The Saturday Economist Live

Chicken and Chips ...

No Chicken in Nando's, No Chips at Nissan, No  shakes at MacDonald's. Empty shelves are increasing. The head of the  Co-Op said food shortages were the worst he has ever known. Evidently  not a war baby, CEO Steve Murrells announced the group was reducing  some ranges. The ability to get food into stores was hit by post Brexit  migration rules and Covid challenges.

This week, once again, the car industry reported  production difficulties. Output fell by 37% last month. It was the worst  July performance since 1956. Manufactures "grappled" with the global  shortage of semi conductors.

Taper Tantrum 

Markets awaited with interest the update from Fed  Chair Jerome Powell this week, at the Jackson Hole virtual symposium.  The central banker hinted the Fed could start scaling back stimulus this  year. The inflation surge is expected to be temporary. There was no  prospect of a rate rise anytime soon but some tapering of asset  purchases could begin before the end of the year.

From hospitality to healthcare,  companies are complaining they can't get staff. Recruitment difficulties  are increasing, pay rates are rising. More perks and promises are on  offer to secure sign ups. The pingdemic isn't helping.

This  week, the SMMT reported production shortfalls as a result of the global  chip shortage, caused by the pandemic and staff shortages caused by the  pingdemic.

By the end of July, almost  700,000 workers had received isolation alerts from the NHS "Stay at  Home" App. The motor trade is just one of many, hit by the pings. The  list of "reserved" occupations is expected to rise. Isolation conditions  will ease, for all in August. 

JKA

Central Bankers  came under increased pressure this week as inflation levels continue to  rise. Jerome Powell, Chair of the Federal Reserve admits to being  "uncomfortable" about the level of price increases. 

“This  is a shock going through the system associated with reopening of the  economy, and it has driven inflation well above 2%. We’re not  comfortable with that,” Mr. Powell told the Senate Banking Committee on  Thursday. CPI Inflation hit 5.4% in June.

In the U.K. inflation CPI basis increased to  2.5% in June, the Bank expects levels to rise to 3% before returning  towards the 2% target later this year. Not all members of the MPC are in  agreement.

Dave Ramsden  thinks inflation could hit 4% before falling back to target. He thinks  conditions are such, a tightening in policy may be required somewhat  sooner than he had previously expected.

Michael  Saunders, in his "Inflation Outlook Speech" this week, explained, "In  my view, if  inflation indicators remain in line with recent trends, it  may become appropriate fairly soon, to withdraw some of the current  monetary stimulus.

Recovery on Track Despite Market Wobbles ...

Finals weekend at Wimbledon  and Wembley, a great couple of sporting days ahead. Is it really coming  home on Sunday! Let's hope so. We wish the England team well, as they  put an end to all those years of hurt!

Markets wobbled mid week. The ebb and flow of fortune on court, always evident in the markets. The Dow closed down below 34,200 on Thursday, before closing at a new record high at almost 35,000 by the end of the week.

Don't Worry About Rising Debt ...

Phil Aldrick reports of a  mugging in Downing Street this week. The Chancellor received help from  Treasury and the OBR to convince the Prime Minister it was time to dig  up the magic money tree in the rose garden.

Within  days, Sunak was warning of a possible end to the triple lock, an end to  furlough scheme and an end to the universal credit coupon. No money for  the Biden's Global Belt and Braces initiative, money had to be found  for building batteries in the UK. JKA

Inflation Alarmism Could Kill Off Recovery

The Governor of the Bank of England Andrew Bailey warned this week of "Inflation Alarmism". Prices are on the rise. House prices increased by over 11%. Haribo deliveries are failing, for a lack of lorry drivers. Construction  costs are rising at the "drop of a hat". Quoted prices are good for  just 24 hours. A shortage of materials is compounding pricing dilemmas  in the building industry.

Rising Oil Prices Could Kill Off Recovery 

In our "What next for oil  prices", published in May we expected oil prices Bent Crude basis to  average $66 dollars in the third quarter of the year. Prices  closed last week at $76 dollars. The OPEC delay to any decision on  output increases didn't help. The US administration is voicing concerns  as the market tests the $75 dollar level.  OPEC concerns rise as fears of "Demand Destruction" loom as prices rise.

Borrowing Falls ...
Latest figures confirm borrowing will be much lower than expected at the start of the year.  In  March, the OBR were forecasting borrowing of £234 billion in the  current financial year. The strong bounce back in the economy suggests  public finances are in much better state than expected.

