Chancellor George Osborne is to give an update on the state of the economy to Parliament on 29 November.
The autumn statement will follow the release by the Office for Budget Responsibility of its own updated growth forecasts, giving Mr Osborne a chance to respond to the figures.
Mr Osborne has previously said he would scrap the pre-Budget report introduced by Gordon Brown when he was chancellor.
Mr Osborne has already announced the date of the 2011 Budget - on March 23.
The chancellor has said he will end the practice of having a pre-Budget report each autumn.
Under Gordon Brown, this became regarded as a mini-Budget in which draft tax and spending decisions were outlined.
Instead, Mr Osborne will comment on the OBR's latest analysis of the state of the economy, published that day.
The BBC's Business Editor Robert Peston said both MPs and the financial markets will be eager to see the OBR's forecasts for growth and government borrowing to see to what extent the coalition's deficit reduction plan is on track.
Initial estimates published last month suggest the economy grew at a rate of 0.8% between July and September - twice the rate expected by many analysts.
This followed growth of 1.2% in the second quarter of the year
Mr Osborne has said there is a "steady" recovery but Labour has said the cuts announced since the coalition came to power in May could endanger this.
Source: BBC
www.bbc.co.uk
Saturday, November 20, 2010
Sunday, November 14, 2010
Great reforms in principle, quick and painful cuts in practice
Iain Duncan Smith's proposals will take years to make an impact. George Osborne's benefit-slashing will not.
F Scott Fitzgerald believed: "There are no second acts in American lives." In British political lives, there can be. Iain Duncan Smith was the least successful Tory leader in many decades; his contribution to history seemed to be making William Hague and Michael Howard look impressive. At the nadir of the brief and humiliating period when he was nominally in control of the Conservatives, cruel colleagues like to joke that IDS stood for In Deep Shit.
Yet he then reinvented himself as a social campaigner. That second act reached its zenith in the House of Commons on Thursday when he unveiled his white paper on welfare. It was received with a fanfare of headlines and editorials which have hailed him as the cabinet's boldest, bravest and biggest reformer. The much mocked "Quiet Man" has even been compared with Sir William Beveridge, the Liberal founding father of the welfare state. That is hyperbole, but it is flattering hyperbole none the less for a man once so ridiculed.
Why has such a fair wind filled his sails as he embarks on the notoriously treacherous seas of welfare reform? It helps that few question that Mr Duncan Smith is a serious-minded man genuinely moved to try to release people from the welfare dependency which impoverishes those trapped in it and their country. Even those who criticise his means tend to accept that his ends are well-intentioned. Unlike most of the cabinet, the work and pensions secretary has experience of what it is like to be jobless, having suffered a period of redundancy in the 80s. When I interviewed him recently, he spoke passionately about the feelings of rejection and dejection that accompany being made unemployed and told a story about wanting to rip the throat out of a Tory MP whom he heard pontificating about the jobless being work-shy layabouts.
He has also received a generally warm reception because there has been a growing, but until now rather covert, cross-party consensus that welfare dependency is a terrible social and economic sickness. The fundamental problem with benefits in Britain is not that they are lavishly generous. The last government allowed housing benefit to balloon out of control, but on the whole British welfare payments are quite stingy by western European standards. The trouble is that too many people are on benefits. Roughly 5 million working-age Britons are benefit-dependent. Approaching 1.5m of them have been receiving benefits for nine of the last 10 years.
Both Labour and the Tories feel guilt – or certainly ought to – about this national tragedy. The first big surge came under Margaret Thatcher in the 80s, a fact which has been largely overlooked in pieces marking the 20th anniversary of her fall. When unemployment shot up to 3 million, her government tried to make the figures look less horrendous by shunting hundreds of thousands of the jobless on to disability benefits. The long period of prosperity between 1997 and 2007 would have been an ideal time to provide the incentives and training to encourage the jobless to rejoin the world of work. New Labour made some attempts to reform welfare, but the effort was fitful and compromised by divisions at the top of the government. So there is a political market for reform to welfare. There is also a voter one. Polling conducted both before and after Mr Duncan Smith unveiled his plans found majority support favouring his approach.
Responding for Labour, Douglas Alexander has been a model of sensible opposition. He eschewed the temptation to spit venom about the proposals and instead did the smart thing, which is to support many of the general principles of reform while asking pertinent questions about how it is going to work in practice. That keeps Labour with the grain of the public mood while preparing the ground to be critical when and if things go wrong.
Mr Alexander's most salient point is his most obvious one: "Welfare to work requires there to be work." The number of long-term unemployed has more than doubled since 2008 to 800,000. This is not because all those people suddenly decided they would rather stay at home and watch daytime TV. It is because the recession has destroyed their jobs. That is not an argument against change. There is a powerful case for getting on with reform as rapidly as possible so that the currently workless might have a better chance of participating in the economy when the recovery is complete. But Mr Duncan Smith's promise to make work pay cannot be redeemed by those for whom there is no work available. He himself acknowledges that, with the country limping out of a painful recession and the government introducing a severe spending squeeze, this is "a dreadful period to try and do any of this".
Another reason to be cautious is that these reforms have been oversold as a revolution when much of it is a slow-cooking evolution. A lot of misleading headlines have suggested that this is a "year zero" for welfare. The government's propagandists have cleverly exploited two weaknesses of political journalism when it comes to reporting welfare. Most of the Westminster media do not understand the benefit system, which is not surprising when many of those who administer it or draw the benefits get lost in the labyrinth. Newspapers of both left and right are also suckers for stories about "crackdowns" on benefit claimants, the right because they want to applaud assaults on the idle and the left because they want to be outraged by attacks on the defenceless. Some reporting has suggested that Mr Duncan Smith will have every "feckless scrounger" thrown out of bed to join chain gangs picking up litter. In fact, these sort of "workfare" programmes already existed under the previous government, which is one reason you haven't heard Labour condemn them. Requiring people to do a few weeks' labour in return for benefits may have value in reintroducing the long-term jobless to some of the disciplines of work. But experience suggests that these schemes do little to assist the unemployed into real jobs because they don't equip the jobless with the skills that employers want.
