IMF Warns of ‘Disruptive’ Brexit Threat, UK Inflation Remains at 3% Amidst Stagnant Wages…

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With just a few days before the government’s budget, the Daily Mail have run a story about how interest payments on Britain’s national debt have amounted to over £500 billion in the past twenty years. In reality, this is a conservative estimate. National debt in the UK reached £1 trillion for the first time ever in 2012 (according to the official figures). Six years later and it has surpassed £1.8 trillion. A House of Commons Briefing Paper from October – Government borrowing, debt and debt interest: historical statistics and forecasts – projects interest payments for 2017/18 to come in at £55.8 billion (2.7% of GDP). From 2007/08 to 2016/17, payments totaled £429.3 billion. In the last budget delivered in the spring, estimates for public sector spending on transport, industry, agriculture and employment, housing and environment, and Public Order and Safety all received less money compared to that spent on debt interest.

As discussed in previous posts, there has been a growing clamour from government ministers, the opposition Labour party and sections of the media for the Conservatives to ‘loosen the purse strings‘ by spending more money investing in public services and on giving public sector workers a pay rise. The fact that the Bank of England (BOE) have now begun increasing interest rates barely enters the discussion. The current 0.5% level is still seen as exceptionally low and one that the government should take advantage of. What this perspective fails to recognise is that the BOE’s November hike will very likely not be the last. In my view they will undertake a course of rate increases akin to the Federal Reserve. Of real concern is how the subject of debt interest garners no sustained attention within the public sphere. Nor does how money is created into existence as debt through fractional reserve banking.

Elsewhere, the IMF last week raised the prospect of the Brexit process becoming a disruptive threat to the UK economy and the Euro Area. Brexit has been prominent in the communications of both the IMF and the Bank for International Settlements since the referendum in 2016. Of interest is how the institution expects a transition period to be agreed between Britain and the EU, and that IMF economists have so far not produced any ‘no deal’ forecasts. Their press releases will likely become more pointed to the danger of global ‘headwinds‘ should negotiations fail to advance towards a tangible deal in the near future.


Reuters: Britain’s shoppers rein in spending, first yearly decline since 2013

  • British retail sales recorded their first year-on-year decline since 2013 last month as consumers struggled with fast-rising prices and stagnant wages.
  • Although the fall was less severe than analysts had expected, the official data showed a 0.3 percent year-on-year fall in sales volumes — the biggest since March 2013.
  • Volumes were still far lower that they were before the June 2016 vote to leave the European Union hit sterling and drove up inflation.

BBC: Inflation steady despite food price rises

  • The UK’s key inflation rate remained steady in October at a five-and-a-half-year high of 3%, official figures show.
  • Higher food prices were offset by lower fuel costs, the Office for National Statistics (ONS) said.
  • The price of food and non-alcoholic drinks rose at an annual rate of 4.1%, the highest since September 2013.
  • The Consumer Prices Index (CPI) had been expected to rise, with the Bank of England forecasting it would peak at 3.2% this autumn.
  • The official target for the CPI is 2%.

Sky News: Job numbers slip back as pay squeeze deepens

  • The number of people in work has fallen by the most in more than two years while wage growth has slipped further behind the cost of living, official figures show.
  • Employment fell by 14,000 to just over 32 million in the three months to September, according to the Office for National Statistics (ONS)
  • The unemployment rate, at 4.3%, remained at its lowest level since 1975. The jobless total fell by 59,000 to 1.42 million.

Reuters: IMF says Europe’s growth more durable, warns of ‘disruptive’ Brexit threat

  • Europe’s economy is now hitting its stride, the International Monetary Fund said on Monday, but a disruptive Brexit could result in “appreciably” lower growth for both Britain and the euro zone.
  • The main uncertainty on the horizon remains Brexit and what kind of trade relationship Britain can set up when it leaves the European Union with the 27 remaining countries.
  • Joerg Decressin, deputy director of the IMF’s European Department, said the IMF’s expectation remained that a deal with a transition period would be struck. Its economists have not run any “no deal” forecasts, he said, but a “disruptive” Brexit is likely to have a damaging impact.
  • “Under such circumstances, our concern is that economic growth will suffer, especially in the UK, but also the euro area,” he said. “We are then possibly looking at appreciably lower growth than we presently project.”

