Right, how can it not with a 12% type deficit?

U.K. Economy Grows Most Since 2001 on Construction

By Scott Hamilton

Aug. 27 (Bloomberg) — The U.K. economy expanded faster
than previously estimated in the second quarter in the biggest
growth spurt since 2001 as companies rebuilt stocks and
construction work surged.
Gross domestic product rose 1.2 percent from the previous
three months, the Office for National Statistics said today in
London. That was higher than the 1.1 percent initial estimate,
which was the median forecast of 25 economists in a Bloomberg
News survey. On the year, the economy expanded 1.7 percent.
Britain’s growth pickup may deepen the divide among policy
makers as the Bank of England considers whether the economy
faces a greater threat from inflation or needs more stimulus to
avert a further recession. The pound declined after the report,
which showed slower services growth than previously estimated
and a drop in fixed investment.
“The third quarter looks like it’s started pretty well,”
James Knightley, an economist at ING Financial Markets, said in
a telephone interview. “Momentum can be continued into the next
few months,” though “we should be looking at growth being
subdued over the coming years and that could raise the prospect
of further stimulus rather than a withdrawal.”
The pound fell more than 0.2 percent against the dollar
after the data were published. The currency traded at $1.5504 as
of 9:47 a.m. in London. The yield on the benchmark two-year
government bond was down 2 basis points today at 0.618 percent.

Budget Squeeze

The U.K. faces the biggest budget squeeze since World War
II, which has undermined consumer confidence. Ed Balls, a
candidate for the leadership of the U.K.’s opposition Labour
Party, said today that the government’s plans to cut the budget
deficit immediately risk pushing Britain back into recession.
At the same time, a debt crisis threatens the recovery in
the euro region, the U.K.’s largest trading partner, and there
are signs the global recovery is cooling.
The U.S. economy probably grew at a 1.4 percent annualized
pace in the second quarter, slower than the 2.4 percent rate
projected last month, according to the median forecast of 81
economists surveyed by Bloomberg. That would be the slowest
growth since the second quarter of 2009 when the economy was
still contracting. That data will be released later today.

Construction Surge

The U.K. GDP figure was revised up after construction
expanded faster than previously estimated, rising 8.5 percent on
the quarter, the most since 1982. Inventories rose by 983
million pounds ($1.5 billion) in the first evidence of stock-
building by companies for seven quarters, the statistics
office’s report showed.
Consumer spending rose 0.7 percent and government
expenditure increased by 0.3 percent, the statistics office
said. That offset a 2.4 percent drop in fixed investment.
Growth in services, which account for about three quarters
of the economy, was revised down to 0.7 percent from 0.9
percent, the statistics office said. Faster expansion in
business services was outweighed by a drop in air transport
during a quarter when European airspace was disrupted by an ash
cloud caused by volcanic activity in Iceland.
The “breakdown of GDP shows that the recovery is built on
very fragile foundations,” said Samuel Tombs, an economist at
Capital Economics Ltd. in London. “Household and government
spending did both post solid rises, but both sectors are very
unlikely to maintain such growth rates as the fiscal squeeze
kicks in over the coming quarters.”
In a separate report, the statistics office said that
business investment fell by 1.6 percent from the previous
quarter. On the year, it increased by 1.9 percent.

As in the US, with a large federal budget deficit consumers can spend out of income rather than debt and the economy do reasonably well.

And should they start spending out of both income and debt it gets that much better.

Bank of England Interest Rates to Reach 8% by 2012, Lilico Says

By Scott Hamilton

Aug. 23 (Bloomberg) — Bank of England policy makers will
raise the benchmark interest rate to about 8 percent in 2012 to
combat surging inflation sparked by “explosive” economic
growth, Policy Exchange Chief Economist Andrew Lilico said.

Annual consumer-price gains may accelerate to more than 6
percent in two years as officials expand bond purchases and keep
the interest rate at a record low of 0.5 percent to fight the
threat of a renewed recession, Lilico said in a telephone
interview from the London-based research group today.

While “a dip down in the economy” will slow interest-rate
increases, that will leave the Bank of England “behind the
curve” when it needs to tackle inflation, Lilico said.

