Phillip Inman

The UK Office for National Statistics reports 0.7% sales fall despite a near 1% rise in food sales. Sales volumes declined as department stores and homeware retailers suffered from March snow. The decline was smaller than the -0.8% forecast…

 


Powered by Guardian.co.ukThis article titled “Retail sales hit by March snow” was written by Phillip Inman, economics correspondent, for theguardian.com on Thursday 18th April 2013 10.15 UTC

Retail sales fell by more than expected in March after heavy snowfall deterred shoppers from venturing out to buy clothes and homeware.

According to official figures, sales volumes declined by 0.7% last month despite a near 1% rise in food sales as department stores and homeware retailers suffered from the cold weather.

James Knightley, UK economist at ING bank, said although sales were weaker than expected, they offered "a little more reassurance" that the UK would avoid falling into its third recession since the financial crisis began.

"Nonetheless, yesterday's employment numbers were not great and softer global figures still lead us to believe that the Bank of England will come in with more stimulus, potentially as soon as the May meeting when they produce new economic forecasts," he said.

First-quarter growth figures for the UK are released in a week, and economists remain split on whether they will show an unprecedented triple-dip downturn.

Chris Williamson, chief economist at Markit, the financial data provider, said higher retail sales figures at the end of last year to February showed the economy had regained some of its momentum, but, like Knightley, he warned the bounce could be short-lived.

"The upward trend in sales has followed a steady improvement in consumer confidence since late last year. Surveys of households show confidence had picked up further in March, linked in part to people being busier at work, which both improved job security and raised take-home pay. However, there is a worry that rising unemployment, weak pay growth and high inflation could reverse this trend in coming months," he said.

Woman picking up shopping bags
Retail sales have proved volatile in recent months, with a 0.7% decline in January. Photograph: Winston Davidian/Getty Images

Alan Clarke, UK economist at Scotia Bank, said the retail figures were disappointing and reflected a weakening economy that could still show a triple-dip recession.

"With wage inflation at around 1% and headline inflation at close to 3%, the maths don't add up to much in the way of consumer spending growth – rather the opposite – falling consumer spending by mid-year," he said. "Let's hope the Bank of England's new tactic of targeting business investment works."

Retail sales have proved volatile in recent months, with a 0.7% decline in January, when snow was again a factor, being followed by a 2.1% rise in February.

The Office for National Statistics said the March figures pushed sales over the year into a decline of 0.5%.

Knightley said: "The figure was always going to be weak, with the heavy snowfall in the month, which particularly hurt clothing retailers (with sales down 3.1% month on month), given they had started to stock their spring fashion ranges.

"The ONS reports that it was the coldest March since 1962 with department stores and household goods stores also particularly depressed (down 4% and 6.2% month on month respectively)."

High petrol prices also deterred motorists from filling up their tanks – the ONS figures showed a 1% decline in petrol sales.

The poor figures were rescued only by the consistent rise of food sales, which was repeated in March. Food sales rose 0.9%, the largest gain since July 2011.

Sales of goods over the internet gained momentum, with a 6% rise.

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USA 

Britain’s economy remains fragile but ‘improvements are beginning to be seen’ says OECD chief economist. According to OECD, the UK is expected to show annualised growth of 0.5% in the first quarter, and 1.4% in the second quarter of 2013…

 


Powered by Guardian.co.ukThis article titled “UK economy should avoid triple-dip recession, OECD forecasts” was written by Josephine Moulds and Phillip Inman, for The Guardian on Thursday 28th March 2013 20.17 UTC

Britain's economy is getting stronger and should avoid a triple-dip recession, according to the Organisation for Economic Co-operation and Development. The Paris-based thinktank sounded a positive note as official figures showed that the services sector, which contracted at the end of last year, returned to growth in January.

Barring changes in government policy, the UK is expected to have grown at an annual rate of 0.5% in the first quarter and to grow at 1.4% in the second.

Pier Carlo Padoan, the OECD's chief economist, said: "The situation [in the UK] is still fragile. I think the policy course, both in terms of monetary and fiscal policy, is going in the right direction and improvements are beginning to be seen."

Until recently, the OECD and the International Monetary Fund had been warning George Osborne that his austerity policies risked prolonging the longest economic depression in 100 years. Padoan had called on the chancellor to relax spending cuts and put forward growth policies, in a shift to a Plan B for the economy.

