Bank of England switches to plastic pound notes with Churchill fiver

Introduction of polymer £5 note in 2016 and Jane Austen £10 note in 2017 will end 320 years of paper money

Mark Carney, the governor of the Bank of England, has formally announced that Britain will switch to using plastic banknotes in 2016, ending 320 years of paper money.

After a public consultation in which 87% of the 13,000 respondents backed the new-style currency, the Bank said it would introduce "polymer" notes, as it prefers to call them, in two years' time, starting with the new £5 note featuring Winston Churchill in 2016 and the Jane Austen £10 a year later.

Speaking at a press conference in the Bank's Threadneedle Street headquarters, Carney said: "Our polymer notes will combine the best of progress and tradition. They will be more secure from counterfeiting and more resistant to damage while celebrating the history and tradition that is important both to the Bank and the nation as a whole."

The move follows Carney's native Canada, where plastic notes are being rolled out, and Australia, where they have been in circulation for more than two decades.

Carney launched a public consultation on polymer banknotes, seen as cleaner and more durable, shortly after arriving at the Bank this summer. However, the Bank's notes division has been considering plastic money for several years.

Bank officials have been touring shopping centres and business groups around the country with prototype notes to canvas public opinion.

The Bank has promoted its polymer notes, featuring a see-through window and other new security features, as less threadbare and tougher to counterfeit.

It has sought to quell concerns about the environmental impact of printing on plastic by suggesting they can last up to two-and-a-half times longer than the cotton-paper notes in circulation at the moment. The durability will also compensate for the higher production costs and save an estimated £100m, the Bank claims.

Its laboratory tests showed polymer banknotes only begin to shrink and melt at 120C, so they would fare better in washing machines but could be damaged by a hot iron.

Carney has also announced that the Bank will follow new procedures when selecting the historical characters to appear on future notes, to avoid the furore it faced earlier this year, when the announcement of the Churchill £5 note appeared to suggest that no women – other than the Queen – would feature on any denomination.

A new advisory committee, with a majority of independent members, will now suggest a theme – such as scientific achievement – and the public will be invited to suggest specific figures for inclusion. However, the governor will retain the final decision over which person is featured.

"These changes will ensure that the characters on our banknotes are fully representative of the history and diversity of this great nation, while having the necessary public respect and legitimacy."

The move is the latest in a long line of changes for banknotes, first issued in return for deposits by the Bank when it was first established in 1694 to raise money for William III's war against France.

Colour £5 notes replaced white ones in the 1950s; the first portrayal of a monarch came in 1960, when the Queen appeared on a new £1 note; and the introduction of historical figures such as William Shakespeare started in the 1970s.

As part of the preparation for this latest change, banknote officials have already been working with retailers and the operators of vending machines and cashpoints.

Link, which runs the UK cash machine network, said its machines would need new cassettes to hold the plastic notes, because they will be smaller, and not because of the change in material.

The 15% reduction in size for Churchill notes compared with the current Elizabeth Fry fiver brings English notes into line with sizes in other countries. But they will remain larger than existing euro notes and the different denominations of sterling will retain tiered sizes to help blind people differentiate between them.

The Bank concedes no note is counterfeit-proof but says copying the new polymer notes will be slower and more expensive.

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Sterling to go plastic, Bank of England decides

New polymer banknotes to be introduced, beginning with Sir Winston Churchill £5 note in 2016

The Bank of England will announce plans on Wednesday to press ahead with switching to plastic banknotes, starting with the new Sir Winston Churchill £5 note in 2016.

The decision on polymer notes will mark the beginning of the end for 320 years of paper notes from the Bank. The move by Threadneedle Street follows Bank governor Mark Carney's native Canada, where plastic notes are being rolled out, and Australia, where they have been in circulation for more than two decades.

Carney launched a public consultation on polymer banknotes, seen as cleaner and more durable, shortly after arriving at the Bank this summer. However, the Bank's notes division has been considering plastic money for several years.

Bank officials have been touring shopping centres and business groups around the country with prototype notes to canvas public opinion and the final decision is due todayon Wednesday.

The Bank has promoted its polymer notes, featuring a see-through window and other new security features as less threadbare and tougher to counterfeit.

