The Great Debate UK
Deflation? It’s inflation you need to watch
– David Kuo is a director at the financial Web site The Motley Fool. The views expressed are his own. –
What are consumers supposed to make of the latest inflation numbers? Do we have inflation, deflation or a bit of stagflation?
Truth is, it depends on who you are and what you do with your money. The Retail Prices Index or RPI tells us that prices today are exactly the same as they were a year ago. The Office for National Statistics reported that RPI was unchanged at 0%.
But be very careful when bandying around the term “prices”. The RPI includes elements of housing costs. So it is better to talk about the cost of living rather than prices. Prices have risen compared to a year ago, but the total cost of living as measured by RPI has fallen because of the disproportionately large drop in mortgage costs as a result of lower interest rates.
The proof, if proof was needed, that prices have risen from a year ago, can be seen from the Consumer Prices Index (CPI). Instead of 0%, as measured by the RPI, prices as measured by the CPI are 3.2% higher. The CPI does not include housing costs, so it is a better measure for people on fixed-rate mortgage deals, and also for people in rented accommodation.
The upshot is that if you have taken on mortgage debt and chosen to spend rather than save, then you are worse off as a result.
However, it’s worth bearing in mind that both the RPI and CPI are broad measures of inflation. Consequently, the extremely large basket that is used to gauge inflation may not necessarily reflect the true changes in the cost of living that you may experience. Put another way, if we don’t buy exactly the same things that the ONS puts into its basket then we will experience a different rate of inflation.
from UK News:
Late payments send small businesses to the wall
By clamping down on credit, Britain's newly cautious banks are making collapse almost inevitable for many small to medium enterprise (SMEs) who need a financial cushion now, more than ever, as suppliers and customers struggle to pay bills as the economic downturn bites.
Small businesses in Britain, which employ over half of the private sector workforce and annually generate some 3 trillion pounds, typically depend on loans for working capital to tide them over during lean spells.
The latest research from the Bankers' Automated Clearing Service (Bacs), which processes direct debits for banks, showed a sharp rise in overdue payments, up 40 percent to 25.9 billion pounds last year from 18.6 billion in 2007.
Bacs, which found that the national average for outstanding payments increased 25 percent to 38,000 pounds in 2008, said SMEs waited an average of 41.5 days beyond agreed payment dates for invoices to be settled as firms -- especially those in the manufacturing and service industries -- struggled with cash flow problems.
With state-sponsored support schemes failing to deliver cash where it's needed will dwindling bank lending continue to put Britain's small firms in danger?
What managers can do to maintain morale in a jobs crisis
* Ian Kessler is a reader in employment relations at Said Business School at the University of Oxford. The views expressed are his own *
The Chinese define a crisis as ‘an opportunity on a dangerous wind’, and the crisis created by the current economic downturn has certainly placed the management of human resources centre stage. Corporate survival has become dependent on controlling and reducing labour costs, while future organisational viability has necessitated restructuring, placing further strains on the workforce. The challenge confronting human resources management is reflected in the predicted scale of job losses: the International Labour Organisations suggests that in 2009 as many 51 million jobs worldwide could be lost.
The tension between opportunities and dangers is clear: radical change in a crisis runs the risk of undermining workforce motivation and performance, so precipitating the very organisational failure the changes were designed to avoid. At the same time if employee morale and productivity can be maintained, the likelihood of competitive advantage in the upturn is considerably enhanced.
Success during a crisis is likely to revolve around the balancing of three sets of issues:
Insiders and Outsiders
The shedding of jobs represents the quickest and surest way of reducing financial costs. It is, however, a process fraught with hidden costs and likely to unleash tensions, not least between insiders retaining their jobs and outsiders losing them. This should encourage reductions in the workforce other than through redundancies, for example relying on redeployment, natural wastage or a recruitment freeze. As an alternative, organisations might use more flexible forms of employment such as agency working, so protecting the core workforce. The 850 redundancies recently made by BMW at its Mini plant in the UK were all agency workers. This is not to deny the unease created within the workforce and the community even in this situation, highlighting the need for organisations to care both for those workers who go and stay.
In times of crisis how you do things is more important than what you do. I suggest that managers can take two critical steps to improve the chances of their difficult decisions being judged acceptable. These are;
* to communicate with clarity
* to seek feedback and accept the response, however emotional
Actually I think that doing these two things is extremly difficult for most of us, because they run counter to our inbuilt bias; which is to focus on action, action, action.
from UK News:
Bankers offer act of contrition
In the Middle Ages the four ousted British bankers who brought the Royal Bank of Scotland and HBOS to the brink of collapse would have probably had to endure the public humiliation of sitting in the stocks.
On Tuesday the likes of former RBS chairman Tom McKillop and former RBS chief executive Fred Goodwin had to undergo a more civilised form of public humiliation - a grilling by Parliament's Treasury committee.
Given the public outrage over their huges salaries and bonuses for banks that are receiving state aid the bankers' parliamentary appearance could have not have come at a worse time.
Not surprisingly then McKillop, Goodwin as well as former HBOS chairman Dennis Stevenson and former HBOS chief executive Andy Hornby were quick to say sorry.
