Bookies Betting On PM Farage ... "Oh Yes It Could ..." With A little Help from My Friends"9/12/2024  Tesla boss, Elon Musk is reportedly considering giving the Reform Party up to $100 million dollars after meeting up with Farage at Donald Trump's Mar-a-Lago home in Florida.
The odds on Farage becoming the next prime minister are tumbling as Starmer flounders and increasing numbers of voters talk about a clean break from the Labour - Tory duopoly. Money from Musk would help. JFK had once joked about receiving a note from Joe, his tycoon father: "Dear Jack, don't buy a single vote more than necessary. I'll be damned if I am going to pay for a landslide." For Elon Musk, who apparently gave almost $300 million dollars to support Donald Trump's election bid, to give Farage $100 million dollars for an election victory over five years would be "chump change". $100 million dollars in each year for five years would be a more significant investment. Enough to launch Nigel Farage into a much higher political orbit. A launch into a political hemisphere taking his career to the next level and into Number Ten. $500 million dollars, should be more than enough for an electoral landslide. The Tories and Labour averaged just over £40 million in revenues over the last ten years. For Elon Musk, it's not rocket science and much cheaper than space travel. In 2023 SpaceX planned to pump some $2 billion into a rocket programme in an effort to finally get Starship into orbit. I didn't get off to a great start. A rapid unscheduled disassembly featured in the initial attempt. Reform Transformed ... It goes without saying that any donation even approaching that size would be transformative for Reform. In 2024, Reform was a fledgling party lacking the manpower, apparatus and money of the major partners. It was the great good fortune of the Conservative Party that Reform's 4.1 million votes were spread too evenly to translate into many parliamentary seats in this year's general election. Reform averaged just one seat in Parliament for every 823,000 people who voted for them. The the Lib Dems, secured a seat for every 49,000 votes and the Tories one seat for every 56,000 votes. The result of the general election in July did not reflect voting reality. Labour won a landslide majority with only 34 per cent of the vote, winning over 400 seats. The two main parties combined won only 58 per cent of the vote but gained 532 seats. The Lib Dems gained 12% of the vote and 72 seats. Reform won 14% of the vote but only had five MPs elected. Professor Rob Ford of the University of Manchester highlighted the fact that Labour and the Conservatives were the top two parties in only 48 per cent of seats, down from 73 per cent in 2019. At the next election an insurgent party will be the incumbent or main challenger in most constituencies. Reform Catching Up ... Across the nine most recent polls, Reform has an average of 20 per cent of the vote, up from 14 per cent in the general election. Labour is on 28 per cent, down from 34 per cent at the election, while the Tories' share of vote has risen by just two percentage points to 26 per cent. "Reform will probably get 100 seats at the next election even without extra money," says one election strategist. "And if they get a substantial amount of money they will be able to run a much more targeted campaign based on the sort of data they don't currently have." The nightmare scenario for mainstream parties is that Reform gets its act together before the next election, builds a nationwide party machine, beefs up and professionalises its full-time staff and has the sort of money to equal or even outdo the other parties' advertising spend. Veterans of previous UK elections say that data, something Musk knows more than a little about, is the key weapon in 21st-century campaigning. This is where Reform could make up the most ground on the other parties. Reform UK certainly would know what to do with the money with professional help. Musk likes to use the direct messaging facility on X to communicate with his contacts, something he can do with Farage because they follow each other on the platform. Having Musk retweeting your messages, with his 206 million followers (or even Trump with his 95 million followers) cannot but help Farage. Reform is changing ... Farage has appointed businessman Zia Yusuf as chairman of Reform, with a remit to professionalise all aspects of the party, from candidate selection and vetting to building a network of party activists across the country. Zia Yusuf, said the party now had 105,000 members compared to around 130,000 for the Tories. "The stranglehold of the two old parties is finally broken," he said. History is being made in real time." Farage added"The hegemony is breaking. We are entering a new era of politics." According to a recent poll by "FindOutNow"" on the 4th of December, Reform has moved ahead of Labour for the first time, just two points behind the Tories. Conservatives polled 26%, Reform 24% and Labour 23%. At the end of a speech last week, Farage issued a warning to the great and good who were gathered in the audience. "At the next election in 2029 there will be hundreds of newcomers under the Reform UK label. We are about to witness a political revolution the likes of which you've not seen since Labour after the First World War." The Musk Money .. On the question of the Musk money, Farage was evasive. "I have neither solicited nor discussed a donation with Elon" but he said Musk backed him. He likes disruptors. "He's very supportive, he thinks Britain is going down the tubes. He thinks that Labour is leading us in a horrendous direction with the death of entrepreneurship and free speech. Farage pointed out, his association with Trump would prove a boon. "Whether people like him or not, a relationship with the most powerful man in the world is a plus not a minus," he said."A relationship with the richest man in the world is a real bonus." he could have added.