Daily Mail: Britain’s colossal debt mountain has cost taxpayers £520 BILLION in interest payments since country last balanced the books

  • Britain’s colossal debt mountain has cost taxpayers £520 billion in interest payments alone since the country last balanced the books nearly 20 years ago.
  • Profligate Chancellors have embarked on a borrowing binge since Britain was last in surplus in 2000-01 – pushing the national debt up nearly six-fold from £317 billion to £1.8 trillion.
  • Debt interest payments have totalled £520 billion over that period – or about £21,000 per household – leeching much-needed resources away from public services.
  • The Government is due to spend another £41.5 billion servicing the debt this year – nearly as much as it spends on defence and more than the entire transport budget.

CNBC: Don’t expect the ECB to start increasing its bond buying, board member says

  • Investors should not expect a ramping up of asset purchases by the European Central Bank (ECB) once its current program comes to an end, one of its board members told CNBC.
  • “I do not expect that the market would be right to anticipate a further increase of asset purchases at the end of our program,” Yves Mersch, member of the executive board of the ECB, told CNBC Thursday.
  • “This path (of monetary tightening) is still needing a certain amount, a certain amplitude of monetary accommodation,” Mersch said about the bank’s decision to slowly reduce the level of asset purchases.

Reuters: Fed’s Kaplan – falling unemployment may trigger rate hikes

  • “I’m very open-minded… about considering taking a next step in removing accommodation at upcoming meetings,” Kaplan, a voting member of the Fed’s policy committee this year, told reporters after a talk at the Dallas Fed’s Houston branch.
  • Unemployment, now at 4.1 percent, is expected to fall further in a “deviation” from the Fed’s full employment goal, he said.
  • “If the deviation on the full employment (goal) gets big enough that would be, for me, enough of reason to still remove accommodation, take another step,” he said.

CNBC: Fed’s Williams says December rate hike ‘perfectly reasonable’

  • San Francisco Federal Reserve President John Williams reiterated his view on Thursday that the U.S. economy is growing strongly enough for the Fed to continue raising rates gradually over the next couple of years to around 2.5 percent.
  • “My view is that a perfectly reasonable path for policy would be one more increase this year, and three next year,” Williams told reporters on the sidelines of a conference on Asian economic policies at the regional.

Reuters: Fed’s Williams calls for global rethink of monetary policy

  • Global central bankers should take this moment of “relative economic calm” to rethink their approach to monetary policy, San Francisco Fed President John Williams said Thursday, warning that to fight the next recession, as with the last, they would need to do more than just cut interest rates.
  • “We will all be better able to contain the next economic recession if we develop approaches that succeed even when many countries are simultaneously constrained by the lower bound,” Williams said at the opening of a two-day conference on Asian economic policies at the San Francisco Fed. “And that means taking into account the nature of monetary policy spillovers.”

Reuters: Fed should signal tolerance for higher U.S. inflation, Evans says

  • Chicago Federal Reserve Bank President Charles Evans on Wednesday said he is worried about a drop in U.S. inflation expectations, and called for the U.S. central bank to respond by flagging the likelihood of higher inflation ahead.
  • “When I look at the downward drift in multiple expectations measures, I find it tougher to confidently buy into the idea that inflation today is just temporarily low once again,” Evans said in remarks prepared for delivery to the UBS European Conference in London.
  •  To prevent low inflation expectations becoming entrenched, he said, “our public commentary needs to acknowledge a much greater chance of inflation running at 2-1/2 percent in the coming years than I believe we have communicated in the past.”

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