Bank Holds Rates ...
The  Bank of England Monetary Policy Committee voted this week to keep rates  on hold and to maintain the existing target of UK government bond  purchases at £875 billion. The bank continues to hang on to the £20  billion of corporate bonds picked up in the Brexit drama five years ago.  The logic of the bond acquisition elusive, the language of the  government bond purchases now excludes "QE". JKA

The Dow closed down, the  dollar moved up. Ten year bond yields moved higher by just three basis  points. Not much of a taper tantrum, more of a milk shake than an  earthquake. The Fed announced the policy decision mid week, effectively  to do nothing.

It wasn't really making  any changes. There would be no increase in base rates. The asset  purchase program would continue at an eye watering $120 billion dollars  per month. No real concerns about inflation. It remains always and  everywhere a transitory phenomenon.

JKA

Official  data from the ONS this week revealed "the economy is hotting up". UK GDP  is estimated to have grown by 2.3% in April, as government restrictions  continued to ease. Compared to prior  year, the economy grew by 28%. Construction activity was up by 80%.  Manufacturing output increased by 40%. Service sector activity increased  by 30%. The increase in the service sector was driven by a surge in  retail expansion with strong growth in education, accommodation and  food. Construction activity slowed  slightly in the month. Developments in the service sector were faster  than expected. The service sector expanded by 3.4%

Great  headlines from the Times this week. "The economy is growing at an eye  popping rate". "Construction growth is going through the roof".  "Manufacturing leads strong performance", "Red hot economy lifts markets, ".  

This is the week of the IHS Markit / CIPS UK PMI® data series. Hang  on to your hats and cling to your eyeballs. Manufacturing surged to a  record high in May, as new work intakes increased at a record rate. In  construction, new orders increased at the fastest rate since the survey  began in April 1997. In the service sector output growth increased at  the fastest rate since May 1997. JKA

This week, Joe Biden announced his £6 trillion dollar budget.  The President is committed to an expansion of support for  infrastructure, education and the social safety net.
Questions are asked,  "Where does the money come from?" "Do  budget deficits matter any more?" "What will happen to inflation?" Is  there a risk of hyperinflation" "Will Interest rates have to rise?"

JKA

Retail sales jumped by  over 9% in April as masked shoppers returned to the high street. Sales  were up 40% compared to April last year. Sales were up by 12% compared  to pre pandemic levels in the months of 2019.

Clothing  stores were major beneficiaries. Sales volumes increased by 70%  compared to prior month. Household goods sales jumped 10%. Furniture  sales leapt by 30% as showrooms reopened. Electricals were up by 29%.  Sales of cosmetics were up by 25%.  DIY and garden centre sales were down. Shoppers had other, JKA

Andy Haldane Chief Economist  of The Bank of England was writing in the Daily Mail this week. "A year  from now, it is realistic to expect growth to be in 'double digits' such  will be the tennis ball bounce in the UK economy". Really? Check this out ... JKA

The Bank  of England revised up its forecast for the UK economy this week. Growth  of 7.25% is expected in the current year. In February growth of just 5%  was anticipated.  The success of the vaccine program, pent up demand amongst households, gross savings and the extension of measures to protect jobs and businesses, improved the outlook for the current year. JKA

Forecasts  of growth in the UK are being revised up. The EY ITEM Club joined the 6%  club last month, projecting growth of 6.8% this year.  Bloomberg  and JP Morgan revised growth forecasts to 7%. The latest estimate from  Goldman Sachs suggests growth of 7.8% is possible, outpacing the USA in 2021.

JKA

Surfs Up ... Drop In ... Pull In ... Kick Out
The UK Economy is bouncing back from the coronavirus. Businesses are ready to shoot the curl!  Surf's Up! It's time to Drop In, Pull In, Kick Out and enjoy the ride.

We  expect the economy to grow by 6% this year and  by 11% over the two  year period. In nominal terms the economy will grow by over 20% over the  next three years, providing strong support for businesses and jobs in  the process.

Interest rates will remain  on hold. Monetary policy will continue to be expansive. Fiscal policy  will remain neutral. Even the so-called zombie companies will benefit  from high levels of forbearance and debt erosion.

China's economy surged by  18.3% in the first quarter of the year. The growth rate was the highest  recorded since records began. The year on year comparison was impacted  by the near 7% drop in output in the first quarter of 2020, as Beijing  reacted to the Covid pandemic with a shut down of large parts of the  economy.

For the year as a whole, most  analysts, including the IMF, are forecasting growth in China of 8.5%,  compared to 6.5% in the US and perhaps 6% in the UK.

In the US,  prospects for the year are improving. Economists believe the economy is  on the edge of a major boom that could last into 2023. A  period of supercharged growth is beginning. Expansion is manifest in  surging consumer spending and increasing demand for skilled workers.

Jamie  Dimon CEO of JP Morgan believes the boom could last well into 2023.  "All the spending [from government and households] could extend well  into 2023". The IMF has upgraded forecasts  for the US economy to almost  6.5% this year. The Federal Reserve is forecasting growth of 6.5%  slowing to 3.3% in the following year.

