not the manufacturing sector. Manufacturing output was down 1.1 per cent year-on-year in March, while the purchasing managers' survey of the sector fell below 50 in April, indicating a decline in activity. The services sector is a much larger part of the economy and is still growing at a decent rate. But how much of service sector output is dependent on consumer spending? There could be a downward spiral here: if consumers do not spend, companies will not take on new employees, which will depress spending further.
The part of the service sector that is dependent on exports is unlikely to help. The eurozone, the UK's largest market, looks stagnant.
Economists are now looking for the UK economy to grow 2-2.5 per cent this year but that may turn out to be a little optimistic. Even if they are right, however, that outcome will be well short of the Treasury's 3-3.5 per cent forecast. In turn, that is likely to mean that the budget deficit will widen, as tax revenues fall short.
Will the chancellor raise taxes to meet his fiscal targets, at a time when consumer demand is faltering? That would only make matters worse.
A lucky break for Gordon Brown is that gilt yields will probably not rise in response to this deterioration in government finances. Demand from pension funds and a strong global bond market should ensure that.
But sterling is starting to slide. No longer is it flirting with $2; now it is threatening $1.80. A weakening currency, a deteriorating budget, a fragile housing market, a struggling manufacturing sector; it all sounds depressingly like the Britain of the 1970s and 1980s.
snipped-for-privacy@ft.com
http://news.ft.com/cms/s/1c2f24c0-cf16-11d9-8cb5-00000e2511c8.html
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
On 29 May 2005 02:20:52 -0700, snipped-for-privacy@yahoo.co.uk mysteriously appeared thru the usenet mist to inform us thus...

As if he didn't know...
[snip article]

Indeed it does and I confidently predict that it will all end in tears. Under Labour it always does.
Also, what this article fails to mention is the downside effect on our economy of rising energy prices, particularly oil.
--
"I have a horrible feeling that we are sinking into a police state"
George Churchill-Coleman, former head Scotland Yard's anti-terrorist squad.
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
On Sun, 29 May 2005 10:55:09 +0100, hummingbird
typed:

probably because the effect is small relative to the numbers...
--
web site at www.abelard.org - news and comment service, logic,
energy, education, politics, etc 1,382,521 document calls in year past
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload


Wouldn't an economic slowdown actually have the opposite effect, by giving oil producers less of an incentive to increase prices?

------

------
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
typed:

the oil markets are increasingly driven by markets... if there is a slow down that will drive prices down.....
the only way the oil cartels can act against that is by turning down the taps...but each country will then attempt to cheat.....
there is only one way out of this bind....drive the prices above the market prices of substitutes...there are many interests that are resisting that hard....
oil is a political and a tragedy of the commons issue.... the markets are not able to solve such problems.... leaving such problems to markets is to invite disaster....
regards...
--
web site at www.abelard.org - news and comment service, logic,
energy, education, politics, etc 1,382,521 document calls in year past
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
wrote:

Or subsidise the substitutes so they are cheaper to use than the oil. A socialist solution I know but lets not throw the baby out with the bathwater.
There are reports in the press of houshold wind generators that cost £1500. A one off subsidy for each home in the country of say 50% of cost would be cheaper than Blair's ID card scheme. Encouraging linear growth patterns in residential property and business would make it easier to reintroduce light railways. Think of the traditional way housing and industry followed trhe roads and railways.

Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
typed:

i am very wary of this...it is leading to massive highly wasteful and counter productive corporate sponsored subsidies to corn methanol in the states.... it leaves a door open to more corruption and stupid government idiots trying 'to pick winners'

wind is intermittent....what is your present electricity billl.....

ok....but details worry me.... conurbations are more efficient in some ways and vast numbers are attracted to them....
regards...
--
web site at www.abelard.org - news and comment service, logic,
energy, education, politics, etc 1,382,521 document calls in year past
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

The economics of turbines still wouldn't stack up though - you'd save about 20% (IIRC) of your power bill which is perhaps 80 a year. So it would take 9 years to break even, and people move on average every 7 years.
Of course it would *still* be money better spent than on Bliar's police state apparatus.
If there was only a way to combine the turbine and Sky dish into one device....
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

"John Redman" wrote

Alternatively, even assuming your 20% proportion is correct, if your average bill is just 235 per quarter then you'd break even in less than 4 years.
"John Redman" wrote

That's not a problem even if you haven't yet broken-even. Simply add a few hundred quid to the asking price to pay for the remaining cost of the wind generator - the new owners will get the rest of the benefit of lower electricity bills to offset this.
Or if they don't want to pay this little extra, then pack-up the wind generator and take it with you!
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

I don't think there are too many people spending 900 a year on electricity, to be honest.

Yeah, right - "The price of my house is 749,000, plus 400 for the cost of the wind turbine that still owes me money." I don't think so somehow.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

"John Redman" wrote

We do, and we've actually been thinking about getting a wind generator!

