UK GDP growth limited to 1% in longer term, economists warn

IEA paper predicts a post-crisis era of sluggish growth, tempering recent good economic news stories

Britain's economic growth will be limited to just 1% in the longer term as higher government spending, dwindling North Sea oil stocks and an ageing population all take their toll on the country's potential output, a group of economists has warned.

Tempering the recent spate of upbeat news on the UK and chancellorGeorge Osborne's assertion that the economy has "turned a corner", a new paper predicts a post-crisis era of sluggish growth.

The long-term, sustainable growth rate in the UK may be only 1%, compared with the 2.5% that the Treasury thought standard from the 1980s to the 2000s, according to a discussion paper for free-market thinktank the Institute of Economic Affairs (IEA). "Until 2008 the UK had got used to our economy doubling in size every 25 years: unless action is taken it will now only double in size every 70 years," says the group of economists, which includes former Treasury adviser and UK Independence Party candidate Tim Congdon, and Andrew Lilico, the managing director of Europe Economics, an economics consultancy.

They highlight the weakest recovery in "industrial history" and blame a lack of growth for the government's deficit reduction plan being off target.

Commenting on the analysis, the IEA's editorial director, Philip Booth, said: "People shouldn't get too excited about better growth figures and recent forecasts from groups such as the OECD [Organisation for Economic Co-operation and Development]. We still have a long way to go before we recover the loss of output from the 2008 crash. Furthermore, the medium-term prospects for growth do not look healthy unless the government determinedly reduces government spending and regulation."

Following a string of positive indicators on the fledgling UK recovery, the OECD has lifted its forecast for the country's economic growth in 2013. The upgrade to projected growth of 1.5% this year came after stronger-than-expected growth of 0.7% in the second quarter, falling unemployment, and survey evidence suggesting the strongest growth in manufacturing output for almost two decades.

But the economists writing in the IEA paper painted a gloomier current economic picture, noting that five years on from the start of the financial crisis in 2008, GDP is still 3% below its peak. "That is unprecedented in 170 years of shocks that have hit the UK economy since industrialisation," sais the paper, "Will flat-lining become normal?"

Predicting sluggish growth rates, the IEA authors blame higher government spending and tax as a proportion of GDP, more regulation of energy and financial services, the depletion of North Sea oil, higher debt levels for government, business and households relative to GDP. They also note demographic pressures from an ageing population as well as the effects of "low-productivity immigrant workers being added to the working population", though the IEA stressed this was an analysis of the impact of much of the UK's immigrant labour being relatively unskilled, not an argument against immigration.

The paper advocates "bold" reforms if the UK wants to get back to sustainable growth rates of around 2% or more over the long run, including: the rolling back of government activity and influence; the regeneration of affordable credit channels to unencumbered households and businesses; and the implementation of radical supply-side measures.

Booth added: "Britain's growth problem is a productivity problem and not a problem caused by insufficient government borrowing. The government should take note. The solutions lie in its hands."

The comments from the free-market thinktank contrast with remarks from the leader of the UK's trade union movement, Frances O'Grady, on Monday. In her first speech to the annual congress as TUC general secretary, O'Grady called for the implementation of a political action plan to stimulate growth, paid for by taxing the rich, whose wealth had increased dramatically in the past few years.

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

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IT glitch hits Lloyds and TSB on morning of bank split

TSB spokeswoman blames 'unexpected volumes of traffic' for temporary crash as the promise of a seamless transition fails to materialise

TSB was hit by teething problems on its launch morning as technical issues caused the bank's website to crash, meaning customers were unable to access their accounts online.

A surge of traffic to the website and those of other banks in the Lloyds Group caused the problems, undermining the promise of the chief executive, António Horta-Osório, of a "seamless" transition as TSB was relaunched.

Customers at Lloyds and Halifax were also affected by the glitch, which left some unable to even load the websites and others unable to log in. Only the Bank of Scotland website was unaffected.

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A spokesperson for the group said: "We are experiencing an issue with our internet banking service this morning, which has affected the ability of some customers to log on successfully.

"We are working to resolve this as quickly as we can and we apologise to customers for the inconvenience this will have caused. Our branches, telephone banking and cashpoint facilities have not been affected in any way."

On Saturday night the websites were closed as final technical work was done ahead of Monday's official return to the high street of the TSB brand, which came with the opening of the first rebranded stores. Other branches will follow in the first three days of the week.