The U.K. economy grew 1.1 percent in the second quarter in
the fastest expansion for four years. Bank of England Governor
Mervyn King said this month that inflation, at 3.1 percent in
July, has been faster than officials forecast and may keep
exceeding the government’s upper 3 percent limit into next year.

“The scope for a very strong recovery is definitely
there,” Lilico said. “Once it’s going they’ll find it very
hard to control because the growth will explosive. They’ll get a
big boom and then they’ll have to tighten hard. Our ideas of
what a normal interest rate is to deal with a boom need to be a
bit more realistic than they are now.”

Bank of England officials this month maintained emergency
stimulus to aid the economy during the biggest budget squeeze
since World War II.

Policy makers “need to do enough in terms of keeping
interest rates low and probably doing additional quantitative
easing to avoid that double dip turning into a double slump,”
Lilico said. “It’s not that policy makers are getting it wrong
– they’re getting it right — I just think the consequences of
them getting it right will in the end be inflation.”

U.K. Consumer Finance, Business Confidence Show Weakness

By Craig Stirling

Aug. 23 (Bloomberg) — A U.K. index of consumer finances
stayed close to the lowest level in almost a year in August and
a quarterly gauge of business confidence weakened, evidence
Britain’s economic recovery may be waning.

The measure of finances, based on a survey of 2,000
households, was at 37.9, little changed from July’s reading of
37.2, Markit Economics Ltd. and YouGov Plc said in an e-mailed
statement today. Readings below 50 indicate deterioration. The
index of business confidence fell 4 points in the third quarter
to 21.5, Grant Thornton and the Institute of Chartered
Accountancy in England and Wales said, citing a survey of 1,000
members.

“A downbeat mood spans the household income spectrum, but
remains most acute amongst the lowest earners,” Tim Moore, an
economist at Markit, said in the statement. “Household finances
continue to suffer from a backdrop of squeezed disposable
income, stubbornly high inflation and ongoing public sector
spending cuts.”

While economists predict gross domestic product data this
week will confirm Britain had its best growth since 2006 in the
second quarter, surveys have signaled the pace of expansion may
have weakened since then. Bank of England policy makers kept
open the option of adding emergency stimulus this month to aid
the economy as public-spending cuts loom.

Grant Thornton and the ICAEW conducted their quarterly
survey by telephone from April 29 to July 22. YouGov collected
responses online for the monthly Markit household survey.

Possible sign of a ‘hand off’ to private sector credit growth as double digit deficit spending replenishes savings and eases debt service and debt service ratios.

Austerity measures will take a bit off growth at some point but probably not drive it anywhere near negative.

UK Headlines:
U.K. House Prices Increased 0.1% in July, Acadametrics Says
UK Summer Sales Drive Credit Card Spending
UK Government Bonds in Demand

UK Summer Sales Drive Credit Card Spending

Aug. 13 (Telegraph) — It might be less than a year since
the end of the worst recession since the 1930s but consumers seem
to have already forgotten the lessons of the credit crisis.

Spending on credit and debit cards rose 9.9pc in July as
consumers ignored fears of a double-dip recession and hit the
high street, according to figures from Barclaycard.

The year-on-year increase was achieved as retailers enticed
shoppers with summer discounts.

“If consumer confidence is taking a hit, it’s not happening
on the high street,” said Stuart Neal of Barclaycard. “If
spending remains at this level compared to last year, 2010 could
prove to be a very good year for retailers.”

July was the third month in a row that the annual growth
rate in sales was above 9pc, according to Barclaycard.

The report said that spending last month was 1.9pc higher
than in June, partly reflecting an earlier start to the summer
sales season.

As expected, boom time for now as the massive deficit spending raised savings and incomes, recharging consumer batteries, and supply the financial equity to fuel the subsequent expansion.

Look for rate hikes to add gasoline to the fire as well.

The risk of slowing from fiscal tightening is way down the road.

In fact, it’s usually the automatic stabilizers that tighten things sufficiently to throw the economy into reverse.

Again, years down the road.

