Osborne and Carney should enjoy their day in the sun

The UK fast becoming a stand-out developed economy performer. Growth is heading into 2014 at a healthy 3 to 4 per cent, even in the face of Osborne’s austerity.

If last week’s markets were quiet and range-bound due to Thanksgiving celebrations and a paucity of frontline data, this week could hardly present a more different proposition. Monday saw a strong US Manufacturing ISM survey, and yesterday the RBA decided to sit on its hands, but the committee was once again at pains to point out that they view the AUD’s strength as "uncomfortably high", with a "lower level of exchange rate likely to be needed to achieve balanced growth in the economy". They also highlighted that "public demand is forecast to be quite weak" and "considerable uncertainty surrounds this outlook" (for a pick-up in activity). More rate cuts are coming in Australia as Asia slows. The RBA are very perceptive - they realise that the Chinese 3rd plenum, although very constructive in the medium-term (10-20 years in Chinese terms!) implies slower growth in the short-term, as the economy rebalances away from export-fest to the kind of consumer-lead growth that is all too familiar to us in the UK.

We are entering a dangerous era of change for global growth, with the onus being passed to developed markets to take over as locomotives. Really?! With an economic block the size of the Eurozone destined to flatline for years to come, or implode, and a US economy that will struggle to reach escape velocity as the Fed removes the punch bowl, this looks like a vain hope. Just look at the effect on the US housing market of even the suggestion of tapering and a 100 bp rise in mortgage rates this summer-and the housing recovery has played a very significant part in what meagre growth we have seen thus far.

Against this backdrop, Messrs. Osborne and Carney are beginning to look pretty lucky (and smart actually) with the UK fast becoming the stand-out developed economy performer. Growth is heading into 2014 at a healthy 3 to 4 per cent annualized clip, even in the face of Osborne’s austerity, which is another good story. In his 5 December Autumn Statement, I expect Chancellor Osborne to be able to announce that the OBR has made a £13bn reduction in its official forecast for the 2013/2014 government deficit, compared to its March forecast, i.e. 5.8 per cent of GDP, rather than 6.9 per cent, and also to make reductions in deficit forecasts for the future. I would also expect upward revisions to growth prognoses.

Governor Carney seems to be fully on-board in helping out the Chancellor, with repeated promises that rates will stay lower for longer than recent positive data surprises would otherwise suggest. Last week’s decision by the Bank of England to restrict its Funding for Lending Scheme to the provision of cheap liquidity to banks for business lending, rather than also for household mortgages, also implies a concrete, and rather subtle, message that the Bank will use macro-prudential tools to cool parts of the economy if it deems this necessary - and not conventional monetary tightening. This having been said, I’d say this change in policy will have negligible effect on the UK housing market, as cheap liquidity is currently plentiful anyway, and the government’s two Help to Buy schemes will be the real policy drivers of the housing market - eventually achieving the Nirvana of increased home building, as well as the feel-good factor from higher prices that British homeowners crave like the next heroin high. I would be extremely surprised if Help to Buy was altered at all before the next election in May 2015.

The real question is whether the UK can continue to thrive in the face of headwinds from Europe, Asia and possibly the US.

Mr Osborne is starting to look pretty lucky. Photograph: Getty Images.

Chairman of  Saxo Capital Markets Board

An Honours Graduate from Oxford University, Nick Beecroft has over 30 years of international trading experience within the financial industry, including senior Global Markets roles at Standard Chartered Bank, Deutsche Bank and Citibank. Nick was a member of the Bank of England's Foreign Exchange Joint Standing Committee.

More of his work can be found here.

Getty
Show Hide image

Find the EU renegotiation demands dull? Me too – but they are important

It's an old trick: smother anything in enough jargon and you can avoid being held accountable for it.

I don’t know about you, but I found the details of Britain’s European Union renegotiation demands quite hard to read. Literally. My eye kept gliding past them, in an endless quest for something more interesting in the paragraph ahead. It was as if the word “subsidiarity” had been smeared in grease. I haven’t felt tedium quite like this since I read The Lord of the Rings and found I slid straight past anything written in italics, reasoning that it was probably another interminable Elvish poem. (“The wind was in his flowing hair/The foam about him shone;/Afar they saw him strong and fair/Go riding like a swan.”)