The coalition affects to despise all things New Labour, especially its spin. Yet they appear to have been thumbing through an old propaganda manual left behind at Number 10 by its previous occupants. The government's spinners achieved domination of another morning's news coverage with headlines screaming: "Three strikes and you're out": the threat of a new range of tough measures against the work-shy, the most severe of which would penalise those who three times fail to apply for or accept work by removing all their job seeker's allowance for three years. By the end of the very day that those headlines appeared, Nick Clegg was on the airwaves predicting that this sanction would be used only "for a tiny, tiny number of people who really are systematically abusing the system".
Iain Duncan Smith's ambitions to be the great reformer are located in the centrepiece of his proposals. That is to replace many existing benefits with one universal credit. This has huge theoretical attractions because it has the beauty of simplicity. The complex tangle of current benefits encourages fraud and propagates errors. Billions are lost to both: more than £3bn in overpayments and an estimated £1.6bn in fraud last year. Many claimants need a degree in mathematics to work out whether or not they'd be better off in a job. A universal credit ought to reduce confusion and disincentives against working.
The work and pensions secretary is far from the first reformer to have this dream. Those who have gone before him then had nightmares finding a way to do it which did not either cost vast sums of money to introduce or create an angry army of losers. There is a huge number of questions left unanswered by Mr Duncan Smith's white paper, a document with many of the key figures missing. His assertion that there will be "no losers" is just that: an assertion. That can only be true if welfare rolls fall very dramatically or the government spends a lot more than the £2bn allocated to introducing his universal credit.
He has made the very big claim that the long-term effect will be a dramatic reduction in both adult and child poverty. What he can't or won't say when pressed is whether poverty levels will be lower or higher at the end of this parliament than they were at the end of the last one.
His centrepiece reform will only start to be phased in from 2013 and will not have a meaningful impact on significant numbers of people until after the next general election. The changes which will have much more immediate and painful effects are the £18bn of benefit cuts announced in George Osborne's budget and spending review.
In the play that Iain Duncan Smith has written for himself in his head, the fourth act will see him introduce his reforms and the fifth will climax with a standing ovation for the hero who finally cracked welfare dependency. Before any of that can happen, though, he must perform the third act, defending the benefit cuts already scripted by the Treasury.
Source: Guardian
www.www.guardian.co.uk
F Scott Fitzgerald believed: "There are no second acts in American lives." In British political lives, there can be. Iain Duncan Smith was the least successful Tory leader in many decades; his contribution to history seemed to be making William Hague and Michael Howard look impressive. At the nadir of the brief and humiliating period when he was nominally in control of the Conservatives, cruel colleagues like to joke that IDS stood for In Deep Shit.
Yet he then reinvented himself as a social campaigner. That second act reached its zenith in the House of Commons on Thursday when he unveiled his white paper on welfare. It was received with a fanfare of headlines and editorials which have hailed him as the cabinet's boldest, bravest and biggest reformer. The much mocked "Quiet Man" has even been compared with Sir William Beveridge, the Liberal founding father of the welfare state. That is hyperbole, but it is flattering hyperbole none the less for a man once so ridiculed.
Why has such a fair wind filled his sails as he embarks on the notoriously treacherous seas of welfare reform? It helps that few question that Mr Duncan Smith is a serious-minded man genuinely moved to try to release people from the welfare dependency which impoverishes those trapped in it and their country. Even those who criticise his means tend to accept that his ends are well-intentioned. Unlike most of the cabinet, the work and pensions secretary has experience of what it is like to be jobless, having suffered a period of redundancy in the 80s. When I interviewed him recently, he spoke passionately about the feelings of rejection and dejection that accompany being made unemployed and told a story about wanting to rip the throat out of a Tory MP whom he heard pontificating about the jobless being work-shy layabouts.
He has also received a generally warm reception because there has been a growing, but until now rather covert, cross-party consensus that welfare dependency is a terrible social and economic sickness. The fundamental problem with benefits in Britain is not that they are lavishly generous. The last government allowed housing benefit to balloon out of control, but on the whole British welfare payments are quite stingy by western European standards. The trouble is that too many people are on benefits. Roughly 5 million working-age Britons are benefit-dependent. Approaching 1.5m of them have been receiving benefits for nine of the last 10 years.
Both Labour and the Tories feel guilt – or certainly ought to – about this national tragedy. The first big surge came under Margaret Thatcher in the 80s, a fact which has been largely overlooked in pieces marking the 20th anniversary of her fall. When unemployment shot up to 3 million, her government tried to make the figures look less horrendous by shunting hundreds of thousands of the jobless on to disability benefits. The long period of prosperity between 1997 and 2007 would have been an ideal time to provide the incentives and training to encourage the jobless to rejoin the world of work. New Labour made some attempts to reform welfare, but the effort was fitful and compromised by divisions at the top of the government. So there is a political market for reform to welfare. There is also a voter one. Polling conducted both before and after Mr Duncan Smith unveiled his plans found majority support favouring his approach.
Responding for Labour, Douglas Alexander has been a model of sensible opposition. He eschewed the temptation to spit venom about the proposals and instead did the smart thing, which is to support many of the general principles of reform while asking pertinent questions about how it is going to work in practice. That keeps Labour with the grain of the public mood while preparing the ground to be critical when and if things go wrong.
Mr Alexander's most salient point is his most obvious one: "Welfare to work requires there to be work." The number of long-term unemployed has more than doubled since 2008 to 800,000. This is not because all those people suddenly decided they would rather stay at home and watch daytime TV. It is because the recession has destroyed their jobs. That is not an argument against change. There is a powerful case for getting on with reform as rapidly as possible so that the currently workless might have a better chance of participating in the economy when the recovery is complete. But Mr Duncan Smith's promise to make work pay cannot be redeemed by those for whom there is no work available. He himself acknowledges that, with the country limping out of a painful recession and the government introducing a severe spending squeeze, this is "a dreadful period to try and do any of this".