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 Headline CPI inflation picked up sharply to 2.3% in October, spooking markets and lowering expectations of a December interest rate cut. The jump marked a sharp increase from the 1.7% rise recorded in September, exceeding the 2.2% forecast of economists polled by Reuters. The latest data brings inflation back above the Bank of England's 2% target, dampening the prospects of a final interest rate cut this year. Core inflation, which excludes energy, food, alcohol and tobacco, came in at 3.3% for the month, up slightly from 3.2% in September. The uptick was due in part due to an increase in the energy price cap that took effect in October. CPI goods annual rate increased from minus 1.4% to minus 0.3%. Goods inflation continues to subsidise the headline rate. Price rises in the U.K.'s service sector ticked up to 5.0% from 4.9% in September, a major cause for concern for the MPC. Speaking before the Treasury Select Committee earlier this week, Governor Andrew Bailey said that inflation in the UK's services sector remained too high and was incompatible with bringing prices back to 2 per cent. The increase in minimum wage and the changes to National Insurance costs are likely to maintain price pressures into the New Year, especially in the service sector. The governor warned "The introduction of higher national insurance tax on employers poses uncertainty for future interest rate cuts." "The increase in employers' national insurance contributions announced in last month's budget was one of the biggest uncertainties ahead". "There are different ways in which the increase in employers' national insurance contributions announced in the autumn budget could play out in the economy," Bailey said. "If it raised the cost of employment and led to job cuts, it would soften the labour market and force the Bank to lower rates gradually", he said. "On the other hand, if the increase in costs was passed through to higher prices, the MPC would be forced to address the increase in inflationary pressure. The increase in employers' national insurance contributions could keep rates higher for longer." "A gradual approach to removing monetary policy restraint will help us to observe how this plays out, along with other risks to the inflation outlook." His warning came after major retailers wrote to the chancellor Rachel Reeves warning that shops will close, jobs will be lost and prices will have to rise because of the decision to raise employers' NICs in the budget. Economists estimate that future job losses will be in the range of 80,000 to 100,000 over the next five years.  The Bank expects inflation CPI to peak at around 2.8% in the third quarter of 2025 before returning to the 2% target in 2027. Market expectations of base rate trends have risen with six month gilts trading at 4.5%, ten year gilts trading at 4.4% at close of week.
The Bank's favoured OIS overnight swap rates are trading at 4.5% to 4.0% on a six month to ten-year spread. As of Wednesday morning, markets were pricing in just a 14% chance of a further quarter point cut this year. We expect a move to 4.5% as the next bank move but not until the end of the first quarter in 2025. Then not much more after that. Borrowing figures this week will do nothing to ease pressure on gilt yields. Thursday's ONS release revealed borrowing in the first seven months of 2024-25 was £96.6 billion. This was £1.1 billion above the same period last year. The year-on-year increase was driven primarily by higher central government spending, particularly departmental consumption expenditure and welfare spending. Strength in receipts compared to last year has offset a significant portion of the higher expenditure, the OBR said. Borrowing for the whole of 2024/25 is expected to be £2.4 billion higher than last year, £127.5 billion compared to £125.1 billion in 2023/24. The Debt Management Office will be looking to find a home for £300 billion of gilts, including roll overs, in the current financial year. Let's hope the kindness of strangers persists. The prospect of higher rates did nothing for Sterling this week. The Dollar bounce back continued, pushing the Pound to $1.25, down from the heady heights of $1.34 in September. The Euro cross rate closed at $1.04 as a Dollar push to parity comes into play. Bitcoin traded at $99,352 intra day yesterday. Maybe a tree (or a tulip bulb) can hit the sky ...  The Chancellor and the Growth Stats ... Three months into office and Rachel Reeves is dismayed by the performance of the economy. The Chancellor of the Exchequer is disappointed with figures showing the economy is flatlining in the months since Labour came to power. The chancellor promised "economic growth is at the heart of everything I am seeking to achieve". Official figures showed Britain's economy grew by just 0.1 per cent between July and September. "I want growth to come stronger and sooner" she said. "I am not satisfied with these numbers. Not when we consider the ONS had suggested the economy was growing at a "Gangbuster Rate" under the Tories at the start of the year. The Chancellor is missing the point, or rather the decimal point. The focus of the budget was clearly on bridging the fiscal deficit with a big surge on employment tax via the NI employers surcharge. The performance of the economy was always set to take second place. Not much in the budget to stimulate growth in the short term. Look into the detail of the GDP monthly estimate for September, released on Friday and maybe things ain't that bad. Growth year on year (our favoured measure GVA3) was up by 1% in the third quarter. It was up by just 0.2% in the first quarter and O.7% in the second quarter. So much for the "Gangbuster Growth" at onset. The Government could claim things are getting better under Labour but not by much. Assuming growth of 1.3% in the final quarter, that would generate an annual growth rate of less than 1% for the year as a whole. The economy will struggle to hit the OBR 1.1% forecast for growth this year. Heaven knows, or maybe the OBR model knows, how growth will hit the forecast growth of 2% growth next year. It could get better. Manufacturing and construction output was down by 1% and 0.4% in the latest quarter. Service sector growth was up by 1.5% with a strong performance in transport, storage, accommodation and food. Professional, scientific and technical services were up by almost 2%. Our scenario forecast is for growth of 1.0% this year and 1.5% next. Yes we all want growth to come stronger and sooner but want doesn't always get. The Governor of the Bank of England was in feisty mood his week at the Mansion House. Brexit had a negative effect on the British economy he said. Britain must rebuild relations with Brussels and warned of the economic consequences of Brexit. He also had a pop at the ONS and the job stats' "I am not happy with these numbers" he said.  