But the more upbeat outlook from the OECD was reinforced by a survey of the UK's services industry that showed an improvement during January, offsetting a weakening picture in the construction and manufacturing sectors. The Office for National Statistics said the services sector, accounting for three-quarters of economic activity, expanded by 0.3% on the previous month and was 0.8% ahead of the same month a year earlier.

Unfortunately for ministers hoping to see an improvement across the private sector, the strongest element of the services index in recent years has proved to be government spending. The financial services sector has almost recovered to its pre-recession peak, along with business services, leaving the distribution, hotels and restaurants, transport, storage and communication sectors well below their high-water mark.

Chris Williamson, chief economist of financial data provider Markit, said the services data combined with strong retail sales would persuade the Bank of England to stay its hand when it meets next week.

Capital Economics said an increase in quantitative easing from the current £375bn the Bank of England had pumped into the economy would probably need to wait until at least the autumn, when incoming governor Mark Carney would have established a new remit focused on growth.

The OECD said activity was picking up in many major economies, with the global outlook improving since its last update in November. It expected the US to rebound in the first three months of this year, while Japan had been boosted by a new growth strategy and stimulus package. But it said improvements in financial markets around the globe had not been fully reflected in real economic activity, in part because confidence remained low.

Padoan warned that the flood of cheap money into the system, via generous stimulus packages, had also led to some "excessive risk-taking". "We have now learned that imbalances build up in a way we tend to ignore," he said. "Let's watch prices of assets going up which are not warranted by fundamentals. Let's be very careful. At the same time, let's be careful of not putting a brake on the recovery that is slowly materialising. It's a delicate balancing act."

The OECD said a meaningful recovery in Europe would take longer than in the rest of the G7. It blamed this on a deteriorating jobs market, which had depressed consumer confidence. "Especially in Europe, the rise of long-term unemployment, with more of the unemployed moving off unemployment insurance on to less generous social benefits, is worsening poverty and inequality," it said.

The thinktank also highlighted the growing divergence between Germany, which it expects to pick up strongly in the first half of this year, and other economies, which are forecast to either contract or show minimal growth.

Germany is expected to grow by 2.3% on an annual basis in the first quarter, and then 2.6% in the second. By contrast, France is forecast to shrink by 0.6% on an annual basis in the first quarter, followed by 0.5% annualised growth in the second quarter.

Growth in emerging markets is still much faster than in the G7 and these countries will drive the global economy this year. The OECD said annualised growth in China was expected to continue to be well above 8% in the first half of 2013.

US economy perking up

The number of Americans filing new claims for unemployment benefits rose last week, but not enough to suggest the labour market recovery was taking a step back.

Other data showed the economy expanded at an annual rate of 0.4% in the fourth quarter, more than the government had estimated.

The reports reinforced the view that the US economy perked up in the first quarter, although it still appeared vulnerable to fiscal austerity measures that kicked in early in the year.

"The underlying growth trend is showing some encouraging signs, but the key risk is how much fiscal tightening we'll see this year," said Laura Rosner, economist at BNP Paribas in New York.

While jobless claims increased more than expected last week, they have trended lower this year and remain near five-year lows. Last week, initial claims for state unemployment benefits increased 16,000 to a seasonally adjusted 357,000, the labor department said.

The four-week moving average for new claims, a better measure of labour market trends, rose 2,250 to 343,000.

Still, for many economists a trend reading below the 350,000 level points to a firm pace of hiring in March. Reuters, Washington

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Inflation is forecast to remain above the central bank’s 2% target until at least the end of 2015 – peaking at 3.2% later this year. The Bank of England governor insisted a “recovery is in sight” but warned the path for the UK economy will not be smooth…



Powered by Guardian.co.ukThis article titled “UK set for low GDP growth for at least two years, Bank of England warns” was written by Phillip Inman, economics correspondent, for guardian.co.uk on Wednesday 13th February 2013 12.38 UTC

Britain will suffer low growth and a squeeze on average incomes for at least another two years, the Bank of England warned on Wednesday, signalling that the economy will remain weak until the next election.

Inflation will remain above the central bank’s 2% target until at least the end of 2015, peaking at 3.2% in the second half of this year, it said. Growth, which is not expected to get above 1% this year, will fail to gain any momentum until 2015 when the economy will regain the size it last achieved in 2007.

The Bank of England governor, Sir Mervyn King, insisted a “recovery is in sight” but warned the path ahead for the UK economy will not be smooth in part because there are limits to what more economic stimulus can achieve.

Nevertheless, he said the central bank remained ready to do more to help the economy if needed.

“We must recognise there are limits to what can be achieved via general monetary stimulus – in any form – on its own,” he said.

