Inquiring minds are looking at Great Britain as France burns. Why? To see if an article from back in January was accurate. It was January 27 edition of The Daily Mail Online entitled, “Don’t invest in Britain: The UK economy sits ‘on a bed of nitroglycerine’, investors warned“. Remember, this is before the Britain’s election of a new prime minister:
Gordon Brown’s election strategy was dealt a further blow today after the boss of the world’s biggest bond house warned investors to avoid the UK economy.
Bill Gross, who runs Pacific Investment Management Co mutual fund, said the British economy was lying on ‘a bed of nitroglycerine’.
In his monthly newsletter, Mr Gross said: ‘The UK is a must to avoid. Its gilts are resting on a bed of nitroglycerine.
‘High debt with the potential to devalue its currency present high risks for bond investors.
‘In addition, its interest rates are already artificially influenced by accounting standards that at one point last year produced long-term real interest rates of 0.5 per cent and lower.’
The warning comes a day after it was revealed that Britain had limped out of recession with an anaemic return to growth that raised fears of a second downturn.
Economists said the fragile recovery suggested a real risk of a ‘double dip’, in which the economy plunges back into the red.
Output rose by 0.1 per cent in the final three months of last year. Production shrank a calamitous 4.8 per cent over the whole of 2009 and is down 6 per cent since 2008, making the recession the worst since the 1930s.
And separate figures from the International Monetary Fund showed the downturn was six times worse than the global average.
So where is Great Britain 9 months later?
The Organisation for Economic Co-operation and Development praised the Coalition for producing a ‘concrete and far-reaching plan’ to tackle the £155billion annual deficit left by Labour.
It said the decision to increase the retirement age faster than previously planned showed the UK was willing to push for structural reform.
The Paris-based group called for similarly decisive action to drive up efficiency in health and education.
Angel Gurría, secretary general of the OECD, said: ‘Budgetary consolidation is never easy but the timing and scope of the measures balance concerns for near-term growth with the need to stop the snowballing of debt and to preserve credibility.
Britain’s state borrowing costs have fallen to the lowest in a generation, indicating investor confidence in the Chancellor’s cuts package.
The cost of national debt has tumbled below that of Germany, Europe’s biggest and strongest economy.
Benchmark five-year gilt yields fell to 1.43 per cent yesterday, which is almost a quarter of a percentage point below those of Germany, which traditionally benefits from much lower interest rate costs.
It is the lowest level since the 1980s.
Financial strategist John Wraith said: ‘The very low yields are good news for the Government, signalling more confidence that public borrowing is going to fall. But this is a double-edged sword as it also implies very subdued growth as a result.’
‘The measures are tough, necessary and courageous. Acting decisively now is the best way to secure better public finances and bolster future growth.’
However, it’s not all good news:
Mr Osborne is counting on a strong corporate recovery to boost the economy. But an unexpected fall in high street sales sparked warnings that the economic recovery is faltering and a second downturn could be on the way.
Retail sales fell 0.2 per cent in volume in September, the Office for National Statistics said yesterday, as households reined in spending.
The figures call into question the Government’s hope that the private sector will make up for the 500,000 jobs to be lost in the public sector and the downturn in economic activity caused by lower central spending.
‘These figures are a big setback for the Government,’ said Gemma Lovelock, a retail analyst at TLC Marketing Worldwide. ‘Caution will continue to be the watchword among consumers for the foreseeable future.’
It was the second monthly fall in a row, after a 0.7 per cent drop in August. Analysts had expected sales to rise by 0.4 per cent.
The jury is still out, but the hard choices are being made.
Sacramento, are you listening? Washington???
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