Duncan Weldon

Today the Telegraph’s Ambrose Evans-Pritchard writes on the outcomes of the European summit. He notes of the austerity based solutions (and a permanent target of 0.5% of GDP structural deficits):

Personally, I am not a Keynesian – nor are many Daily Telegraph readers – but this strikes me as a mad commitment to make. For the Left it is surely an unmitigated disaster. They cannot pursue their economic agenda ever again. Fabians feared long ago that such an outcome was built into EMU. They called the euro a “bankers’ ramp”, but somehow their warnings were drowned out in the mass hysteria of monetary union.

As Owen Jones wrote last week in the New Statesman that the Treaty was a ‘disaster’ for the European left and Paul Mason noted that:

I can only add at this stage that, by enshrining in national and international law the need for balanced budgets and near-zero structural deficits, the eurozone has outlawed expansionary fiscal policy.

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Richard Exell

Two important reports today underline the squeeze on living standards that is damaging domestic demand. The Bank of England’s Quarterly Bulletin emphasises the importance of this issue:

An important feature of this recovery relative to past ones — and a key reason why the pace of the recovery has been disappointing — is the weakness in household consumption. Consumption spending is estimated to have fallen by over 1% in the first half of this year alone.

The Bank and NMG Consulting carry out an annual survey of households’ financial positions and the latest is reported in the Quarterly Bulletin. And it’s a depressing read, even for a professional misery-guts like me:

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• CBI Manufacturing Trends
  The CBI's Manufacturing Trends survey shows order books and export order books down for the fourth month in succession – "well below their long-run average". For the third month running they expect to reduce output. Unsurprisingly, CBI describes the sector as "depressed."
• Serious concerns over transport commissioning: how will Greening respond?
  Matt has written for Left Foot Forward on today's Transport Select Committee report into the Thameslink train procurement, and what it means for manufacturer Bombardier.

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Duncan Weldon

The latest labour market statistics contain yet more grim news. The public sector continues to shed jobs whilst private sector job creation has ground to a halt. Unemployment is rising faster in the UK than in the other major, developed economies.  In the past year UK unemployment has risen more than three times as quickly as Eurozone unemployment.

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Richard Exell

There’s an interesting discussion going on about what a future government could do to reduce inequality if the scope for increasing public spending is small to non-existent. In addition to In the Black Labour, a lot of people are referring back to Ed Miliband’s speech to the Social Market Foundation last month:

The fiscal challenges we face mean we need to find new ways of delivering social justice. The last Labour government made Britain a better place. I believe our progress on the NHS, schools and crime shows that. The Blair/Brown approach, with social progress resting on higher investment, was right.

But the failure of the Government’s austerity plan means that the next Labour government is likely to inherit a deficit that still needs to be reduced. So even then resources will have to be focused significantly on paying down that deficit.

And Martin Kettle’s piece in today’s Guardian about “the politics of ‘no more money’” sets out some of the political aspects very well. But, as I argued ten days ago, the scope for reducing inequality without spending more on benefits is limited. That post was mainly based on the OECD’s ground-breaking study of inequality, but there are also lessons to be learned from the last government’s efforts to eradicate child poverty.

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Duncan Weldon

After a busy week for UK economic data, today brought the FT headline ’IMF chief warns of 1930s style threats’, the perfect accompaniment to a fairly grey and drizzly morning.  I can see why Christine Lagarde is concerned – the economic data has been grim for the past few months, there are rising international economic tensions (such as the ludicrous spat between the UK and France over who’s AAA rating is least deserved) and the Eurozone’s most recent summit was very disappointing.

But closer to home – what did the data this week tell us? Leaving aside the latest grim news from the labour market, I was struck by the combination of the latest inflation and retail sales figures. Read together tell us a worrying story.

Over the past 18 months inflation has risen faster than wages causing a squeeze on real incomes which has hit consumer spending and hence depressed domestic demand. So any fall in inflation should be welcome as it should boost real incomes and hence provide a prop to consumer spending and domestic demand.

But there are some worrying signs that this might not be the case.

To start with real wages are not rising as much as falling inflation might suggest. Since peaking in September at 5.2% CPI inflation has fallen by 0.4 percentage points to 4.8% in November whilst RPI has also fallen 0.4 percentage points (from 5.6% to 5.2%) in the same period.

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Duncan Weldon

The latest Labour Market Report is available here.  It covers the most recent data on the split between public and private sector jobs as the public sector continues to shed workers and private sector job creation grinds to a halt. It also features some international comparisons, pointing out that UK unemployment has risen three times as quickly as Eurozone unemployment over the past year.

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Nigel Stanley

Once upon a time, long, long ago the vast majority of workplace pensions were final-salary defined benefit schemes run by trustees. Everyone could agree that periods of short membership of such schemes were an administrative headache all round. The law therefore allowed schemes to give employees their contributions back if they left before two years service, and to give the employer theirs back too.

Today workplace pension provision is very different. More people are paying into defined contribution workplace pensions than defined benefit pensions. Some defined contribution schemes are run as occupational schemes with trust based governance, but most are contract-based. These are provided by a commercial pensions company and cannot make short service refunds as this provision is only available to trust-based schemes.

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Philip Pearson

Contradicting the myth makers (see below), domestic energy bills are not currently high due to the cost of investing in renewable energy. If only they were, some would say. According to the independent Committee on Climate Change, the average dual-fuel household energy bill increased from £605 a year in 2004 to £1,060 in 2010. Just £75 of this £455 increase was due to low carbon and renewable energy investment. And £30 of that covers energy savings measures like loft insulation.

Gas prices lead to high energy price rises. Still, there’s no pleasing the Global Warming Foundation. It headlined  this report today as: Electricity Bills To Rocket By 25% Because Of ‘Green’ Targets, a lead story taken verbatim from the Daily Mail.

The lion’s share of the increase in our energy bills has been due to the Big Six energy suppliers passing through the increase in the market price of gas and electricity. Renewables haven’t been pushing up our bills so far, and we lag well behind many European competitors in renewable energy supply.

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Richard Exell

I have a post at Left Foot Forward, looking at today’s employment statistics: there’s new records for awful jobs figures, the government’s forecasts assume that the rise in unemployment over the next 12 months will be no worse than the rise over the last 12 months and private sector growth just isn’t strong enough to compensate for all the public sector jobs being lost.

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