Another reason to be cautious is that these reforms have been oversold as a revolution when much of it is a slow-cooking evolution. A lot of misleading headlines have suggested that this is a "year zero" for welfare. The government's propagandists have cleverly exploited two weaknesses of political journalism when it comes to reporting welfare. Most of the Westminster media do not understand the benefit system, which is not surprising when many of those who administer it or draw the benefits get lost in the labyrinth. Newspapers of both left and right are also suckers for stories about "crackdowns" on benefit claimants, the right because they want to applaud assaults on the idle and the left because they want to be outraged by attacks on the defenceless. Some reporting has suggested that Mr Duncan Smith will have every "feckless scrounger" thrown out of bed to join chain gangs picking up litter. In fact, these sort of "workfare" programmes already existed under the previous government, which is one reason you haven't heard Labour condemn them. Requiring people to do a few weeks' labour in return for benefits may have value in reintroducing the long-term jobless to some of the disciplines of work. But experience suggests that these schemes do little to assist the unemployed into real jobs because they don't equip the jobless with the skills that employers want.
The coalition affects to despise all things New Labour, especially its spin. Yet they appear to have been thumbing through an old propaganda manual left behind at Number 10 by its previous occupants. The government's spinners achieved domination of another morning's news coverage with headlines screaming: "Three strikes and you're out": the threat of a new range of tough measures against the work-shy, the most severe of which would penalise those who three times fail to apply for or accept work by removing all their job seeker's allowance for three years. By the end of the very day that those headlines appeared, Nick Clegg was on the airwaves predicting that this sanction would be used only "for a tiny, tiny number of people who really are systematically abusing the system".
Iain Duncan Smith's ambitions to be the great reformer are located in the centrepiece of his proposals. That is to replace many existing benefits with one universal credit. This has huge theoretical attractions because it has the beauty of simplicity. The complex tangle of current benefits encourages fraud and propagates errors. Billions are lost to both: more than £3bn in overpayments and an estimated £1.6bn in fraud last year. Many claimants need a degree in mathematics to work out whether or not they'd be better off in a job. A universal credit ought to reduce confusion and disincentives against working.
The work and pensions secretary is far from the first reformer to have this dream. Those who have gone before him then had nightmares finding a way to do it which did not either cost vast sums of money to introduce or create an angry army of losers. There is a huge number of questions left unanswered by Mr Duncan Smith's white paper, a document with many of the key figures missing. His assertion that there will be "no losers" is just that: an assertion. That can only be true if welfare rolls fall very dramatically or the government spends a lot more than the £2bn allocated to introducing his universal credit.
He has made the very big claim that the long-term effect will be a dramatic reduction in both adult and child poverty. What he can't or won't say when pressed is whether poverty levels will be lower or higher at the end of this parliament than they were at the end of the last one.
His centrepiece reform will only start to be phased in from 2013 and will not have a meaningful impact on significant numbers of people until after the next general election. The changes which will have much more immediate and painful effects are the £18bn of benefit cuts announced in George Osborne's budget and spending review.
In the play that Iain Duncan Smith has written for himself in his head, the fourth act will see him introduce his reforms and the fifth will climax with a standing ovation for the hero who finally cracked welfare dependency. Before any of that can happen, though, he must perform the third act, defending the benefit cuts already scripted by the Treasury.
Source: Guardian
www.www.guardian.co.uk
Saturday, November 13, 2010
Ireland 'in preliminary talks with EU on bailout'
he Republic of Ireland is in preliminary talks with EU officials for financial support, the BBC has learned.
It is now no longer a matter of whether but when the Irish government formally approaches the European Financial Stability Fund (EFSF) for a bailout, correspondents say.
The provisional estimate for EFSF loans is believed to lie between 60bn and 80bn euros ($82-110bn; £51-68bn).
Dublin says there are no talks on an application for emergency EU funding.
A spokesman for Ireland's department of finance said the country was funded until the middle of 2011, the public-service RTE broadcaster reported.
RTE had earlier said talks had been held on how a bail-out might happen in a theoretical worst-case scenario.
The European Commission would not formally comment on the matter.
Eurozone officials told the Reuters news agency on Friday that discussions were under way, with one saying that it was "very likely" Ireland would receive financial assistance.
The head of the International Monetary Fund (IMF), Dominique Strauss-Kahn, said on Saturday that it had not been asked for aid.
"So far I have not had a request, and I think Ireland can manage well," he told reporters at the Apec summit in Yokohama.
The IMF and EU had to step in with a 110bn-euro bailout package for Greece in May, sparking a Europe-wide sovereign debt crisis.
BBC business correspondent Joe Lynam says any bailout would not be agreed this weekend, but might though come as early as next month.
A meeting of the Eurogroup, composed of the EU member states whose currency is the euro, is scheduled for 6 December.
The Economic and Financial Affairs Council (Ecofin) - comprising the economics and finance ministers of eurozone countries - will gather the following day.
Lastly, the full European Council is to meet on 16 and 17 December.
By-election
Since 2008, Ireland has suffered the worst property collapse of all developed economies, with house values falling between 50% and 60%.
Our correspondent says the Irish government has also all but nationalised the country's banking system, which had lent recklessly at an estimated cost of 40bn to 50bn euros.
The country has promised the EU it will bring its underlying deficit down from 12% of economic output to 3% by 2014. Its current deficit is an unprecedented 32% of gross domestic product, if the one-off cost of bad debts in the Irish banking system is included.
The Irish government, which has a flimsy majority in parliament, is set to publish another draconian budget on 7 December, which will make spending cuts or tax rises totalling 6bn euros, and aims to bring the deficit down to between 9.5-9.75% next year, he adds.
That parliamentary majority is likely to be cut to only two on 25 November, when a by-election will be held that the governing Fianna Fail party is likely to lose.