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

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New European law to clamp down on market price-rigging

Life bans on rogue traders and large company fines as Financial Conduct Authority and Ofgem launch investigations

The European parliament is expected this week to vote through tough new legislation that would allow Brussels – and London – to crack down much harder on rogue traders in financial and energy markets.

The move comes as competition regulators from the European commission widen their inquiry into the oil trading activities of BP and price reporting agency Platts, while a senior Brussels politician urged British financial and energy watchdogs to undertake a deeper investigation into alleged manipulation of the British wholesale gas market.

Arlene McCarthy, vice-chair of the committee on economic and monetary affairs inside the European parliament, said on Sunday she was confident a vote on Wednesday would ensure benchmarks such as the London interbank offered rate (Libor) plus others in the oil and gas sector would be classed as financial instruments, allowing lifetime bans on those trying to rig the markets.

"I am hopeful we will close the loophole in the Libor and energy markets so that regulators in Europe can take appropriate action on abuse. Consumers need to know the prices they pay are fair and I don't want a situation where every time we have a case of manipulation we have to extradite people to the US to face justice [rather than deal with the issue in local courts]," said McCarthy, who is an MEP for the North West of England and chairwoman of the European parliament's committee on internal market and consumer protection.

Under the proposed legislation, Britain and other member states will be able to impose life bans on traders and fine companies 15% of their annual turnover if they are caught abusing the markets. The laws are being brought in after a wave of scandals involving banks manipulating the rates at which they could lend each other money.

But there has also been deep disquiet in Europe about the relatively unregulated British commodity markets after the Guardian published the concerns of a whistleblower, Seth Freedman, from the wholesale gas market about possible manipulation last autumn that triggered an inquiry by energy watchdog Ofgem and the City regulator, the Financial Conduct Authority (FCA).

Fears grew when the competition authorities instigated a series of dawn raids on the offices of BP, Statoil and Platts in May, saying they feared companies may have "colluded in reporting distorted prices to a price reporting agency [PRA] to manipulate the published prices for a number of oil and biofuel products".

Sources in Brussels say the investigators have broadened the scope of their inquiries and have opened up "high level contacts" in the US with the department of justice and the powerful commodity futures trading commission (CFTC).

Alan Duncan, a former oil trader and now international development minister, told the Financial Times last month that the European commission's review was illogical and baseless.

Ofgem and the FCA say they are still in the middle of a preliminary review of the evidence and have yet to decide whether to undertake a full investigation.

"Ofgem continues to look at allegations relating to trading on 28 September 2012, working closely with the Financial Conduct Authority," said an Ofgem spokesman. "We take any allegations of market abuse very seriously. We are also looking at the role of price reporting agencies in relation to the gas and electricity markets and reviewing the information which we have received as part of our call for evidence which closed over the summer."

The FCA declined to comment.

McCarthy said she felt that 10 months on from starting those initial investigations it was time to clarify the situation: "A full investigation is necessary. It is in the public interest because there is not enough transparency and accountability that leaves many people feeling they get ripped off by energy companies.

"If there proves to be nothing there then it will have cleared the air."

Ofgem said it always took seriously its oversight of the energy markets and has received enhanced powers to intervene already after the UK implemented new powers under Brussels-derived wholesale energy market integrity and transparency (Remit) legislation.

A spokesman for the regulator said: "We keep the precise details of our monitoring confidential. But it brings together information on the physical market, trading and other news commentary including any specific reports of suspicious trades we may have received under Remit."

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

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Ed Miliband vows to get tough on zero-hours contracts

Labour's crackdown, marked in address to TUC, comes as UK languishes near bottom of G20 pay league

Ed Miliband will put forward plans on Tuesday to outlaw the exploitative use of zero-hours contracts, as new figures show Britain has suffered the second biggest fall in wages of any G20 country since the coalition took office.

In an address to the TUC, Miliband will set out proposals to tackle the spread of zero-hours contracts, now believed to affect millions of workers and which have become the symbol of a post-recession economy built on job insecurity and exploitation.

Miliband's commitment stops short of an outright ban on the contracts but will be welcomed by unions demanding he shifts focus from union-Labour reforms to proposals to help working people. Research published by the Unite union this weekend suggested as many as 5.5 million people could be on zero-hours deals offering little or no guarantee of work and pay.

Labour officials said it was likely the proposals would include giving anyone working for a single employer for more than 12 weeks on a zero-hours contract the automatic right to a full-time contract based on the average time worked in the 12 weeks.

The scale of the living standards crisis, in part created by demands for greater labour market flexibility, is underlined in the new figures from the Commons.