The Governor and the Job Stats ... The Governor took a pop at the Office For National Statistics. The Chancellor may be disappointed with the growth stats, the Governor is disappointed with the job stats. "The UK's unreliable labour market statistics have become a "substantial problem" for the Bank of England. We are making interest rate decisions without accurate data on how many people are in the workforce", Andrew Bailey said. In a speech to City financiers at Mansion House on Thursday night, the Governor made his most pointed comments yet about the failure of the Office for National Statistics to collect enough reliable data on the jobs market. The UK's official statistics body is failing to get enough people to respond to its monthly Labour Force Survey, forcing the Bank to rely on alternative measures as it makes key decisions. "The travails of the Labour Force Survey are quite well known," Bailey said. "It is a substantial problem and not just for monetary policy. We don't know how many people are participating in the economy. It would help if across the country we were better at answering the phone when the ONS calls up." In response the ONS said "We advise caution, particularly when interpreting short-term change in the Labour Force survey, and encourage users to make use of a wide range of data sources where possible." Worrying isn't it. The latest figures suggest the unemployment numbers (000) increased to 1,486 in September. In August they had fallen to 1,386 from 1,487 in July. The unemployment rate increased to 4.3% in September from 4.1% in August and 4.2% in July. The Governor has a point. So how to make the forecasts accurately? The Bank forecasts the unemployment rate will hit 4.5 per cent in three years time. It does, however, acknowledge the danger of a bigger negative budget impact. "There is a risk that changes in the overall cost of employment for firms, including the increase in employer NICs and the national living wage, lead to greater cashflow constraints for some businesses, particularly SMEs" it said last week. The OBR, in fact, sees unemployment falling, not rising, because of the increase in public spending announced by the chancellor. "Supported by the temporary boost to demand from this budget, the unemployment rate falls from 4.3 per cent this year to 4.0 per cent in 2026 before returning to its estimated structural rate of 4.1 per cent in 2028," according to the latest economic and fiscal outlook. So why the big difference? The OBR forecasts growth of 1.8% in 2026. The Bank pencils in a more modest 1.25%. Confused? Don't be! Stay tuned to the Saturday Economist updates. Next week, we look at the forecasts for inflation and interest rates. Worth a closer look.  "A week can be a long time in politics", claimed Harold Wilson, now so much has happened in just the past five days. Despite two impeachments, four indictments and his new status as a convicted felon, Trump is set to return to the White House as the 47th President of the United States with Republican control of Senate and the House. Elected to a second term, the Republican has threatened to prosecute his political enemies, send the military into the streets of U.S. cities to target illegal immigrants, introduce mass deportation, impose 10% tariffs on U.S. imports, with a bonus 60% surcharge on imports from China. Many of the agencies central to the federal government will be purged of never Trumpers and replaced with loyalists. Trump advisers believe they wasted early opportunities in his first term, because they were unfamiliar with how to maximize central government power. They're planning a very different outcome this time. The Fed will be subject to Presidential influence on monetary policy, Fed Chair Jerome Powell may be sacked. In his first term, Trump called the Fed an "enemy" of the US and its officials "boneheads" and "pathetic". In August, he said of interest rate decisions: "I feel that the president should have at least a say in there. I feel that very strongly." Internationally, Trump will end the war in Ukraine and the Middle East and accelerate plans to open a Trump hotel in the Kremlin. He will test the commitment to NATO and encourage other member states to "cough up their fair share of costs." In the U.S. Musk and other millionaires and billionaires will ready for a feed fest of payback for election support. After pouring at least $130 million in a pro-Trump campaign effort, Tesla CEO Elon Musk is positioned to be paid back handsomely, it is claimed. More government contracts for Starlink. More support for Tesla in the fight back against Chinese EVs. SpaceX has received more than $19 billion from contracts with the federal government since 2008, including from NASA, the U.S. Air Force and Space Force. EVs imported from China will see their tariffs more than quadrupled from 27.5% to 100%, boosting sales prospects for Tesla.  No Nolan principles for the Trump regime. Selflessness, integrity, honesty, accountability and the rest will be tossed into the Rose garden, just behind the compost heap of objectivity and openness. Harris and her fellow Democrats warned during the election, a 248-year-old democracy is on the ballot, and the whole world is watching. The world readies for Trump 2.0. Fed Chair Jerome Powell has said he will not resign. "No", Powell said firmly on Thursday, when asked whether he would step aside, if Trump asked for his resignation. Powell has made it clear he's ready to defend the US central bank from political pressure saying he wouldn't resign if asked, insisting the president doesn't have the power to fire him or other senior Fed leaders. The governor of America's most populous state, California, says he will convene a special session of the legislature to protect state laws from Donald Trump. Gavin Newsom, said Trump's victory threatened the heavily Democrat state's values. "The freedoms we hold dear in California are under attack. We won't sit idle," he said. Other blue states are moving quickly to prepare game plans. In New York, governor Kathy Hochul said she, senior staffers and the attorney general plan to meet regularly to discuss legal strategies to protect "reproductive rights, civil rights, immigration, gun safety, labor rights, LGBTQ rights and our environmental justice". In the wider world, manufacturers in China are accelerating plans to relocate to Cambodia, Vietnam, Brazil and Mexico. China has warned there are no winners in trade wars, announcing a five-year package totaling 10 trillion yuan ($1.4 trillion) to tackle local government debt problems, signalling more economic support would come next year, to boost domestic consumption. British Foreign Secretary, David Lammy, has warned Trump against "hurting" allies with his tariff plan. The Foreign Secretary says "raising levies on foreign goods would not be in the medium or long-term interests of the US." Excellent. Sure to have the ear of the President, (the one not shot at) Lammy has previously described the President elect as "deluded, dishonest, xenophobic, narcissisti and a neo-Nazi sympathising sociopath". Trump may not be so ready to heed the Foreign Secretary's advice.  The Bond Vigilantes Are Watching ...