So what of the UK?

Check out the podcast or view on line ... @ The Saturday Economist

Get Ready For The Post Pandemic Boom ...

The IMF  now sees a brighter outlook for the world economy. The Bank of England  is feeling more optimistic about the UK. The Office For Budget  Responsibility forecasts real growth of 11% over the next two years. In  nominal terms the UK could grow by over 20% over the next three years,  underpinning growth for jobs and business in the medium term.

In the USA Forecasts for Growth Are Increasing ...

In the US forecasts for growth are  increasing. The Bank of America is forecasting growth of 6.5%. The BoA  has become more convinced, consumers will get out and spend, as the  $1400 dollar stimulus cheques drop through the letterbox.Biden's  $1.9 trillion spending plan has passed through Congress. Next up the $2  trillion dollar plus infrastructure plan. 

"Get Out There and Spend" Says The Chancellor ...

Retail  sales "bounced back" after a dismal start to the year, according to the  headlines in The Times today. Sales increased by 2% in February compared  to prior month. Not much of a bounce  back really. Sales were down by almost 4% compared to prior year.  Exclude petrol and other fuels and overall sales, were down by just 1%.

The Chancellor is urging  people to "get out there and spend". "Go have fun and spend money".  Shops are due to re-open on the 12th April. Rishi Sunak said, people  should "do their bit" by spending savings they had built up during the  lock down.

In the US Joe Biden is Walking The Washington Line against China ...

Joe Biden held his first press  conference this week. China featured. "I will save the world from an  over mighty China" vowed the President of the United States. Working  with other democracies, Biden committed to ensure China does not  achieve global domination during his presidency. He may even run for a  second term, to hold things up, if necessary.  No cold war in prospect ... Biden is walking and talking the Washington line ...

In The UK, Recovery May Be Faster Than Expected ...

"I am more optimistic" says Governor ... No rise in base rates this week. The MPC voted unanimously to maintain Bank Rate at 0.1%. The target for  government bond purchases was maintained at £875 billion. The corporate  bond stock was on hold at £20 billion. The  total target stock of asset purchases remains at £895 billion. Just as  well really. Total government debt increased to almost 98% of GDP. The  quantum of solace hit £2.13 trillion. Not long before the Chancellor  will have exhausted, his first trillion pound bank note.

The Fed is Topping Up The Punch Bowl and Handing Out The Spliffs ...

In the US this week, the Federal  Reserve held rates and vowed to maintain the momentum of the asset  purchase plan. The Fed will continue to increase its holdings of  Treasury Securities by $80 billion dollars per month. $40 billion  remains the monthly budget for mortgage backed securities. The  "accommodating" stance of monetary policy will be maintained until  "substantial further progress has been made towards the committee's  maximum employment and price stability goals."

Economic Output Drops In January ...

Economic output fell by 2.9%  in January, as lock down returned to the UK. The month on month  comparison was better then expected by many. Better than expected  according to forecasts from the Bank of England. The Bank had been  braced for a 4% setback, in the quarter as a whole.

$1.9 trillion Stimulus Approved ...

On Wednesday, the "House" passed  the "American Rescue Plan". The $1.9 trillion stimulus to the US economy  is valued at almost 10% of GDP. The legislation  will send $1,400 dollar checks to most Americans, with additional  household spending on unemployment insurance and child support. 

A Budget For the Moment ... The Rishi Sunak Straddle ...

According to the Treasury, it  was a budget which "meets the moment". Was it to be, a budget for  recovery or a budget to balance the books? On analysis, it was a bit of  both. Support for the economy in the short term, with a move to balance  the books in the medium term. The  Rishi Sunak "Straddle" was a crowd pleaser. The Tory lead over Labour  jumped to 13 points. The Chancellor's own ratings remain extremely high.  55% think he is doing a great job.

China's Industrial Strategy ...

Last week, China revealed the  ambition to double the size of the economy by 2035. This week, plans  were revealed to become the advanced manufacturing super power by 2025. The renewed focus on advanced manufacturing, is planned to offset rising labour costs and reliance on foreign technology.

Hands Up More Spending Please ...

A budget for recovery or a  budget to balance the books? Just a few days to go, before the secrets  of the Red Box are revealed. Tory big donors are warning "to increase  taxes now would be utterly wrong and risk recession."

China ... Economy Set to Double By 2035 ...

China announced plans to double the  size of the economy by 2035. The Asean leader is expected to overtake  the US as the largest economy in the world by 2028. Even then it would  struggle to break into the top 50 in terms of GDP per capita. The  potential for continued growth remains huge.

Government Borrowing in January ...