It has sought to quell concerns about the environmental impact of printing on plastic by suggesting they can last up to six times longer than the cotton-paper notes in circulation at the moment. The durability will also compensate for the higher production costs and save an estimated £100m, the Bank claims.

Its laboratory tests showed polymer banknotes only begin to shrink and melt at 120C, so they would fare better in washing machines but could be damaged by a hot iron.

The initial plan is to introduce polymer notes one denomination at a time, with the Churchill note in 2016 at the earliest and then the £10 note featuring Jane Austen next in 2017. The notes will continue to feature the Queen and retain their current colouring.

The move is the latest in a long line of changes for banknotes, first issued in return for deposits by the Bank when it was first established in 1694 to raise money for William III's war against France.

Colour £5 notes replaced white ones in the 1950s; the first portrayal of a monarch came in 1960, when the Queen appeared on a new £1 note; and the introduction of historical figures such as William Shakespeare started in the 1970s.

As part of the preparation for this latest change, banknote officials have already been working with retailers and the operators of vending machines and cashpoints.

Link, which runs the UK cash machine network, said its machines would need new cassettes to hold the plastic notes, because they will be smaller, and not because of the change in material. The 15% reduction in size for Churchill notes compared with the current Elizabeth Fry £5 note brings English notes into line with sizes in other countries. But they will remain larger than existing euro notes and the different denominations of sterling will retain tiered sizes to help blind people differentiate between them.

The prospect of polymer notes has raised some concerns for the visually impaired, however, as the popular practice of folding or creasing notes in different ways to identify different denominations will no longer be possible. Polymer notes can be folded but will not stay tightly folded in a particular way.

The Bank's prime task as banknote issuer is to maintain confidence in its money, and the move to polymer is expected to make life drastically more difficult for counterfeiters.

Advances in commercially available laser and inkjet printers over the past decade have helped criminals to produce fakes quickly and more cheaply.

The Bank concedes no note is counterfeit-proof but says the polymer notes will be slower and more expensive to copy.

The notes will be produced at the Bank's ultra-secure plant in Debden, Essex, by a private contractor.

The job is expected to go to either De La Rue, the existing maker of BoE notes, or Innovia, which manufactures most of the polymer notes currently in circulation around the world. The Bank has ruled out importing plastic money from China.

The British Plastics Federation welcomed the Bank's move towards polymer notes. "It's essential all the plastic banknotes are made in the UK. Why not make coins out of plastic? It will save wear and tear on our pockets," said director-general Peter Davis.

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India's rupee hits another record low against US dollar

Seen until recently as an inexorably rising economic power, India now looks dangerously exposed to violent market swings

India's rupee hit another record low against the dollar on Wednesday, despite policymakers taking fresh measures to try to put a floor under the sliding currency and stave off a full-blown financial crisis.

Until recently, India was constantly bracketed with China as an inexorably rising economic power; but with growth slowing sharply, the country is now among the hardest-hit of a string of developing countries that look dangerously exposed to violent swings in global markets.

When central bankers embarked on the drastic policy of quantitative easing – untested on such a large scale – they always knew it was extremely risky but judged that the price of a prolonged slump across the rich world was greater than the threat of inflating unsustainable bubbles in the world's financial markets. That judgment is about to be put to the test.

As imports become more expensive, the Indian authorities will have to try to control inflation without clobbering growth.The Federal Reserve's $85bn (£54.2bn)-a-month bond-buying spree unleashed a global tidal wave of cheap money, which flooded into emerging markets.

Since May, when Fed chairman Ben Bernanke announced his plans to "taper", and eventually halt, QE as the US recovers, these investment flows have gone into reverse. Governments in developing countries face plunging currencies and stock markets together with rising borrowing costs and some analysts are even starting to draw comparisons with the devastating Asian financial crisis of 1997-98.

India

Raghuram Rajan, the former chief economist of the International Monetary Fund, faces a baptism of fire when he starts his new job as governor of the Indian central bank next month.