Sterling tumbled on the gloomy outlook for the UK and the prospect that the Bank’s monetary policy committee, ignoring recent good news from higher construction output, will inject more funds into the economy. The pound fell to $1.55, down a cent on the previous day.

The governor appeared baffled that ministers had sanctioned large investments in green energy through higher prices and the near trebling of university fees, which raised inflation and made the MPC’s job harder.

King said it was “an own goal” by the government, though he assumed they had taken the impact on inflation into account when they agreed the policies.

His comments came as official figures showed that low wages and high inflation over recent years have badly hit household incomes.

The Office for National Statistics said the real value of average earnings has fallen back to 2003 levels after 30 years of strong growth.

It said new research has revealed average earnings peaked in 2009, but since then wage increases have been outstripped by inflation. Wages are currently running at 1.8% a year, though some areas of the economy remain buoyant.

The ONS said the economy is no larger than it was in 2005 after growth, which began to rise in the latter part of 2009 and the first half of 2010, flatlined.

The Bank of England is under pressure from monetarist economists to bring down inflation by raising interest rates to allow a period of real wages growth. Some economists believe that only with higher consumer demand will the economy regain its previous momentum.

Challenging this view are economists who argue the central bank should inject more money into the economy to improve lending conditions.

The incoming governor, Mark Carney, hinted last week that he may press for the bank to be more aggressive in its attempts to boost growth.

King said the MPC was committed to “looking through” the current high inflation because some of the rise came from one-off factors, such as the near trebling in university tuition fees, and the risk that higher interest rates would crash the economy and push inflation below its target.

“Attempting to bring inflation back to target sooner would risk derailing the recovery and undershooting the target in the medium term,” he said.

The central bank has spent £375bn on buying government bonds but has held off from increasing the programme.

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UK economy contracts more than anticipated by 0.3% in the last quarter of 2012 and is not expected to regain peak level for another two years, marking slowest recovery in a century. A triple-dip recession will occur if the economy contracts again in Q1 2013…



Powered by Guardian.co.ukThis article titled “Britain heading for triple-dip recession as GDP shrinks 0.3% in fourth quarter” was written by Phillip Inman, economics correspondent, for guardian.co.uk on Friday 25th January 2013 12.09 UTC

Britain could be on course for its third recession in four years after the economy shrank 0.3% in the last three months of 2012.

The figures were worse than expected and could put pressure on the government to consider a “plan B” that would stimulate demand.

A fall in manufacturing output dragged down the economy, countering a small rise in construction between October and December, according to the Office for National Statistics. The economy achieved zero growth for the year as a whole.

Sterling dived on the news, reflecting fears the UK will lose its AAA credit rating and status as a haven economy, though the stock market shrugged off the news, remaining at a four-year high.

George Osborne said he would not “run away” from the problems facing the UK economy: “We have a reminder today that Britain faces a very difficult economic situation. A reminder that last year was particularly difficult, that we face problems at home because of the debts built up over many years and problems abroad with the eurozone, where we export most of our products, in recession.”

The shadow chancellor, Ed Balls, called on Osborne to introduce policies which will “kickstart our flat-lining economy”. “A plan B now should include a compulsory jobs guarantee for the long-term unemployed and a temporary VAT cut to boost family incomes and our struggling high streets,” said Balls.

The Trades Union Congress (TUC) general secretary, Frances O’Grady, said the chancellor’s austerity plan had “pushed the UK economy to the brink of an unprecedented triple-dip recession”.

A triple-dip recession will occur if the economy contracts again in the first quarter of 2013. The economy remains 3.5% below its peak in 2007 and is not expected to regain its previous level for at least another two years, making it the longest recovery in 100 years.

“We are now midway through the coalition’s term of office and its economic strategy has been a complete disaster. We remain as dependent on the City as we did before the financial crash,” O’Grady said.

In the 10 quarters since the election, manufacturing has contracted by 0.4% and the construction sector has shrunk by 9%, the TUC said.

The contraction in GDP in the fourth quarter followed a near 1% rise in the third quarter when the economy was boosted by the Olympics.

A survey of economists had predicted a 0.1% drop in GDP in the fourth quarter, though several prominent analysts had forecast a bigger contraction after a series of surveys last year showed the manufacturing industry suffering from a downturn in exports.

The ONS data showed that within the manufacturing sector, mining and quarrying output suffered its biggest decline since records began because of maintenance on North Sea oil and gas fields.