A combination of high inflation and a clampdown on wages by UK employers has meant that workers in France, Germany and Canada have seen their pay packets relative to inflation recover since 2010 while the average British worker is £1,500 worse off. Only Italy has performed worse.

The gap between inflation and wage rises mean average wages adjusted for inflation in the UK fell 2.6% from 2010 to the end of 2012 compared with a rise of 0.5% in France, 2.7% in Germany and 3.4% in Canada.

Miliband, who is likely to face a difficult audience at the TUC conference in Bournemouth as relations are strained by the Labour leader's reform efforts, will say any economy that works for working people must have security as one of its foundation stones.

He will pledge to "ban practices which lead to people being ground down", adding that "an unequal recovery won't be a stable recovery. It won't be built to last".

In a competing speech on Monday, the chancellor, George Osborne, will claim the economy has turned the corner, suggesting the recovery under way is sustainable and proof that he was right to reject Labour calls to abandon spending cuts.

A bullish Osborne will say the best way of safeguarding living standards is growth but also promise the proceeds will be shared fairly.

Miliband will propose three specific measures to reduce the use of zero-hours contracts:

• Banning employers from insisting zero-hours workers be available even when there is no guarantee of any work.

• Ending zero-hours contracts that require workers to work exclusively for one business.

• Ending the misuse of the contracts where employees are, in practice, working regular hours over a sustained period.

Miliband has asked Norman Pickavance, former director of human resources at the supermarket chain Morrisons, to chair an independent consultation with business groups and others on how the measures might work.

In particular, he will investigate options to ensure that workers who are actually working regular hours week in week out cannot simply be left on zero-hours contracts without their consent. They include the assumption that workers will move on to a regular contract after a specific period of regular employment.

He will also be asked to work with business to investigate whether other measures should be considered and whether additional legislative steps should be taken.

Miliband will tell the TUC: "We must stop flexibility being used as the excuse for exploitation."

He will continue: "Of course, there are some kinds of these contracts which are useful. For doctors, or supply teachers at schools, or sometimes, young people working in bars. But you and I know that zero-hours contracts have been terribly misused. This kind of exploitation has to stop."

The business department is conducting a review into the scale of the zero-hours contract economy, but Miliband's plans are the most specific proposals to reform so far.

The figures on wages, which also showed that the G20 countries Mexico, Turkey, Russia and South Africa saw bigger rises in real wages, were produced by the OECD and analysed by House of Commons library staff for the Labour party.

The figures highlight the problem faced by Osborne and the Bank of England as they try to sustain a recovery that has accelerated since January, but many economists fear could soon run out of steam.

Critics of the government believe persistently high inflation will undermine the benefit of rising wages and force workers to continue digging into their savings or adding to their already large debts to maintain consumer spending. But Osborne will insist the recovery is sustainable because consumers are also unloading debt.

Miliband will say: "Living standards have now fallen for longer than at any time since 1870. You know what that means. People not knowing how to make ends meet at the end of each month.

"After over three years of this government, with our economy still smaller than it was before the financial crisis, the rewards in our economy are going only to the few at the top. And that's not just unfair. It's bad for our country."

The speech comes as a time when Unions are demanding concrete signs of Miliband's responsible capitalism agenda. But his aides argue it is not a sop to sceptical unions since insecurity at work affects most people. In addition, most people on zero-hours are not in unions.

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

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UK economy: a miraculous recovery – or a blip in a longer-term decline?

The UK seems to be experiencing a remarkable economic turnaround – but how is it comparing with the US and Europe?

In Newcastle-upon-Tyne, property prices are racing ahead. Over the last year it ranks as Britain's top performing city, with an 11% jump in the cost of buying a home.

London lags behind the capital of the north-east with a 5.2% increase, though it remains the most expensive region.

The forecast is that prices will soar over the next couple of years as the turnaround in Britain's economic fortunes begins to feed into the property market.

In the last month, the economy has stepped up a gear. Manufacturing and construction industries have fallen in step with the already resurgent service sector to push the UK well ahead of Germany, France and the rest of the eurozone in the growth stakes.

When the latest GDP figures appear next month, the UK could outstrip the US, which has propped up the world economy since the financial crash of 2008.

Economists are now asking whether George Osborne has found a magic formula. Such is the confidence in Britain's new-found vigour that some experts are questioning the Bank of England's low-interest policy, which Threadneedle Street said only last month should last until 2016, such is the underlying weakness of key sectors in the economy.