Trump in the end may be constrained by levels of debt and the bond vigilantes. The level of debt in the US has risen to $36 trillion dollars, tha's over 120% of GDP. Trump says he will renew his tax cuts, which are due to run out next year, at a cost of nearly $4 trillion for the next decade, as well as cutting taxes for companies further. That could double the deficit from its current level of 6 per cent to 12 per cent of GDP. His plans to raise tariffs to protect American industry and to kick out immigrants will push up prices further and damage growth. Rising inflation will force the Federal Reserve to raise interest rates, which will further increase the cost of government borrowing, which will further increase the debt. This week, the FOMC cut interest rates by 25 basis points. Markets had expected a further cut in December and more in 2025. Wall Street economists now see Fed policymakers keeping interest rates higher than they otherwise would have, given the likely inflationary effect of Trump policies. Nomura, for example, anticipate only one reduction in 2025, with monetary policy on hold until the inflation shock from tariffs has passed. Ten year bond yields have risen to 4.3% compared to 3.8% at the end of September. We still consider 4.5% ten year bond yields to be the benchmark in the new Trump expansionary era. In a quasi dictatorship, banana republic, the stakes would be even higher. What price the dollar then ...  We were promised a budget for growth. In reality it looked like a classic Labour Budget, taxes up, spending up, borrowing up. Debt set to average almost 100% of GDP, tax revenues set to hit 38% of GDP. Government spending set to average 45% of GDP.
The Prime Minister had promised to reach for the Growth Lever. Instead, the Chancellor grabbed the Tax Lever increasing the tax burden by a massive £40 billion. As for growth, the Office For Budget Responsibility suggested output would be little changed at the end of the forecast period. A sugar rush of government spending would generate a growth surge of almost 4% over the first two years of the plan. Thereafter economic growth would moderate to an average 1.5% over the period 2027 to 2029. Are the growth forecasts so bad? Growth in the UK was just 0.1% in 2023 and an expected out turn of 1.1% in 2024. Many commentators would settle for base line, non inflationary growth of 1.5% over the medium term. Should we place any reliance on the OBR forecasts more than two years out? Time will tell if the forecasts will be realised to any degree of accuracy. Too soon to hoist the Chancellor by that particular petard. Government spending on investment is set to surge by 6% in 2026 and by £100 billion over the next five years. The investment spending will boost growth. The problem it may take a stretch into a second parliamentary term to realise the real gains in National Income levels. Inflation CPI is set to increase to 2.6% next year and 2.3% in 2026, returning to target 2% by the end of the forecast period in 2029. Unemployment is set to average 4.1% over the five years. Moderate growth, low inflation and stable employment levels, what’s not to like? Spending Plans ... Chancellor of the Exchequer Rachel Reeves delivered a Budget to “Fix the Foundations of Our Economy.” It could have been called, “Mopping Up The Mess” of fourteen years of Tory mismanagement. The Government inherited a £22 billion Black Hole. In reality it was more like a £9.2 billion pothole. The incoming government had to tackle the problem of public sector pay, setting the issues of conflict with Junior Doctors and other NHS staff. Public Sector Net Borrowing was set to hit £120 billion this year, well before the Budget numbers revised the spending plans. The good news is the budget spending plans recognised the commitments to compensate the victims of two major public scandals. Some £11.8 billion will go to those impacted by the infected blood scandal and £1.8 billion will be paid to victims of the Post Office Horizon debacle. On day to day spending, the Red Book states “The Chancellor plans to protect public services as departments’ day-to-day spending is set to grow by an average of 3.3% in real terms between 2023-24 and 2025-26, including an increase of more than £22 billion for the NHS to help bring down waiting lists and £4 billion for the education sector to stop schools falling down. The Budget will provide a boost to public investment by over £100 billion over the next five years across roads, rail, schools and hospitals. Public Sector Investment will average 2.5% of GDP over the period compared to a planned fall to 1.7% under the Tories. Tax Hikes ... The Budget confirmed increased National Insurance contributions for employers, higher stamp duty on second homes, and the removal of the VAT exemption on private school fees. Passenger levies were also hiked on private jets. The budget’s biggest measure, the £25 billion rise in national insurance came under pressure from the IFS. “It will not get them anything like the £25 billion stated on the scorecard,” Paul Johnson said. “The OBR noted it will result in lower wages, lower hours and some job losses. This will reduce the amount raised from employer national insurance, employee national insurance and income tax revenues. Tom Peck writing in the Times claims the day after a budget, no one really cares anymore what the chancellor has to say. The only view that really matters is that of Paul Johnson, the head of the Institute for Fiscal Studies, who has for some years hosted a post-budget briefing. He sits in his corner office and systematically dismantles everything that was said the day before. If you were being gentle, you’d call it the budget’s elephant graveyard. Really it’s a budget abattoir. Budgets don’t fall apart, he rips them apart. “I’m afraid this looks like the same game playing we got with the last lot,” Johnson said. He gently pointed out that all the government departments who’ve been given 4 or 5 per cent budget increases this year, aren’t going to be placated by the projected 1 per cent increases thereafter. This, he said, was: “Pencilling in implausibly low spending commitments in the future, in order to make the arithmetic balance, repeating the same silly manoeuvres.” He pointed out that future projections also depended, for example, on ending the freeze on fuel duty, which has been in place since 2011, because no chancellor would dare. Not in a Happy Place … The Bond Market Vigilantes Look On … The Chancellor’s plans prompted an adverse market response, with ten year government bond yields rising to 4.5% yesterday before easing back to 4.4% at close of week. Hardly a Liz Truss moment but enough to set off tremors in the Treasury and raise fears of a Gilt Strike. Ratings agency Moody's said British finance minister Rachel Reeves' first budget will create new challenges to efforts to strengthen Britain's public finances, with the UK still facing muted growth, the Financial Times reported on Friday. While the NHS stands to benefit, other sectors face challenges. GPs, care homes, dentists, and hospices are pushing back against the National Insurance hike, while farmers worry about inheritance tax forcing them to divide family land. Rural communities are also questioning a 50 per cent increase in the bus fare cap. Hospitality and retail business are reeling from the 6% hike in minimum wage compounded by the increase in National Insurance. Business closures and job losses may follow. Chancellor of the Exchequer Rachel Reeves delivered a Budget to “Fix the Foundations of Our Economy.” Let’s hope so … The Bond Market Vigilantes Are Watching ...  So What has Rachel Reeves Said ...