With the rupee plunging to record lows against the dollar, the authorities in New Delhi face a severe test, trying to control the likely surge in inflation, as imports become more expensive, without clobbering growth. As Leif Eskesen of HSBC puts it, "the balancing act between currency stabilisation and growth protection is not easy". So far, the authorities have merely stoked the rising sense of panic in financial markets. Their latest batch of policies, announced on Tuesday night, included a promise to inject liquidity into financial markets by buying $1.2bn-worth of bonds but brought only a brief period of calm before the sell-off resumed.

If investors lose confidence in India's ability to fund its growing current account deficits, they could pile out of government bonds, pushing up interest rates across the board and squeezing the life out of the economy.

Thailand

Bangkok was the crucible of the Asian financial crisis that struck in 1997, as Thailand became the first country to call for help from the International Monetary Fund after a doomed (and costly) effort to defend its currency, the baht, against speculators.

Few analysts believe the country faces a repeat of that chaotic period but fears about the outlook for Thailand were exacerbated earlier this week by news that its economy has slipped into recession. The 0.3% decline in GDP in the second quarter, following a 1.7% contraction between January and March, marked a dramatic turnaround from 6% growth last year.

Bangkok's stock market saw a run-up of 50% between early 2011 and May; but even before investors' "taper tantrum", there had been doubts about the sustainability of its economic model, which has become increasingly reliant on rapid credit growth, with household debt rising to a worrying 80% of GDP. The Set index of leading Thai shares has dropped by more than 15% since May.

Indonesia

Indonesia's currency, the rupiah, has slipped to its lowest level against the dollar for four years, and share prices have plunged by more than 10% in the past week alone, as investors digest the risks that the Fed could soon start phasing out QE.

As well as a reversal of investment flows, Indonesia is also being hit by falling commodity prices, sparked by concerns that China's economy is slowing. That helped the country's current account deficit to increase to 4.4% of GDP in the second quarter of this year — close to levels last seen in 1996, before the Asian financial crisis, and raising the alarming prospect of a balance of payments crisis if interest rates continue to rise.

Indonesia looks particularly vulnerable to what economists call a "sudden stop" in capital flows, since as much as a third of its government bonds are owned by foreigners. During the late-90s crisis, Indonesia was forced to seek a $40bn bailout from the IMF. The controversial policies imposed in exchange for the rescue package sparked widespread protests, and led to the overthrow of the Suharto regime.

Brazil

Brazil came through the Great Recession of 2008-09 in relatively good shape, helping to feed market euphoria about a "decoupling" between the struggling West and fast-growing developing countries. Foreign investors poured $350bn into the country between 2003 and the end of last year in direct investments alone.

But growth has slowed sharply in the past couple of years and the risks of a downturn have been exacerbated by the tremors rocking global markets.

Dilma Rousseff's government has faced its own domestic political problems, including a spate of protests in June and July. But investors' worries over the Fed's plans to withdraw QE – and fears of a slowdown in China, a major market for Brazil's critical commodity exports, have left analysts scrambling to downgrade their growth forecasts. Many expect growth of little more than 2% this year, and the Brazilian real has hit a four year low.

A depreciation may be good news in the long term, helping to improve the country's trade performance; but in the short term, it will boost inflation, adding to the problems of the central bank, which has already been tightening policy to try and bring wage rises under control.

China

After a decade in which it joined the ranks of the world's economic superpowers, China's future growth path looks increasingly in doubt.

Unlike many of its fellow emerging market players, China's financial markets remain only partially open to foreign investors, so it may be less at risk from a reversal in capital flows as a result of QE coming to an end. However, Beijing has plenty of problems of its own, not least an alarming legacy of bad loans from the credit boom that was deliberately unleashed to cushion the Chinese economy against the knock on effects of the global financial crisis.

Chinese authorities have repeatedly made clear their intention to try and switch from an export-dependent model of growth, to a more balanced, consumer-led pattern. Even if that switch is managed smoothly, it will hit exporters of the commodities and investment goods, such as machine tools, for which the country has been so hungry in recent years. But there are growing fears of a "hard landing", if this radical transition goes awry.

Analysts at HSBC argue that a China crash, rather than the end of the Fed's QE programme, actually presents the greatest risk of a sudden and damaging reversal in global capital flows, from the emerging world back to the safe haven of developed countries.