So is the UK recovery real? Is it just a short-term burst in property dealing before the longer-term realities of a slow decline reassert themselves? And how does the UK compare with other countries?

UK unemployment. Credit: Guardian graphics

Employment/pay

Since the financial crash, workers across the developed world have been forced to price themselves back into work. Workers in Spain, Ireland, Germany and the UK have accepted the equivalent of zero-hour contracts that come with low pay and few benefits.

Britain's unemployment rate is now below 8% – although still above the 7% level being targeted by the Bank of England. As a result of immigration, there are almost 2m more people in the UK than in 2008, and many have found jobs.

However, this expansion in activity has not fed through into wage packets. The TUC has calculated that in the last five years average pay has fallen by 6.3% in real terms. A worker putting in 40 hours a week is £30.30 a week worse off, taking inflation into account, than in 2008.

Studies shows that four in every five jobs created since 2010 have been in low-pay sectors.

Wage rises in 2013 are averaging 2%, while inflation is running at 2.8%. A report on Monday by the Recruitment and Employment Confederation (REC) and KPMG shows the sharpest rise in salaries for full-time staff since 2008, but the REC also found that short-term appointments are at their highest since July 1998 – showing that employers are still seeking a flexible workforce.

A surge in the number of new jobs in the last 18 months has cut the US unemployment rate to 7.3%, its lowest for four years. But much of the fall is due to people leaving the job market altogether, mainly due to baby boomers retiring, younger people staying in college, and poorer workers claiming disability benefits. The US employment rate is 63.2% compared with 71.5% in the UK. In July a lacklustre 169,000 extra jobs were created, less than the 400,000 needed before the unemployment rate falls meaningfully.

In July, EU unemployment was at 11% , with the eurozone at 12.1% – both up half a percentage point on July 2012. That meant 26.6 million unemployed – roughly equal to the entire population of the Netherlands and Belgium combined.

The situation is much more concentrated among young people, with 5.5 million under-25-year-olds jobless.

Despite the crisis, salary levels have risen everywhere in the EU in recent years, with the notable exception of Britain and the bailed-out countries of Greece, Ireland and Portugal.

The EU's highest earners, the Danes, enjoyed gross average earnings of €60,000. Its poorest, the Bulgarians, get €4,668.

Exports

The financial crash of 2008 brought with it an inbuilt spur for recovery – a low exchange rate. While the indebted countries of the eurozone were tied to an exchange rate dictated by Germany, the UK could cash in on a 25% decline in the value of sterling.

Exports of goods are up, but the rise has disappointed ministers, who believed manufacturers would grab a golden opportunity to win market share in fast-growing countries such as Brazil, China and Turkey. Manufacturers have increased their output in response to an increase in domestic demand and turned away from cultivating export orders.

Without the revenues from North Sea oil and gas production, which have proved insufficient to counter energy imports since 2004, the UK's industrial position looks weak.

The service sector, which includes the City, the advertising industry and £9bn education export business, has maintained a surplus over imports throughout the last five years. However, exports of services have remained flat.

Maintaining Washington's spending budgets between 2009 and 2012 against attacks from conservative forces in Congress kept the economy growing. That is the Keynesian view inside the White House and among liberal commentators, who argue that the reason the US economy is larger than it was in 2008 (the UK economy is still 2.7% smaller) is the result of government spending and investment.

Like Germany, the US has benefited from huge demand from China and the far east for industrial equipment and cars. As a result, exports have grown steadily and proved a major impetus to growth.

Germany, along with China, is the global export champion, and while the crisis has hurt purchases of German goods in parts of the EU, its performance continues to excel, helping the EU to a rising exports record.

German exports grew 4.3% last year to over €1tn, according to the federal statistics office, with a more than 10% increase in sales to non-EU countries compensating for stagnation in European exports.

EU exports collapsed by more than €200bn in 2009 compared with the previous year, but have since recovered.

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

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£20 coin on its way - but expert says it's only worth £8

Royal Mint to launch coin on 31 October but one trader expects it to change hands for less than its face value – and like many recent commemorative coins will fail to rise in value

The Royal Mint has launched the first £20 coin, but its claims that the coin will have "lasting value" were immediately described as "rubbish" by one the country's largest coin dealers.

Richard Lobel of Coincraft, said the coin displaying the traditional St George and dragon design contained little more than £8 of silver and would likely trade for less than £10 after its launch on 31 October.