Government borrowing was  almost £9 billion in January. That's the highest January deficit since  records began. It was the first January deficit for ten years. January is normally a month to fill the coffers. The surplus over the last two years has averaged £10 billion. Compared to prior year, the deficit this year, increased by £18 billion.  Over  the first ten months of the year, borrowing was £270 billion. In the  last update, borrowing in the first nine months of the year was also  £270 billion. The ONS has managed down, the estimates for government  spending and the cost of the furlough scheme, in the year to date. The  reductions in the estimates, neatly covered the shortfall, in the latest  monthly accounts.

Biden Makes the Call ... This Week To Allies in the West ...

Last week, President Biden spoke  with President XI. This week the President made the call to allies.  "China's economic abuses and coercion can no longer be tolerated" he  said. "We must prove that democracy is not a relic  of history". He could have been speaking about the attack on the Capitol  building but a wider remit was in mind.  Biden is  seeking to reaffirm Uncle Sam's commitments to NATO and the  transatlantic alliance. The US will rejoin the Paris climate agreement,  commit to the World Health Organization and seek to revive the nuclear  deal with Iran.

UK Economy : Like  A Coiled Spring .... Set To Bounce Back ...

The UK  economy is like "a coiled spring", set to release lots of financial  energy, according to Andy Haldane Chief Economist, at the Bank of  England. Consumer confidence will surge  back, the economy will be firing on all cylinders. Success with the  vaccination programme and an easing of lock down will assist the  process. The change in sentiment is likely  to be rapid. People are desperate to get on with their lives. Pubs,  sports and cinemas will benefit. The Bank believes household and  business balance sheets are in good shape. Consumers have been forced to  reign back spending on leisure, entertainment and holidays ...

Biden Makes The Call .... Xi Reverses the Charges ...

President Biden told reporters this  week his call with President Xi Jinping lasted two hours. Biden said it  was a “good conversation” between two leaders who know each other well.  The two leaders exchanged views on world health, climate change and  weapons proliferation. The US President touched on  the sensitive areas of the crackdown in Hong Kong, the suppression in  Xinjiang province and the aggressive moves on Taiwan. President Xi made it clear, such issues were "internal affairs". Matters in which, the US should not seek to interfere.

President  XI advised cooperation as the only correct choice for the two nations.  Confrontation between the two nations would be a disaster. The key is  "mutual respect, equal treatment and the handling of issues in dispute  in a constructive and positive manner."

Negative Rates : Chisel In the toolbox or spanner in the works ...

At the MPC meeting this  month, Bank Rate was maintained at 0.1%. It was agreed the Bank of  England should continue with the existing program of UK government bond  purchases, financed by the issuance of central bank reserves. Markets were slightly  confused by the messaging on negative rates. The economy is set to  recover rapidly, inflation is set to rise. The next move for interest  rates, is more likely to be up but not for some time yet.

Joe Biden's Foreign Policy Takes Shape ...

Calmly and with measured tone, the  Joe Biden Foreign Policy takes shape. A freeze on troop withdrawals from  Germany, a halt to support for military operations in Yemen. Strong  words for President Putin. Strong words for President XI.

"The  days of the US rolling over in the face of Russian aggression are  over". US warships have been dispatched to the Black Sea ...

UK Retail Sales End the Year with a Bang ...

At first  glance, the latest retail figures for December don't look very  inspiring. Sales volumes were up by just 2.9% compared to prior year.  The value of retail sales increased by just 1.3%. "Stay at home Britain,  takes the fizz out of retail sales", the headline in the Times today.
It  is important to drill the detail. Shoppers may well have been staying  at home. They were taking the opportunity to shop on line. Online sales  were up by 61%  compared to prior year.  Online sales, as a proportion  of all retail, averaged 30% in the final quarter.

Adult Supervision is Back in the White House ...

Adults supervision back in the  White House, Joe Biden is the 46th President of the USA. The world welcomes back Uncle Sam. The Biden Harris ticket is taking all the  right steps, ticking all the boxes. A clear plan for Covid a priority.  FEMA engagement, at Federal level, long overdue. Now even Anthony Fauci  has a smile on his face. He admits working under Biden has that  liberating feeling. It must be a shot in the arm, vaccine not bleach, of  course ...

Latest GDP data better than expected ... 

The latest monthly GDP estimate was released this week. Activity fell by 9% in November compared to prior year. Construction  activity was down by 1.4%. Manufacturing down 4%. The service sector  fell by 20%. The arts and entertainment sector was down by almost 40%. Accommodation and food were down by 65%. For  the year as a whole, we expect output in the economy to have fallen by  around 10% in 2020. In the current year, despite the lock down in the  first quarter, growth of 4.5% seems possible for the year as a whole.

Massive Security Planned for Biden Inauguration ...