Article Source : http://www.guardian.co.uk

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CBI doubles George Osborne's economic growth forecast

Business lobby group cites growing confidence, forecasting UK growth of 1.2% this year and 2.3% in 2014

The CBI has raised its forecast for UK economic growth this year to 1.2% – double the pace predicted by George Osborne in his March budget – as the business lobbying group cited mounting confidence across the British economy.

It becomes the latest organisation to raise its outlook for the UK after a series of surveys and official data have suggested green shoots of recovery are taking hold, prompting the CBI to raise its 2013 growth estimate from 1%. However, the CBI, which has long been a supporter of the government's austerity drive and promises to cut the deficit, sounded a note of caution as it warned that ministers' push for a rebalancing away from consumption is taking longer than expected.

"The economy has started to gain momentum and confidence is picking up, but it's still early days," said John Cridland, the CBI's director general. "We need to see a full-blown rebalancing of our economy, with stronger business investment and trade before we can call a sustainable recovery. We hope that will begin to emerge next year, as the eurozone starts growing again." Government statistics published today show signs of a rebalancing, or at least the impact of austerity measures on public sector jobs, with private sector employment at its highest in 15 years at 24.1 million people.

The CBI said there were "signs of a pick-up in confidence across a broad range of sectors, including services, construction and manufacturing".

For 2014, the group is now pencilling 2.3% growth, up from May's forecast of 2%. Leading thinktank, the National Institute for Economic and Social Research, and forecasters Fathom Consulting both upgraded their outlook for the UK economy earlier this month to 1.2%. That growth is based on a rise in disposable incomes and some support from exports as the eurozone continues to recover following a protracted recession that was finally confirmed over last week.

Official UK data on Friday is expected to add to the tentatively optimistic tone, confirming economic growth accelerated in the second quarter to 0.6%, double the pace in the first three months of this year. That would be unchanged from the number the Office for National Statistics estimated in its first take on GDP for the quarter, which was welcomed by the chancellor as showing the economy has moved "out of intensive care".

A handful of economists believe growth could be revised higher on Friday to 0.7%. Among them, Philip Shaw at Investec, notes that numbers from the construction sector have been revised up since that first estimate on growth and that the performance of the dominant services is also likely to be nudged up.

"Our 2013 GDP forecast is still +1.2%, but we are tempted to upgrade this modestly given the positive data dynamics recorded recently," he added.

But many economists share the CBI's concern that the economy remains overly dependent on consumers, who account for around two-thirds of all spending. They say consumers are not in a strong position to drive a recovery as they grapple with the biggest squeeze on household budgets for decades.

There is fresh evidence of that pressure on Monday. The latest Asda Income Tracker suggests disposable household incomes fell last month as wages failed to keep pace with living costs.

The supermarket chain says the average UK household had £160 a week of disposable income in July, down £1 a week from a year earlier and £5 a week from a peak in February 2010. It blamed energy bills for burning a hole in household budgets after they rose by 8.2% over the past year.

"A 'feel-good' summer has contributed to a boost in retail sales, but we can't ignore the fact that the squeeze on income growth and rising cost of living continue to pull at consumer purse strings," said Asda chief executive Andy Clarke.

But he noted a rise in consumer optimism, nonetheless. That chimes with a separate survey suggesting households spent more in August as they reported that access to unsecured loans improved and they were relatively upbeat about their finances.

Data company Markit, said the measure of financial wellbeing in its Household Finance Index dipped "only slightly" from July's record high. It stood at 40.8 in August, down from 41.5 in July, the highest since the survey was launch in early 2009.

Still, there were contrasting feelings around the country.

"The strains on finances are receding fastest among those in private sector service jobs, while those working in construction, retail and the public sector trail behind. On a regional basis, familiar trends continued in August as people in Scotland and the south of England were the least downbeat about their finances, while those in Wales and the north of England were among the most pessimistic," said Tim Moore, senior economist at Markit.

Growing evidence of a renewed pick-up in house prices has also boosted sentiment among homeowners but at the same time prompted warnings that Britain could be headed for a damaging property boom and bust.