The government had left the Donegal South West seat empty for 17 months but the Republic's second-highest court recently ruled that the delay was unreasonable. Three other by-elections are also required.
Investors fear the budget cuts are likely to worsen the country's already deep recession, leading to further losses to the government via falling tax revenues and higher benefit payments.
Source: BBC
www.bbc.co.uk
It is now no longer a matter of whether but when the Irish government formally approaches the European Financial Stability Fund (EFSF) for a bailout, correspondents say.
The provisional estimate for EFSF loans is believed to lie between 60bn and 80bn euros ($82-110bn; £51-68bn).
Dublin says there are no talks on an application for emergency EU funding.
A spokesman for Ireland's department of finance said the country was funded until the middle of 2011, the public-service RTE broadcaster reported.
RTE had earlier said talks had been held on how a bail-out might happen in a theoretical worst-case scenario.
The European Commission would not formally comment on the matter.
Eurozone officials told the Reuters news agency on Friday that discussions were under way, with one saying that it was "very likely" Ireland would receive financial assistance.
The head of the International Monetary Fund (IMF), Dominique Strauss-Kahn, said on Saturday that it had not been asked for aid.
"So far I have not had a request, and I think Ireland can manage well," he told reporters at the Apec summit in Yokohama.
The IMF and EU had to step in with a 110bn-euro bailout package for Greece in May, sparking a Europe-wide sovereign debt crisis.
BBC business correspondent Joe Lynam says any bailout would not be agreed this weekend, but might though come as early as next month.
A meeting of the Eurogroup, composed of the EU member states whose currency is the euro, is scheduled for 6 December.
The Economic and Financial Affairs Council (Ecofin) - comprising the economics and finance ministers of eurozone countries - will gather the following day.
Lastly, the full European Council is to meet on 16 and 17 December.
By-election
Since 2008, Ireland has suffered the worst property collapse of all developed economies, with house values falling between 50% and 60%.
Our correspondent says the Irish government has also all but nationalised the country's banking system, which had lent recklessly at an estimated cost of 40bn to 50bn euros.
The country has promised the EU it will bring its underlying deficit down from 12% of economic output to 3% by 2014. Its current deficit is an unprecedented 32% of gross domestic product, if the one-off cost of bad debts in the Irish banking system is included.
The Irish government, which has a flimsy majority in parliament, is set to publish another draconian budget on 7 December, which will make spending cuts or tax rises totalling 6bn euros, and aims to bring the deficit down to between 9.5-9.75% next year, he adds.
That parliamentary majority is likely to be cut to only two on 25 November, when a by-election will be held that the governing Fianna Fail party is likely to lose.
The government had left the Donegal South West seat empty for 17 months but the Republic's second-highest court recently ruled that the delay was unreasonable. Three other by-elections are also required.
Investors fear the budget cuts are likely to worsen the country's already deep recession, leading to further losses to the government via falling tax revenues and higher benefit payments.
Source: BBC
www.bbc.co.uk
Monday, November 08, 2010
EU visits Dublin as worries mount
Meanwhile financial markets increasingly fear the government will default on its debts, with Irish bond yields hitting new record highs.
The Irish parliament will vote in December on the budget.
The country has promised the EU it will bring its underlying deficit down from 12% of economic output to 3% by 2014.
The Irish Republic's current deficit is an unprecedented 32% of gross domestic product, if the one-off cost of bad debts in the state-guaranteed Irish banking system is included.
The draft budget will include a record 6bn euros (£5.2bn, $8.4bn) of spending cuts, and aims to bring the deficit down to between 9.5-9.75% next year.
Full details of the budget - which needs the EU's endorsement - will be published on 7 December.
Unreasonable delay
However, concerns are mounting that the Dail may not pass the budget.
The opposition Fine Gael party, while agreeing that the budget needs to be brought under control, has said it does not plan to support the budget because it has no confidence in the government.
The government has delayed four by-elections to the parliament, which have the potential to deprive it of its majority of just three seats.
After a ruling by the Republic's second-highest court, the government has agreed to hold the longest-delayed by-election on 25 November.
The Donegal South seat has remained vacant for 17 months, which in the court's opinion is an unreasonable delay.
However, the government said it would not hold the other three elections until the Irish supreme court had heard its appeal against the lower court's ruling.
Buyers' strike
Whether or not the budget passes, markets are increasingly concerned that Dublin will find its debt trap impossible to escape from.
Investors fear that the budget cuts are likely to worsen the country's already deep recession, leading to further losses to the government via falling tax revenues and higher benefit payments.
And there is concern that there may be more big write-downs of bad debts to come from the Irish banking system.
Writing in the Irish Times, economist Morgan Kelly of University College, Dublin, warned that losses at the other state-guaranteed banks could more than equal the approximately 30bn euros that the Irish government has already suffered at Anglo Irish Bank.
The annual yield on the Irish Republic's benchmark 10-year bond hit a record high of 7.84% on Monday, as investors demanded a higher return to compensate them for the risk of a debt default.
The difference in yield between the Irish bond and its German counterpart - which measures their relative riskiness - also hit a new high of 5.56%.
Some investors warned that the Irish government may face a "buyers' strike" by bond investors when it next needs to borrow from the market by the middle of next year.
If so, the Irish Republic may have to turn to the EU's new sovereign bail-out fund.
Source:BBC
www.bbc.com
The Irish parliament will vote in December on the budget.
The country has promised the EU it will bring its underlying deficit down from 12% of economic output to 3% by 2014.
The Irish Republic's current deficit is an unprecedented 32% of gross domestic product, if the one-off cost of bad debts in the state-guaranteed Irish banking system is included.
The draft budget will include a record 6bn euros (£5.2bn, $8.4bn) of spending cuts, and aims to bring the deficit down to between 9.5-9.75% next year.
Full details of the budget - which needs the EU's endorsement - will be published on 7 December.