The Secret Service is launching a massive security operation to protect the inauguration of Joe Biden next week. More  than 15,000 National Guard, thousands of police and tactical guards  will be deployed. Eight foot fencing will be in place to protect the  Capitol building. The FBI, The National Guard, U.S.  Marshals and a host of other Federal Agencies will fall under the  control of the Secret Service. Joe Biden's close protection team has  been hand picked to protect the Democrat President.

It was the best of times, it  was the worst of times ... and that was just week one! 

The tale of two  economies continues. The third lock down is imposed into the first  quarter of 2021.

This  week, the SMMT reported car sales down by 30% in the past year.  Showroom sales were hindered behind lock doors. Marstons, the brewer of  Pedigree and Hobgoblin, called for more help for the pubs and restaurant  sector.

Mitchell and Butlers, owner  of All Bar One and Harvester, is to tap shareholders for funds, to  offset the slump in revenue. Chief Executive, Phil Urban called on the  government for new support measures, to help hospitality businesses.

Ryanair  announced cuts in flights and services, as traffic levels are expected  to fall by 80% once again. Restructuring is expected at Paperchase, as  PwC are appointed as administrators. The retail chain may claim the  title, of the first, but not the last, high street victim of 2021.

It was the worst of times in the USA ...

Trump has finally come to realize  he will not be the one inaugurated on the 20th of January. The shocking  scenes in Washington forced the 45th President of the United States to  accept Joe Biden will take office later this month. The President will  now work towards an orderly transition. He will not be attending the  inauguration, to assist the process.

We can but  hope his right wing supporters do the same. Or at least a ring of steel  will be in place in Washington to defend proceedings. Far better than  the ring of silk in place around the Capitol last week. Too many lives  lost so needlessly. It could easily have been far worse.

Trump  is facing pressure to resign or face impeachment for a second time.  "Incitement to insurrection", never a great feature on a presidential  CV. The President insisted he only wanted to encourage a large peaceful  protest. Not the storming of the Senate and the desecration of Nancy  Pelosi's office that resulted.

Merry Christmas From The Saturday Economist Team ...

This will be our last update of 2020. I wanted to take this opportunity to wish you a Merry Christmas and Happy New Year. We will be taking a break for a few weeks. We plan to be back from the 9th of January.

So  difficult not to have seen so many friends through the year. It really  has been a quite extraordinary period. Let's hope things may return to  some semblance of normality in 2021. I wish all of you and your loved  ones, every best wish for the year ahead.

The Economy Is Recovering ...

Forecasts are for UK GDP to have  fallen by around 10% this year. The unemployment rate is expected to end  the year at around 5%. Government borrowing will have increased to £400  billion during the financial year. The Bank of England has stepped up  as the buyer of last resort. The process of monetary financing of the  fiscal deficit is in play.

A no-deal Brexit  would be "wonderful for Britain", explained the Prime Minister,  yesterday. We are leaving with a no-deal on WTO terms, unless a  breakthrough is achieved, within days.

Aussie rules no longer OK. Boris Johnson made no reference to an "Australian" deal.  Former Prime Minister Malcolm Turnbull had warned the PM to be careful "what you wish for".

"It  will be pretty disappointing, I think you will find out. Australia's  relationship with the EU, is not one that Britain would want."

It is not one that Australia wants either but it may well be the one we end up with.

More Talk of Negative Rates and Monetary Financing ...

"Going Negative Could Be Positive" writes Philip Aldrick in the Times today. The economics editor has been  talking with Michael Saunders, an external member of the Monetary Policy  Committee at the Bank of England. Rates  could be cut a little below zero, the former Citigroup economist  explained, as long as "appropriate mitigations" are in place.

The  Bank has asked commercial lenders to ensure they are systems ready for a  move below the line. Bankers have warned, negative rates could hit  profits and create operational problems. Not so argues Saunders,  "studies have shown, the net effect of negative rates on bank  profitability is small and may be slightly positive."

We Are Still Talking About Fish ...

Less  than four weeks to go to the new deal deadline and we are still talking  about fish. "France derails Brexit talks", the headline in the Times  today.
Macron  has thrown a mackerel into the net demanding access to UK waters for up  to a decade after the transition period. He may have well sent a  gunboat up the Thames, such was the impact.
Discussions  were suspended, Bernier went back to Paris. Boris Johnson will hold  emergency talks with Ursula Van Der Leyen, President of the European  Commission.

Boris Johnson announced this week, a  huge £24 billion war chest to transform the armed forces and become  "Europe's naval superpower once again". 

"We  will build the largest navy in Europe" said the Prime Minister, "paid  for by a public sector pay freeze and a raid on pensions", said the  Chancellor of the Exchequer.