The CBI's director general, John Cridland, said: 'The economy has started to gain momentum and confidence is picking up, but it's still early days.Property website Rightmove is the latest to report rising house price inflation on Monday, adding to a flurry of recent surveys that reignited criticism of government schemes to kickstart the housing market. Average asking prices are up by more than £20,000 so far in 2013 and stood at £249,199 in August, Rightmove said. As is typical for August, that marked a slight dip from July but at 1.8% the holiday season fall was less than in previous years. In annual terms house price inflation accelerated to 5.5% from 4.8% growth in July.

The average asking price for flats hit a record high of £209,652 in August, Rightmove said, as it joined the chorus of warnings over government schemes.

"Flats are most in demand by first-time buyers and buy-to-let investors and we have seen prices for this property type hit their highest ever level as supply fails to keep up with an increase in demand at the bottom of the market," said Rightmove director Miles Shipside.

"Demand is already on the up, and that's before the roll-out of phase two of the Help to Buy stimulus. It is now critical that the supply of property improves so that the goal of a significant increase in transaction numbers is not over-shadowed by an unsustainable boom in property prices."

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Brazil's real economic crisis lies in its overvalued currency

Soaring value of the real has badly hits exports – and without growth, neither the Olympics nor the pope can help

As Pope Francis pushed his way through the crowds in Rio de Janeiro's shantytowns on Thursday, his message that next year's World Cup and the 2016 Olympics would provide jobs and alleviate poverty was greeted with some scepticism.

Brazil is facing hard times. While major sporting events hold out the prospect of a short-term boost to growth and prosperity, they can only disguise a problem that has loomed for some time: that a high currency kills the trade in price-sensitive goods.

The soaring value of Brazil's currency, the real, has badly hurt exports. Last year, the UK sent $3.5bn (£2.28bn) of goods and services to south America's largest economy – up 3.8% on the previous 12 months – while Brazil's exports to the UK were down 13%.

Manufacturing, already inefficient and overpriced after years of protectionist policies, has suffered. Exports of gold and other metals, alongside soya beans and sugar, have also declined. Commodities are the bedrock of Brazil's economy and the combination of a high currency and decline in demand from China, it's biggest customer, was always going to stymie growth.

Bert Colijn, a labour market economist at the Conference Board, said signs unemployment was rising were cause for concern – especially after the riots, which started earlier this month and were still going as the pope began his week-long visit. The unemployment rate is still low at 6%, but is up from 5.8% in May.

In 2010, the country appeared to shrug off a brief recession. GDP growth reached 7.5% – the highest rate for 25 years. But rising inflation forced the government to cool the economy just as the eurozone crisis unsettled international markets. The economy slowed, growing just 2.7% in 2011, and 1.3% in 2012.

Cooling the economy meant shoving up interest rates. However, this tactic made Brazil a more attractive place for international investors in search of high returns on their money. To buy Brazilian assets, investors need to buy the local currency. Increasing demand for the real increased the price, and hence the exchange rate.

With inflation still at 6.7%, the government has little room to stimulate the economy. It is a common problem among emerging economies as China slows to a crawl. Turkey is struggling. So is South Africa. All of them are trying to avoid the vortex of pain when social problems triggered by their stuttering economies only goes to make the situation worse.

Turkey's problem is a persistent trade deficit funded by investment inflows. GDP growth is strong by western standards (the economy raced to 1.6% in the first three months of the year), but the need for foreign investment has kept the currency inflated hampering domestic exporters. Recently, the opposite has been true. Investment has slowed and the currency fallen. The central bank has intervened in the markets to defend the lira, which hit an all-time low against the US dollar earlier this month, but Turkey's international liquidity ratio is weak and it does not have a sufficient stock of foreign exchange reserves to maintain this strategy for long.

Each country is dodging and weaving to overcome its special mix of problems, but in esence they need the world economy to grow at a time when the IMF says in its latest report that the trend is for growth to slow. What happens in China over the next year could prove crucial for their economies and their ability to maintain some semblence of social cohesion.

Article Source : http://www.guardian.co.uk

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China says GSK executives have confessed to bribing doctors

UK drugs maker GlaxoSmithKline under fire after executives in China confess to 'serious economic crimes' to boost revenue

Executives working for the UK drug maker GlaxoSmithKline in China have confessed to "serious" corruption and tax-related offences, China's security ministry said on Thursday, amid a wide-ranging series of investigations into foreign firms operating in the country.