"The Budget next week will deliver on the promise of change. That change will be driven by this government's number one mission to deliver sustainable growth after a decade and a half of stagnation. But growth can only be built on stable foundations. So my first and most important job next week at the despatch box is to turn the page on years of instability and uncertainty which have, for far too long, deterred investment and undermined business confidence. That is why my fiscal rules are so important: they will be the rock of stability at the core of my Budget. They will set the basis for stable fiscal policy, prudent management of day-to-day spending and responsible investment for growth. My fiscal rules will do two things. The first and most important: my stability rule will mean that day-to-day spending will be matched by revenues. My second fiscal rule, the investment rule, will get debt falling as a proportion of our economy. That will make space for increased investment in the fabric of our economy, and ensure we don't see the falls in public sector investment that were planned under the last government." Why change the rules? What Are The Current Fiscal Rules? In simple terms, debt should be on course to fall as a share of national income in five years time and Public Sector Borrowing should not exceed 3% of GDP in five years time. The good news for government, the hard task is always at the end of the forecast period. It's always five years away. Rachel Reeves, has a problem. The Chancellor has committed to a rule that public debt should be falling, relative to the size of the UK economy, between the fourth and fifth year of the forecast period. UK fiscal rules are designed to limit public sector net debt as a percentage of Gross Domestic Product. Gordon Brown's target in his ten years of tenure as Chancellor was that debt should not exceed 40% of GDP. How things change! Rachel Reeves is battling at the present time to hold the critical ratio below 100%. At the end of March 2024, debt as a percentage of GDP was 98% of GDP, forecast to fall to 94% of GDP by the end of the 2028/29. This before the discovery of the Black Hole and the reality of a projected over run this financial year alone of almost £40 billion. The Chancellor has announced, from now on, the government will target Public Sector Net Financial Liabilities (PSNFL) rather than Public Sector Net Debt (PSND). Affectionately known as PERSNUFFLE with one bound the government is free from the GDP constraint. At the end of March 20024, PSNFL as a percentage of GDP was a far more manageable 83% of GDP forecast to fall to 79% by the end of the forecast period. Public Sector Net Debt was estimated to be £2,699.6 billion at the end of March 2024 compared to an estimated PSNFL value of £2,285.2 billion, a difference of £414 billion. By 2028/29 Public Sector Net Debt is estimated to be £3,078.1 billion at the end of March 2029 compared to an estimated PSNFL value of £2,569.4 billion, a difference of £509 billion. As of March 2024, switching to a PSNFL target would have added £53 billion of spending 'headroom' compared to the PSND ex BoE target. In next week's budget statement, Rachel Reeves could spend £60 billion to £80 billion more than under the old rules. The Shuffle to Persnuffle pays off ... So What do we mean by PSNFL ... Public sector net financial liabilities (PSNFL) is a wider measure of the government balance sheet than public sector net debt (PSND). It includes all financial assets and liabilities recognised in the National Accounts. Sources of differences between the two measures include financial assets, such as student loans and equity stakes in financial institutions acquired during the financial crisis. They net off against PSNFL but not PSND. Additionally, some liabilities add to PSNFL without affecting PSND, including net pension liabilities for funded pension schemes. In simple terms, PSNFL is lower than PSND, because the net liability reflects the asset and the liability or debt, rather than just the debt. The main asset or liability is funded pension schemes, such as local government schemes. The assets held by these schemes are counted on both sides of the balance sheet, the asset and the liability. Total LGPS assets have grown from £290 billion in 2019 to £366 billion in 2022. The most important other assets included in PSNFL but not fully reflected in PSND are outstanding student loans worth some $236 billion at the end of March 2024, The Government forecasts the value of outstanding loans to reach around £500 billion by the late-2040s. The difference between PSND and PSNFL is largely driven by the differential treatment of student loans. PSNFL includes the portion of student loans expected to be repaid as an asset, while PSND does not. Loans issued by the Bank of England under the Term Funding Scheme (TFS) are also included. The OBR assumes that all £127 billion of these loans (5.0 per cent of GDP in 2023-24) redeem over the forecast period. So What Does The Market Make of It All ? So far so good, the market has responded well to the news. Sterling at just under $1.30 has changed little in the week. We always thought the fall from $1.34 was a trend correction anyway. Ten year gilts yields have moved up by twelve basis points to 4.22. We still expect a normality of 4.00 to 4.50 to be the norm. Thirty year gilts now trade at 4.75. The Bond Vigilantes are taking a close look. No Liz Truss trauma due next week. Markets like the idea of spending to invest. The IMF has been clear that weak investment and low productivity are holding back growth in the UK. The IMF has given a blessing to the shuffle to persnuffle. It is the preferred international measure in any case. The "dual" mandate of fiscal prudence and a growth agenda no longer a "duel" mandate? We shall see next week, if a real conflict in objectives can be avoided ... References This week's post relies on extracts from our daily "What the Papers Say Review." Certain research and photo content has also been generated using Perplexity AI. This is our favorite AI research tool. Photos are from Adobe Stock and The Saturday Economist Slide Deck. 1 Student Loan Statistics House of Commons Library. 2 Review of LGPS fund valuations : Government Actuary 3 Fiscal Rules and Investment in the upcoming budget : IFS 4 Public Sector Net Financial Liabilities : OBR 5 My fiscal rules will provide the stability on which growth depends, Rachel Reeves Financial Times 24th October 2025  Bank of England Set To Cut Rates in November …