In the powerhouse services sector activity ground to a halt in the fourth quarter due to the absence of the London Games boost in the previous three months.

The only bright spot was construction, which delivered a 0.3% rise in output. A post-Olympic cut in spending on sport and recreational facilities pushed down the index for government and other services by 0.7%, after an increase of 1.6% in the previous quarter. All Olympic ticket sales were counted in the previous quarter, giving the ailing economy a one-off boost.

Despite the contraction in the economy, employment has remained resilient, with figures this week showing that almost 30 million adults were in a job in the quarter to November, up by more than half a million on the previous year.

The Bank of England governor, Sir Mervyn King, said this week the UK had been slower to recover than most other countries. But he insisted there were signs of a “gentle recovery” under way and asked Britons to be patient.

Lee Hopley, chief economist at EEF, the manufacturers’ lobby group, said there was little positive news from the figures. “Even assuming some unwinding of activity from the Olympics boost in the previous quarter, this still leaves no real signs of underlying growth in the economy. The news from industry was particularly weak, with November’s sharp drop on output contributing to a rather grim fourth quarter and leaving the overall picture for manufacturing in 2012 the weakest since 2009.”

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U.K. manufacturing is down, construction is struggling, exporters are having a torrid time – and then there’s the eurozone recession. Here is a view of the current conditions in the U.K. manufacturing, housing, construction and banking sectors…



Powered by Guardian.co.ukThis article titled “UK economy: the problem sectors” was written by Phillip Inman, economics correspondent, for The Guardian on Friday 7th December 2012 20.32 UTC

Manufacturing

Industrial output is now at its lowest level since May 1992 and manufacturing is 20% down on its peak. Latest figures showed a month-on-month fall of 0.8%, far worse than economists had expected and the 16th consecutive month when manufacturing output was lower than the same month a year earlier.

The Office for National Statistics found most areas of manufacturing were on the slide, with chemical production and wood and paper manufacture leading the downturn.

A fall in the value of the pound and the opening up of new destinations for UK exports – such as Indonesia and Columbia – have failed to lift the sector, which is far more dependent on trade with the euro area than ministers would like. The British Chambers of Commerce said the sector remained well managed and prepared for an upswing, but needed more government help to boost exports to fast developing countries.

Construction

There may be plenty of cranes on the London skyline, but the construction sector outside the capital is dead. Commercial building, the lifeblood of most large firms, has failed to recover from the financial crisis. The hole in the heart of Bradford, where a Westfield shopping centre is already four years late, is an example of building projects that have remained strictly on the drawing board.

Civil engineering has suffered from a lack of infrastructure improvements after a near-£30bn cut in public investment spending. The CBI has urged the government to use the downturn to upgrade the road and rail network. The Treasury encouraging upgrades to the broadband network has failed to counteract falls in investment elsewhere.

Banking

The Bank of England has become increasingly frustrated at the unwillingness of banks to increase their lending to businesses and households. In the summer it set up an £80bn Funding for Lending scheme that allows banks to offer cheaper loans to customers. Banks have reported using the money to lower mortgage rates, but anecdotal evidence suggest older, more creditworthy customers have gained while first-time buyers remain on the sidelines. More importantly, many economists argue the loans on offer are small in comparison to the size of the problem.

The UK’s major banks remain in a dire financial situation and need to build up their capital reserves to protect themselves against another financial crash. The central bank governor, Sir Mervyn King, insisted earlier this month that UK banks were well-capitalised but said it would be “sensible” to improve their resilience further. He warned “an erosion of confidence” was damaging economic activity, creating “a spiral characteristic of a systemic crisis”.

Trade

British exporters are having a torrid time battling the headwinds of the slowing Chinese economy, the eurozone crisis and uncertainty in the US over the fiscal cliff (the tax rises and spending cuts timed for January which could halt US economic progress in its tracks).

According to the latest figures from the ONS, in the three months to October the country racked up its biggest trade deficit since records began. The trade gap widened to a record £28bn, from £25bn in the quarter ended July, the ONS said, as sales of goods into the rest of the European Union declined sharply.

George Osborne promised more help for exporters with loan and credit guarantees through the government’s UKTI export arm. But the sums remain small compared to the size of export orders and firms seem reluctant to take risks in the current economic environment.

Housing

Housebuilders have largely shed the debts acquired in the crash and become profitable again. But building remains at historic lows. The last time the UK built so few homes was in 1931.

MPs and business groups have called for a 1930s-style house building boom, but with no success so far. Ministers are planning to rip up planning rules to allow developers a clear route on greenfield sites, but even if this plan goes ahead, it will be some time before there are any spades in the ground.