"Not since the 1980s has a Royal Mint coin gained in value. I doubt any dealer will give more than £8 or £9 for it," he said.

The £20 coin, the first since the Royal Mint began designing decimal coins, is considered legal tender by the Royal Mint, but in practice will not be accepted by banks or shops. Last month the coin was presented to the Duke and Duchess of Cambridge's baby George Cambridge following his birth earlier this summer.

The Mint said the issue of 250,000, 2.7cm-wide coins would appeal to collectors in the UK and abroad following the launch.

On its website, the Mint said: "The Royal Mint has never struck one before, but in 2013, for the very first time, an official, legal tender UK £20 coin will be available.

"Exclusively available in the UK and only available online. This is the £20 coin of the people, at an affordable price that makes it an ideal gift for everyone – made of fine silver, carrying one of our most famous designs and, most importantly, priced at just £20." It has "inherent, lasting value – you can purchase with confidence it is worth what you paid for it".

It said the design featured Pistrucci's St George and the dragon design "that has become famous around the world, a design seen on Britain's gold sovereigns".

The coin contains 0.999 silver, which is less valuable than traditional sterling silver, but avoids taxes on precious metal imports in key markets across the far east.

Lobel said the Mint was repeating mistakes made last year when it issued highly priced coins to celebrate the Olympics that now trade at less than face value. He has refused to deal in the latest commemorative coins.

A spokeswoman for the Mint said the lasting value to buyers was their value as a collectible item. She said the refusal of banks to accept the coin for deposit had also led the Mint to adopt the unusual practice of offering a refund during the first six months after purchase.

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

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Economic recovery? Bricks and motors build the evidence

Is this for real? The City certainly thinks the economy is finally emerging from the long, dark tunnel of stagnation into the sunlight of strong growth. That's why sterling and the interest rates on government gilts were up on Thursday. A recent run of strong data has convinced the financial markets that this time there will be no setback.

Houses and cars provided the latest evidence of recovery. That's significant because buying a home and buying a car represent the two big-ticket items of consumer spending. If the lipstick index is the barometer of the little treats people give themselves when times are bad, then the number of people putting their foot on the property ladder is a good guide to an economy starting to gather momentum.

So it is of some significance that the report from LSL property services showed that the number of first-time buyers was up by 45% between July 2012 and July 2013. The figure was the highest for any month since November 2007, when the financial crisis was still in its infancy.

The monthly sales report from the Society of Motor Manufacturers and Traders told a similar story. Indeed, the strength of new car sales by private buyers has been evident for the past 18 months and was one of the few positive signs during the flat-lining of the economy during 2012.

True, there may have been some special factors involved. There is some evidence that consumers have been using their compensation from miss-sold protection payment insurance as the deposits for a new car. Higher petrol prices have created incentives to trade in gas guzzlers for more fuel-efficient models. Motorists have been wooed by some smart promotions by dealers.

All that said, though, the year-on-year rates of growth reported by the SMMT are still impressively strong. Private car sales were almost 15% higher in August 2013 than they were a year earlier, and in the first eight months of 2013 they were up by more than 16%.

The data for first-time buyers and car sales reinforced the impression provided by the three surveys of manufacturing, construction and services from the CIPS/Markit earlier in the week. But snapshots of business confidence are one thing; people actually committing themselves to 25-year home loans and finance agreements quite another.

In the City, there was plenty of interest in how the Bank of England would respond to this batch of upbeat news. After the July meeting of Threadneedle Street's monetary policy committee, the first chaired by Mark Carney, the Bank issued a statement in which it sought to bring a halt to the upward drift in market interest rates which it fears could, if left unchecked, threaten the recovery.

Two months of strong data and a further increase in market interest rates later, however, there was radio silence from the Bank. No suggestion that the markets were getting ahead of themselves. No attempt to talk down rates. No suggestion that Threadneedle Street had a plan up its sleeve that would reverse the upward trend in gilt yields.

"This is quite a bizarre strategy by the Bank," said Nick Parsons, head of strategy at National Australia Bank. "If it issues a statement when it is not happy with the level of rates, the absence of a statement implies they are happy with the level of rates."

The lack of a statement did indeed lead to interest rates on 10-year gilts edging towards 3% and the pound rising against the dollar and the euro. It is hard to believe, however, that the Bank is happy with this state of affairs. It still believes that a premature tightening of policy could choke off nascent growth. But with the City paying more heed to evidence of an incipient housing boom than to Carney's forward guidance, it is at a loss as to what to do next.

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

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