The pound dropped sharply to its lowest level in two months after inflation fell by more than expected last month. Sterling dropped 0.6pc against the dollar to below $1.30 for the first time since August after the consumer prices index fell to 1.7pc in September, according to the Office for National Statistics. The FTSE 100 jumped higher as money market traders priced in an interest rate cut by the Bank of England next month, from 5pc to 4.75pc, as closely watched services inflation fell below 5pc for the first time since May 2022. Money markets imply there is a 76pc chance of a further reduction in borrowing costs in December, up from a 48pc chance on Tuesday. Don’t get too excited by the drop in headline CPI Inflation .. CPI the consumer prices index fell to 1.7pc in September from 2.2% in August. Headlines heralded the fall in inflation to below the MPC target but don’t get too excited by the drop in headline CPI Inflation. It may not last. Headline prices were flattered by the drop in goods inflation to -1.4% in the month. Lower oil prices and higher Sterling levels made the assist. Brent Crude averaged $74.00 dollars this year compared to $94.00 dollars in 2023. Sterling averaged £1.32 compared to $1.24 last year. That’s a 26% drop in oil costs Sterling adjusted. Core inflation excluding food and energy eased to 3.2% from 3.6%. Concerns remain about the high level of service sector inflation at 4.9% even as job market cools and earnings fall significantly. The drop below the 2% level will not be sustained. Goods inflation is set to rise, even as service sector inflation falls below 4%. The headline rate is set to return to the 2.5% - 3.0% level in the first quarter next year. The MPC may see some leeway for a 25 basis point cut at the next meeting in November but caution will prevail, despite some good news on wages costs in the Labour Market Update this week Wages Ease even as unemployment rate falls. Some goods news for the Government and the Bank of England in the Labour Market Update released this week by the Office For National Statistics, (ONS). Unemployment fell from 1.437 million to 1.386 in the period to August. The unemployment rate eased to 4.0% from 4.1%. More people in work, the employment rate increased to 75% as employment increased to 33.4 million. Vacancies eased back to 841,000 in September from over 900,000 at the start of the year. We expend a trend return to 750,000 into 2025. The really good news for monetary policy was the slowdown in wage inflation. In the three month average to August, whole economy total earnings increased by 3.8%, down from almost 6% in April. One note of caution the month single rate in August is estimated at 4.4%. Confused? You will be. The trend in wage inflation will increase the probability of a rate cut in November and possibly one further cut in the first quarter of 2025. It is difficult to see a second cut for Christmas. Long Term Note : In the UK, prior to the Great Financial Crash [2000 - 2008] the average inflation rate was 2.0%, the average UK bank rate was 4.50%. Ten year gilt yields averaged 4.50%, real GDP growth averaged 2.5%, earnings averaged 3.5%, the unemployment rate averaged 5% and vacancies averaged 650,000. That means no return to Planet ZIRP ... References : European Central Bank cuts interest rates for third time this year … Jack Barnett 18th October 2024. The Times https://www.thetimes.com/business-money/economics/article/european-central-bank-cuts-interest-rates-for-third-time-this-year-bvrpkv5tt ECB Monetary Policy Statement At A Glance https://www.ecb.europa.eu/home/html/index.en.html  This week, the European Central Bank made its first back-to-back interest rate reduction in more than a decade, reducing its key rate by 25 basis points in an effort to support the eurozone’s weakening economy.
The bank lowered the main deposit rate to 3.25 per cent from 3.5 per cent in the third cut this year reducing the cost of borrowing from a record high of 4 per cent. The move came after a range of data reinforced concerns that the EU's major economies are struggling. Germany, is projected to expand by just 0.1 per cent this year, according to the OECD. The Eurozone economy as a whole is expected to grow by 0.7 per cent. “Manufacturing and exports are weak. Firms are not investing much. Services have been doing a bit better, thanks to a good summer tourism season. Even though many people have more money to spend, they are preferring to put it aside, even more so than before the pandemic.” The ECB said. “”The saving rate stood at 15.7 per cent in the second quarter, well above the pre-pandemic average of 12.9 per cent.” Inflation across the twenty nations fell to 1.7 per cent in September from 2.2 per cent the previous month, below the ECB’s target. Wage pressures, often singled out as a source of inflationary concern, have also cooled more quickly than expected. In a statement announcing the latest rate reduction, the governing council stated: “The incoming information on inflation shows that the disinflationary process is well on track.” “We're breaking the neck of inflation,” Christine Lagarde said in the Slovenian capital of Ljubljana as she announced that the European Central Bank was cutting interest rates. “It’s not broken completely yet, but we’re getting there.” Markets now see a high chance of rates being lowered by a further 25 basis points in December. The ECB is leading the way in comparison with the Fed and the Bank of England. The Euro is paying the price.  Last Sunday, it will have been 100 days since Keir Starmer became prime minister to form the first Labour government in over 14 years. While still only a fraction of the way through this parliament, it has been an eventful few months and a period that has taken its toll on Labour's popularity.