Unreasonable delay
However, concerns are mounting that the Dail may not pass the budget.
The opposition Fine Gael party, while agreeing that the budget needs to be brought under control, has said it does not plan to support the budget because it has no confidence in the government.
The government has delayed four by-elections to the parliament, which have the potential to deprive it of its majority of just three seats.
After a ruling by the Republic's second-highest court, the government has agreed to hold the longest-delayed by-election on 25 November.
The Donegal South seat has remained vacant for 17 months, which in the court's opinion is an unreasonable delay.
However, the government said it would not hold the other three elections until the Irish supreme court had heard its appeal against the lower court's ruling.
Buyers' strike
Whether or not the budget passes, markets are increasingly concerned that Dublin will find its debt trap impossible to escape from.
Investors fear that the budget cuts are likely to worsen the country's already deep recession, leading to further losses to the government via falling tax revenues and higher benefit payments.
And there is concern that there may be more big write-downs of bad debts to come from the Irish banking system.
Writing in the Irish Times, economist Morgan Kelly of University College, Dublin, warned that losses at the other state-guaranteed banks could more than equal the approximately 30bn euros that the Irish government has already suffered at Anglo Irish Bank.
The annual yield on the Irish Republic's benchmark 10-year bond hit a record high of 7.84% on Monday, as investors demanded a higher return to compensate them for the risk of a debt default.
The difference in yield between the Irish bond and its German counterpart - which measures their relative riskiness - also hit a new high of 5.56%.
Some investors warned that the Irish government may face a "buyers' strike" by bond investors when it next needs to borrow from the market by the middle of next year.
If so, the Irish Republic may have to turn to the EU's new sovereign bail-out fund.
Source:BBC
www.bbc.com
Sunday, November 07, 2010
Fed's Bernanke defends new economic recovery plan
US Federal Reserve Chairman Ben Bernanke has backed the the central bank's new $600bn (£371bn) package to boost the economy.
And he has rejected fears that it may spur inflation.
Some Fed officials worry the money being pumped into the economy could create inflation or speculative bubbles in the prices of bonds or commodities.
But Mr Bernanke says the programme, unveiled on Wednesday, will not push inflation to "super ordinary" levels.
Criticism
Germany, China, Brazil and South Africa have criticised the US plan, with the German Finance Minister Wolfgang Schaeuble saying it was "clueless" and would create "extra problems for the world".
China's Central Bank head Zhou Xiaochuan has urged global currency reforms, while South Africa said developing countries would suffer most.
South Africa's finance minister Pravin Gordhan warned that "developing countries, including South Africa, would bear the brunt of the US decision to open its flood gates without due consideration of the consequences for other nations."
The US policy "undermines the spirit of multilateral co-operation that G20 leaders have fought so hard to maintain during the current crisis," he said.
The heads of state and government of the G20 group of the world's leading nations is due to meet in a week in South Korea, with currencies and trade imbalances high on the agenda.
Dual mandate
"We're not in the business of trying to create inflation, our purpose is to provide additional stimulus to help the economy recover and to avoid potentially additional disinflation, which I think we all agree could also be worrisome," Mr Bernanke said at the weekend.
He said the Fed was bound by a dual mandate for low and stable prices and firm employment, and by a duty to support the economy.
"We are committed to our price stability objective," said Mr Bernanke.
"I have rejected any notion that we are going to raise inflation to a supra-normal level.
"We've had a very significant disinflation since the beginning of the crisis. We should not be satisfied with a situation where we have both a large amount of slack on the employment side and inflation which is below our generally agreed upon level and seems to be declining over time."
That, he said, was the motivation for taking the action which will see the Fed buy $600bn worth of government bonds in a bid to make loans cheaper and get Americans to spend more.
Source:BBC
www.bbc.com
And he has rejected fears that it may spur inflation.
Some Fed officials worry the money being pumped into the economy could create inflation or speculative bubbles in the prices of bonds or commodities.
But Mr Bernanke says the programme, unveiled on Wednesday, will not push inflation to "super ordinary" levels.
Criticism
Germany, China, Brazil and South Africa have criticised the US plan, with the German Finance Minister Wolfgang Schaeuble saying it was "clueless" and would create "extra problems for the world".
China's Central Bank head Zhou Xiaochuan has urged global currency reforms, while South Africa said developing countries would suffer most.
South Africa's finance minister Pravin Gordhan warned that "developing countries, including South Africa, would bear the brunt of the US decision to open its flood gates without due consideration of the consequences for other nations."
The US policy "undermines the spirit of multilateral co-operation that G20 leaders have fought so hard to maintain during the current crisis," he said.
The heads of state and government of the G20 group of the world's leading nations is due to meet in a week in South Korea, with currencies and trade imbalances high on the agenda.
Dual mandate
"We're not in the business of trying to create inflation, our purpose is to provide additional stimulus to help the economy recover and to avoid potentially additional disinflation, which I think we all agree could also be worrisome," Mr Bernanke said at the weekend.
He said the Fed was bound by a dual mandate for low and stable prices and firm employment, and by a duty to support the economy.
"We are committed to our price stability objective," said Mr Bernanke.
"I have rejected any notion that we are going to raise inflation to a supra-normal level.
"We've had a very significant disinflation since the beginning of the crisis. We should not be satisfied with a situation where we have both a large amount of slack on the employment side and inflation which is below our generally agreed upon level and seems to be declining over time."
That, he said, was the motivation for taking the action which will see the Fed buy $600bn worth of government bonds in a bid to make loans cheaper and get Americans to spend more.
Source:BBC
www.bbc.com
Thursday, November 04, 2010
Cameron reveals Silicon Valley vision for east London
Prime Minister David Cameron has unveiled plans to transform London's East End into one of the "world's great technology centres".
[justify]Firms including Google and Facebook are to invest in the East London Tech City, he said in a speech.
He hopes the area, which includes Olympic Park, will challenge California's Silicon Valley as a global hub for technology.