"John Redman" wrote

You're right - they'd just simply ask 749,500 -- without referring to the relevant proportions from the turbine & the rest of the house.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
On Mon, 30 May 2005 11:28:05 +0100, "John Redman"

The turbine would still be there though and still making electric that doesn't need fossil fuels

More of a benefit to the state.

I have no wish for a sky dish

Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
mysteriously appeared thru the usenet mist to inform us thus...

Reduced demand for oil in a recession is likely to reduce oil prices but since oil is a finite resource ...expect oil prices to see-saw over the coming few years.
--
"I have a horrible feeling that we are sinking into a police state"
George Churchill-Coleman, former head Scotland Yard's anti-terrorist squad.
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
mysteriously appeared thru the usenet mist to inform us thus...

At the moment.
--
"I have a horrible feeling that we are sinking into a police state"
George Churchill-Coleman, former head Scotland Yard's anti-terrorist squad.
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
On Sun, 29 May 2005 18:44:11 +0100, hummingbird
typed:

indubitably
--
web site at www.abelard.org - news and comment service, logic,
energy, education, politics, etc 1,382,521 document calls in year past
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
mysteriously appeared thru the usenet mist to inform us thus...

Why do you spell long words correctly and short words wrongly?
Anyway... If you look at the costs to the UK economy of $50 oil over $30 oil, they are quite high even today. If the UK uses ~3-4 million barrels per day (figs not to hand), that takes quite a lot of money out of the economy pa, some from industry and some from consumers. 3,500,000,000 x $20 x 365.
Add to that the recent rises in gas/electricity and you are looking at large sums of money even if you make some adjustment for higher efficiencies and slightly reduced consumption.
--
"I have a horrible feeling that we are sinking into a police state"
George Churchill-Coleman, former head Scotland Yard's anti-terrorist squad.
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
On Mon, 30 May 2005 00:45:01 +0100, hummingbird
typed:

less than half that....

you've just gained three more noughts!!
good job i don't rely on you for sums!

try 76 million tonnes.... multiply by 7 for barrels.....539,000,000 50-30 ...so x20 $10,780,000,000 probably less than 1% of current gdp....and we produce most of that...
at least one is thankful that you reckon you can spel
--
web site at www.abelard.org - news and comment service, logic,
energy, education, politics, etc 1,382,521 document calls in year past
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
typed:

more like 1/2%!! i didn't convert from $s!!!

--
web site at www.abelard.org - news and comment service, logic,
energy, education, politics, etc 1,382,521 document calls in year past
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
mysteriously appeared thru the usenet mist to inform us thus...

Well the US uses ~20 million barrels per day - that's where I got my UK consumption estimate from.

It was late! What's a few noughts here and there! ...but it doesn't alter the central point of the sums.

Nor yourself for grammar!

1.47 million bpd? I find that fig highly dubious given the relative sizes of the US vs UK economies. However...
That's about 7% of US consumption whereas 2005 GDP estimates for each country are: US=$12.4 trillion, UK=$2.3 trillion ie UK%. So you're saying the US uses more than twice the amount of oil than the UK for each $trillion of GDP. hhmmm.

$11,780,000,000 You seem to have lost a trillion somewhere.     "good job i don't rely on you for sums!"

? -- $11.7 trillion is 5x our GDP!
And our own oil is traded on the intl markets, so that doesn't change the spending power within the UK economy moving away from consumers and industry. That's my central point.

--
"I have a horrible feeling that we are sinking into a police state"
George Churchill-Coleman, former head Scotland Yard's anti-terrorist squad.
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
On Mon, 30 May 2005 12:54:17 +0100, hummingbird
typed:

i don't care.... http://www.abelard.org/news/tables_index.htm
where you will find links to tables on consumption and a relative efficiency table.... you might consider also that perhaps the uk uses a different mix of energy sources....

see above....

not according to my robot....i told you that you are innumerate

you mean a billion.....but what's 999 billion here or there....or even 1 billion for that matter....

i think you may be better if you did....

(should be <.5% as per correction)

what you about now buzz?
no....$11.7 trillion is more like the usa gdp....
stik to speling perhaps

i don't mind if you look at it that way.... but it isn't then much of a trading issue....

regards
--
web site at www.abelard.org - news and comment service, logic,
energy, education, politics, etc 1,382,521 document calls in year past
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

BeanSmart.com is a site by and for consumers of financial services and advice. We are not affiliated with any of the banks, financial services or software manufacturers discussed here. All logos and trade names are the property of their respective owners.

Tax and financial advice you come across on this site is freely given by your peers and professionals on their own time and out of the kindness of their hearts. We can guarantee neither accuracy of such advice nor its applicability for your situation. Simply put, you are fully responsible for the results of using information from this site in real life situations.