Developers, which already have several years of plots on their books with planning permission, have refused to increase the number of new homes while customers are constrained by high mortgage borrowing costs. They blame the banks for withholding credit or charging too much for credit as the main reason for their inactivity.

Prices are slipping, putting another brake on investment in the sector. Halifax said prices are likely to stay flat next year after a 1.3% fall in 2012. Most families are unwilling to buy homes in a market where prices are falling, though buy-to-let investors have snapped up thousands of homes since the downturn, increasing the size of the rental market.

The eurozone

The machine at the heart of the eurozone is spluttering: the Bundesbank has sliced more than 1 percentage point off its forecast for economic expansion in Germany next year – highlighting severe aftereffects of the sovereign debt crisis.

The German central bank revealed the crushing blow to confidence and growth that has struck the euro area when it cut its projection for growth in 2013 from the 1.6% it had expected six months ago to a grim 0.4%. It also said the German economy, Europe’s largest, will grow only 0.7% this year, down from its previous forecast of 1%. The downgraded forecast shows Germany is no longer immune from the downturn in the rest of the currency bloc.

Separately, the German finance ministry said industrial output fell 2.6% in October, while manufacturing crashed by 2.4%, providing “further evidence that the economy’s backbone is quickly losing steam,” said the ING analyst Carsten Brzeski.

Without an expansive and confident Germany, it is almost certain the eurozone’s double-dip recession will continue into 2013, dragged down by severe contractions in the southern states.

There is also a feedback loop into UK trade should Germany suffer a prolonged fall in demand. Germany and the rest of the EU still comprise over 50% of UK exports, despite the government’s emphasis on redirecting trade elsewhere to rapidly developing economies in Asia, Africa and South America.

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Bank of England’s policymakers voted 8 to 1 against pumping further funds into the economy despite ongoing economic weakness. The committee was concerned about the rising value of the pound which is testing its 2012 high against the U.S. dollar…



Powered by Guardian.co.ukThis article titled “Bank of England votes against more QE” was written by Phillip Inman, economics correspondent, for guardian.co.uk on Wednesday 19th December 2012 11.57 UTC

Bank of England policymakers kept their hands firmly on the brake this month despite broad agreement that the economy remained weak and was likely to worsen slightly into the new year.

According to minutes of its meeting earlier this month, the monetary policy committee voted 8 to 1 against pumping further funds into the economy following a report that inflation is likely to stay above 2% next year.

The vote sent a clear signal that the global situation, the recession across the eurozone and the UK economy will need to deteriorate further before a majority of MPC members agree to boost the central bank’s quantitative easing beyond £375bn.

David Miles, the former City economist and external member of the MPC, argued there was enough slack in the economy to allow a boost to output without extra inflation, but his call for an increase in QE to £400bn was voted down.

Vicky Redwood, UK economist at Capital Economics, said the MPC was in “wait and see mode” and was likely to need a strong indication of a downturn before increasing the volume of QE.

“The committee’s comments suggest that more QE is not imminent. It noted that risks from the euro area seemed less pressing and that inflation was likely to remain above its target over the next year or so.

“But the MPC also gave the impression that it would not take much to tip the balance back in favour of more purchases. It noted that business surveys were consistent with flat output in the near-term and re-iterated its expectation that inflation would fall back to target in the medium-term,” she said.

The MPC has relied on its funding for lending scheme to increase credit in the absence of more QE. The committee said there were early signs of banks accessing the £80bn of cheap credit in the scheme for new mortgages and business loans, but little more than £5bn had been deployed so far.

A rise in the value of the pound was noted by the committee, which voiced concern that attempts to rebalance the economy towards exports was being undermined.

Howard Archer, chief UK economist at IHS Global Insight, said the MPC may decide to increase QE in the new year, if only to drive down the value of the pound relative to other currencies.

The Treasury’s decision to repatriate bank funds had also worked against an increase in credit, the committee said.

In November the Bank agreed to return coupon payments on the government bonds it had bought so far under the QE scheme, saying the transfer would be equivalent to more than £35bn worth of monetary easing.

However, in the minutes central bankers said the monetary impact of the transfer would be slightly smaller in the very short term than initially assumed, because it had led to a reduction in the issuance of Treasury bills rather than gilts.

