Duncan Weldon's Archive 
I work as a Senior Policy Officer in the Economic and Social Affairs Department covering macroeconomics and regional policy. I’ll be blogging about fiscal policy, monetary policy, international macroeconomics, the banking & finance sector, taxation, public spending, inflation, the labour market and regional economic development.
Before joining the TUC I had a fairly varied career taking in the Bank of England, fund management, the Labour Party and an international trade union confederation.
Duncan Weldon
This month’s labour market vblog focuses on the rise of ‘under-employment’ which will be a key trend to watch in 2012. A sustainable recovery will depend on not just the growth in headline employment but one the type of work created.
Duncan Weldon
Just before Christmas I wrote a slightly too long, slightly too techy and (probably) slightly too boring post on UK bond yields.
The yield on UK government debt is at historical lows. The government argues that this shows the market’s confidence in Osborne’s fiscal strategy and that any retreat from this would lead to higher interest rates choking off the recovery.
Duncan Weldon
The Bank of England, as was widely expected, is launching another round of QE in an effort to stimulate the economy. On a day when industrial production and the trade deficit provided some good economic news the Bank notes that:
Some recent business surveys have painted a more positive picture and asset prices have risen. But the pace of expansion in the United Kingdom’s main export markets has also slowed and concerns remain about the indebtedness and competitiveness of some euro-area countries. A gradual strengthening of output growth later this year should be supported by a gentle recovery in household real incomes as inflation falls, together with the continued stimulus from monetary policy. But the drag from tight credit conditions and the fiscal consolidation together present a headwind. The correspondingly weak outlook for near-term output growth means that a significant margin of economic slack is likely to persist.
The Bank is therefore hopeful that falling inflation will provide a boost to incomes and consumption but worried about the prospects for continued growth through exports and the ‘head winds’ of ‘fiscal consolidation’ and ‘tight credit conditions’.
Whilst there isn’t much that the Bank can do about the Government’s fiscal policy, there may be more it can do to help alleviate tight credit conditions.
Duncan Weldon
Yesterday’s money supply and bank lending data from the Bank of England (spread across three different statistical releases) received an unusual amount of media attention.*
The numbers certainly tell a worrying story:
Duncan Weldon
Stephen Hester has decided against taking his bonus, meanwhile RBS have fallen today. Some commentators have been quick to link this two facts and point out that Hester might be saving the taxpayer £1 million but ‘as a result’ the share price fall is costs £x hundred million (the x depending on what time of day the claim is made).
Guido, for example, writes that:
Hester wasn’t going to get his hands on his bonus for over a year, it wasn’t even going to come directly from treasury funds and most of it would have ended up in Treasury coffers, yet this morning £320m has been wiped off of the value of the British taxpayers’ forced investment. With mob mentality over-ruling contracts, there are obvious jitters around the banks this morning.
A straight forward argument – the public pressure might have resulted in the CEO declining a million pounds but this ‘meddling’ will cost the tax payer much more than that as the markets take fright at ‘political interference’.
How does this stack up?
Duncan Weldon
Following yesterday’s poor growth figures, talk amongst the Coalition parties and their supporters is once more turning to finding a ‘growth strategy’.
Amid from the usual barrage of cutting the 50p rate, slashing capital gains tax and further deregulation (not so much a growth strategy as the usual shopping list of free-market policy demands) Nick Clegg is once again talking about raising the personal income tax allowance to £10,000.
Duncan Weldon
I wrote this morning, before the GDP figures were released, that they were unlikely to tell us anything we didn’t already know. The quarter-on-quarter contraction of 0.2% was a little worse than expected but not especially surprising. It’s always important not to over-analyse one data point – especially one subject to revision – but the key trends have been clear for some time.
The two key facts were already evident before this morning’s release – this is the worst ‘recovery’ in modern British economic history and GDP per capita is not expected to regain 2007 levels until 2016. In other words, on the OBR’s numbers we are already in a ‘lost decade’.
Today’s numbers though do tell us something. The five key points, as I see them, are:
Duncan Weldon
At 9.30 this morning we’ll get our first look at the Q4 GDP figures. They will almost certainly be very close to zero – and whilst the political debate will be shaped by whether they are just about negative or just about positive, they won’t (barring a really unexpected result!) tell us a great deal we don’t already know.
The expectation of both the OBR and independent economists (as surveyed by the Treasury) is that 2012 will be a year of very low growth overall. The simple fact is that the current recovery is historically weak – as best demonstrated by the below chart from NIESR:
But one often missed fact is that 2012 (on the OBR’s numbers) is, in one important regard, set to be a year of economic contraction. Whilst headline GDP growth is forecast to come in at 0.7%, the ONS forecast that the population of the UK will grow by 0.8%.
In other words per capita GDP (GDP per head) is set to fall this year.
Duncan Weldon
On the front page of the Treasury website is a link to an online game aimed at school children.
Chance to be Chancellor gives you – the voters of the future – a platform to voice your views on important economic decisions.
The game allows you to choose between various government policies and ‘be the Chancellor’.
Duncan Weldon
The Laffer Curve is a concept close to the heart of many economists who advocate lower taxes.
The concept is actually quite an old one but it was popularised in modern times at a lunch meeting attended by economist Arthur Laffer and officials from the Ford administration (including Donald Rumsfeld and Dick Cheney) in the mid 1970s, when Laffer drew the curve on the back of a napkin to illustrate how a rise in personal taxes proposed by Ford might lead to lower tax revenues.