After just three months in power, six in ten Britons (59%) disapprove of the government's record so far, with only one in six approving (18%). Keir Starmer's popularity has sunk, with 63% of Britons seeing him unfavourably, just over a quarter (27%) still holding a positive view. Three in ten Britons (30%) say they had expected Labour to do well in government, but have been left disappointed by what they have seen so far. For a further 37% of Britons Labour's poor performance is what they were expecting in the first place. Only one in eight (12%) say their positive expectations have been met. Labour Had A Plan ... Labour had a plan for their early days of government, carefully worked on for months by Sue Gray, Starmer's then chief of staff. But despite that, it has been far from easy. Starmer insists he expected that. "It has proved the thesis that government is tougher, but also that government is better, because you get to take decisions." Preparations for government had been put in the hands of Gray and a small team of party officials, working at a secretive office around the corner from Labour's HQ in Southwark. Visitors were discouraged. "We were told Sue had a plan, and to keep our noses out of it," says one campaign adviser. "But she clearly didn't." One view is that some of Downing Street's early problems could have been avoided if they had spun a clearer narrative around all the activity. "There was no big set of announcements to capture that spirit of change," says an insider. There was no confirmation of a "Master Grid" and too much "gloom and doom" at onset. Others might argue like Mike Tyson, "Everybody has a plan until you get punched in the face." Big decisions, new legislation, foreign trips and attempts to set the political narrative, were established but the blows to the face kept on coming. Not just over donations, of clothing, sunglasses and sofas but stories of internal rows at No 10, the backlash to the cuts to the winter fuel payment and the lack of a clear strategy to reduce child poverty. Labour's first king's speech initially went off without a hitch, bringing in bills to nationalise the railways, establish Great British Energy, the National Wealth Fund, improve workers' rights and change planning rules to build more houses. Ministers scrapped the Tories' Rwanda scheme, got rid of the Bibby Stockholm Barge and set up a border security command to tackle small-boat crossings. They invited Ukrainian president Volodymyr Zelenskyy to Downing Street, and took first steps to reset relations with the EU. They reached pay deals with junior doctors and train drivers, and funded above-inflation public sector wage rises, helping to reverse years of service disruption adn decline. Just two weeks into office, Starmer faced his first major test, a Commons rebellion calling for the two-child benefit cap to be scrapped. Inside No 10, it was seen as an early and not entirely unhelpful opportunity to flex muscles, with Labour backbenchers, particularly on the left. Outside, though, it filled many MPs, including some in the cabinet, with dismay. "If we're not tackling child poverty, what are we doing?" one said at the time. Seven rebels, including veteran left winger John McDonnell, were stripped of the whip for six months. The government announced a child poverty task force but it did little to stem despair across the party, and the wider public, over such a symbolic issue. The Black Hole Within days of becoming chancellor, Reeves announced the Treasury would be carrying out an audit of the fiscal inheritance, one of the worst since the second world war. The Chancellor claimed to have found a £22 billion black hole in government spending plans for essential public services in 2024-25. The Government immediately leapt on the deficit as evidence of irresponsible management of the economy, requiring tax increases and spending cuts in the budget to meet the shortfall. To help fill the black hole, the biggest mistake was made, cutting the winter fuel payment for pensioners. It was an expensive move politically, to generate a modest contribution financially. More to fill a a pothole than a cosmic hole, the abolition of the winter fuel allowance will contribute just £1.5 billion. It could well be less. Reeves has been bullish, in private and in public, about the decision, arguing that she had no choice. Otherwise the axe would have fallen on support for disabled people or families with children. "There's no way I'm doing that"" she is said to have told angry MPs. The Morton's fork, it's a tricky bit of sophistry in which a conclusion is drawn in several different ways that contradict each other. MPs were not forked. Internal frustrations within Starmer's top team, which had been kept at bay by the election, began to bubble over, with. Gray increasingly became the "overpaid" lightning rod. Some political colleagues accused her of "control freakery", creating a "bottleneck" in No 10 that had delayed policy decisions and appointments. Finally, after warnings from senior aides and cabinet ministers to "get a grip", Starmer came to the conclusion that some of the side winds blowing could develop into a hurricane. Gray was getting the blame for many of the missteps. It had become unsustainable. At the end of the week, Starmer summoned her to a meeting, at which he told her that she would have to go. Calmer Waters ... Morgan McSweeney, the political mastermind behind the party's win, was appointed chief-of-staff in her place, supported by two deputies and a new director of strategic communications. There are now hopes of calmer waters. 'I want to make Downing Street boring again," McSweeney is said to have told officials. Clearly Starmer needs a cool head of strategy, a master grid, an attack dog (Thatcher's Tebbit) and a great budget at the end of the month. The Treasury has been market testing options, like a mad man in a Woolworths pick and mix shop. Employment tax, higher capital gains tax, a raid on pensions, what else? Business are wary, holding back on plans for investment and recruitment. The last millionaire to leave the country has been asked to leave a suitable donation at customs. Bring on the budget, let's have a clear plan. But don't hinder the growth objective in the process ...  "Has Animal Farm Moved Into Downing Street ?" ...
