Some of this week’s economic news…

So here’s a bit of a round-up. Bottom-line; encouraging signs that the shot in the arm we gave the economy is beginning to work – hence we’re cautiously optimistic that growth will return by the end of the year.

NIESR, a leading independent forecasting team, said in its rolling 3 month estimate of GDP was now positive – based largely on figures showing that manufacturing output rose sharply, by 0.9% last month.

One of the key indicators of forward confidence, hit an 18 month high. The PMI survey reported; ‘Output rose for the fourth successive month and at the steepest pace since February 2008’. The manufacturing index rose at the fastest rate since December 2007. The ONS also reported that; ‘Total production output increased by 0.5 per cent between June and July’. 

The UK stock-market broke the 5,000 mark – a level last seen last October – before falling back a bit today.

Finally, much depends on the shape of world growth and trade. Economists are revising up estimates of global growth next year. The IMF argued ‘high-frequency data point to a return to modest growth at the global level’, and the OECD say; ‘Recovery from the global recession is likely to arrive earlier than had been expected a few months ago but the pace of activity will remain weak well into next year…Governments will need to continue to stimulate their economies as rising unemployment and weak housing markets continue to dampen private demand’


The help Mr Cameron would axe

More on the the precise nature of the extra help from Government that Mr Cameron says we ‘can’t afford’. As economists Paul Krugman, Danny Blanchflower and others have said, we still run the risk of people losing their jobs, despite the encouraging signs that the shot in the arm we gave the economy is working. We’ve focused especially hard on making sure we do everything possible to help people keep their jobs – or get back into work fast.

For example, the £5 billion extra for the Department of Work and Pensions includes £1.8 billion extra for JobCentres – which have helped 2 million people get jobs, since last November. Over £1.1 billion for the Future Jobs Fund, which will help create 150,000 jobs, and over £1 billion for Flexible New Deal and the 6 month gaurantee that delivers extra help to those out of work for a while. On top of that has come extra, to help people meet their mortgage payments or get housing benefits, when for example they’ve lost their job.

What we learned in the 1980s, is that if you don’t help people get work, they stay unemployed for a long time, and end up costing the country more. I thought we had learnt the hard way, that is a price not worth paying.

Our fantastic new school

I’ve reported before on the fantastic £9.5 million new Colebourne and Beaufort School, which I helped open with Schools Secretary Ed Balls on Monday. My video report is now online on LiamTV. The even better news? We have won some £40 million from the Education Secretary to rebuild more schools for our young people across the constituency. Our campaign to make Hodge Hill the best place in Birmingham to be a young person is starting to pay off. So when the leaflets asking your support come through your door – please keep filling them in!

The economic divide

Nick Robinson put it rather well last night. The political divide in Britain has been clear for some time. But with Mr Cameron’s speech last night, the economic divide became crystal clear. Mr Cameron has set himself against the fiscal stimulus we put in place. Here’s what he said; ‘”You need to start the process of bringing spending down now. In practice that means that the substantial increase in spending next year, which is currently planned by Labour, is unaffordable. ” He said the rise in public spending next year was; ‘political calculation, not economic necessity. ”

This is a recipe for putting the recovery at grave risk. But don’t take my word for it. Here’s a selection of thoughts….

Dominique Strauss-Kahn, Head of IMF at Bundesbank conference on 4 Sep: “Unwinding the stimulus too soon runs a real risk of derailing the recovery, with potentially significant implications for growth and unemployment” …”Premature exit from accommodative monetary and fiscal policies is a principal concern.”

ECB President Trichet 4 Sep 09 “Now is not the time to exit.”

Martin Wolf (9 September):”The response to the crisis was both essential and successful. But it is still too early to declare victory. Now suppose that, instead of keeping calm, the authorities are frightened into premature monetary and fiscal tightening. Given the extreme fragility of the private sector, that could cause another economic downturn.”

David Blanchflower (formerly of the MPC): “I am worried that in the UK and the rest of Europe people don’t appreciate that unemployment is still rising and that this, alongside rising negative equity, will be extremely damaging for confidence and for the broader economy. Despite these figures, banks are still not lending; these are not green shoots – they are just noise” 9 September

Paul Krugman: “Just a brief reminder. Industrial production is now rising; so, probably, is real GDP. Given the way the official business cycle dating committee dates recessions, this probably means that the recession – again, as officially defined – is over. But unemployment is still very high and rising. As Calculated Risk points out, long-term unemployment – which is the most destructive in human terms – is at its highest level recorded since the Depression. And the purpose of stimulus is, first and foremost, to mitigate unemployment. The fact that the economy may be technically in recovery is irrelevant.”

