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Osborne faces £10bn holein the UK public finances
CHANCELLOR George Osborne isset to run a budget deficit £10bnor more larger than the £119.9bnpredicted by the budget watchdogduring the 2012-13 fiscal year,economists said yesterday. January’s public borrowing fig-ures, released yesterday by theOffice for National Statistics(ONS), looked positive on the sur-face, analysts said, with a larger-than-expected surplus of £11.4bn,£5bn better than last year.But analysts said this figure wasflattered by seasonal strength intax revenues and one-off transfersfrom the bank fund, known as the Asset Purchase Facility (APF), thatcarries out quantitative easing(QE) by buying gilts.“Excluding all the one-off trans-fers that muddy the waters, bor-rowing was £7.5bn higher in thefirst 10 months of the current fis-cal year than in the previous fiscal year,” said chief Berenberg Bank economist Robert Wood.Since the 4G auction brought in£1.2bn less than built into the budget numbers, the budgetcould be £10bn worse than pre-dicted by the OBR in the AutumnStatement, Wood forecast, echo-ing other economists’ numbers.“Osborne is very unlikely to be
Brussels turns up pressure on Libor
Banks and broker-dealers ensnared in theLibor-rigging scandal are facing freshpressure to settle with Europe’s topcompetition authority as it expands thescope of its probes. In a speech on Fridayin Paris, the EU’s competitioncommissioner will stress hisdetermination to pursue the cases andensure competition enforcementcomplements actions of global authoritiesagainst misconduct and corruption.Joaquín Almunia’s speech is intended as awarning to financial institutions.
Former Virgin exec to head centre
Will Whitehorn, a former senior VirginGroup executive, is to chair a governmentinnovation centre being created to deviseintegrated transport systems for export ina global market predicted to be worth£900bn by 2025.
Reyl & Co opens London office
Reyl & Co, the Swiss private bank, hasopened an office in London with a view tosetting up a corporate advisory business,highlighting how a clutch of smaller banksare pushing into traditional investmentbanking activities.
Mercedes and dealers fined
Mercedes-Benz and three commercialvehicle dealers have been fined £2.6m bya competition watchdog for rigging thesale of vans and trucks around Britain.TheOffice of Fair Trading imposed the fines.
Dyson puts its faith in £50m plant
Dyson is expanding its manufacturing inthe Far East by taking production of itsground-breaking electrical motors in-house. The private company is to open itsown production lines in Singapore.
Bankia to reveal largest loss
Nationalised Spanish lender Bankia isexpected to reveal a €19bn loss next week,the largest in the country’s corporatehistory. The bank has been struggling tosell assets since its bailout in 2012.
Merkel accused of unholy alliance
Angela Merkel has been accused ofengaging in an “unholy alliance” withBritain after backing David Cameron’sdemands for a cut to the European Unionbudget.
Heinz profit slips
H.J. Heinz’s earnings slipped 5.3 per centas the ketchup maker recorded a largerloss from discontinued operations,though organic sales continued toimprove in emerging markets.
Nielsen aims to gauge online TV
Nielsen Holdings is taking a step towardsextending its TV-ratings business tomeasure online viewing, aiming to gaugehow much viewership has drifted awayfrom traditional TV to online outlets.
THE EUROPEAN Central Bank (ECB)made €555m (£480m) in interestincome from its Greek bonds,accounts showed yesterday,indicating the whole Eurosystemmay have made several billion onthe emergency purchases.That is expected to be divided upamong the Eurozone’s nationalcentral banks, added to their ownearnings and given to Athens.The ECB made another €553m ininterest on other securities boughtunder the emergency programme,including those of Spain and Italy.