We are into the final decile of the Labour Government's first one hundred days. It feels as if we are into the final chapter of Animal Farm. By chapter ten in George Orwell's brilliant political satire, the pigs are walking on two legs, talking with the humans, drinking and playing cards with the former enemy, as the other unfortunate animals are urged to work harder and eat less. The mantra "four legs good, two legs bad, four legs bad", has morphed into "four legs good, two legs better". The windmill investment providing cheap energy for all, has been annexed by the pigs to power the grinding mill, processing grain for the coffers of the elite. The milk and barley has been hogged by the pigs. The pig swill has been distributed to all in the fields, with demonstrative largesse. "Has Animal Farm Moved into Downing Street? In opposition, Sir Keir Starmer repeatedly accused the last Conservative government of cronyism, from its handling of contracts for personal protective equipment during the pandemic to renovations of the flat in Downing Street. But just two months into government, the Labour prime minister and some of his most senior colleagues have been accused of failing to declare freebies including clothing and a trip abroad in the most transparent way. For Rosie Duffield, it is all a bit too much. The Labour MP for Canterbury has quit the party over the freebies scandal, accusing Sir Keir Starmer of presiding over "sleaze, nepotism and apparent avarice that is off the scale." Resigning her position, the MP for Canterbury, told Sir Keir that she was "ashamed of what he and his inner circle had done to tarnish and humiliate our once proud party". She declared that he was unfit for office after "inexplicably" choosing to accept designer suits and sun glasses while at the same time pursuing "cruel and unnecessary" policies. In her resignation letter to the Prime Minister, Ms Duffield said: "Someone with far above average wealth choosing to keep the Conservatives' two-child limit to benefit payments which entrenches children in poverty, while inexplicably accepting expensive personal gifts of designer suits and glasses costing more than most of these people can grasp, is entirely undeserving of holding the title of Labour prime minister." "Forcing a vote on the winter fuel payment to make many older people iller and colder while you and your favourite colleagues enjoy free family trips to events most people would have to save hard for and you not showing even the slightest bit of embarrassment?" Rosie Duffield has become the fastest MP to jump ship after a general election in modern political history. It came after Sir Keir admitted on Friday that Lord Alli gave him £32,000 to pay for clothing, double what he previously declared. Sir Keir also received £2,400 from Lord Alli for glasses, and the use of an £18 million penthouse during the election campaign and on other occasions. Members of his front bench team have also declared large donations from the peer. Why are gifts to Starmer in the spotlight? According to the Financial Times, Starmer accepted £76,000 worth of entertainment, clothes and similar freebies from UK donors in the last parliament, more than any other MP. The most generous benefit disclosed was £16,200 of "work clothing" and £2,485 of spectacles from Lord Waheed Alli, a Labour peer and former chair of online clothing retailer Asos. The row intensified this month when it was reported that Starmer's wife, Victoria, had received £5,000 of clothing from Alli that had not been initially declared in the register of MPs interests. Starmer fully declared that he had taken £20,437 of "accommodation" from Alli during the election campaign, which he has since said was used by his son for the period of his GCSE exams. [The stay was from May 29 until July 13 but the GCSE season had ended by June 19, raising questions over how necessary the accommodation was.] Starmer has promised to take no more clothing but he will retain the use of a box provided by Arsenal football club, which he says he needs for security reasons to continue taking his son to matches. Liz Bates Political Correspondent for Sky writes,"The public were expecting to see one of their own in Number 10, but Labour ministers' "early life" struggles are now a distant memory for them. It appears that whatever they want is at their fingertips and they are making the most of it. During the election campaign, Sir Keir made a virtue of his ordinariness and this has continued into government. He sold the public the dream of a prime minister, not from Eton and Oxbridge, but a pebble-dashed semi, the son of a toolmaker, who was one of them. In his conference speech he did it again, referencing "people of a completely ordinary working-class background like mine". But now Starmer and his ministers are living a life of privilege, free clothes, free sunglasses, free tickets, parties paid for, the use of million-pound properties whenever they need them. They may have started off trying to make ends meet, but now whatever they want is at their fingertips and they are making the most of it. Voters, promised one of their own in Number 10, see someone whose life could not be further from theirs and it's jarring. The rules weren't broken here but the public's impressions aren't just based whether particular guidelines were followed or not. Some will think Animal Farm has moved into Downing Street. All animals are equal but some are more equal than others. Labour principles good, Tory lifestyles better. References This week's post relies on extracts from our daily "What the Papers Say Review." Certain research and photo content has also been generated using Perplexity AI. This is our favorite AI research tool. Photos are from The Adobe Stock, The Saturday Economist Slide Deck and DALL-E Starmer freebies row is not about corruption - it's about class. Liz Bates Sky News. Labour MP quits over "freebies" scandal and Keir Starmer's "cruel policies". Camilla Turner, Telegraph. Why Is Kier Starmer Under Pressure Over freebies ... Jim Pickard and Anna Gross in London and Lucy Fisher in New York, Financial Times. Animal Farm Orwell's Brilliant Political Satire. George Orwell |
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