The Great Debate UK
Britain must adjust to new relationship with India
Last week, on his first Prime Ministerial visit to the United States, David Cameron conceded that Britain was the “junior partner” in the special relationship. Next week, I fear that at the end of the much anticipated visit to India, he may yet again, have to concede that Britain is the junior partner in this ever increasing important relationship.
I attended an event some years ago in which the then Director General of the Confederation of British Industry (CBI) — Digby Jones — evangelised the need for UK Plc to embrace India, not for nostalgic or historic reasons, but to secure their survival. He explained “in the fullness of time, the past 250 years will be seen as a mere blip, an anomaly, in which India was subjugated. The future belongs to a resurgent India”.
It’s difficult to argue otherwise, just take a look at some of the statistics that stand out:
• Almost 25 percent of the world workforce will reside in India within the next 15 years. The average age of its citizens will be a youthful 29 in 2020, whereas in Western Europe the average stands at 45. India’s demographic profile provides a huge opportunity for her in the next century.
• India has a middle class larger than the entire population of the US — some 300 million residents, armed with a disposable income and looking for new avenues to spend their cash. The spectacular thing is that India’s middle class isn’t confined to its big cities or metros as they refer to them, but to far flung corners of the country in what are second and third tier cities, representing new markets — the Holy Grail as far as some of the world’s biggest fast moving consumer goods companies are concerned.
• Just today, I read a tweet from someone I follow on Twitter about how the Indian Prime Minister’s Economic Advisory Council has forecast GDP growth at 8.5 percent this year and nine percent next year. Now, compare that with all the talk of Britain having avoided a double dip recession as a result of the growth in our economy at a measly 1.1 percent.
Hike in interest rates a step closer
- Edward Menashy is chief economist at Charles Stanley. The opinions expressed are his own. -
The Monetary Policy Committee of the Bank of England has kept its key lending rate at a record low of 0.5 percent, last reduced in March 2009 when it indicated that conventional policy had reached its limit and unorthodox measures such as quantitative easing were to be used.
Recent economic statistics however have been strong with the UK service sector staging a surprise return to growth in May 2009 thus raising the prospect that the country’s recession may be about to end. Also the Nationwide survey of consumer confidence hit a six month high in May 2009.
Recently the CBI indicated that the banks would tighten credit less aggressively in the next three months. The survey indicated that only 7 percent of firms expected to be offered tougher conditions for new lending, down from 36 percent from the March 2009 survey.
So against this backdrop all these factors have raised the prospect that policy might soon change.
Hence, if recessionary forces are decelerating and credit is becoming more available the prospect for rising interest rates has moved a step nearer. Could this explain the strength of the pound and the weakness of the gilt market?
Not surprisingly, the Bank of England is expected to stick to its target of £125bn for Quantitative Easing. Interestingly the futures market foresees interest rates taking the following shape:
