The Labour Party was in Liverpool this week. "Let's Get Britain's Future Back" the slogan. The Conservative Party was in Manchester last week, "Let's Get Britain's History Behind Us" the objective. For the Labour Party, it was the best of times. For the Tories, it was the worst of times.
News that NHS waiting lists had topped 8 million was bad, but then came news waiting lists would have to be added to prison occupation. Judges were warned sentencing should be delayed, the prison cells were full. But where to put them. Criminals could be handcuffed to trolleys outside A&E or held over in prison delivery vehicles, or put on a flight to Rwanda, the home office favourite option, perhaps.
Rishi Sunak was forced to admit the list of project for infrastructure in the North was "illusory". Although the word used was "illustrative", I guess we knew what he meant. OK, the metro link to Manchester airport was on the list, even though it was completed over seven years ago. A simple mistake by a few SPADs, late at night, over drinks and pizza in the Midland hotel.
Chancellor Jeremy Hunt was in cautious mode. Tens of billions of pounds of higher debt interest payments and a slowing economy suggest the UK's fiscal picture is far worse than it was in the spring. The growth outlook has worsened, ruling out the possibility of tax cuts this Autumn. No excitement ahead of the Autumn statement. So what is the point of an Autumn statement at all?
"Make UK" has urged the Chancellor to drop the concept of an Autumn statement altogether, there really is nothing to add. If the best policy offer from the Prime Minister is a ban on smoking and maths to eighteen, then what can a beleaguered Chancellor offer, in a week in which the IMF downgrades forecasts for growth.
So it was left to Prime Minister in waiting, Sir Kier Starmer to fill the void. Starmer's conference speech was considered to be one of his best yet. It didn't get off to a great start. When he walked on stage, a protester sprang upon him with a handful of glitter before being tackled to the ground by security. "If he thinks that bothers me, he doesn't know me," Starmer quipped. John Prescott would have thumped the intruder. Starmer didn't look bothered. He just took off his sparkly jacket, rolled up his sleeves and carried on. His audience loved him for it.
According to Freddie Hawyard in the New Statesman, his main theme was rebuilding the future through infrastructure investment, planning reform and 1.5 million new homes. Starmer wants to build another generation of new towns, like Clement Attlee before him. He spoke of investment not as a burden on the national debt but as an opportunity to save money, crowd in private finance, create jobs and growth.
"Government must steer the ship on industrial policy. That's a crucial part of any plan for growth," Starmer insisted, he wanted "not state control, not pure free markets, but a genuine partnership between business and government."
It was a speech devoid of detail but offered direction. ‘Never interfere with an enemy while he’s in the process of destroying himself.’ the guideline. Starmer was keen to avoid giving the Tories too much ammunition. Tony Blair had carefully avoided detail in the run-up to the election of 1997. So careful was he, not to go into any detail in that campaign, that Roy Jenkins famously described Tony Blair as being "like a man carrying a Ming vase across a highly polished floor".
"Sir Kier Starmer", according to Philip Johnston in The Telegraph, "is the latest Labour leader tip-toeing towards an election, terrified he will drop the priceless piece of porcelain". "His windy speech at the party conference, was replete with hackneyed generalizations and low on specifics."
The Labour leader said "he wanted the nation to "walk towards a decade of national renewal and face down the age of insecurity". "Contrasting 13 years of things can only get better, with 13 years of things have only got worse".
So what to make of it all? Rishi Sunak's rating has fallen to a record low since the Conservative Party conference, according to polling for The Times. The YouGuv survey found that only 20 per cent of voters believed Sunak would make the best Prime Minister.
Sir Keir Starmer's rating fell by two points, to 32 per cent. Highlighting the uncertainty among voters a year before the possible date of the next election. 43 per cent of voters said they were not sure who would make the best leader.
Matt Hancock in The Times today reports "In our monthly Times Radio focus group we asked a group of undecided voters what they made of it all. Sunak was seen as "quietly confident" "wealthy", "unbelievable", "untrustworthy" and "very, very, very rich". Starmer, by contrast, was "boring", "hopeless', "drab", "rubbish", "wet", "uninspiring" and "vanilla".
It just goes to show, "not all that glitters can be sold." Even so, the latest YouGov/Times voting intention poll, post conference, shows the Conservatives on 24% to Labour's 47% up two points. It promises to be an interesting year ahead.
Well we didn't see that coming. Rachel Reeves delivered what many consider to be her best speech yet.
According to Freddie Hayward in the New Statesman, "This was the best speech of her career so far. She spoke with seriousness and conviction. OK, there was little new substantive policy. A commitment to crowding-in private investment, a reduction in the government's use of consultants, a new team to claw back the money fraudsters stole during the pandemic. Restrictions on ministers use of private planes.
A few million here or there is not going to change the purpose of the state. But it still matters politically."
Reeves's key objective is reassuring voters that Labour won't crash the economy, but the Tories will. "The biggest risk to Britain's economy, is five more years of the Conservative party."
Richard Partington writing in the Guardian, distilled five key takeaways from the speech.
1 Labour is open for business ...
2 Reeves is opposed to tax increases ...
3 Labour Backs Spending Discipline ...
4 Business Investment is a Labour Priority ...
5 Starmer wants to build not block ...
And business was there in support or out of curiosity. Exhibition stands for Google, Ineos and Specsavers; slick videos for Amazon and Uber, fringe events sponsored by Deliveroo and Goldman Sachs. The parliamentary lounge was sponsored by Lloyds Bank.
Make UK were impressed. "I'm very impressed by Rachel Reeves. She seems extremely competent" says Stephen Phipson, the chief executive of the manufacturing trade group Make UK. "What we've seen from the Labour party is a really strong commitment to making things in this country. We never saw that last week at the Tory conference. The whole thing about stability ... it was perfect. We have been calling for this for years."
Greg Fitzgerald, the chief executive of housebuilder Vistry said, "We are encouraged by the moves which seek to deliver short, medium and long-term changes to unblock and reform the planning system."
Sir Nigel Wilson, group chief executive at Legal & General, says: "We welcome Labour's approach, which seeks to take a holistic view of barriers to deliver ambitious outcomes [in the housing sector]."
It was Mark Carney who delivered the surprise intervention into the Reeves presentation. Mark Carney, Governor of the Bank of England between 2013 and 2020 in a video message ahead of her speech, described Rachel Reeves as a "serious economist"
"She began her career at the Bank of England, so she understands the big picture," he said. "But, crucially she understands the economics of work, of place and family. It is beyond time we put her energy and ideas into action."
Well we didn't see that coming either. He didn't say that about Jeremy Hunt. Maybe all that glitters, can be sold after all, with a little bit of central bank sparkle.
Ready To Serve, Ready To Lead, Ready To Rebuild, Ready For Action ...
Let's Get Britain's Future Back on Track ...
In London this week. The trip as part of a series of events, with Praetura. Praetura Group is the Manchester based financial services company specializing in lending and equity solutions for startups and SMEs. Dave Foreman MD, one of the founder members was presenting, a number of invested companies formed part of a fascinating panel. I opened the session with a thirty minute round up of the UK and World Economy. Lot of discussion about inflation and interest rates especially in view of the "Bond Market Mayhem" in the U.S. this week, but more on that later. Our trip did not get off to a great start.
Traveling from Lancaster to London, the scheduled train was cancelled. The next available train was overcrowded. The train eventually arrived in Euston, thirty minutes late. We were held up in Warrington station. Someone pulled the emergency cord. The pressure of the trip from Glasgow, too much perhaps. One guy just couldn't take any more. For him, the remainder of the trip to London was scrapped.
Rishi Sunak's speech in Manchester came to mind. He had done a lot of scrapping this week, including HS2. News of the Sam Bankman-Fried trial filtered through, the FTX boss had stolen over $10 billion in an "Empire Built on Lies", the jury was told. This as nothing.
Rishi Sunak had stolen almost $50 billion dollars from the people of the North in his speech. The promise of a ten billion dollar spend on potholes, evidence of myopia and misdirection, offering little comfort. No high speed rail, a ban on cigarettes, the promise of mathematics into the future the greater vision. For some it gets worse.
If you've been struggling to find Walkers Worcester Sauce crisps, there is bad news. Walkers confirmed the derivative has been scrapped. Walkers has not confirmed why the decision was made. Rumours are circulating of an intervention by Number ten. Fans have flocked to Twitter to lament the loss. One said: "Walkers sacking off Worcester sauce crisps is absolutely criminal, as if the damage hadn't been done enough by getting rid of beef and onion." The Tories are blaming Labour for that one. Yep that and the tax on meat.
Wall Street had expected 170,000 jobs to be created in September. The U.S. economy added 336,000 jobs, more than double the level economists had expected. The data underscored just how much strength remains in the labor market despite the Fed’s campaign to cool things down. Job growth for both July and August was also revised upward, showing a combined 119,000 more jobs had been created than previously reported. Unemployment remained steady at 3.8%. Earnings eased back in the latest data.
Forecasts for growth in the U.S. have now been upgraded to over 2%. The good news on inflation continues. The bad news, the markets assume the Fed will hike rates further in November. We had always assumed a 25 basis point hike was coming before the end of the year.
Mayhem in the bond markets? Not really. Ten year bond rates increased to 4.8% from 4.6%. Thirty year gilts closed just under 5% at 4.96%. Short rates three months, closed at 5.5%. Markets are conditioned to expect rates to be higher and for longer than expected earlier in the year. We have long warned of this, in the adjustment process to life after Planet ZIRP
In the U.K. ten year gilts closed unchanged at 4.6%. 30 year gilts closed up 13 basis points at 5.05%. Six month rates were at 5.5%. One year rates eased back to 4.9% from 5.15%.
No mayhem involved. The yield curve is normalizing. 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%. Thirty year gilts averaged 4.6%, real GDP growth averaged 2.5%, earnings averaged 3.5% and the unemployment rate averaged 5%. So what happens next in the U.K.?
We expect a further 25 basis point rise before the end of the year. Base rates rising to 5.5%. Rates then on hold, this could be it for the cycle. The Bank will be keeping a close watch on earnings. Wages increasing at over 6%, is just not compatible with a 2% CPI target.
The Home Secretary was in Washington this week. The plan to meet with members of the Biden administration and to deliver a headline grabbing speech at the American Enterprise Institute for Public Policy Research.
Known simply as the American Enterprise Institute, the AEI is a right wing libertarian think tank based in Washington, D.C. Research is focused on government, politics, economics and social welfare.
One can only assume Braverman suggested a trip to Washington to distract press focus away from Number Ten. Anything to draw attention from the HS2 debacle and the Rushi Sunak "Scrap It" campaign.
"I will probably talk about the challenges of multi culturalism and reducing the number of small boats coming across the channel" the Home Secretary would have said. "Sounds great" said the Prime Minister. I am involved in a bit of re positioning and self deprecation myself. Have a great trip. Try to stay out of the headlines!"
According to Matt Chorley, at the Westminster Correspondents Dinner this week, Rishi Sunak located a sense of humour and self mockery.
In his speech, the Prime Minister joked “The ban on Christmas? I’ve scrapped it. The plan for pubs allowed to open for just an hour a day? I’ve scrapped it. The ban on Strictly? I’ve scrapped it. And the ban on puppies, I’ve scrapped that too.”
Sunak was also hoping to scrap the 20 mph limit for vehicles in Wales, along with the requirement for someone to walk in front of the vehicle waving a red flag. Until the Economic Secretary to the Treasury Andrew Griffith described Wales as a "province" in a TV interview on Friday morning.
Andrew Griffith was speaking on Sky News about the introduction of the 20mph speed limit in Wales when he made the comments.
"If that's like something we've seen in Wales, where vast parts of that province have had arbitrary limits imposed on them, I don't think that is the right approach." [Especially when the mandate comes from Number Ten].
And thus with one bound Braverman was free and on the flight. The Home Secretary escaped without adult supervision and a requirement to file a copy of the speech at the Home Office.
Suella Braverman says multiculturalism has failed ...
The headlines didn't bode well. Suella Braverman claimed multiculturalism has failed and migration poses an "existential challenge" to the West in what has been described as an "anti-immigration speech".
The Home Secretary used the speech to claim that the United Nations’ Refugee Convention's threshold has been lowered too far. Offering asylum to a person because they are gay, a woman or fearing discrimination in their home country is not sustainable.
Braverman told the audience in Washington DC that a failure to control migration poses an “existential challenge” to the "political and cultural institutions of the West". “Uncontrolled immigration, inadequate integration and a misguided dogma of multiculturalism have proven a toxic combination ... with too little thought given to the impact on social cohesion."
She said research indicates that the 1951 UN refugee accord, backed by 149 states “now confers the notional right to move to another country upon at least 780 million people”, with the threshold for claiming asylum reduced over time.
Yes over 780 million people could be crossing the channel in small dinghies unless the United Nations gets to grips with the real challenges facing the British Home Office.
Chris Philp, a minister in the Home Office, explained, it''s complicated. Some people "falsely claim to be persecuted when they are not and “some people claim to be gay when they are not”. There is just no easy way of knowing.
So far the Home Office policies haven't been a roaring success. The government's "Small Boats Week" backfired when asylum seekers had to be evacuated from the Bibby Stockholm barge, when Legionella bacteria was found in residence.
The Home Office also faced legal challenges around its plans to send refugees to Rwanda.. The policy has been ruled unlawful by the High Court.
The Home Secretary has warned that unless the European Commission on Human Rights ECHR supports the Rwanda policy, the UK may withdraw from any international commission on human rights, UN or European.
So much for a low level speech in Washington. The reaction was vocal, widespread and with some authority. Priti Patel explained "I don't know what the intention was around the speech. It might just be to get attention." Quite possibly.
Tensions with the Archbishop of Canterbury ...
Mrs Braverman’s approach to immigration has created tensions with the Archbishop of Canterbury The Most Reverend Justin Welby .
In November last year, the Home Secretary claimed there was an “invasion” of England by migrants crossing the Channel. Archbishop Welby condemned suggestions refugees were “invaders to be tackled and deterred” as harmful rhetoric.
This year, he branded plans to deport migrants to Rwanda to be “against the judgment of God”
Justin Welby has “reached out” to the Home Secretary, to discuss the Government’s policy on asylum seekers, but Mrs Braverman has so far failed to agree to any discussions.
UNHCR rebukes Home Secretary ...
The UN’s refugee agency has also rebuked Suella Braverman after she claimed that world leaders had failed to make wholesale reform of human rights laws because of fears of being branded “racist or illiberal”.
The UNHCR issued a highly unusual statement on Tuesday defending the 1951 refugee convention and criticising the UK’s record asylum claim backlog.
Rejecting an overhaul of the convention, the UNHCR called for a “more consistent application of the convention and its underlying principle of responsibility-sharing” and pointedly referred to the UK’s asylum backlog, which is now more than 175,000.
“An appropriate response to the increase in arrivals and to the UK’s current asylum backlog would include strengthening and expediting decision-making procedures,” the statement said.
Gay Tories complain to whips over Suella Braverman speech ...
Ministers are among more than a dozen gay Conservative MPs who have complained to the chief whip about Suella Braverman’s “poisonous” anti-immigration speech, which they say has taken the party backwards.
The group, dubbed the “pink wall” within the party, is outraged at the home secretary’s claim that fearing discrimination for being gay or a woman should not be enough to qualify for refugee protection.
Her comments have sparked a revolt among gay Tory MPs, who have accused her of “bigotry” and, with several heterosexual colleagues, have lodged a complaint with Simon Hart, the chief whip.
So is Braverman on the way out?
On October 9th the Supreme court will rule if the plan to send migrants to Rwanda can go ahead. Allies of the prime minister said the Rwanda case was holding No 10 back from moving her earlier.
Some of those close to Sunak say his patience is coming to an end. “I think he might jump the gun sooner rather than later because she’s becoming a real liability rather than an asset,” one of those close to the prime minister said."
The challenge comes with the threat Braverman could pose from the back benches. The new Conservatives, a group of about 20 right-wing Tory MPs, are among her most prominent supporters. They will use the Tory conference to press the case for leaving the European Convention on Human Rights. Removing her from office could galvanize them further.
Liz Truss will also be leading a charge of some twenty plus right wing Tories under a "Growth Coalition". The ERG as always will be monitoring the Prime Minister’s performance for evidence of remaining weakness. The Conservative Democratic Organisation (CDO) will debut.
If only a flight to Rwanda was a solution for dissident ministers and bank benchers. Losing a seat in cabinet or the whip is not threat enough.
The Conservative Party is meeting this week in Manchester, for the annual leadership feed fest.
According to the Times this week, when Rishi Sunak returned from his holiday he had a list of priorities for the second phase of his premiership. Such was the desire for secrecy that each of them was given a code name.
The code name theme for the policy group was trees. Net zero was cedar, education was elm, HS2 was redwood and health was hawthorn. “It’s been quite surreal,” a Downing Street official said. “People keep saying things like: ‘I’ve just got to go into a meeting on elm.” "Off to a session on Dead Wood". "Health is a thorny subject". That sort of thing.
The first of those plans began to emerge this week as Sunak unveiled the result of Project Cedar, a significant watering down of green policies on the route to net zero.
The ban on the sale of petrol and diesel cars has been put back to 2035. There will be no ban on buying new boilers. Households will not be required to sort the rubbish into seven bins. There will be no new taxes for eating meat, no travel tax for frequent flyers, no compulsory car sharing.
As Sunk explained in his speech ...
"The proposal for government to interfere in how many passengers you can have in your car. I’ve scrapped it. The proposal that we should force you to have seven different bins in your home. I’ve scrapped it. The proposal to make you change your diet by taxing meat. I’ve scrapped it. The plan to create new taxes to discourage flying or going on holiday. I’ve scrapped that too.
The good news, there will be bigger grants for new boiler installations and assistance with home installation. I know people in our country are frustrated with our politics. I know they feel that much gets promised, but not enough is delivered. It's a bit like HS2 ...
Rishi Sunak set to scrap the second leg of HS2 to Manchester ...
Apparently [I] am considering scrapping the second leg of HS2, which would have linked Manchester to Birmingham and London. Concerns are rising that costs of the project are “out of control”.
My Ministers have also discussed terminating trains at Old Oak Common in west London about six miles short of Euston. Passengers will be able to use bus or tube to complete the journey. A new terminal "Uber on the Common"" is under consideration. This will save money and be very handy for Tory voters in the South East.
The Prime Minister has been told by Boris Johnson and David Cameron to drop plans to scale back HS2. Johnson has warned amid warnings that a “mutilated” line would be “insanity”. George Osborne has also made clear his opposition to abandoning the northern leg. He has spotted that scaling back the project would be a “big blow” to the leveling-up agenda.
There are also divisions within the government over the plans for the second leg, which have been code named "The Dead Wood Stage". Michael Gove, the leveling-up secretary, is said to be pushing for the line to be built in full. "It would be “very stupid” to scrap the northern leg entirely.
Education is also under review. The Times disclosed this week that Sunak was planning a radical reform of A-levels with a new style of British baccalaureate. The Prime Minister could announce plans to scrap A-levels entirely. English and Maths would become compulsory until the age of 18. This, it is said, would assist in the future with cost calculations and forecasts for large scale infrastructure projects, if more people could add up.
The cheaper option would be to avoid another radical change in education just for change sake. Keep the A levels in place, just allow students to use excel and AI as part of the curriculum.
But then some policy planners just can't see the wood for the trees ...
Welcome to the Nèijuǎn 内卷 World Economy ... "An economy twisting inward without real progress ...
Neijuan has featured in analyses of life in China in the recent years, due to the uneven distribution of social, economic, and educational resources and ongoing economic malaise in terms of higher education, labor markets and youth unemployment.
Neijuan reflects a life of being overworked, stressed, anxious and feeling trapped. A lifestyle where many face the negative effects of living a very competitive life for for apparently little gain. “A prevalent sense of being stuck in an ever so draining rat race where everyone loses.”
Nèijuǎn 内卷 is made of two characters which mean “inside” and “rolling”. Ian Johnson, senior fellow at the council on foreign relations translates this as "life twisting inward without real progress".
A world economy, twisting inward without real progress ....
At the moment, it feels like the world economy is moving toward "Nèijuǎn 内卷 ... a world economy, twisting inward without real progress.
World trade growth is slowing. World growth is stagnating. A world which includes the UK post Brexit, European stagnation in the face of energy cost acceleration, China and the U.S. decoupling and a setback for globalization as a cold war mentality returns with an East West axis.
"Guns or Butter" takes in a new meaning as Moscow barters maize for munitions with Pyongyang. China develops BRICS Plus, a new trading block no longer to be Dollar dependent.
This week news of the China ban on iPhone use for government workers in a Tik for Tok reaction to U.S. and European restrictions on Huawei, sent tech stocks tumbling.
Huawei launched a new smartphone which appears to have bypassed or surpassed chip restrictions by the Biden administration. CNN reports, the United States government is seeking more information about the Huawei Mate 60 Pro, a Chinese smartphone powered by an advanced chip which China cannot have produced!
The new flagship phone, includes a 5G Kirin 9000s processor developed specifically for Chinese manufacturer Huawei. Industry experts could not understand how the company would have the technology to make such a chip following sweeping efforts by the United States to restrict China’s access to foreign chip technology.