Bottom-line: Mr Cameron is as wrong on economics as he is on politics…

Osborne detached on Marr

George Osborne today did a good impression on the Marr show, of being completely detached from the economic realities of the moment. On the one hand, he said the recovery wasn’t in the bag. Then he refused to support any of the measures we’ve put in place to make sure the recovery is delivered! (globally, by the way, we’re only half way through the stimulus agreed this year). Here in Britain, Government plus Bank of England action is supporting upto 500,000 jobs and helping hundreds of thousands stay in their homes. Cutting that back is simply a recipe for a recovery that doesn’t happen.

More curious was his inability to give a word of detail about the vast spending cuts he’s proposed (you can tell he’s not in control of the shadow cabinet, because they keep making big spending committments). We heard a bit in the press about ‘boomerang bosses’ – but this is something the Audit Commission is already investigating. Anyone would think he’s making it up as he goes on air. Yet, this is a time for sensible economics, not school-boy politics…

Update on G20 progress yesterday

Here’s a summary of some of the key G20 outomes, agreed yesterday. The meeting of finance ministers was ahead of this month’s Pittsburgh Summit. Yesterday, Alistair Darling brokered agreement to tough global rules on pay, and ordered the Financial Stability Board to thrash out how the rules will be implemented ahead of the Pittsburgh Summit at the end of the month, around four principles;
o Greater disclosure and transparency
o Deferral, clawback of bonuses to ensure no rewards for failure
o Stronger corporate governance – including more independent remuneration committees
o Exploring possible limits on total remuneration in a way that actually works internationally (so one country isn’t played off against another)

These rules are part of wider reform of financial regulation, where G20, led by US and UK, stepped up the pressure on the Basel Committee – the global body responsible for capital rules – to quickly deliver:
o More stringent capital requirements designed to rein in reckless risk taking: more and better capital; countercyclical requirements; leverage ratio added to Basel framework; minimum high quality liquidity standards
o Living wills and cross-border resolution regime

Against the backdrop of signs that the global economy is improving as a result of the concerted international action agreed at the London Summit, Finance Ministers also agreed that the greatest risk to recovery would be to think that the job is done and that sanctions should be taken against tax havens that don’t come into line by March 2010 – delivering on London Summit’s commitment to end tax secrecy for good.

And, as part of the implementation of the agreement reached in London in April 2009, and ahead of the Pittsburgh Summit and IMF Meetings in early October, Ministers also announced that commitments to deliver an additional $850 billion to the IMF and World Bank were almost complete and looked forward to substantial progress at Pittsburgh on an increase in voice and representation for emerging and developing economies in the IMF and World Bank.

PM and Chancellor on public spending…

For those who take an interest in these things…here’s the link to Alistair Darling’s interview in the Times, and below is the part of the Prime Minister’s speech to the G20 today…

“Now, we have also made clear that over the following years we will
invest in the future within a framework of sustainable public finances
that we are all committed to achieve. 

Because of the loss of tax revenue in all countries and necessary measures to support the economy, gross government debt ratios, as reported by the IMF, which were on average 80 per cent before the crisis began, are expected to rise to nearly 120 per cent in advanced countries.  Although in the United Kingdom we start from the position that gross and net UK debts are relatively lower than many G7 and G20 countries, we’ve already made clear that we are committed to halving our fiscal deficit over the next five years, and to achieve this we have already pre-announced specific tax increases including raising the top rate of tax and reducing reliefs for those on highest incomes. 

Alistair Darling and I have spoken, too, of hard choices needed in public spending over the coming years, and we won’t flinch from the difficult decisions that are necessary, and we will always act in accordance with our core values of fairness and responsibility, and to take just one example from decisions implemented this week, by finding new efficiency savings in our education budget we have been able to begin and finance a new guarantee to every school-leaver that instead of thousands being unemployed as in the last recession for long times, each of them will have the chance to receive training and work opportunities. 

So our tough approach will be based on an approach that emphasises front line services – front line first – to shift resources from where we can achieve greater efficiency, reducing costs where we can, selling assets where we no longer need them and giving priorities to investment that can secure the jobs of the future and deliver improved front line services to the members of our public.”