[b]Mr Cameron[/b] made his announcement in Shoreditch, east London.
The initiative reflects his plan to create private sector jobs to fill the hole left by public sector spending cuts.
In a speech to businesses and entrepreneurs, [b]Mr Cameron[/b] said: "Right now, Silicon Valley is the leading place in the world for hi-tech growth and innovation.
"But there's no reason why it has to be so predominant.
'[b]Creativity and energy[/b]'
"Our ambition is to bring together the creativity and energy of Shoreditch and the incredible possibilities of the Olympic Park to help make east London one of the world's great technology centres."
He said the response from international technology firms and venture capitalists to the government's proposals had been "overwhelming".
Firms planning to invest in the area, which will stretch from Old Street to the Olympic Park, include Cisco, Intel and British Telecom.
The Olympic Park Legacy Company will provide office space in the Olympic Park.
[b]Mr Cameron[/b] said the government is committed to ensuring the UK can become "the most attractive place in the world" for innovative firms to start up.[/justify]
Source: BBC
www.bbc.co.uk
[justify]Firms including Google and Facebook are to invest in the East London Tech City, he said in a speech.
He hopes the area, which includes Olympic Park, will challenge California's Silicon Valley as a global hub for technology.
[b]Mr Cameron[/b] made his announcement in Shoreditch, east London.
The initiative reflects his plan to create private sector jobs to fill the hole left by public sector spending cuts.
In a speech to businesses and entrepreneurs, [b]Mr Cameron[/b] said: "Right now, Silicon Valley is the leading place in the world for hi-tech growth and innovation.
"But there's no reason why it has to be so predominant.
'[b]Creativity and energy[/b]'
"Our ambition is to bring together the creativity and energy of Shoreditch and the incredible possibilities of the Olympic Park to help make east London one of the world's great technology centres."
He said the response from international technology firms and venture capitalists to the government's proposals had been "overwhelming".
Firms planning to invest in the area, which will stretch from Old Street to the Olympic Park, include Cisco, Intel and British Telecom.
The Olympic Park Legacy Company will provide office space in the Olympic Park.
[b]Mr Cameron[/b] said the government is committed to ensuring the UK can become "the most attractive place in the world" for innovative firms to start up.[/justify]
Source: BBC
www.bbc.co.uk
Canada blocks BHP takeover bid for Potash
The Canadian government has blocked mining giant BHP Billiton's hostile takeover bid for the fertiliser group Potash Corporation.
The government said it was not convinced that the deal was in the Canadian interest.
BHP said it was "disappointed" with the decision, but believed that the deal would benefit Canada.
BHP now has 30 days to convince Canada the deal should be approved before the government makes its final ruling.
"In Canada, our natural resources are an important economic driver," said Canada's Industry Minister Tony Clement.
"I have come to the conclusion that BHP Billiton does not present a likely net benefit to Canada."
In response, BHP said that it would continue to cooperate with Mr Clement and would "review its options".
Mounting opposition
BHP made a $38.6bn (£23.7bn) bid for the Saskatchewan-based company in August.
Last month, the province's premier asked the Canadian government to block the bid.
Potash Corporation itself had already asked a US District Court in Chicago to block it, on the basis of BHP's "false statements and half-truths".
BHP said the lawsuit was "entirely without merit".
By law, government officials in Ottawa must review takeovers by foreign companies to make sure that Canada could gain a net benefit from any deal.
Anglo-Australian BHP Billiton is the world's largest mining company, while Potash Corporation controls more than 25% of the world's supply of potash - a common name given to salts mined for fertiliser.
The government said it was not convinced that the deal was in the Canadian interest.
BHP said it was "disappointed" with the decision, but believed that the deal would benefit Canada.
BHP now has 30 days to convince Canada the deal should be approved before the government makes its final ruling.
"In Canada, our natural resources are an important economic driver," said Canada's Industry Minister Tony Clement.
"I have come to the conclusion that BHP Billiton does not present a likely net benefit to Canada."
In response, BHP said that it would continue to cooperate with Mr Clement and would "review its options".
Mounting opposition
BHP made a $38.6bn (£23.7bn) bid for the Saskatchewan-based company in August.
Last month, the province's premier asked the Canadian government to block the bid.
Potash Corporation itself had already asked a US District Court in Chicago to block it, on the basis of BHP's "false statements and half-truths".
BHP said the lawsuit was "entirely without merit".
By law, government officials in Ottawa must review takeovers by foreign companies to make sure that Canada could gain a net benefit from any deal.
Anglo-Australian BHP Billiton is the world's largest mining company, while Potash Corporation controls more than 25% of the world's supply of potash - a common name given to salts mined for fertiliser.
Wednesday, November 03, 2010
Federal Reserve to pump $600bn into US economy
The Federal Reserve has announced that it will pump $600bn (£373bn) into the US economy by the end of June next year to try to boost the fragile recovery.
This stimulus, which equates to $75bn a month, is slightly more than many economists had expected.
The US economy grew by an annual rate of 2% between July and September, which is not enough to reduce high unemployment.
Some analysts see QE as the last chance to get the US economy back on track.
Second step
Interest rates are already close to zero, which means the Fed cannot reduce rates any further in order to boost demand - the more traditional policy used by central banks to stimulate growth.
Instead, it has announced a fresh round of QE, in which it will create money to buy long-dated government bonds. The move was widely flagged, with most analysts expecting the Fed to pump $500bn into the economy.
The programme has been dubbed QE2, after the Fed pumped $1.75tn into the economy during the downturn in its first round of QE.
It is in addition to the Fed's previously announced plan to reinvest $250bn-$300bn of repayments it is due from existing US mortgage debt investments over the coming year.
The Fed said in a statement that the "pace of recovery in output and employment remains slow. Household spending is increasing gradually, but remains constrained buy high unemployment, modest income growth, lower housing wealth and tight credit".
It added that it would "regularly review the pace of its securities purchases and the overall size of the asset-purchase programme in light of incoming information".