The allegations, which the ministry classified as "serious economic crimes", include the bribing of doctors and officials in order to "open new sales channels and increase drug revenues". The employees are also claimed to have used fake receipts to violate tax regulations, according to a statement on the ministry's website. It did not reveal the employees' identities, how many were detained or when they were questioned.

"After initial questioning the suspects have admitted to the crimes, and the investigation is ongoing," the statement said, adding that police were carrying out investigations in Shanghai, Zhengzhou and Changsha, where GSK employees – whose identities have not been revealed – were detained two weeks ago on charges of fraud.

GlaxoSmithKline executives offered bribes to Chinese government officials, medical associations, hospitals and doctors to boost sales and pricesA spokesman for GSK rejected the charges, saying: "We take all allegations of bribery and corruption seriously. We continuously monitor our businesses to ensure they meet our strict compliance procedures. We have done this in China and found no evidence of bribery or corruption of doctors or government officials. However, if evidence of such activity is provided we will act swiftly on it."

He added: "We are willing to co-operate with the authorities in this inquiry. But this is the first official communication GSK has received from the PSB [public security bureau] in relation to the specific nature of its investigation."

A spokesman for the Foreign Office said: "We are aware of the Chinese investigation and we are in contact with GSK and the Chinese authorities."

The allegations follow similar claims that GSK sales staff in China showered doctors with money, dinners and all-expenses paid trips in promoting its Botox anti-wrinkle treatment.

The Botox allegations, reported in the Wall Street Journal following a tip-off from an anonymous source, centred on claims that GSK marketing staff in China had planned to pay doctors up to $490 (£325) for meeting prescription quotas between 2004-2010.

There is no evidence any payments were made and GSK's spokesman said the company had looked thoroughly at these allegations and had found nothing.

GSK's sales in China account for 3% of the group's turnover, but are expected to grow.

The allegations come as Beijing conducts a series of investigations into foreign companies across an array of industries. European and US-based companies Mead Johnson, Nestle and Danone have cut their infant milk formula prices in recent days amid a major government investigation into alleged price fixing. Earlier this year Chinese media targeted Apple and Volkswagon in scathing consumer rights investigations.

Article Source : http://www.guardian.co.uk

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Invensys shares boosted by takeover approach from Schneider Electric

French power equipment maker says it is in talks to buy UK engineering group

Shares in the UK engineering group Invensys have surged 16% on news of a £3.3bn takeover approach from France's Schneider Electric.

The French power equipment maker said it was in early talks to buy Invensys to boost its industry automation business. Invensys said it was likely to recommend Schneider's offer of 505p a share, which would represent a 15% premium to the stock's Thursday close on the London Stock Exchange. The shares reached 511p in early trading on Friday.

Schneider has indicated it would pay 319p in cash and 186p in new Schneider shares, Invensys said.

Schneider said it had until 8 August to say whether it intended to make a firm offer or walk away under UK rules. This could be extended with UK takeover panel consent. The group, whose products help utilities distribute electricity and which makes automation systems for the car and water treatment industries, said last summer that it planned to step up acquisitions to boost sales and tap new markets.

Schneider had €2.8bn (£2.4bn) of operating cash flow at the end of 2012.

Invensys emerged as a potential takeover target earlier this year on speculation that the sale of its rail business could lead to substantial net cash and raise interest from suitors.

Schneider's offer of 505p a share would represent a 15% premium to Invensys's Thursday close on the London Stock ExchangeSociété Générale analysts said in late April that Invensys could be valued at 460p a share following the disposal.

Invensys said in May it planned to return £625m to shareholders after selling Invensys Rail for £1.74bn to Siemens.

Schneider said on Thursday that a takeover of Invensys would lead to "significant cost savings" and "revenue synergies".

Invensys provides software, systems and controls to clients ranging from oil refineries and power stations to mining companies and appliance manufacturers, to help monitor, control and automate products and processes.

Its Industrial Automation unit supplies control systems, safety systems and instrumentation to customers operating oil refineries, nuclear power stations and petrochemical plants.