Someday they may learn to use proactive fiscal rather than let the automatic stabilizers reverse recessions…

UK Headlines:

U.K. GDP Jumps Most in Four Years as Recovery Ignites

Bank of England Rate Setters Surprised By High Inflation,says Spencer Dale

U.K. BBA June Mortgage Approvals Fall to 34,813 From 36,418

Osborne Tells Cabinet He’s Cautiously Optimistic on Economy

Still looks to me like the UK budget deficit has been more than sufficient to support at least modest GDP growth.

UK Headlines:

U.K. Economy Grew Unrevised 0.3% in First Quarter

U.K. Consumers Predict Economy Will Worsen, GfK Survey Shows

U.K. Mortgage Approvals Rose 2% in May From April, CML Says

U.K. Profit Warnings to Climb as Deficit Cuts Kick In, E&Y Says

Osborne Says U.K. Budget Cuts Needed to Avoid ‘Downward Spiral’

U.K.’s Budd to Propose More Independent OBR, Telegraph Says

Blanchflower Says Economy May See Long Decade of Slow Growth

Just in case you thought the new Deputy Prime Minister knows anything about monetary operations.

To avoid the non existent probability of becoming the next Greece they can take action to increase the real probability they become the next Japan:

Clegg Says U.K. Deficit Cuts Intended to Avert ‘Market Panic’

June 24 (Bloomberg) — Deputy Prime Minister Nick Clegg said the U.K. could have been the next victim of a “market panic” sweeping Europe if the government had not raised valued-added tax.

Defending Chancellor of the Exchequer George Osborne’s June 22 decision to raise the tax to 20 percent from 17.5 percent, which Clegg’s Liberal Democrats had campaigned against during for last month’s election, the deputy prime minister said the government faces a “black hole” in the public finances that is “even bigger than we thought.”

“The truth is that the world had changed very dramatically in recent weeks,” Clegg told BBC News today. “We’ve got this sort of economic firestorm on our doorstep in Europe, where the markets are putting huge pressure on one country after the next, knocking on the door in Greece, in Spain, in Portgual, and so on.”

“There’s a real worry that if we don’t take action now, that we will be the next victim, if you like, of that kind of market panic,” he said.

Funny how those ultra low rates never do seem to generate inflation as many fear…

*BOE SAYS NEAR-TERM CPI OUTLOOK HIGHER ON POUND, OIL PRICE
*BOE CONSTANT-RATE FORECAST SHOW INFLATION BELOW 2% IN 2 YEARS
*BOE SAYS DOWNSIDE U.K. GROWTH RISKS HAVE `INCREASED SOMEWHAT’
*BOE FORECASTS BASED ON RATE AT 0.6% END 2010, 1.7% END 2011
*BOE SAYS U.K. BUDGET CUTS MAY NEED TO BE `MORE DEMANDING’
*BOE FORECASTS SHOW INFLATION AT ABOUT 1.4% IN 2 YEARS’ TIME
*BOE SAYS NEAR-TERM CPI OUTLOOK `SOMEWHAT HIGHER’ THAN FEBRUARY
*BOE SAYS DOWNSIDE U.K. GROWTH RISKS HAVE `INCREASED SOMEWHAT’
*BOE SAYS U.K. RECOVERY `LIKELY TO CONTINUE TO GATHER STRENGTH’
*BOE SAYS GDP RISKS FROM MARKET CONCERNS ON BUDGET DEFICITS
*BOE SAYS EURO-AREA FISCAL PRESSURES COULD ADVERSELY IMPACT U.K
*BOE FORECASTS SHOW GDP GROWING ABOUT 3.5% ANNUAL PACE IN 2 YRS
*BOE SAYS STIMULUS, POUND, GLOBAL DEMAND SHOULD AID RECOVERY
*BOE SAYS U.K. BUDGET CUTS MAY NEED TO BE `MORE DEMANDING’
*BANK OF ENGLAND RELEASES INFLATION REPORT IN LONDON
*BOE SAYS `SIGNIFICANT’ MEDIUM TERM FISCAL CONSOLIDATION NEEDED
*BOE CONSTANT-RATE FORECAST SHOW INFLATION BELOW 2% IN 2 YEARS

May 12 (Bloomberg) — The Bank of England said risks to the
economic recovery have increased on investor concern about
European budget deficits, and called on David Cameron’s incoming
government to step up measures to tackle the U.K.’s shortfall.
The central bank predicted the economy will sustain its
pickup and reach a 3.5 percent annual pace by the beginning of
2012, while inflation is still likely to remain below the 2
percent target. The forecasts are based on the interest rate
staying close to its record low of 0.5 percent this year and
reaching 1.7 percent by the end of 2011….