One member of the Fed's Open Market Committee, which decides interest rates and QE, voted against the additional stimulus measures.
Thomas Hoenig argued that further stimulus could, over time, create inflationary pressure and "destabilise the economy".
Bank lending
Opinions are divided about how effective QE2 will be, partly because of questions about how much impact the first, much larger, round of QE had.
Some credit the programme with pulling the US out of recession, while others argue that it had little impact on consumer demand and the tight credit conditions that make it hard for individuals and businesses to access bank finance.
As a result, some economists believe the Fed will have to pump far more than $500bn into the economy to make a meaningful difference.
"The bottom line is the plan provides a boost to the economy's growth, but it is not going to solve our problems," said Mark Zandi, chief economist at Moody's Analytics.
"Even with the Fed's action, we're going to feel uncomfortable about the economy in the next six to 12 months."
Slow growth
What most do agree on, however, is that the Fed had to do something.
The US economy grew at an annualised rate of 2% between July and September.
The annualised rate is the rate at which the economy would grow over a year if the three-month growth rate were replicated over all four quarters.
While this was an improvement on the 1.7% annualised growth seen between April and June, it was less than the 3.7% annualised growth recorded in the first three months of the year.
Together, these growth rates are below the historical rates posted by the US economy during recoveries from past recessions.
Also a cause for concern is the fact that growth in business inventories made up more than two-thirds of the annualised 2% third-quarter growth - in other words, businesses simply re-stocking following the downturn.
Job losses
Such modest rates of growth are having little impact on the high level of unemployment in the US, which currently stands at 9.6%.
Official figures show that the economy lost a 95,000 jobs in September, as public-sector cuts outpaced hiring by the private sector.
This was almost double the figure for August, when 54,000 jobs were lost.
It is this high level of unemployment that is acting as a key drag on economic growth.
This stimulus, which equates to $75bn a month, is slightly more than many economists had expected.
The US economy grew by an annual rate of 2% between July and September, which is not enough to reduce high unemployment.
Some analysts see QE as the last chance to get the US economy back on track.
Second step
Interest rates are already close to zero, which means the Fed cannot reduce rates any further in order to boost demand - the more traditional policy used by central banks to stimulate growth.
Instead, it has announced a fresh round of QE, in which it will create money to buy long-dated government bonds. The move was widely flagged, with most analysts expecting the Fed to pump $500bn into the economy.
The programme has been dubbed QE2, after the Fed pumped $1.75tn into the economy during the downturn in its first round of QE.
It is in addition to the Fed's previously announced plan to reinvest $250bn-$300bn of repayments it is due from existing US mortgage debt investments over the coming year.
The Fed said in a statement that the "pace of recovery in output and employment remains slow. Household spending is increasing gradually, but remains constrained buy high unemployment, modest income growth, lower housing wealth and tight credit".
It added that it would "regularly review the pace of its securities purchases and the overall size of the asset-purchase programme in light of incoming information".
One member of the Fed's Open Market Committee, which decides interest rates and QE, voted against the additional stimulus measures.
Thomas Hoenig argued that further stimulus could, over time, create inflationary pressure and "destabilise the economy".
Bank lending
Opinions are divided about how effective QE2 will be, partly because of questions about how much impact the first, much larger, round of QE had.
Some credit the programme with pulling the US out of recession, while others argue that it had little impact on consumer demand and the tight credit conditions that make it hard for individuals and businesses to access bank finance.
As a result, some economists believe the Fed will have to pump far more than $500bn into the economy to make a meaningful difference.
"The bottom line is the plan provides a boost to the economy's growth, but it is not going to solve our problems," said Mark Zandi, chief economist at Moody's Analytics.
"Even with the Fed's action, we're going to feel uncomfortable about the economy in the next six to 12 months."
Slow growth
What most do agree on, however, is that the Fed had to do something.
The US economy grew at an annualised rate of 2% between July and September.
The annualised rate is the rate at which the economy would grow over a year if the three-month growth rate were replicated over all four quarters.
While this was an improvement on the 1.7% annualised growth seen between April and June, it was less than the 3.7% annualised growth recorded in the first three months of the year.
Together, these growth rates are below the historical rates posted by the US economy during recoveries from past recessions.
Also a cause for concern is the fact that growth in business inventories made up more than two-thirds of the annualised 2% third-quarter growth - in other words, businesses simply re-stocking following the downturn.
Job losses
Such modest rates of growth are having little impact on the high level of unemployment in the US, which currently stands at 9.6%.
Official figures show that the economy lost a 95,000 jobs in September, as public-sector cuts outpaced hiring by the private sector.
This was almost double the figure for August, when 54,000 jobs were lost.
It is this high level of unemployment that is acting as a key drag on economic growth.
Santander UK chief to take over as Lloyds head
Antonio Horta-Osorio, head of Santander's UK business, is to take over from Eric Daniels as chief executive of Lloyds Banking Group.
The appointment is a coup for Lloyds, as Mr Horta-Osorio has built a strong reputation at the Spanish bank after leading a series of bold UK acquisitions and has kept the business in good shape throughout the financial crisis. He had been considered a potential successor to Alfredo Saenz, chief executive of Santander.
Mr Daniels, who had been under pressure to step down since Lloyds' controversial acquisition of HBOS, the troubled lender, said in September that he would retire next year.
Lloyds said on Wednesday that Mr Horta-Osorio would take over in March 2011. The announcement may come as a surprise given that Lloyds had recently signalled that the succession process was still in the early stages.
Mr Daniels returned Lloyds to profitability in the first half of the year and has overseen the bulk of the integration of the HBOS business, acquired at the height of the financial crisis.
However, Mr Horta-Osorio faces a number of big challenges. He will be charged with overseeing the disposal of the UK government's 41 per cent sake in Lloyds and will also have to negotiate the forced sale of 600 of its UK branches, as requested by European regulators.
