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Recovery could be helpedby more QE, says Cameron
PRIME Minister David Cameron said yesterday that there is scope for evenmore monetary stimulus from theBank of England, putting him atodds with a senior Bank official.“Our responsible fiscal policy is being matched by active monetary policy,” Cameron enthused.“And the independent Bank of England is able to do more to sup-port the economy if necessary or if inflation falls below their target.” Yet inflation stuck at 3.5 per centon the latest consumer price index(CPI) measure, and this week theBank’s Inflation Report warned thatit could stay above target until thethird quarter of 2013. To date the CPI has remained abovethe Bank’s two per cent target for 28months in a row.“We are mindful of that and wedon’t want to take risks with credi- bility,” senior Bank director PaulFisher said yesterday. “People’s infla-tion expectations have been remark-ably resilient through this episode. We need to justify that by gettinginflation back to target over the nextcouple of years.”Contrary to the Prime Minister’sdovish tone, Fisher said that theBank should only consider morequantitative easing if the economy takes a serious downturn, a scenario
TAXPAYERS could effectively pay about £2bn to wind down all of Northern Rock’s assets, theNational Audit Office hasestimated, in a report that alsoreveals that the governmentsuccessfully bid up the price of the bank it sold by some £60m.The NAO says that taxpayerscould be left hanging onto someassets from the “bad bank” for 10-15 years. The public purse willprobably escape losing money onthem because of its low cost of funding, the agency said, but if the government had to fund them at“typical” market costs, the netpresent cost is forecast to be £2bn.However, the Treasury and theagency UK Financial Investments(UKFI) acted “reasonably” inpursuing a sale of the “good bank”as soon as possible, the NAO said,concluding: “A delayed sale wouldnot have been better value.” And the report also documentsthe bidding process for the “good bank” in detail: it reveals that JCFlowers submitted an offer that would have partially mutualisedNorthern Rock and combined it with One Savings Bank. But theprivate equity firm withdrew its bid. Instead, NBNK and VirginMoney slugged it out over the bankuntil Virgin outbid its rival by about £90m.
NAO forecastsnet loss on Rockof up to £2bn
PM Cameron lauded monetary stimulus......Yet Bank official Fisher was less dovish
BY JULIET SAMUELBY JULIAN HARRIS
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T is truly astonishing that one of the greatest company flotations inhistory is taking place in themiddle of one of the greatestfinancial crises in history. Facebook isgoing to market, raising $16bn and valuing the firm at a ridiculously optimistic $104bn in the biggesttechnology initial public offering(IPO) in history; meanwhile, Greece’s woes have spread to Spain, as theEurozone moves ever closer to thenext stage of its slow-motion crisis.Moody’s decision to downgrade 16Spanish banks last night, includingSantander’s UK subsidiary, wasmerely the latest blow. The symmetry is striking: as one bubble inflates, another deflates. Thedifference, of course, is that Facebook is a great company, albeit one that is being over-valued; the Eurozone wasalways a flawed construct, a
Facebook’s bubble inflates while the Eurozone’s deflates
FRIDAY 18 MAY 2012
grandiose scheme that will eventually help destroy the region it was suppos-edly trying to unify. The two storiesare telling in other ways too. Greecemay once have been the world’s great-est civilisation – but tragically it isnow in an abject state. The great inno- vators were once in Athens and theGreek city-states; they have long sincemoved elsewhere, not least to MenloPark, California, home of Facebook. The problem for Britain is two-fold:it is not developing enough new world beating companies. There isstill no British Facebook. And it isn’treally doing anything significant toprotect itself from the fallout fromthe Eurozone crisis – even more quan-titative easing, as the Prime Ministerimplied may be the answer yesterday,is hardly enough. What is needed is asolution to both problems simultane-ously. The coalition’s Plan A – lots of tax hikes, spending cuts of 1 per centa year for six years and even more redtape and tinkering – isn’t working;the opposition’s Plan B – spend a few billion more than the coalition andtax the City even more – would makematters even worse. What we need isa