Equally predictable was the froth of parliamentary indignation. "You've destroyed a great British bank," one parliamentarian told Fred Goodwin.
Whether the bankers' apology before the committee will sate the British public's sense of outrage against overpaid and failing bankers is questionable.
But their appearance before the seat of government also raised uncomfortable questions as to the way banks have been regulated in the past and how they will be in the future.
The bankers are all sitting pretty with their huge bonuses and salaries and enormous pension pots – what do they REALLY care about the rest of us. And what’s with the Sir XY&Z – the titles can go too. The “have yatchts” are OK! The bankers should have some (all) of the money they took confiscated back for their crimes then and only then would they really know how the rest of us feel. The Government – well I wish we could do more than simply throw them out of office at the next Election by way of punishment for their mis-deeds.
Pound’s fall a symptom of crisis, not a problem in itself
–Vincent Cable is Deputy Leader of Britain’s Liberal Democrats. He is a former economist who is also the party’s spokesman on economics and finance. The views expressed are his own. –
Most of Britain’s moments of high economic drama in the 20th century centred on sterling: the Gold Standard in the inter war period; the various balance of payments crises of 1949 and 1967; Black Monday and the ERM. It is perhaps understandable that commentators should reach for these folk memories and attach the word “crisis” to the current fall of sterling against the main trading currencies particularly the Euro. Understandable; but wrong.
Britain certainly faces very deep and painful economic problems which may prove as serious as any since the second world war: a sharp contraction in output; high unemployment; perhaps, for the first time since the 1930’s, sustained price deflation; serious depressed asset markets, as for equities and housing; and, not least, a virtual collapse of the banking system.
It may well be that the sharp fall in sterling reflects market perceptions that Britain is exceptionally vulnerable even in a major global recession because of its exposure to financial shocks through the City and an extreme ‘bubble’ in house prices and personal debt preceding the crisis. Markets can clearly see that the Bank of England has been forced to cut interest rates more aggressively than the Eurozone. Sterling’s fall is a symptom of this vulnerability rather than a problem in itself.
Since the ejection of Sterling from the ERM, Sterling has been allowed to float. When the independence of the Bank of England was institutionalised in 1997, with the Monetary Policy Committee setting interest rates, it was made explicit that the exchange rate was not a policy objective. Interest rates were to be used to meet the inflation target, not an exchange rate objective.
For most of the last decade the consequence of monetary policy has been a strong exchange rate in real effective terms – that is taking account of relative inflation and the exchange rates of different trading partners. One (apparent) benefit was lower inflation, in sterling for imported goods, enabling the Bank of England to cut interest rates (but helping to fuel the disastrous bubble in house prices). The cost was a severe squeeze on manufacturing industry which suffered a major loss of competitiveness and shed one and a half million jobs in 10 years.
Mr Cable states ” An argument is gathering strength that in order to avoid an Icelandic fate, a consequence of over dependence on financial services and the City, the currency should be locked into the Euro zone.”
This is only viable of course if our benighted politicians do not ask the people of Great Britain, who in many polls have stated overwhelmingly they do not want to join the euro zone. Of course they can do what they did with the Lisbon Treaty, which also the vast majority of British people wanted a say on, and use a whipped vote in the Commons and Lords to get it passed.
Should we trust these people to do what is right:-
Only as a rabbit trust a weasel.
from UK News:
Housing market: what is your prediction?
One thing looks to be sure this year - the housing market has further to fall. Some of the gloomiest predictions are for a further 20 percent slump before a recovery may set in.
Our own Reuters poll of 37 analysts at UK banks, published today, predicts that prices are likely to drop by about 11 percent this year and that it will take until 2010 before it gets better.
How much do you think house prices will fall in 2009?
I wouldn’t be listening to the “experts”. It’s actually astounding that they were so far off the mark, compared to some of the more informed blogs out there.
As for property prices, they need to get back down to a sensible and sustainable multiple of average earnings. Someone needs to be able to buy a home, for their family to live in, for three times their salary of, say £24 000.00.
No, I didn’t say “investment”, I said “for their family to live in”, that’s what houses are for.
from UK News:
Would you take a pay cut?
A small but growing number of companies are considering asking their workers to take a pay cut as a means of cutting costs without having to fire anyone.
In the latest example, three unions representing steelworkers at Corus have offered to take a 10 percent cut across the company's entire UK workforce of 25,000 for six months in an attempt to save one of the last remaining steel factories in Britain -- the plant at Llanwern in Newport, South Wales.
The steelmaking part of Llanwern was shut in 2001 with 1,300 redundancies but the site still makes steel sheets and employs more than 1,000 people.
India’s Tata Group, which bought the Anglo-Dutch company last year, has said it wants to cut costs by 350 million pounds in both the UK and the Netherlands as it cuts production by 30 percent.
Other possible solutions include cutting employees' working hours. Corus in the Netherlands, for example, is asking 6,400 workers to each work one day less perweek for six weeks -- the equivalent of cutting 1,100 full-time jobs.