ECB profits onits Greek bonds
BY TIM WALLACEBY BEN SOUTHWOOD
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RITAIN is stuck in a rut. No wonder that investors andcredit rating agencies are losingpatience: the coalition doesn’thave the guts or decisiveness neededto jolt the UK out of its presentmediocrity, while the opposition is busy dreaming up new taxes, thinksthat a slightly looser fiscal policy would transform our prospects andhas no real understanding of theextent of our fiscal crisis.Britain’s tax receipts confirm thatthe economy continues to do poorly,albeit not disastrously. So far this fis-cal year, receipts from Vat are up 2.2per cent, less than the rate of infla-tion. Income and capital gains taxreceipts are down 0.2 per cent and cor-poration taxes are down 8.4 per cent: while in both cases there have beentax cuts (a higher personal allowanceand lower corporation tax rates) these
Britain: a case study in low-growth economic mediocrity
FRIDAY 22 FEBRUARY 2013
don’t explain such shockingly badnumbers. Very limited pay rises, adrop in reported income from thehighest earners and weak profits areamong the answers. National insur-ance contributions are up a healthier3.4 per cent, though this not anything worth shouting about. What all of this suggests is an econo-my that is either stagnating or grow-ing a little, but by no more than a few tenths of a per cent. At best, the situa-tion looks only marginally rosier thanthe official GDP figures; at worst,there is no difference. Mediocrity undoubtedly rules OK. While revenues are poor, any progress the government is makingin trimming overall expenditure on wages, benefits and other currentspending is being more than can-celled out by increased interest on thegrowing national debt. During April2012-January 2013, central govern-ment current expenditure hit£525.7bn, 2.7 per cent higher than inthe same period of 2011-12.Depending on which measure of inflation one uses, real current spend-ing was therefore either up or downslightly. The real cuts are happeningin capex, the one area where statespending can be useful for long-termgrowth (though the private sector, if it were allowed to, could take overmany projects). So far this year, cen-the next five years, Barclays expectscash to provide negative inflation-adjusted returns of about -1.5 per centper year (with compounding effects,that means a very sharp drop in value), “safe haven” government bonds -2 per cent – in other words,even worse than cash – and equitiesannual growth of 3-4 per cent. Theauthors believe that the bull marketin government bonds – which peakedlast year – will end in a whimper,rather than in a 1994-style crash. I sus-pect the authors may be too opti-mistic, but their case is that ashortage of “safe” assets, combined with a decision by the authorities tokeep the monetary floodgates open, will do the trick. One thing is clear:savers are going to suffer.tral government net investment wasminus £6.4bn – with depreciationoverwhelming gross investment – amassive £27.7bn lower than in thesame period of the previous year. So we are still seeing the wrong kinds of cuts, stagnant growth and weak taxreceipts. Unless something drasticchanges soon, it is not just credit rat-ing agencies that will be running outof patience with the government.
One of this column’s themes is that we are now facing a world of low realreturns across financial assets, withhigh inflation gobbling up nominalgains, and that the bond markets,after years of astonishing returns, areset for a crash. There is lots of evi-dence to back up this thesis inBarclays’ latest annual equity-giltstudy. The conclusions are stark. Overable to say the deficit is falling inhis 20 March budget unless he canfind some other ways of massagingthe figures,” Wood warned.But the Treasury tried to shiftfocus onto spending, which wasdown £2bn compared to the samemonth a year earlier, and receipts, which were up, even excluding one-off moves, it said.Economists also criticised the Treasury for the level of “unneces-sary complexity” in the finances.“All of the messing around withnumbers makes it very difficult tosee the direction we’re going in,”Item’s Andrew Goodwin said.Goodwin said all the different ways official bodies state the deficitand borrowing numbers can con-fuse even economic experts. And the ONS decision yesterday morning to allow only £9.1bn of intra-government transfers into theofficial borrowing numbers overthe tax year confused matters fur-ther. Since £2.7bn of this wasalready taken up by previous trans-fers, even on the government’s fig-ures, which include one-off QEtransfers, it will only be able toinclude £6.4bn out of an expected£11.5bn in its borrowing numbers.
£92.3bn£99.9bn- £28bn- £3.8bn- £2.3bn£65.8bn
Underlying borrowingRoyal Mail pension planAsset Purchase FacilitySpecial Liquidity SchemeOfficial borrowing