Invensys said its advisers were Barclays and JP Morgan Cazenove.

Article Source : http://www.guardian.co.uk

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Bill Gates: how GDP understates economic growth

GDP may be an inaccurate indicator in sub-Saharan Africa, which is a concern for those who want to use statistics to help the world's poorest people

Even in good financial times, development aid budgets are hardly overflowing. Government leaders and donors must make hard decisions about where to focus their limited resources. How do you decide which countries should get low-cost loans or cheaper vaccines, and which can afford to fund their own development programmes?

The answer depends, in part, on how we measure growth and improvements in people's lives. Traditionally, one of the guiding factors has been per capita GDP – the value of goods and services produced by a country in a year divided by the country's population. Yet GDP may be an inaccurate indicator in the poorest countries, which is a concern not only for policymakers or people like me who read lots of World Bank reports, but also for anyone who wants to use statistics to make the case for helping the world's poorest people.

I have long believed that GDP understates growth even in rich countries, where its measurement is quite sophisticated, because it is very difficult to compare the value of baskets of goods across different time periods. In the United States, for example, a set of encyclopedias in 1960 was expensive but held great value for families with studious kids. (I can speak from experience, having spent many hours poring over the multi-volume World Book Encyclopedia that my parents bought for my sisters and me.) Now, thanks to the internet, kids have access to far more information for free. How do you factor that into GDP?

The challenges of calculating GDP are particularly acute in sub-Saharan Africa, owing to weak national statistics offices and historical biases that muddy crucial measurements. Bothered by what he regarded as problems in Zambia's national statistics, Morten Jerven, an assistant professor at Simon Fraser University, spent four years examining how African countries obtain their data and the challenges they face in turning them into GDP estimates. His new book, Poor Numbers: How We Are Misled by African Development Statistics and What to Do about It, makes a strong case that a lot of GDP measurements that we thought were accurate are far from it.

Jerven notes that many African countries have trouble measuring the size of their relatively large subsistence economies and unrecorded economic activity. How do you account for the production of a farmer who grows and eats his own food? If subsistence farming is systematically underestimated, some of what looks like growth as an economy moves out of subsistence may merely reflect a shift to something that is easier to capture statistically.

There are other problems with poor countries' GDP data. For example, many countries in sub-Saharan Africa do not update their reporting often enough, so their GDP numbers may miss large and fast-growing economic sectors, like cell phones. When Ghana updated its reporting a few years ago, its GDP jumped by 60%. But many people didn't understand that this was just a statistical anomaly, not an actual change in Ghanaians' standard of living.

Ghanaian youths learn new skills on computers. When Ghana updated its reporting a few years ago, its GDP jumped by 60%

In addition, there are several ways to calculate GDP, and they can produce wildly different results. Jerven mentions three: the World Development Indicators, published by the World Bank (by far the most commonly used dataset); the Penn World Table, released by the University of Pennsylvania; and the Maddison Project at the University of Groningen, which is based on work by the late economist Angus Maddison.

These sources rely on the same basic data, but they modify it in different ways to account for inflation and other factors. As a result, their rankings of different countries' economies can vary widely. Liberia is sub-Saharan Africa's second-poorest, seventh-poorest, or 22nd-poorest country in terms of GDP, depending on which authority you consult.

It is not only the relative rankings that differ. Sometimes, one source will show a country growing by several percentage points, and another source will show it shrinking over the same time period.

Jerven cites these discrepancies to argue that we cannot be certain whether one poor country's GDP is higher than another's, and that we should not use GDP alone to make judgments about which economic policies lead to growth.

Does that mean that we really don't know anything about what works (and what doesn't) in development?

Not at all. Researchers have long used techniques like periodic household surveys to collect data. For example, the Demographic and Health Survey is conducted regularly to determine things like childhood and maternal death rates. Moreover, economists are using new techniques like satellite mapping of light sources to inform their estimates of economic growth. Although such methods are not perfect, they also are not susceptible to the same problems as GDP.

Other ways to measure overall living standards in a country are similarly imperfect; but they nonetheless provide additional ways to understand poverty. One, called the Human Development Index, uses health and education statistics in addition to GDP. Another, the Multidimensional Poverty Index, uses 10 indicators, including nutrition, sanitation, and access to cooking fuel and water. And, by using purchasing power parity, which measures the cost of the same basket of goods and services in different countries, economists can adjust GDP to gain better insight into living standards.