Redwood said: “The government’s decision to use the transfer of cash from the QE fund to reduce the issuance of Treasury bills might imply less of a monetary easing than had gilt issuance instead been cut. Indeed, if we are right in expecting the economy to disappoint the MPC’s expectations, and eurozone tensions to re-emerge, then more QE is not too far off.”

Bank of England director Paul Fisher and chief economist Spencer Dale have both said recently that they are concerned about higher than expected inflation.

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The Japanese economy is looking decidedly shaky. Exports and domestic consumption are falling, while the current account deficit is growing. After years of rising spending and debt, the world’s third largest economy could find itself spiraling downwards…



Powered by Guardian.co.ukThis article titled “Is Japan really on the brink of a sudden downward spiral?” was written by Phillip Inman, economics correspondent, for guardian.co.uk on Friday 23rd November 2012 19.42 UTC

First Britain was compared to Greece – sunk by debt. Then when the worst of the financial crisis passed and a battered exchequer was still solvent, Britain was likened to another capitalist basket case – Japan.

With two lost decades under its belt, Tokyo is considered the capital of stasis, a place where nothing grows.

Hardly a week goes by without someone arguing that Japan’s lack of growth, its ageing population, massive debts or its strong currency spell the end of a renaissance that propelled the country into the first rank during the 1970s.

To many people the situation remains benign. If you are happy with your domestic situation, job and income, an economy that is going nowhere does little to provoke the forces of change. So far outside investors have adopted a similar view.

However, not everyone is content.

The traditional prop for a government that repeatedly spends more than it generates in taxes, is the Japanese saver. They put their money aside to lend to their own government. Japanese government bonds (JGBs) are famously 95% owned by Japanese investors (who believe misguidedly that it is better to get a return on loans to the government than pay tax, which has no return).

Japan’s savers have been ageing for some time. Every year there are fewer people putting money aside. In recent times the banks have made up the difference, but this has only made the situation worse as they tie themselves to the fortunes of the government in an ever-closer union.

Polls this week showed the refusal to pay enough tax persists and voters are turning to opposition leader Shinzo Abe’s plans to unleash unlimited amounts of free cash to push inflation up to 3% and interest rates below 0%.

This free cash is printed by the central bank and will flood the Japanese financial markets in the hope that some people will spend it. It is a scheme that has worked in the US, but in Japan is more likely to mimic the Bank of England’s quantitative easing programme, which has flopped as a spur to growth. In the UK, the people who benefit – those who discover their debt payments are cheaper – tend to hoard the savings while those without debts find their income cut as savings interest declines. All the new money gets swallowed by the banks, which are grateful because they are also suffering terribly, and recycled back to the government.

Japanese banks are by some measures in better shape than their UK counterparts, but the rest of the economy is looking decidedly shaky.

Exports fell in October by 6.5% on the previous year (imports dropped by 1.6%). Exports to the EU are down 20%, while exports to China have slumped by 11.6%, in part due to tensions over disputed islands in the East China Sea. Sony, Panasonic, Sharp are on the slide along with much of the tech sector.

Worse, domestic consumption dropped 0.5% and capital expenditure fell 3.2%, both registering the second-largest falls since the height of the 2008-09 recession.

Graham Turner at GFC Economics says Japan stands on the brink of an almost complete reversal in fortunes. After years of rising spending and debt, supported by domestic and foreign lenders, the government could find itself spiralling downwards.

He says: “The determination of the government to beat deflation via a loose fiscal policy could be the tipping factor, which drives the current account deeper into deficit. In this respect, Japan may begin to mirror the peripherals of the eurozone, prior to the euro crisis, where a loose fiscal policy goes hand in hand with poor external fundamentals.”

The poor external fundamentals he refers to are the lack of demand for Japanese goods and the increasing unease of foreign lenders at Japan’s plight. Already the interest rate the government pays on its debt has risen. It doesn’t need to go up by much to add billions of pounds to the bill.

George Osborne is also looking at rising debts and zero growth. He is relying on the Bank of England to create growth with money created in the bowels of Threadneedle Street. We didn’t want to follow Greece, and we don’t want to be the next Japan. If we continue on the same path we will undoubtedly have the same outcome.

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The Japanese economy is looking decidedly shaky. Exports and domestic consumption are falling, while the current account deficit is growing. After years of rising spending and debt, the world’s third largest economy could find itself spiraling downwards…

Ben Bernanke describes US economy as ‘far from satisfactory’ and shares concern over unemployment and growth. The Fed Chairman keeps the door open to another, third round of quantitative easing should the economy worsen…



Powered by Guardian.co.ukThis article titled “Markets pick up as Fed chairman signals possibility of third round of QE” was written by Dominic Rushe in New York and Phillip Inman, for The Guardian on Friday 31st August 2012 21.56 UTC

US central bank chief Ben Bernanke sparked a surge in share values on Friday after he signalled his willingness to embark on a third phase of money creation to boost the US economy.

