Economy

You know you’re in a bull market when bad news is simply shrugged aside and even the most indifferent events are greeted exuberantly. The result of February’s Italian general election, which drags the future of the eurozone back into question, would have induced market panic had it come nine months ago. But the world’s equity markets barely blinked before resuming an attempt to breach all-time peaks. Something similar happened last week when the US Congress failed to agree how to avoid the package of mandatory spending cuts known as ‘the sequester’. When Republicans and Democrats came up with these cuts in 2011, they were so potentially damaging it was unthinkable

Panic, once let loose, is hard to corral. And there seems to be plenty of panic on the Tory benches at Westminster. The Eastleigh by-election result, the stagnant economy and the rising sense that the Prime Minister has somehow lost his way all contribute to this. Each fresh setback – or perceived setback – now has an impact disproportionate to the actual size or importance of the problem. These things are no longer measured on a linear scale. Read, for instance, Ben Brogan’s analysis in today’s Telegraph and you will perceive an under-current of deep panic presently afflicting the Tory tribe in London. Similarly, when Paul Goodman is writing –

Jobs are being created in Britain, but the economy isn’t growing. In the last year, the number of people in work rose by 2 per cent, but economic output rose by just 0.3 per cent. As the below graph shows, employment is now 0.7 per cent above its pre-recession peak, whereas GDP is still 3 per cent below it. This adds up to a big drop in productivity. Output per worker is now 3.8 per cent below its 2008 Q1 level, and 13.3 per cent lower than it would be if the pre-recession trend had continued. In a piece for this week’s issue, The Spectator’s business editor Martin Vander Weyer

George Osborne spent an hour in front of the 1922 this evening. 40 Tory MPs took the opportunity to promote their own Budget ideas to him. From what I understand, the tone of the meeting was cordial with Osborne in relaxed form. A big theme was the cost of living with three MPs including Rob Halfon pushing the Chancellor on fuel duty. Osborne’s responses were non-committal but significantly he didn’t say that binning the fuel duty rise scheduled for September was unaffordable. Instead, a distinct vibe was given off that these MPs concerns would be accommodated. Two other MPs– Steve Brine and Henry Smith—made the case for a cut in

Forget Moody’s. If you want to see market panic, just look at Italy. As Isabel reported this morning, the unexpectedly strong performance of Beppe Grillo’s anti-establishment party, the Five Star Movement, has produced an extremely close election result, and no clear winner. While the electoral system guarantees a majority in the Chamber of Deputies for the group with the largest vote share (Pier Luigi Bersani’s centre-left group), it does not do so for the Senate. With no group securing a majority in the upper house, Italy now faces coalition negotiations and likely another election. Citi calls this ‘probably the worst possible outcome for Italy’ — thanks to the political uncertainty,

It seems that Moody’s downgrade of UK government bonds on Friday night has — so far — had more effect on the headlines than the markets. After the news on Friday night, the pound fell by about a cent against the dollar, from $1.525 to $1.515. And against the euro it fell from €1.157 to €1.147 (it’s fallen a little further this morning, to €1.144). But that’s no bigger than the drop on Wednesday on the news that Mervyn King and two other members of the Bank of England’s Monetary Policy Committee had voted in favour of more quantitative easing. And it doesn’t seem to have raised the cost of

The United Kingdom’s triple A rating is now lost with one credit rating agency, Moody’s. This is a politically difficult moment for George Osborne. Back in February 2010, he set keeping the triple A rating as one of the key tests of a Conservative government’s economic policy. His opponents will delight in pointing out that he has failed the test he has set himself, while nervousness on the Tory benches about the coalition’s economic strategy will be heightened by this news. Economically, though, I doubt that this will have much impact. In recent weeks, Britain’s debt has been trading more like that of France, which has lost its triple A

The state owning banks is not a good thing. It is, as the annual row over bonuses at RBS demonstrates, very difficult to keep politics out of the running of the business. So, it’s encouraging news that the Treasury is moving to sell the government’s 82 percent stake as soon as possible. Today, the Mail and The Independent report that George Osborne is considering simply handing over the shares to taxpayers, who would then be able to sell them when they at a time of their choosing. As I wrote earlier this month, Osborne is very keen to avoid a row over RBS bonuses in February 2015, just three months

Argentina’s foreign minister, Hector Timerman, is in town. He spoke to all the All Party Parliamentary Group on Argentina earlier this afternoon. There are close economic and social links between Britain and Argentina, extending far back into the nineteenth century; but the meeting was dominated by what was euphemistically termed ‘the islands’. Timerman began diplomatically. ‘You can speak to this Argentina,’ he assured the assembled honourable members and lords. ‘This Argentina is ready to talk.’ This sounded encouraging, a welcome contrast to President Kirchner’s bellicosity. Timerman spoke about the need for ‘frank and open’ discussions that did not obsess about ‘the past’. The future is what counts. Deputy Speaker of the Commons Lindsay

‘We’d borrow more, but we’d use it better.’ That was the message Ed Miliband found himself trying to get across when attacking David Cameron at PMQs today. He accused the Prime Minister of ‘borrowing for failure’, saying: ‘He is borrowing for failure: that is the reality, and he is borrowing more for failure. That is the reality of his record. And here is the truth: they said they’d balance the books, they said they’d get growth, they haven’t.’ So Labour would borrow for success. What would that mean? Miliband decided to tease us by not mentioning how he’d do better borrowing. The two leaders traded quotes from various IMF staff

‘George Osborne is under pressure to tear up his austerity programme after Boris Johnson called on the government to drop its ‘hair-shirt, Stafford Cripps agenda,’ reports the delighted Guardian today. Even Boris is against it! Even he can see that the obvious solution to our debt crisis is even more debt! Except, as you’d expect, it’s all nonsense. Kamal Ahmed at the Telegraph got it right: Boris’s problem is with Osborne’s language: talking about pain, rather than recovery. He quotes Boris: ‘We need to junk the rhetoric of austerity and be confident. I will be unveiling a seven point economic plan to drive jobs and growth in London which drives the

We can all overdo it a little at Christmas, but the government’s monthly overdraft statement — which came in this morning — is of a different order. In December, HM Treasury spent £15.4 billion more than it received in tax, a worse result than December last year where the monthly deficit was £14.8 billion. And why? Well, growth has been sluggish (we may learn on Friday that the UK economy is shrinking again) so tax revenues have fallen. But, more worryingly, state spending seems to be running out of control too. The below graph, from Citi, sums it up. The blue is what is expected (from those fiscal Mystic Megs at