Finance Matters

Posts Tagged ‘Confederation of British Industry’

The UK’s economy will take five and a half years to recover to pre-recession levels according to Martin Weale, a member of the Bank of England’s Monetary Policy Committee.

Speaking to the National Institute of Social and Economic Research, Mr Weale said that the recovery “unusually slow” and indicated that the Bank could enact more quantitative easing if inflation starts to fall sharply, as is expected.

Inflation fell to 5 percent in October, from a peak of 5.2 percent the previous month and it is expected to decline to 2 percent by the end of next year.

The Bank has already pumped £275bn of electronically created money into the UK economy to purchase government debt, in an effort to cut the cost of long-term borrowing and increase the value of assets such as shares and house prices.

This quantitative easing programme, which is scheduled to end in February, is expected to boost economic output by 0.5 per cent.

Last week the Bank of England cut forecasts for growth and inflation in the face of the ongoing eurozone crisis.

“Unless the economic situation improves, there is likely to be a strong case for extending the asset purchase program after the current one comes to an end,” Mr Weale said.

“At the same time I can understand the case for waiting until the marked reduction in inflation which we are predicting is clearly under way.”

In related news, Labour leader Ed Miliband is calling for the Government to change its course on the economy, prior to the delivery of the Autumn Statement by Chancellor of the Exchequer George Osborne on 29 November.

Mr Miliband believes that forecasts by the Office of Budget Responsibility will show that the Government’s ‘economic gamble’ has failed.

Prime Minister David Cameron recently told the Confederation of British Industry that getting the budget deficit under control was “proving harder than anyone envisaged”.

The Chancellor George Osborne is expected to announce a scheme to help first-time buyers in his autumn statement on November 29, according to a report in The Telegraph.

The statement, which will set out plans to encourage growth in the UK’s economy, could include a mortgage indemnity guarantee scheme, which would see the government underwriting low-deposit mortgages for first-time buyers.

The scheme was suggested by the Confederation of British Industry (CBI) as part of its recommendations on how to unfreeze the housing market.

Since the credit crunch, it has been much more difficult for first time buyers to afford a mortgage because lenders are asking for prohibitively high deposits.

The government’s plan to underwrite mortgages would reduce the risk to lenders if borrowers failed to make repayments, allowing them to offer mortgages to people who can only afford a small deposit.

The Treasury said that news that such a scheme could form part of the autumn statement was “pure speculation”, and pointed out that the scheme would put taxpayer’s money at risk.

In related news, the Council of Mortgage Lenders (CML) is proposing an extension to a scheme that is already helping first time buyers.

First-time buyers are currently exempt from paying stamp duty on sales of up to £250,000, but this exemption is due to end in March next year.

The CML wants the scheme to be extended and has warned that ending the exemption could cause further damage to an already fragile housing market.

Paul Smee, the CML’s director general, said: “The CML believes it would be a mistake to pull the plug on the concession – at least until the housing market returns to a firmer footing.

“First-time buyers need to get the message that the Government supports them as they take their first steps into a housing market where confidence needs to be restored.”

The Bank of England’s Monetary Policy Committee is due to meet today, when it is expected to keep interest rates at a record low of 0.5 per cent, despite inflation soaring.

It will be the 32nd consecutive month that the interest rate has been held at this level.

According to the Consumer Price Index, inflation hit 5.2 per cent in September, almost triple the Government’s target.

There is increasing concern that the UK economy could fall into recession in the final quarter of 2011, but a further increase in quantitative easing (QE) is not anticipated.

Last month the MPS increased QE by £75 billion in an effort to boost the economy, but the situation has continued to deteriorate.

However, analysts believe that further action could be taken early next year if the economy continues to flounder.

The ongoing eurozone crisis is considered by the Bank of England to be a major threat to the UK’s economic recovery, and EU leaders remain unable to agree on a solution.

Greece, Portugal and Ireland have already sought bailout funding after their borrowing costs reached critical levels and there is now concern that Italy could also be forced to seek help.

Italy’s difficulties caused the Confederation of British Industry to reduce its growth forecasts for the UK economy from 1.3 per cent to 0.9 per cent for 2011.

It also downgraded its forecast for 2012, from 2.2 per cent to 1.2 per cent.

The crisis in the eurozone has caused international demand for UK goods to fall, with the trade deficit widening to £9.8 billion in September from £8.6 billion in August.

This morning, there was speculation that Germany was planning to create a two-tier eurozone, with struggling countries leaving the single currency.

This has been denied by Germany’s chancellor, Angela Merkel.

The Bank of England’s Monetary Policy Committee is due to meet today, when it is expected to keep interest rates at a record low of 0.5 per cent, despite inflation soaring.

It will be the 32nd consecutive month that the interest rate has been held at this level.

According to the Consumer Price Index, inflation hit 5.2 per cent in September, almost triple the Government’s target.

There is increasing concern that the UK economy could fall into recession in the final quarter of 2011, but a further increase in quantitative easing (QE) is not anticipated.

Last month the MPS increased QE by £75 billion in an effort to boost the economy, but the situation has continued to deteriorate.

However, analysts believe that further action could be taken early next year if the economy continues to flounder.

The ongoing eurozone crisis is considered by the Bank of England to be a major threat to the UK’s economic recovery, and EU leaders remain unable to agree on a solution.

Greece, Portugal and Ireland have already sought bailout funding after their borrowing costs reached critical levels and there is now concern that Italy could also be forced to seek help.

Italy’s difficulties caused the Confederation of British Industry to reduce its growth forecasts for the UK economy from 1.3 per cent to 0.9 per cent for 2011.

It also downgraded its forecast for 2012, from 2.2 per cent to 1.2 per cent.

The crisis in the eurozone has caused international demand for UK goods to fall, with the trade deficit widening to £9.8 billion in September from £8.6 billion in August.

This morning, there was speculation that Germany was planning to create a two-tier eurozone, with struggling countries leaving the single currency.

This has been denied by Germany’s chancellor, Angela Merkel.

According to the latest Confederation of British Industry (CBI) distributive trades survey, the fall in retail sales slowed in October, but only a modest rise in volumes is expected next month.

Consumers continue to be cautious about the economic outlook and rein in their spending on the back of rising unemployment, higher inflation and slow wage growth.

The CBI’s survey established that 36% of retailers saw sales volumes fall during October compared to 25% who saw a rise.

As a result, the balance fell to 11% from 15%.

In the meantime, the expected sales balance for November rose to +4 – the highest since June.

The survey, meanwhile, also discovered that most sub-sectors suffered with falls in department stores, clothing and footwear.

Sales at department store sales fell at their fastest pace since May 2010, while clothing sales fell at their fastest pace since March 2009.

Commenting on the figures, CBI chief economic advisor Ian McCafferty, said: “High street sales remain difficult but the decline has stabilised, and retailers expect there to be some very modest growth next month in the build-up to Christmas.

“Family budgets continue to be stretched … and consumer confidence is severely dented. High street retailers are heavily discounting as they aim to provide the best possible value on basics. But consumers will continue on the back foot as real incomes remain squeezed,” he added.

In related news, the British Retail Consortium (BRC) said stores axed jobs at their fastest pace in two years in the July to September period.