Rishi Sunak has been  considering an array of options for raising taxes to ease the growing  deficit. The latest figures, confirm borrowing in the financial year to  October was £276 billion. Figures published by the OBR suggest borrowing  could increase to £372 billion in the current financial year. Some analysts now expect total borrowing to be over £400 billion.

The Biggest Trade Group In the World 

In the first of our short notes on "The Economics of Mr Trump" we look at trade and developments in South East Asia. A "Coup for China and a setback for Uncle Sam", that's how analysts  react to the world's largest trade deal that excludes the USA.

One  of the first steps of the Trump administration, was to walk away from  the Trans Pacific Partnership. The executive order signed in January  2017 effectively reversed the Obama decision to form a trade alliance  with eleven pacific rim partners.

The  partnership included the US, Canada, Japan, Australia, New Zealand,  Chile and Peru. Without the USA, the partnership foundered, creating a  vacuum, into which China was keen to make the move

The UK Economy Grew By 15% in Q3 ...

The latest data  from the ONS confirm, the economy grew by 15.5% in the third quarter,  compared to Q2. Year on year, GDP was down by 10%, compared to prior  year. The pattern of recovery is more or less as  expected. We have talked in our recent broadcasts of a recovery by  halves. An economy down by 20% in the second quarter, down by 10% in the  third quarter, then down by 5% in the final quarter of he year.

For  the year as a whole, output will be down by 10% in 2020, with a  significant recovery in prospect for next year. Manufacturing and  construction performed marginally better than we expected.

No  evidence of voter fraud in the election of 2020 ...

 the verdict from 16  federal prosecutors this week. Evidence enough, of voter fraud, in the  election of 2016 perhaps ... Trump  clings to power, denying the president elect access to messages of good  will from around the world, now residing in the State Department Post  box.

No  access to top security briefings for Biden, no concession from Trump.  No gracious acceptance speech. the President clings to office, as  Biden's count in the electoral college increases to 306. Adding Georgia  to the Democrat base this week, Trump for the first time on Friday came  close to accepting, there would be a new administration in the White  House on January 20th.

The Trillion Pound Bank Note 

Bad news for the economy this week,  "Fears for Tiers" increased. The country was pushed into a second lock  down. Covid infections are rising, warnings of an NHS overload emerged.

The  Chancellor stepped up to ease the pain. The furlough scheme will be  extended to the end of March. Universal credit may be extended, by a  further £1,000 next year, for over six million people.

Government  borrowing was expected to hit £350 billion in the current financial  year, before the new spending plans were announced. The additional  support schemes could add a further £30 billion to the spend. Debt  levels could hit 20% of GDP this financial year. Not since the World  Wars, of the twentieth century, has such excess been experienced in the  UK.

Heading for the White House

We  are going to win", the confident claim of Vice President Biden. "We  have already won" the confused claim of President Trump. The premature  victory later to be "stolen" by late vote counts in contested states. "Stop the count" supporters chant in Pennsylvania, all too late as Biden creeps ahead.

As  we write the count is 253 for Biden and 213 for Trump. Add in Arizona  and at 264 the challenger is just six votes short of victory. Biden is  ahead in Pennsylvania. Victory nears. A  win in Pa. and Biden is in the White House.  Fox news anchors have been  instructed not to use the term "President Elect" under any  circumstances.

 Modern Monetary Theory and Modern Monetary Policy  ... Money For Nothing Gilts For Free ...

One of our readers wrote in this week ...

 "I'd like your opinion on something. I read a report this morning from one of our investment counselors here in Canada that went into some detail on Modern Monetary Theory.   What I understand is that it supports the printing of dollars to keep the economy going, no matter the amount of deficit spending. 

Central Banks then become the buyer of the ensuing debt to prevent austerity measures from being put into place, and it continues until inflation becomes "an issue" which who knows what that number will be until the time comes. 

Sounds like the closest thing to a free lunch since I became a wealth advisor 25 years ago. But I feel like there has to be an end game, doesn't there? What are your thoughts? Well, here they are 

#Economics #ModernMonetaryTheory 

When The Seagulls Follow The Trawler ... Business Will Be Thrown Into The Sea ...

Just a few weeks to go to the end  of the year, "Time is running out", the message from government.  Businesses are not yet prepared for the new trade deal with the EU. No  surprise really, great uncertainty still remains about the shape of the  deal, let alone, the detail within.

Companies are  scrambling to get ready ahead of the deadline on January 1st, without  any clear idea of the basis on which they will trade, with European  partners.

"They won't give us a deal like Canada"  bemoans the Prime Minister. Hardly surprising, the nearest Canadian  fishing grounds are in British Columbia. That's a haul too far, even for  the itinerant fisherman of France and Spain. The industry remains a  fish bone of contention, despite the marginal contribution to UK GDP.