Too bad he’s gone over to the dark side.

Hopefully it doesn’t actually happen.

Brown Says U.K. Deficit Plans Go Further Than Other Countries

April 12 (Bloomberg) — Prime Minister Gordon Brown said his plans to reduce the deficit show his Labour Party has “done more than any other country” on the public finances.

He said the government would achieve 11 billion pounds in efficiency savings, and savings of 4 billion pounds from public-sector pay and pensions. He spoke at an event in Birmingham to introduce the party’s election manifesto.

Brown also said Labour would not make a pledge on increases in value-added tax, and his deficit reduction plans do not depend on such an increase.

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And a lot of the deficit spending was proactive, in addition to the automatic stabilizers.

They should continue to do relatively well, unless they take meaningful deficit reduction measures.

And as issuer of their own currency with no liquidity risk, it makes no sense, of course, that their CDS should be substantially higher than Germany or France, who are users of the euro, and subject to liquidity risks.

U.K. Has Worst Debt Ratio Damage of G-7: Chart of Day

U.K. Posts Largest December Budget Deficit on Record

U.K. Mortgage Approvals Stay Close to One-Year High

U.K. CBI January Factory Order Index Rises to Highest Since 2008

London Office Rents May Have Bottomed Out, RICS Survey Shows

Former U.K. Minister Hewitt Joins Barclays as Adviser

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Earlier this year I thought the UK was on track with their understanding of their monetary system.

Recent headlines don’t look so promising:

Conservatives Say Low Rates Are U.K.’s Best Route Out of Slump

By Robert Hutton and Jennifer Joan Lee

Oct. 28 (Bloomberg) — Philip Hammond, a lawmaker who speaks on Treasury policy for the Conservatives, said the opposition party wants the Bank of England to keep interest rates low and will cut the deficit to allow this to happen.

“It is essential that in the recovery we are able to continue to keep monetary policy relatively loose,” Hammond said in an interview at Bloomberg’s office in London. “We will only be able to do that if we have got the deficit under control.”

The focus on monetary policy contrasts with Prime Minister Gordon Brown’s argument that maintaining government spending is the best bring Britain out of the worst recession since World War II.

With an election due within seven months, the question of how and when to cut spending is at the heart of the debate between the ruling Labour Party and the opposition. Brown argues that maintaining spending and cutting taxes are the best ways to return to growth. The Conservatives say those steps risk lifting inflation and interest rates, choking off recovery.

“What has got Britain through the recession so far has been the activist monetary policy at the Bank of England, keeping interest rates low, supporting the economy through quantitative easing,” Hammond said. “We will only be able to do that if we have sent a clear signal to the markets that we intend to execute a plan to get the deficit under control. We need to make a start in 2010.”

‘Active Monetary Policy’

Conservative leader David Cameron yesterday said he was “a great believer in an active monetary policy,” a step away from previous comments that the bank’s quantitative easing program would have to end soon.

Cameron told journalists that a speech he’d made at the start of the month had been misunderstood. “The point I was making was about how easy or difficult to fund our debt, because the market for gilts hasn’t really been tested yet, because of QE,” he said. He repeated his point that the intervention will have to end some time. “You can’t go on indefinitely.”

Policy makers at the central bank will decide next week whether to extend their asset purchase program, which is pumping

175 bln pounds ($286 bln) in newly created money into the economy.

The program has increased demand for U.K. government bonds, known as gilts, as the Treasury sells a record 220 bln pounds of debt this year.

