UK News

Insights from the UK and beyond

from Breakingviews:

Were Luddites the victims of 2011-style finances?

The British weavers known as Luddites, who destroyed looms precisely 200 years ago, thought rising unemployment within their ranks was due to machinery. But there's a case to be made that inflation, money supply expansion, budget deficits and trade barriers were equally to blame. Maybe we haven't learned much in two centuries.

The first Luddite riot occurred on March 11, 1811, an attack on wide knitting frames in the Nottinghamshire village of Arnold. The rioters were mostly skilled artisans, whose livelihoods had been endangered by what they perceived was a "dumbing down" of their skilled work by automated looms. The riots spread to the main cotton center of Manchester late in 1811. Prime Minister Spencer Perceval's government, which had a robust approach to public order, made frame breaking a capital offense a year later, executing 17 offenders the following year. After that, Luddite activity gradually died down, petering out after 1817, when the economy improved.

The economic conditions facing the Luddites bear consideration for economists today. Britain had been off the Gold Standard since 1797 and consequently suffered considerable inflation, with prices doubling from 1793 to their peak in 1813. Real interest rates were historically low; the yield on long-term British government Consols, the equivalent of today's 10-year Treasury, averaged below 5 percent, only 1 percent above the inflation rate. The Bullion Report of 1810, whose drafters included David Ricardo and the monetarist Henry Thornton, specifically blamed excessive credit for the persistent inflation. Much of this credit was absorbed by the government, which ran a deficit of about 12 percent of GDP owing to spending on the concurrent Napoleonic wars.

There were some large differences with today; a wartime trade embargo had cut off many Continental markets for British textiles. Nevertheless the overall picture was of cheap money leading to labor-saving capital investment, while wages were eroded by inflation and economic activity was dampened by restrictions and excessive government deficits.

from The Great Debate UK:

EU stress tests: for banks or governments?

- Laurence Copeland is a professor of finance at Cardiff Business School. The opinions expressed are his own.-

Worries about Europe’s banking system go back at least to 2007, but whereas the U.S. (and UK) banks appear to have weathered the storm, there are fears that for European banks the worst may lie ahead.  Concerns centre on four areas.

Olympic debt and land deal gives momentum to legacy

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The government has signed off a multi-million pound debt and land deal with the Mayor of London, which could have endangered parts of the 2012 Olympic legacy and threatened to turn it into an unseemly Conservative spat.

Margaret Ford, chairman of the Olympic Park Legacy Company (OPLC) responsible for managing the Olympic Park post-Games, had used every possible opportunity to flag up the debt issue ever since the Conservative-led coalition government said it was to review the previous Labour government’s deal.

from MacroScope:

Some good econ reads from the Blogosphere

From the econ blogosphere:

UK BUDGET
-- The libertarian Adam Smith Institute says here that the UK government should look at every government job, programme and department, and ask whether they are really needed. "Do we really need new school buildings....? Should taxpayers really stump up for free bus passes, or winter fuel and Chistmas bonuses for wealthy pensioners?"

CHINESE FX
-- VOX publishes this post from senior research fellow Willem Thorbecke of the Asian Development Bank on China's latest move on the dollar peg. "China's action may facilitate a concerted appreciation in Factory Asia, helping the region redirect production away from western markets and towards domestic consumers."

from The Great Debate UK:

Roger Bootle analyses the potential impact of the budget

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London-based Roger Bootle, director of Capital Economics and an advisor to business accountancy firm Deloitte, shares his thoughts on what Chancellor George Osborne's budget may hold and its long-term effects on the economy.

Bootle suggests the coalition government must narrow the deficit for this year and give confidence to the markets that something will be done longer term to restore the economy to health.

from The Great Debate UK:

Entrepreneurs needed if the UK is going to make up the deficit

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-Joe White is managing director of Moonfruit.com. The opinions expressed are his own. Join Reuters for a live discussion with guests as UK Chancellor George Osborne makes an emergency budget statement at 12:30 p.m. British time on Tuesday, June 22, 2010.-

The first Tory budget is a critical one. The Treasury and Chancellor George Osborne have been dropping hints for weeks about a big slash in public sector spending in an effort to try and prepare Whitehall for the worst, and to rally the private sector to step in and fill the deficit.

This may hurt a little

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Britons are being prepared for the hardest of hard times. Prime Minister David Cameron has warned the public that they will feel the impact of deficit-cutting decisions for years and maybe even decades. Cameron justifies the pain by saying that doing nothing about debt would be disastrous and that Britain will come out of the other side as a stronger country.

His finance minister George Osborne and LibDem sidekick Danny Alexander were setting out plans on Tuesday for how to conduct this year’s spending review, with  unions, the public and the private sector asked to contribute ideas.

from The Great Debate UK:

Fears of UK hung parliament may be overstated

-- The author is a Reuters Breakingviews columnist. The opinions expressed are his own --

Fears of a huhugodixon-150x150ng parliament following the UK's general election may be overstated. With Nick Clegg, leader of the Liberal Democrats, Britain's third largest party, performing well in the first prime ministerial debate, sterling has received a mild knock. Investors do not like the uncertainty that goes with a hung parliament. While many European countries are used to coalition government, the UK is traditionally a two-party system - with government swinging between Labour and the Conservatives.

from MacroScope:

Britain heading for rude awakening?

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There is a divisive election ahead for Britain, the threat of a ratings downgrade on its sovereign debt and a deficit that has ballooned into the largest by percentage of any major economy.  UK stocks, bonds and sterling, however, are trundling along as if all were well. What gives?

For a fuller discussion on the issue click here, but the gist is that all three asset classes  are being support by factors that may be masking the danger of a broad reversal. UK equities have been driven higher by the improving global economy, bonds held up by the Bank of England's huge buying programme and sterling by valuation and the distress of others.

from The Great Debate UK:

Brooks Newmark drops a debt bombshell

Brooks NewmarkBritain's national debt is far higher than Prime Minister Gordon Brown is willing to acknowledge, Conservative MP Brooks Newmark argues in a new paper published by the Centre for Policy Studies.

The true level of government debt is not 805 billion pounds as currently reported by the Office for National Statistics, Newmark says, calling for an independent audit of the government's books.

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