plan A+: genuinely restrained publicspending combined with radicalderegulation and a tax system that ispro-growth, pro-entrepreneurs andpro-capital formation. That is where a major research proj-transparent and fairer tax systemmade in the UK for several decades. I will be writing about the detailed pro-posals we are advancing, as well assome of the findings from the dozensof academic papers we reviewed, onMonday; we will also be publishing aseries of articles in our Forum pageson various aspects of our findings. The Eurozone crisis means the UK government can no longer continue with business as usual. The chancel-lor’s plans cannot survive a majorimplosion of the single currency. Heneeds to be much bolder. We need to become an economy that can pro-duce its own Facebooks to grow our-selves out of recession – not one where the answer to every problem isto print more money.ect that I have been leading comes in.On Monday, the 2020 TaxCommission – a body of economists, business people, think-tankers and journalists – will be releasing its finalreport, a 417-page treatise on how toreform Britain’s tax system to boostgrowth and incentivise work andinvestment. The Commission – of which I was privileged to be the chair-man – was set up by the TaxPayers’ Alliance and the Institute of Directors; its mission was to draw oneconomic research, internationalexperience, history, philosophy, psy-chology and opinion polling to mapout what a government that was seri-ously committed to boosting competi-tiveness would do to the tax system. The result is the most comprehen-sive, evidence-based and detailed casefor lower taxes, lower spending and adramatically different, simpler, more
L A U R A L E A N / C I T Y A M
that he does not envisage occurring.“We’ve had a couple of quarters of negative growth, but we haven’t really had a fall back into a deep recession,”Fisher said. “If I saw that risk re-emerg-ing, then personally I would want tothink again about restarting,” he said.“If there is not that serious possibility of deflation down the road, then Ithink there is less impetus behinddoing more asset purchases.”In February Fisher told
thathe was open-minded about whetherthe Bank should do more QE or keepassets at the current level of £325bn.Since then, initial estimates from theOffice for National Statistics (ONS)have suggested that the UK hasentered a technical, shallow recession,although labour market figuresreleased on Wednesday showed thatemployment has risen, while businesssurveys appear to reflect mild growth,rather than economic contraction.“The key reason for restarting QE lastOctober was the possibility that the UK could topple over into a deep recessionagain. We seem to have hopefully headed that risk off at the pass,” Fishertold Dow Jones Newswires yesterday.
LME’s suitors’ bids pass £1bn mark
The three remaining contenders to acquirethe London Metal Exchange have allvalued it at more than £1bn and promisedto preserve its open outcry trading pit,setting the scene for a close-run contestas they attempt to snatch control of thehistoric bourse.
Graff on for $3bn-$4bn value at IPO
Graff Diamonds, known for sellingmultimillion-pound jewels to the super-rich, will be valued between $3bn and$4bn when it lists in Hong Kong,according to people familiar with theprocess.
De La Rue prepares for new drachma
A British company that producesbanknotes for more than 150 countries ispreparing for a potential reintroduction ofthe drachma. De La Rue, which printssterling and euros, has asked itsproduction staff to select potentialsecurity threads for use in new banknotesand retrieved covers from an oldcollection of copper moulds, used forwatermarks, should Greece exit the euroand an order come in from Athens.
No. 10 guide to changing nappies
New parents will be given governmentadvice on changing nappies,breastfeeding and “baby talk” under amulti-million pound initiative to supportfamily life. David Cameron said it was“ludicrous” that parents received moretraining in how to drive a car than in howto raise children.
Hugo Boss Dresses Up China Efforts
High-end fashion label Hugo Boss plans toopen about 60 new stores in China'smainland over the next three years just asgrowth in the country's luxury sectorseems to be cooling off.
US duties for Chinese solar panels
Trade tensions between the U.S. andChina are likely to ratchet up after theCommerce Department found severalChinese solar-panel companies guilty ofdumping and slapped 31% tariffs on theirproducts.
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