The Conservatives have repeatedly warned this year that Brown’s spending plans are putting the U.K.’s AAA debt rating at risk. Hammond’s boss, George Osborne, told an audience of financiers on Monday that it was only the likelihood of a Conservative victory at the next election that was keeping Britain’s debt costs down. Conservatives have led Labour in polls for two years.

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Risk of ‘quantitative easing’ which does nothing, both in theory and now in practice, but no ‘risk’ of ‘VAT holiday’ – eliminating the value added taxes – which would end the recession and lower prices?

And they are largely energy independent, as least in the short term.

UK: GDP SURPRISES ON THE DOWNSIDE; RISK OF MORE QE

The range of forecasts for GDP in Q3 was from unchanged to up
0.7% qoq. Not a single forecaster had expected negative growth,
but today’s figures showed the economy continuing to contract in
Q3. Growth has been negative now for 6 straight quarters – some-
thing we have never seen before in the UK. Output is down by 6%
since the peak – a similar fall to the contraction we saw in the
early 1980s recession. In its August Inflation Report, the BoE
had been forecasting growth of roughly 0.1% for Q3 – in other
words this is a 0.5pp downside surprise. This will, all things
being equal, raise the amount of spare capacity in the economy
and push down on the Bank’s inflation forecasts going forward.
The chance of more QE in Nov has been increased substantially.

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EU warns UK’s debt is ‘unsustainable’

By Sean O’Grady

Oct. 15 (The Independent) —A damning report by the European Commission on the long-term prospects for Britain’s public finances warns that Britain is at “high risk” of running unsustainable debts – implying that the nation will be unable to service its debts and that only default or high inflation can relieve the burden.

That implies the high deficits will close the output gap to 0 with ultra low unemployment and high cap utilization.

And then taxes will have to go up to cool it down.

Sounds like a good plan to me!

The Commission’s 2009 Sustainability Report says that Britain will suffer a
“sustainability gap” of 12.4 per cent of GDP – meaning tax rises or spending
cuts amounting to close to £200bn a year.

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Thanks, Dave, if this is the new mainstream conventional wisdom it looks like the monetarists have somehow gotten back in control.

Their transmission mechanism that increases demand seems to be asset prices and the exchange rate for export growth and reduced imports via higher domestic prices with the implied currency depreciation.

In fact it’s a policy of ‘both feet on the brakes’ which would mean moving towards a Japan like rates environment.

Hard to believe this actually will happen. Very, very odd.

Interest rates in Britain are to stay low for years to compensate for a severe fiscal squeeze on the economy, a report to be published this week says.

The Centre for Economics and Business Research, in its latest UK Prospects, to be published tomorrow, predicts that Bank rate will remain at 0.5% until 2011 and not reach 2% until 2014.

It also expects further quantitative easing by the Bank of England on top of the £175 billion so far announced, and says that the programme of asset sales will not start to be rolled back until 2014 at the earliest.

Its forecast is based on the assumption that an incoming government will announce £100 billion of fiscal tightening, split between £20 billion of tax rises and £80 billion of spending cuts, over the lifetime of the next parliament.

With this fiscal tightening putting a brake on growth, the Bank will be obliged to keep interest rates down, the CEBR argues.

“We are likely to see an exciting policy mix, with the fiscal policy lever pulled right back while the monetary lever is fast forward,” said Doug McWilliams, chief executive of the CEBR and one of the report’s authors. “Our analysis says that this ought to work. If it does so, we are likely to see a re-rating of equities and property, which in turn, should stimulate economic growth after a lag.”

The forecast implies a good outlook for the stock market and house prices, but could put further downward pressure on sterling.

Charles Davis, a senior CEBR economist and co-author of the report, said the main risk was a rise in inflation from higher commodity prices, which could force the Bank’s hand.

Inflation figures this week should show a drop from 1.6% to 1.2%, which City economists expect to be the low point. Higher Vat at the turn of the year is likely to push inflation temporarily above the official target. Unemployment figures will also be released this week.

+ Profit warnings fell to a six-year low in the third quarter, Ernst & Young, the accountant, said. There were 52 warnings from quoted UK companies, a year-on-year drop of 53%, and 17% less than in the second quarter.

