NICE decade is over

Mervyn King declared that the NICE decade was formally over in his Inflation Report published today – NICE stood for non-inflationary continuous expansion (a good term to use in the exam) – but the combination of sharply rising food, energy and fuel prices is driving inflation higher whilst contributing to a fall in real incomes and a wider economic slowdown.

Mervyn faces the Music

The Governor and his colleagues faced the press yesterday at the launch of the quarterly inflation report .... here is a selection of comments from them from questions fired from economics journalists, there is some great evaluation in here for AS and A2 economics students!

The Monetary Stimulus

There was no change to UK base interest rates this week with the Monetary Policy Committee holding rates at 5.0% for May. Across the Channel, the hyperactive (!) European Central Bank also kept policy rates constant for what now seems like an eternity! Thank heavens the UK remains outside the Euro Zone! Whilst policy rates are at 5% for the moment, this does not mean that monetary policy is not acting as a stimulus to one or more of the components of aggregate demand (C+I+G+X-M).

The overall stance of monetary policy includes the effects of base rate movements and also changes in the external value of sterling against a basket of other currencies. So whilst interest rates have edged lower in recent months we should also take into account the major depreciation of sterling against the Euro Zone with whome we do more than half of our trade. A falling pound acts as an important stimulus to the export sector of the economy, even though the boost is muted somewhat by a slowdown in economic growth in our export markets. Will the lower pound be a white knight for the faltering UK economy?

Policy conflict for the UK economy?

The IMF is forecasting a slowdown in global growth to 3.7% in 2008 and 2009. This is in contrast to recent growth rates of over 5%.

Chart of the Day: Consumer Credit

Interest rates on unsecured credit are up to five times the base rate of interest set by the Bank of England. And consumer confidence is dipping sharply as the economy heads into a slowdown. But that doesnt seem to be stopping UK consumers from piling on the debt onto their credit cards. New figures show that personal borrowing in Britain soared by its highest amount in more than five years in the year to February 2008. The level of new consumer credit surged by nearly £2.4 billion in February with unsecured borrowing growing by £1.6 billion. An act of irrational desperation? Or an inevitable and necessary move when other supplies of credit dry up? Re-mortgaging is become more expensive and less easy to arrange forcing consumers who want to live on the never-never to find fresh sources of funds. It seems crazy to me that people are prepared to do this, why not rein in spending at this time and save some more for the tougher times ahead? Perhaps most people dont expect a recession - or dont think that it will hit them directly?

PowerPoint chart
Consumer_Credit.ppt

Strong profits provide a buffer

Could the high profitability of the UK business sector offer a ray of hope for the economy as the slowdown starts to bite?

The economy is a lie

Martin Samuel is best known for his robust soccer reporting. But today he fixed his steely glare on the artifical inflation rampant throughout the economy and which is now under threat from the economic slowdown. A hearty and lively polemic which is worth casting an eye over.

A brief taster…

“The economy is false. The economy is a lie. The economy is a fictional set of numbers cooked up during a boom period that is almost over, and six months from now nothing will add up....... Our lives are full of inflated expenses that are propping up Brown’s fairyland economy and, when the penny drops, this crash will be the mightiest ever”

The rest of the article is here

Stormy Weather

The UK has been battered by uncomfortable and volatile conditions and fears over damage to property this week - and the weather has been awful as well.

When it rains, it pours, and this is as true for the macroeconomy as anything else.

Feeling the pinch

This BBC news audio-video clip is excellent for students wanting to gauge where the US economy is at this critical stage of the cycle. I used it to explain the difference between leading, co-incident and lagging indicators. Officially we wont know if the economy is in recession for some time because the official data on output, income and spending arrives several months after the event! But the experience of the Brooklyn brewery shown in the video is a good mini case study - they are being buffeted by the falling dollar (which increases the price of grain imported from the UK), rising world prices for yeast and hops. And by the slowdown in consumer demand. The one bright spot is that a weaker dollar is increasing their export volumes.

UK Economy in Charts - March 2008

Our monthly streamed chartroom presentation on developments in the UK macroeconomy is now available here and you can also download it as a PowerPoint presentation direct from the website. It might be useful as a revision resource for students studying current developments in the economy at AS and A2 level. The presentation contains 25 data charts current up to the close of the markets yesterday.

1. A slowdown is underway
2. Although purchasers’ demand remains fairly robust
3. Capacity limits have become less of a problem
4. But firms are under pressure to raise prices
5. Export orders are solid – helped by a falling £ - Euro exchange rate
6. Gloom on the high street?
7. And confidence is dropping sharply
8. On more than one measure
9. Most types of consumer borrowing look softer
10. As the housing slowdown deepens
11. A real turning point for residential property?
12. Expectations data says “yes”
13. Business optimism looks fragile
14. But strong profits will be a support in an economic downturn
15. And the weakening £/Euro will boost the UK export sector
16. A slowdown and a weaker currency should help to improve trade
17. Much will depend on the MPC’s scope to cut interest rates
18. And whether cheaper money actually feeds through the system
19. There are inflationary pressures
20. Not least from food
21. The budget deficit is already pretty large 16 years into a recovery
22. And a wider surge in global prices
23. And government spending will not provide much of a ‘real’ stimulus
24. Can the UK avoid stagflation?
25. Yes we can!