The Dow Jones industrial average closed the day with a gain of 90 points after the chairman of the Federal Reserve gave a robust defence of past central bank interventions, which, traders said, prepared the ground for a third round of quantitative easing should the economic picture worsen. France’s CAC and the German DAX closed up 1%.

In his much anticipated a speech in Jackson Hole, Wyoming, Bernanke described the current economic situation as “far from satisfactory”. He said that high rates of unemployment were a “grave concern, not only because of the enormous suffering and waste of human talent it entails, but also because persistently high levels of unemployment will wreak structural damage on our economy that could last for years”.

His speech to the annual central bank symposium came ahead of September’s meeting of the Federal Reserve’s open markets committee (FOMC), which sets US economic policy. Recently released minutes from its last meeting show the committee has become increasingly concerned about the US recovery and is weighing further action.

However, since the last FOMC meeting, more positive economic news has emerged on jobs and housing. Next week the closely watched non-farm payroll survey of monthly employment trends will be released. After a sharp rise over the winter, job growth slowed in the spring, but appears to be picking up again.

He urged European leaders to make faster progress in tackling the debt crisis affecting Greece and other indebted eurozone countries. His concerns that Europe may drag the US back into recession were highlighted by figures showing that unemployment across the zone remained at an all-time high in July.

The European Union’s statistical agency, Eurostat, said 88,000 more people were without a job in July, pushing the total out of work in the eurozone to 18m, the highest level since monetary union in 1999.

The 11.3% unemployment rate, up 1.2 points from a year earlier, failed to come down after joblessness increased in Spain and bailed-out Greece. In Spain youth unemployment stood at 52.9%, in Greece at 53.8%.

Any monetary action by the Fed is likely to trigger a furious response from elements within the Republican party who have criticised his past actions and warned against new measures.

Mitt Romney, the Republican presidential candidate, has made it clear he will replace the Fed chief, who he accuses of putting taxpayers’ cash at risk, if he is elected in November.

The House financial services committee chairman, Spencer Bachus, told Bernanke last month at a congressional hearing: “The truth is the Federal Reserve cannot rescue Americans from the consequences of failed economic and regulatory policies passed by Congress and signed by the president.”

The initial US quantitative easing programme from November 2008 to May 2010 saw the Fed buy $1.75tn in debt held by mortgage providers Fannie Mae and Freddie Mac, a range of mortgage-backed securities and government bonds, mostly from the country’s 3,000 banks.

A second round, dubbed QE2, involved an additional $600bn. “Operation Twist” began in September 2011 with a pledge to swap $400bn in short-term loans for longer term bonds, with an extension in June adding a further $267bn.

Bernanke offered a strong defence of his actions at Jackson Hole. “A balanced reading of the evidence supports the conclusion that central bank securities purchases have provided meaningful support to the economic recovery while mitigating deflationary risks,” he said.

In a swipe at Republican critics who accuse him of jeopardising hundreds of billions of taxpayer funds following the expansion of Federal Reserve loans, he said loans by the Fed since the bank rescues of 2008 had earned money for the exchequer.

David Zervos, head of global fixed income strategy at US investment bank Jefferies, said it was unlikely the Fed would back a further round of central bank lending before the presidential election in November.

“The idea that the Fed would come out with unconventional monetary policy, such as credit easing of some kind, seems to be a little bit of a stretch,” he said.

“This was a backstop speech that gets Bernanke through. If the data turns or Europe turns, then the Fed is back in.”

Gus Faucher, senior economist at PNC Financial Services, said: “It sure sounds to me like he is getting ready to act.”

He said the FOMC would now be waiting for the non-farm payroll figures. In July, the US added 163,000 new jobs, more than many economists had expected. Faucher is predicting that 130,000 new jobs were added in August, while other analysts are expecting about 100,000.

“If it comes in below 100,000, I think the Fed will act,” he said. “That would be four out of five months below 100,000. That’s not good enough.”