Ernst & Young said, however, that the decline did not mean the worst was over. “This dramatic fall is due to a complex mixture of previously withdrawn company guidance, already depressed market expectations and an improving economic outlook that has encouraged companies to look ahead with greater confidence, with the worst of the downturn seemingly past,” said Keith McGregor, restructuring partner at Ernst & Young.

“Nevertheless, confidence should not turn to complacency. The one-off effects of monetary and fiscal stimulus, and inventory rebuilding have put a gloss on current demand that could soon tarnish once this support is withdrawn.”

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Thanks, will distribute and post on my blog.

Known Wynne for quite a while.

He’s been doing sector analysis for maybe 50 years and has often been the UK’s top forecaster because of it.

Immediate cuts to budget deficit will worsen recession

Oct. 9 (FT) — Sir, George Osborne is committing himself unconditionally to making very large cuts in the budget deficit. I think he may be very seriously mistaken.

If these cuts were all to be made immediately he would obviously make the present recession very much worse than it already is.

To make sense of his proposed cuts it must be assumed that there is a rise in private expenditure relative to income (ie, a fall in net private saving) that roughly matches them in both scale and timing. But it is quite likely that private saving will not fall nearly enough. If, as I foresee, it does not do so, then Mr Osborne’s cuts will be much too large.

Wynne Godley,
King’s College,
Cambridge University, UK

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>   
>   (email exchange)
>   
>   On Thu, Oct 8, 2009 at 7:55 AM, wrote:
>   
>   Check Blanchflower comments … he’s pretty good on the deficit and QE as well.
>   

Yes, refreshing!

Blanchflower Says Now Is Not the Time to Cut Government Deficit

Oct. 8 (Bloomberg) — Former Bank of England policy maker David Blanchflower said it was too soon to cut Britain’s deficit and its debt. “Clearly you need to control the debt, but now?,” he said in an interview with Bloomberg Television today. “I don’t really think so.”

Blanchflower also said the aim of quantitative easing was to raise some asset prices and to restore confidence.

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Good to hear this kind of talk:

Darling Says Conservative Plans Risk ‘Crashing’ U.K. Economy

By Gonzalo Vina

Oct. 5 (Bloomberg) — Chancellor of the Exchequer Alistair Darling said the Conservative Party plans to cut spending and welfare programs risked “crashing” the British economy, his strongest attack yet on the opposition as the election nears. Darling said Conservative leader David Cameron’s plan to phase out the “New Deal” welfare programs built up by the Labour government would hurt the nation’s poorest people and that cutting the budget deficit now would threaten the recovery.

“Proposing to end support for the economy and scrap the New Deal is entirely wrong and downright daft,” Darling told reporters in Istanbul today after attending a meeting of finance ministers from the Group of Seven. “Either he doesn’t understand what he is doing or he is not coming clean about what he is doing. Nobody else is advocating what he is proposing.”

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Waiting to see if Brown gets any credit for his fiscal policies which in fact are responsible for stopping the slide.

As in the US, monetary policy has been contractionary with lower rates hurting demand from savers and borrowers gaining
little or nothing, and lenders replenishing lost reserves.

And QE per se does nothing apart from altering the term structure of rates and modestly reducing bank earnings.

• British house prices rise again in August
• City regulator seeks to deflate financial sector with global tax
• U.K. Retail Sales Index Falls, Outlook Improves, CBI Says
• U.K. Business Investment Fell Most Since 1985 in Second Quarter
• U.K. Two-Year Notes Rise as Chinese Curbs Boost Safety Demand
• U.K. Population Hits 61.4 Mln; Immigration Eases

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Bean does see the interest rate channel but misses the savings/income channel, and has it all wrong regarding the fact that causation runs from loans to deposits and reserves, not from reserves to loans. And he’s reading what happened in Japan incorrectly as well.

Also, the second article misses the point as well. The rising domestic savings/debt pay downs is being ‘funded’ by govt. deficit spending. The deficit spending, if sufficient, allows the consumer to both increase savings and spending. So the fact that savings went up says nothing about what consumption might have done.