In another example, engineering firm JCB has managed to limit job losses after the GMB union agreed to accept a shorter and lower-paid working week
As the downturn bites and announcements of huge job losses become a daily event, do you think such solutions are the answer. Would you take a pay cut? Or is there an element here of employers using the dire economic situation to extract unfair concessions from their workforces?
I would be willing to take a pay cut, e.g., a percentage of my gross, BUT, a hard requirement would be that every employee from top to bottom, bonuses, salary, whatever, had the same percentage cut applied. Nobody excepted, especially including the exec staff, board members and receivers of dividends.
from UK News:
Was one point enough?
The Bank of England has cut interest rates by a whole point to 2 percent in response to increasing worries over discouraging data and a looming recession.
This week, the all-important services sector (which makes up three quarters of economic output) recorded its weakest headline index since 1996 and seventh straight month of contraction. Together with dismal news on unemployment and inflation, these surveys confirm that recession is spiralling as we reach the close of 2008.
So was the rate cut enough?
The consensus among economists polled by Reuters was indeed for a full point drop, bringing the base rate to the lowest in more than half a century after the big 1-1/2 point cut last month.
But several economists had pushed for a 1-1/2 point cut and some even thought the economic situation is dire enough to warrant zero percent.
Do you think the Bank should have been bolder?
(Please note this is an updated version of an earlier Have Your Say which asked readers how big a rate cut they thought the Bank of England should make. The announcement was made at mid-day GMT)
It is confidence that needs to return to the market and to business in general and to some degree dramatically cutting rates only indicates to everyone that things are still very bad. Better to keep the powder dry at this stage and ease gradually later. The last cuts have not had a chance to work yet and further big cuts would just look like panic. What is needed is for fewer doom and gloom stories and for a more measured response from our fiscal authorities. It is very noticeable how much more panicky the stories are in our press compared to those in mainland Europe. The psychological battle against the crunch is every bit as important as the fiscal one.
Doubts over whether pre-budget measures will prevent recession
Roger Bootle is economic adviser to Deloitte. The views expressed are his own.
The Chancellor was right to try to give some help to the economy but, while the scale of the increase in future borrowing is huge, the economic effect of the reduction in VAT will be tiny.
The size of the PBR package, about £9 billion this year, rising to £16bn next year, was roughly equal to what had been mooted in the media. But the scale of the measures, although they sound large, is in fact small.
They amount to only about 1% of GDP next year. The Treasury itself has estimated that this will reduce the extent of the downturn in the economy by just half a percentage point, not enough to prevent a severe recession.
What’s more, there must be doubts over whether they will have even that effect. As expected, the centre-piece was a temporary reduction in VAT from 17.5% to 15%. But while this measure will put money in consumers’ pockets in time for Christmas, it is not clear what impact this will have on spending or overall economic growth.
This is partly because the cut in VAT will not be fully passed on and that bit which is will be partly saved. Although the borrowing numbers reach 8% of GDP, roughly equal to what they reached in the mid 1970s and early 1990s recessions, this is predicated on the assumption that by 2010 the economy is recovering again.
We suspect, by contrast, that it will still be contracting. Accordingly, the borrowing numbers could easily end up much higher.
I think the government is absolutely right to stimulate the economy although i dont believe they expect this package to prevent a recession it is designed to reduce the severity of it.
I believe there were many good measures which will help, however, the centrepiece of this package, the 2.5% vat reduction will have very little impact. There is little point in reducing prices of vat rated goods if the public have no money to spend. A better approach may have been to reduce the basic tax rate in order to put money into working peoples pockets and provide a one off benefit payment to those who do not pay tax.
Howvere the conservatives policy of waiting and watching would have been a disastrous alternative which would leave this country crippled for many years to come.
Pre-Budget Report: More will need to be done
Brendan Barber is General Secretary of the TUC. Any views expressed are his own.
The Chancellor was right to inject this extra money into the economy. We welcome the significant extra cash that he has put into the pockets of low and medium paid workers, and the extra help for pensioners. The new Ofgem probe into energy prices has the potential to reduce fuel bills if pursued with vigour.
It is absolutely right that the top one per cent, who have done so well in recent years, should pick up the bigger part of the bill for today’s boost. Indeed the Chancellor could have gone further. Cracking down on tax avoidance through new minimum tax rates on those earning more than £100,000 would probably make the planned National Insurance increases unnecessary.
Business has also received real assistance through investment in infrastructure, new credit for smaller firms nd help for housing which will bring some relief to the heavily depressed construction sector. The Lending Panel may help get credit flowing again.
The PBR has a definite green tinge, with help for insulation projects, fewer concessions on fuel and road tax than many expected and commitments on low-carbon energy. But there is much greater potential to create jobs and prosperity through embracing a low-carbon future than we saw today.
But while we are supporters of much that has been announced today there are also some disappointments. We would have liked to see further measures on tax credits to help meet the Government’s child poverty targets. We are disappointed that the Government has still not met its manifesto commitment to increase redundancy pay, and that the two year time limit for help with mortgage payments remains.
And at a time when there is going to be more demand on public services, we do not accept that there are easy efficiency savings that can be achieved without damaging public services. The Government has already exceeded the savings that Peter Gershon said could be achieved without pain.