Mr Horta-Osorio will be in a good position to lead this sale having recently overseen Santander's purchase of 300 retail branches that were sold by Royal Bank of Scotland.
Following a strong first half, Lloyds struck a note of caution on Tuesday about its performance in the third quarter, saying the two drivers of its recovery -- net interest margins and falling impairments -- had only been "modest".
Mr Horta-Osorio's defection is a blow to Santander, which is set to list its UK business on the London Stock Exchange in the first half of next year.
The bank has lined up Ana Patrica Botin, the daughter of Santander chairman Emilio Botin, to replace Mr Horta-Osorio as head of the UK business, though it has yet to announce the appointment.
Source: FT.com
The appointment is a coup for Lloyds, as Mr Horta-Osorio has built a strong reputation at the Spanish bank after leading a series of bold UK acquisitions and has kept the business in good shape throughout the financial crisis. He had been considered a potential successor to Alfredo Saenz, chief executive of Santander.
Mr Daniels, who had been under pressure to step down since Lloyds' controversial acquisition of HBOS, the troubled lender, said in September that he would retire next year.
Lloyds said on Wednesday that Mr Horta-Osorio would take over in March 2011. The announcement may come as a surprise given that Lloyds had recently signalled that the succession process was still in the early stages.
Mr Daniels returned Lloyds to profitability in the first half of the year and has overseen the bulk of the integration of the HBOS business, acquired at the height of the financial crisis.
However, Mr Horta-Osorio faces a number of big challenges. He will be charged with overseeing the disposal of the UK government's 41 per cent sake in Lloyds and will also have to negotiate the forced sale of 600 of its UK branches, as requested by European regulators.
Mr Horta-Osorio will be in a good position to lead this sale having recently overseen Santander's purchase of 300 retail branches that were sold by Royal Bank of Scotland.
Following a strong first half, Lloyds struck a note of caution on Tuesday about its performance in the third quarter, saying the two drivers of its recovery -- net interest margins and falling impairments -- had only been "modest".
Mr Horta-Osorio's defection is a blow to Santander, which is set to list its UK business on the London Stock Exchange in the first half of next year.
The bank has lined up Ana Patrica Botin, the daughter of Santander chairman Emilio Botin, to replace Mr Horta-Osorio as head of the UK business, though it has yet to announce the appointment.
Source: FT.com
Tuesday, November 02, 2010
Australia unexpectedly raises rates
By Peter Smith, FT.com
(FT) -- Australia's central bank has defied market predictions by lifting its official interest rate by 25 basis points to 4.75 per cent as it attempts to damp inflationary pressures as the country's economic recovery gathers pace.
The surprise move on Tuesday lifted the Australian dollar by as much as 1.1 per cent to US$0.9993.
Lifting rates for the first time since May, the Reserve Bank of Australia warned the country's economy was "subject to a large expansionary shock from the high terms of trade and has relatively modest amounts of spare capacity".
Seventeen out of 24 economists surveyed by Bloomberg had expected rates to be held steady although many had predicted an increase before the year end.
The central bank has now raised rates seven times since October last year when they hit a 49-year low of 3 per cent. Australia stood alone among the developed world by narrowly avoiding technical recession during the global financial crisis and its central bank was the first among the Group of 20 nations to begin raising rates in the aftermath of the downturn.
Canada, Norway, New Zealand and other nations have since tightened monetary policy, although not as aggressively as Australia which is enjoying boom conditions in its mining industry.
Glenn Stevens, RBA governor, said concerns about a larger than expected slowdown in China, Australia's top trading partner, had lessened, while most commodity prices had firmed.
"The [commodity] prices most important to Australia remain at very high levels, with the result that the terms of trade are at their highest since the early 1950s," Mr Stevens said. Australia's biggest exports are coal and iron ore.
"While there has been a degree of caution in private spending behaviour thus far, the rise in the terms of trade, which is now boosting national income very substantially, is likely to lead to stronger private spending over the next couple of years, especially in business investment," he said.
Annette Beacher, senior strategist at TD Securities, said the deteriorating outlook for inflation in Australia had driven the latest rate hike and the central bank had now made "the official jump into restrictive monetary policy".
She predicted that the central bank will raise rates to 5.75 per cent "over the next year".
(FT) -- Australia's central bank has defied market predictions by lifting its official interest rate by 25 basis points to 4.75 per cent as it attempts to damp inflationary pressures as the country's economic recovery gathers pace.
The surprise move on Tuesday lifted the Australian dollar by as much as 1.1 per cent to US$0.9993.
Lifting rates for the first time since May, the Reserve Bank of Australia warned the country's economy was "subject to a large expansionary shock from the high terms of trade and has relatively modest amounts of spare capacity".
Seventeen out of 24 economists surveyed by Bloomberg had expected rates to be held steady although many had predicted an increase before the year end.
The central bank has now raised rates seven times since October last year when they hit a 49-year low of 3 per cent. Australia stood alone among the developed world by narrowly avoiding technical recession during the global financial crisis and its central bank was the first among the Group of 20 nations to begin raising rates in the aftermath of the downturn.
Canada, Norway, New Zealand and other nations have since tightened monetary policy, although not as aggressively as Australia which is enjoying boom conditions in its mining industry.
Glenn Stevens, RBA governor, said concerns about a larger than expected slowdown in China, Australia's top trading partner, had lessened, while most commodity prices had firmed.
"The [commodity] prices most important to Australia remain at very high levels, with the result that the terms of trade are at their highest since the early 1950s," Mr Stevens said. Australia's biggest exports are coal and iron ore.
"While there has been a degree of caution in private spending behaviour thus far, the rise in the terms of trade, which is now boosting national income very substantially, is likely to lead to stronger private spending over the next couple of years, especially in business investment," he said.
Annette Beacher, senior strategist at TD Securities, said the deteriorating outlook for inflation in Australia had driven the latest rate hike and the central bank had now made "the official jump into restrictive monetary policy".
She predicted that the central bank will raise rates to 5.75 per cent "over the next year".
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