House price growth reached a five year high in October. 

Prices increased by 5.8% in October, according to the latest data from Nationwide. Prices increased by 7.5% last month according to the latest data from the Halifax building society.

Mortgage  approvals increased to 91,500 in September, the highest level since  2007. The stamp duty holiday is providing a positive boost to activity.

Behavioural  shifts are impacting on the market according to the data from a  Nationwide survey. 10% were in the process of moving as a result of the  pandemic. A further 20% were considering a move for the same reason.

That's all for this week! Have a great, safe, week-end ... Hands, Face and Space ...

#Economics #TheSaturdayEconomist #JohnAshcroft

DIY Leads Retail Rally ... As Fashion Clothing Slips ...

Retail sales were up by almost 5%  in September. Exclude automotive fuel and volumes increased by 6.4% year  on year. DIY leads the retail rally. DIY sales were up by 27%, sales of  flowers, plants and seeds, increased by 30%.

Working from home is boosting productivity, in households at least. "Don't just sit there do something", the cry. Household good sales were up by 10%, carpet sales were up by 50%. Take a break? Sneak into the bedroom and read a book. Book sales were up by 14%.

Losers  in the retail rally were fashion clothing, down 14%. Computers and  tele-comm sales were down by 40%. Thinking of music and movies, then  stream again, traditional outlet sales were down by 9%.

Spend, Spend, Spend as Government Borrowing Hits £200 billion ...

Government  borrowing in the first six months of the year, increased to £208  billion. That's an increase of £175 billion on prior year. Total debt  increased to £2.1 trillion at the end of September, that's 104% of GDP.

In  the first six months of the year, the Debt Management Office issued  £306 billion of gilts. Net of redemption, new gilt issuance totaled £240  billion.  So how was that funded?

The  Bank of England purchased some £268 billion of gilts over the period.  The Old Lady was forced to step in as the "buyer of last resort". The pretense of QE abandoned, the minutes of the MPC meeting now openly talk of the "purchase of government bonds". According  to Andrew Bailey, Governor of the Bank of England, "the government  would have struggled to fund itself" without central bank intervention.

Brexit Break ... Aussie Rules Not O.K. 

Ten weeks to go to the end of the  transition period, the Prime Minister has realized a Canada style deal  with the EU, is not on offer. "A relationship based on friendship and  free trade will not be available from our partners of forty five years."  said the PM.

"The EU has refused  to negotiate seriously for much of the last few months" said Johnson,  (and simply agree with the UK government he could have added). Michel  Barnier has been told not to take the train to London next week. Mind  the gap! A level fishing ground, remains the catch.

Boris  Johnson has reached the conclusion, it is time to prepare for a deal  more like Australia. No car exports, no involvement in Airbus and no  syndication for big pharma, presumably.

IMF World Economic Outlook ...  A warning for the Chancellor ...

The IMF released the latest World Economic Outlook this week. The  global economy is expected to contract by -4.4% this year with a  recovery of over 5% anticipated in 2021. This is slightly better than  the outlook in June, which predicted a setback of -4.9% this year and a recovery of +5.4% in 2021.

China  is now expected to grow by almost 2% in the current year. Growth of  just 1% was expected in June. The setback in the USA has been mitigated  with the loss of output of -8% forecast in June, now expected to be just  over -4% in October. US Government borrowing of $3 trillion dollars in  the financial year just ended will have assisted the process.

Fears For Tiers as Local Lock-downs Loom ...

Just when you thought it was safe to leave the bubble and nix the rule of six, the traffic light system is coming. Fears for  tiers and local lock-down abound. Pubs and restaurants may have to close  in Northern Cities. More job losses seem inevitable in the hospitality sector.

The  Chancellor is already handing out lifebelts, on a cruise ship heading  for the ice. The Chancellor has announced a new Job Support scheme  starting in November. The Treasury will pay one third of the wages of  those in businesses forced to close; Closures as a result of new  measures, yet to be announced. The support scheme will last six months  and cost around £2.4 billion. 

This is not an extension of the furlough scheme. It should have been.

The President On Steroids ...

Who  could have thought it was a good idea to put the President on Steroids?  Trump received an exotic cocktail of oxygen, the red blood of ten young  men and a dose of experimental drugs from America's finest  pharmaceuticals this week.

At  the military hospital, Trump received a dose of Remdesivir, the  experimental drug, not yet known to be safe or effective as a treatment  for Covid.
Conley,  the President's physician disclosed that Trump was also given the  steroid dexamethasone after his blood oxygen level  dropped twice in  recent days. Side effects of dex include, mood swings, behavioral  disorders and cognitive disability apparently.

Hopes Rise for a deal with the EU ... Level Fishing Ground Remains The Catch ...