Bean Says Impact of BOE Bond Purchases ‘Moderately Encouraging’

August 25 (Bloomberg) — “The initial responses in the United Kingdom to these measures (purchases of government and corporate debt) have been moderately encouraging,” BOE Deputy Governor Charles Bean said in a speech. Gilt yields “appear to be some 50 to 75 basis points lower than they would otherwise be. And there are also signs of beneficial effects on conditions in the relevant corporate credit markets.” “It is very early to draw conclusions on the efficacy of these measures, as the transmission lags through to nominal spending are likely to be quite long,” Bean said. “When banks are trying to de-leverage, ,such additional reserves are more likely to be hoarded” Bean said. “That appears to be what happened during the Japanese experiment with quantitative easing in the early part of this decade and a similar response is to be expected from banks at the current juncture.”

U.K. Home Lending Drops as Consumers Cut

August 25 (Bloomberg) — U.K. net mortgage lending slumped to the lowest in almost nine years as consumers used gains from lower interest rates to pay down debt rather than boost spending.

“It could be that people on low interest rates are keeping their mortgage payments the same to reduce their borrowing,”

Vicky Redwood, an economist at Capital Economics Ltd. said.

“It’s good news if you think consumers have taken on too much debt, but it’s bad news for the economy in the short term, as it means that money is not feeding back into the economy in increased spending.”

Net mortgage lending at the end of July declined 74 % to 1.64 billion pounds ($2.69 billion) from 6.23 billion pounds in August 2007, the peak of Britain’s decade-long real estate boom, the British Bankers’ Association said yesterday. Mortgage approvals in July rose to the highest since February 2008. The data show new home lending is being outweighed by repayments, according to the BBA.

U.K. consumers’ debt reached a record 1.5 trillion pounds in January, according to the Bank of England. Consumer spending accounts for about 65 % of gross domestic product, while about 20 % of incomes are spent on mortgages, according to Simon Willis, an analyst at NCB Stockbrokers Ltd. in London.

“The household sector is far too highly leveraged,” said Ross Walker, economist at Royal Bank of Scotland Group Plc.

“There’s been a concerted effort to pay back credit cards and mortgages.”

U.K. Rate of Workless Households Increases to Highest in Decade

August 26 (Bloomberg) — The proportion of workless households rose to the highest in a decade in the second quarter as Britain experienced its worst recession in a generation.

The rate increased 1.1 %age points from a year earlier to 16.9 %, the most since 1999 and the biggest increase since records began in 1997, the Office for National Statistics said today. The number of people living in households where no adults work rose by 500,000 to 4.8 million.

Mounting job cuts threaten to hinder Prime Minister Gordon Brown’s prospects less than a year before he has to hold the next general election. Unemployment rose to the highest level in 14 years in the quarter through June, and joblessness is forecast to increase further as the economic slump forces companies to fire workers.

“We expect to see unemployment continuing to rise into the middle of next year and the number of jobless households with it,” said David Page, an economist at Investec Securities in London. “We’re going to have to get used to high levels of unemployment for quite a long time. It’s unlikely the labor market will provide Brown with anything to electioneer on.”

The workless household rate was highest in the northeast of England, at 23 %, with the lowest rate in the east of England at 12.2 %, today’s figures showed.

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So does Brown become the hero for his fiscal adjustments or the King for low rates and quantitative easing?

I do not even want to know…

• U.K. Services Index Rose to Highest Since February 2008 in July
• UK retailers say inflation at 6-month low
• UK house prices up 1.1 pct in July
• U.K. Consumer Confidence Rose to the Highest in a Year in July
• King to Halt Gilt Purchases on Economy, Dealers Say
• U.K. Factory Production Unexpectedly Jumped in June by 0.4%

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Deficit spending may be ‘working’
Who would have thought???…

On Mon, Jul 20, 2009 at 5:41 AM, Milo wrote:

• U.K. Mortgage Lending May Gain After Approvals Rose, BOE Says
• U.K. June Mortgage Lending Rises 17% From May, CML Says
• U.K. Office Demand Rises for First Time in Two Years
• U.K. Property Asking Prices Rebound, Rightmove Says
• Nissan to Build Battery-Manufacturing Plants in U.K., Portugal

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