Anyone who writes about politics encounters this; I call it Subclause Syndrome. Smother anything in enough jargon, whirr enough footnotes into the air, and you have a very effective shield for protecting yourself from accountability – better even than gutting the Freedom of Information laws, although the government seems quite keen on that, too. No wonder so much of our political conversation ends up being about personality: if we can’t hope to master all the technicalities, the next best thing is to trust the person to whom we have delegated that job.

Anyway, after 15 cups of coffee, three ice-bucket challenges and a bottle of poppers I borrowed from a Tory MP, I finally made it through. I didn’t feel much more enlightened, though, because there were notable omissions – no mention, thankfully, of rolling back employment protections – and elsewhere there was a touching faith in the power of adding “language” to official documents.

One thing did stand out, however. For months, we have been told that it is a terrible problem that migrants from Europe are sending child benefit to their families back home. In future, the amount that can be claimed will start at zero and it will reach full whack only after four years of working in Britain. Even better, to reduce the alleged “pull factor” of our generous in-work benefits regime, the child benefit rate will be paid on a ratio calculated according to average wages in the home country.

What a waste of time. At the moment, only £30m in child benefit is sent out of the country each year: quite a large sum if you’re doing a whip round for a retirement gift for a colleague, but basically a rounding error in the Department for Work and Pensions budget.

Only 20,000 workers, and 34,000 children, are involved. And yet, apparently, this makes it worth introducing 28 different rates of child benefit to be administered by the DWP. We are given to understand that Iain Duncan Smith thinks this is barmy – and this is a man optimistic enough about his department’s computer systems to predict in 2013 that 4.46 million people would be claiming Universal Credit by now*.

David Cameron’s renegotiation package was comprised exclusively of what Doctor Who fans call handwavium – a magic substance with no obvious physical attributes, which nonetheless helpfully advances the plot. In this case, the renegotiation covers up the fact that the Prime Minister always wanted to argue to stay in Europe, but needed a handy fig leaf to do so.

Brace yourself for a sentence you might not read again in the New Statesman, but this makes me feel sorry for Chris Grayling. He and other Outers in the cabinet have to wait at least two weeks for Cameron to get the demands signed off; all the while, Cameron can subtly make the case for staying in Europe, while they are bound to keep quiet because of collective responsibility.

When that stricture lifts, the high-ranking Eurosceptics will at last be free to make the case they have been sitting on for years. I have three strong beliefs about what will happen next. First, that everyone confidently predicting a paralysing civil war in the Tory ranks is doing so more in hope than expectation. Some on the left feel that if Labour is going to be divided over Trident, it is only fair that the Tories be split down the middle, too. They forget that power, and patronage, are strong solvents: there has already been much muttering about low-level blackmail from the high command, with MPs warned about the dire influence of disloyalty on their career prospects.

Second, the Europe campaign will feature large doses of both sides solemnly advising the other that they need to make “a positive case”. This will be roundly ignored. The Remain team will run a fear campaign based on job losses, access to the single market and “losing our seat at the table”; Leave will run a fear campaign based on the steady advance of whatever collective noun for migrants sounds just the right side of racist. (Current favourite: “hordes”.)

Third, the number of Britons making a decision based on a complete understanding of the renegotiation, and the future terms of our membership, will be vanishingly small. It is simply impossible to read about subsidiarity for more than an hour without lapsing into a coma.

Yet, funnily enough, this isn’t necessarily a bad thing. Just as the absurd complexity of policy frees us to talk instead about character, so the onset of Subclause Syndrome in the EU debate will allow us to ask ourselves a more profound, defining question: what kind of country do we want Britain to be? Polling suggests that very few of us see ourselves as “European” rather than Scottish, or British, but are we a country that feels open and looks outwards, or one that thinks this is the best it’s going to get, and we need to protect what we have? That’s more vital than any subclause. l

* For those of you keeping score at home, Universal Credit is now allegedly going to be implemented by 2021. Incidentally, George Osborne has recently discovered that it’s a great source of handwavium; tax credit cuts have been postponed because UC will render such huge savings that they aren’t needed.

Helen Lewis is deputy editor of the New Statesman. She has presented BBC Radio 4’s Week in Westminster and is a regular panellist on BBC1’s Sunday Politics.

This article first appeared in the 11 February 2016 issue of the New Statesman, The legacy of Europe's worst battle