Britain and the EU are to begin two  more weeks of intense negotiations. Both sides have indicated a deal is  in sight. Boris Johnson, is to hold, one on one talks, with the lady in  the blue mask. Ursula von der Leyen, head of the European Commission is  ready to step up the action, to achieve a solution.
A level fishing ground appears to be the catch.  Boris Johnson said last night, he was pretty confident of striking a  deal. "The chances of a deal, are very good, if everyone exercises some  common sense" and agrees with me.

Wuhan is Booming ... The President Tests Positive for Covid 

Wuhan,  the city at the centre of the Chinese outbreak, is booming again,  according to a report in the Times today. Six months following the  lifting of the lock-down, Wuhan is throbbing. Shopping centres are  bustling. Trains are packed and airlines are adding flights.
The  city has been officially free of coronavirus since the beginning of  June. The local daily newspaper declared "Wuhan is full of vitality.  People's faces are brimming with smiles of happiness". That's nice to  know. Yes, there is life after lock-down.
No smiles of happiness in the White House. The President and the first lady have tested positive for Covid.

Welcome to the Saturday Economist Live. This week we will be talking about The Chancellor's Winter Plans for the Economy and the latest on the US election as Trump's team plans for his departure.

The Chancellor's Winter plan  revealed further extension of the VAT cut for the hospitality sector.  Generous cash flow provisions were added for VAT and Loan repayments.  The furlough scheme would come to an end as planned. The complex Job  Support Scheme would be introduced. At best the jobs crisis may be  postponed to the end of January.

The President was asked at a press conference this week if he would commit to a  peaceful transfer of power after the election. Trump declined to answer,  in the affirmative.  No  surprise really. This would be an admission of defeat. Instead the  President managed a non committal response and a complaint about the  election process. "Well,  we're going to have to see what happens," he said. "You know that I've  been complaining very strongly about the ballots, and the ballots are a  disaster." Nevertheless, the transition team are making plans ...

Retail Sales rise ... DIY leads the charge ...

Retail sales increased by almost 3% in August. Excluding fuel, total sales volumes increased by over 4%. DIY led the charge. B&Q and others benefited, with DIY sales up by 20%. Garden centres were blooming. Green fingers tapped the tills with a 17% increase in horticultural goods year on year ... we review the latest retail sales figures for August ...

Unemployment increases ... but not by much in July  

Unemployment increased in the three months to July by 60,000, to a level of 1.4 million. The u rate moved higher to 4.1% compared to 3.9%. Despite the increase, the employment rate was actually higher. 33.0 million were in work, compared to 32.8 million over the same period last year. The picture by the end of August may look significantly worse ... We explain why ...

Welcome to The Saturday Economist Live 29th August 2020 ...

Part 1 : Pigs Will Fly and Learn To Drive A Tesla ...

Just when you thought it couldn't get much weirder, Elon Musk has introduced a group of pigs with mind reading implants. Developed by Neuralink, headquartered in Fremont, California, the button sized brain implant can be installed by a robot. The brain activity of pigs can then be transmitted to a computer "allowing onlookers to watch the animals' neurons fire, as vets stroked their snouts" according to Bloomberg today.

Part 2 Get Back To Work ... Get Back To The Office

Boris Johnson is under fire this week. "Get Britain back to work", senior Tories have told the Prime Minister. A "clear and consistent message" is needed on this and many things for sure.  Grant Shapps said  the government would launch a publicity campaign to reassure people, it was now safe to return to the office. The TV and Newspaper campaign will be aimed at reducing the number of people working from home. "People working from home have a higher risk of losing their job", the Transport Secretary added for good measure.

Don't Miss That

This is a special feature from The Saturday Economist Team ...

Don’t worry about the level of national debt, like old soldiers, much of the debt will just fade away … the Bank of England holdings may never be repaid ... according to our latest update. 

The gilt assets held by The Bank of England are a liability owned by the Treasury. Both the Bank of England and the Treasury are subsidiaries of government. No need for formal repayment. The debt will simply fade away at some suitable stage in the future. Rollover dates will lapse. The two sides of the balance sheet will be reconciled.

No need to worry about paying back the debt, over 30% of the national debt, almost £ 1 trillion pounds, will just fade away ...

The Saturday Economist Live 5th September 2020. Great updates on the UK and World Economy from The Saturday Economist Team.

Part One : Traffic Levels are speeding up as the recovery gathers pace plus in Part Two we look at the latest developments in the Brexit negotiations, Boris Johnson "Fishing for a better deal". Don't Miss That! 

Latest GDP data suggests the recovery is on track, we update our forecasts for the rest of the year  ... Retail Sales Are rising but restructuring is taking its toll ... Check out the latest episode ...