Yet it is clear to me that we need to devote greater resources to getting basic GDP numbers right. As Jerven argues, national statistics offices across Africa need more support so that they can obtain and report timelier and more accurate data. Donor governments and international organisations such as the World Bank need to do more to help African authorities produce a clearer picture of their economies. And African policymakers need to be more consistent about demanding better statistics and using them to inform decisions.

I'm a big advocate for investing in health and development around the world. The better tools we have for measuring progress, the more we can ensure that those investments reach the people who need them the most.

Azure Global’s vision is to be widely recognized as a reputed firm of financial business advisors, achieving real growth for ambitious companies and to become the first choice for F&A outsourcing for accountancy practices and businesses alike for more info visit our site Azure Global and join us On Facebook

Article source : http://www.guardian.co.uk

UK economy picking up, surveys suggest

CBI sees signs of rising business confidence, while Lloyds data shows growth in seven of England's nine regions

 Britain is starting to see green shoots of recovery as business activity picks up, companies continue to hire new staff and consumers start to spend again.

A series of surveys published on Monday suggest the UK is on the road to recovery after its double-dip recession, providing a boost for chancellor George Osborne.

Business lobby group the CBI expects the economy to grow by 1% this year and 2% in 2014. That contrasts with the IMF, which recently slashed its growth forecast for the UK from 1% to 0.7%, and suggested Osborne should rethink his austerity programme.

The CBI has consistently supported the chancellor on austerity, although it has called for more measures to boost growth. John Cridland, director general of the CBI, said on Monday: "The UK economy is moving from flat to growth."

But he warned that the country continues to face big challenges. "Although recent data suggests rising business confidence, the economic climate remains tough, hampering demand here and overseas. Meanwhile, consumers remain under pressure, as inflation continues to outstrip wage growth."

In April, business activity grew at its fastest rate in eight months, according to Lloyds TSB's purchasing managers' index. The PMI – which is based on data from 1,200 manufacturing and services companies – came in at 52.2 in April, up from 51.6 in March, moving further above the 50 mark that separates growth from contraction.

The survey showed growth in seven of England's nine regions, led by Yorkshire & Humber with a reading of 55.7. Only the West Midlands and the North East reported a slight reduction in business activity, hit by a weaker performance of the manufacturing sector and spending in those regions.

Cast members at the premiere of 'Star Trek Into Darkness' at The Empire cinema in Leicester Square in London, May 2013. Barclaycard said spending rose 3.6% last month compared with April last year, led by 21% growth in spending on cinema and theatre tickets

 Elsewhere, it seems Britons are going out more and parting with their cash, cheered by the warm weather. Barclaycard said spending rose 3.6% last month compared with April last year, led by 21% growth in spending on cinema and theatre tickets. Restaurants also benefited with an 11% increase in spending, as did DIY stores, up 8.5%. Growth in spending online continued to outstrip the high street, up 11.7% on last year, compared with just 1.7% in bricks and mortar shops.

Valerie Soranno Keating, chief executive of Barclaycard, said: "Although economic data is generally mixed, this is the first time since 2011 that we've seen growth above 2% for three consecutive months, which may suggest a more sustained improvement in sentiment."

A forward-looking survey of the jobs market suggests it too is looking healthy, with growth in employment set to continue in the second quarter. The Chartered Institute of Personnel and Development said more employers are expecting to increase headcount than those who intend to cut jobs, with a balance of +9, up from +5 for the previous quarter.

Gerwyn Davies, CIPD labour market adviser said: "Even though last month's official figures showed a slight dip in the level of employment, these findings suggest that further employment growth is possible."

But he notes that the number of jobs being created may fail to keep pace with the population growth, meaning unemployment could still rise.

Azure Global’s vision is to be widely recognized as a reputed firm of financial business advisors, achieving real growth for ambitious companies and to become the first choice for F&A outsourcing for accountancy practices and businesses alike for more info visit our site Azure Global and join us On Facebook

Article source : http://www.guardian.co.uk