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The Fed announced that it will extend Operation Twist. The US central bank intervention is expected to prompt action by central banks across the world amid fears the eurozone crisis is deepening…



Powered by Guardian.co.ukThis article titled “Federal Reserve extends Operation Twist and more QE expected in UK” was written by Phillip Inman economics correspondent, for The Guardian on Wednesday 20th June 2012 19.53 UTC

US central bank chairman Ben Bernanke has sought to offset a slump in global growth with an extension of Operation Twist, the 7bn (£176bn) Federal Reserve scheme to reduce long-term interest rates in the US.

His intervention came after Bank of England minutes revealed that governor Sir Mervyn King was narrowly outvoted over pumping more money into the UK economy at the June meeting – making it almost certain that the Bank will increase its £325bn quantitative easing (QE) programme next month.

The Fed downgraded its US growth forecasts for 2012 to 1.9%-2.4%, from the 2.4%-2.9% predicted in April, as Bernanke and the Federal Open Markets Committee agreed to extend Operation Twist to boost confidence amid falling consumer demand and a drop in output growth over recent months.

The intervention is expected to trigger a wave of activity by central banks across the world following fears that the euro crisis and severe austerity measures across the developed world have extinguished signs of recovery in China and many developing countries.

Central bank officials said they were especially nervous following the deterioration in the Spanish economy and heightened fears of a sovereign default in the eurozone.

EU officials said they were working on plans to protect ailing countries from collapse and a Spanish minister said support for a euro-wide policy of bond purchases by the EU's main rescue fund was gaining support.

But German Chancellor Angela Merkel refused to offer her backing, saying Greece must uphold its side of the bargain.

"It's obvious that the reforms that were agreed in the past are the right steps and that they therefore must be implemented."

Merkel, who invited the new prime minister of Greece, Antonis Samaras, to Berlin for talks, has consistently voiced her opposition to indebted countries winning easier terms without more stringent economic reforms.

European commission spokesman Amadeu Altafaj Tardio said any bond buying plan could only be a stopgap.

"If I could put this into everyday language, we're talking here about financial paracetamols," he said. "It may alleviate the tension, the pain … but it does not address the causes."

The Federal Reserve highlighted the euro crisis as a chief concern in its statement on the US economy.

The committee said it "anticipates that the unemployment rate will decline only slowly toward levels that it judges to be consistent with its dual mandate. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook."

The Fed said it expected to keep interest rates exceptionally low at least until late in 2014.

Operation Twist involves the Fed selling medium-term bonds, and using the proceeds to buy longer-term bonds – such as 10-year Treasuries. In theory, such a move drives down the interest rate on 10-year bonds, taking down interest rates across the board. Mortgages are tied to 10-year Treasury rate and the move should bring down home loan rates.

Analysts said the Bank of England was poised to increase QE next month after its nine strong monetary policy committee (MPC) voted five to four against an increase this month, according to Bank minutes released on Wednesday, but highlighted the need for extra support in the coming months to prevent the UK's recession worsening. King was one of three committee members to vote for an extra £50bn and a fourth said he wanted a more modest £25bn injection of funds against five members who voted to maintain QE at its current level.

The narrowness of the decision will heighten expectations of a further boost to QE in July after another set of lacklustre economic figures, including a rise in jobless claims last month.

The governor was joined by Adam Posen and David Miles, who have consistently argued for Threadneedle Street to support cash-strapped banks and combat deflationary pressures in the economy with a higher level of bond purchases.

A group of hawks led by deputy governors Paul Tucker and Charles Bean said that while the economy needed extra monetary support, a further round of bond purchases could be swallowed by banks desperate to build up their reserves.

The minutes show the hawks expect the Financial Policy Committee, which oversees banking regulation, to support looser rules covering bank reserves to ease credit. The parlous state of the UK's bank finances remains much of the focus of the MPC, according to the minutes.

They said: "It was possible that the impaired UK banking system, coupled with a heightened perception of risk stemming from the euro area, had been a larger impediment to the recovery of both demand and potential supply capacity than previously thought likely: the weakness of lending, housing market transactions, business investment and productivity growth were all possible symptoms of that."

The committee agreed the downside risks to the economy appeared to have grown.

"The near-term outlook for UK activity had softened, and output appeared to be slowing in the euro area, United States and some emerging economies. Set against that, short and longer-term market interest rates had fallen on the month and this would provide some stimulus.

"More significantly, however, the risks to UK and global activity from financial distress and political tension within the euro area had intensified again. The likelihood of a disorderly outcome looked to have increased, and that could, if it crystallised, have a significant effect on global demand and the stability of the banking system, including in the United Kingdom."

• This article was amended on 21 June 2012. The original headline and opening paragraph incorrectly referred to an injection of 7bn into the US economy

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