SMIC makes waves of progress and Huawei demonstrates the futility of sanctions. Lessons to be learned from the 12th century when Canute demonstrated his inability to control the progress of tides.
The futility of Sanctions ...
The futility of trade sanctions is adequately demonstrated by the experience of the Trump administration. Trump’s tariffs have cost Americans tens of billions of dollars. Despite claims that China will pay, border taxes were passed on to consumers by import agents.
Following the imposition of tariffs on Chinese imports. The goods trade deficit with China did dip when Trump launched his tariff campaign in 2018. At the same time, however, the deficits with Mexico and the rest of the world went up.
Since 2017, when Mr. Trump entered the Oval Office, goods imports to the U.S. in nominal dollars have increased 174% from Vietnam, 116% from Taiwan, 96% from Bangladesh, 89% from Thailand, 76% from India, and 62% from South Korea.
China Exports are falling this year ...
There are some suspicions China product is being redirected from Vietnam and Mexico to bypass restrictions.
China’s exports fell by 8.8 per cent in August compared with a year earlier, while imports fell by 7.3 per cent last month. Exports to most of China’s major trading partners continued to shrink in August, though the declines narrowed from July.
Export values continued to contract but export volumes continued to hold up well and are still above their pre pandemic trend.
Trade Surplus Remains ...
China’s total trade surplus in August stood at US$68.4 billion, down from US$80.6 billion in July. The surplus narrowed as imports accelerated more than exports.
China’s customs authorities highlighted an expanding trade surplus with the Asean bloc, while China’s trade surplus with the US and European Union declined.
Analysts expect China’s exports to decline over the coming months before bottoming out toward the end of the year. Expect further consolidation with the ASEAN bloc and BRICS+.
In Europe ...
In the Euro area growth in the second quarter was up buy just 0.1%. There was zero growth in Germany and a 0.5% drop in Italy. France appeared to be the bright spot with 0.5% growth.
In the UK, the latest signals from the PMI Markit surveys suggest a slowdown into the third quarter from growth of around 0.4% in the first half.
We eagerly await the Chancellor's Autumn statement on the 22nd November. By then there should be good news on inflation and the direction of monetary policy.
We don't expect much from the November statement. Little suggestion of growth plans for the UK economy to indicate we can escape from Nèijuǎn, an economy twisting inward without real progress ...
"China’s “Involuted” Generation" A new word has entered the popular lexicon to describe feelings of burnout, ennui, and despair. By Yi-Ling Liu The New Yorker May 14, 2021.
'Involution': The anxieties of our time summed up in one word Zhou Minxi CGTN December 4th 2020.
The US government is investigating China’s breakthrough smartphone Samanthan Murphy CNN Business September 6th 2023.
According to What's On Weibo, The popular use of the Chinese translation of ‘involution’, nèijuǎn 内卷, started to receive attention in Chinese media in 2020. It is meant to explain the social dynamics of China’s growing middle class. References include "Involution": The Anxieties of Our Time Summed Up in One Word” by Zhou Minxi (CGTN) and "China’s “Involuted” Generation" a new word to describe feelings of burnout, ennui, and despair and by Yi-Ling Liu*.
It was gloom and doom in manufacturing this week ...
According to the latest PMI data, Britain's manufacturing sector contracted in August at the steepest pace since Covid-19 lock down.
The S&P Global / CIPS final purchasing managers's index (PMI) dropped from 45.3 points in July to 43.0 points last month, the worst reading since May 2020. It was the 13th month in a row the PMI has been below the 50 mark, indicating lack of growth in the sector.
Manufacturers are reporting a weakening economic backdrop, as demand is hit by rising interest rates, the cost-of-living crisis, export losses and concerns about the market outlook.
However, those firms with orders in hand enjoyed the fastest delivery times since January and the rate of inflationary pressures slowed to 2016 levels. Some price corrections eased the pain for manufacturers who registered a four month high in optimism about opportunities over the next 12 months.
Better News from the Vehicle Sector ...
It was better news from the vehicle sector. The latest update from Mike Hawes, Chief Executive of the Society of Motor Manufacturers and Traders was quite upbeat.
UK car manufacturing notched up a sixth month of growth in July. Commercial Vehicles output knocked out a fourth month of growth. For CV production in particular, the year is turning into a real success story with soaring exports and a steady, stable domestic market driving volumes above pre-pandemic levels.
Mike Hawes said "With the worst of recent supply chain difficulties behind us and plants ramping up production of electrified vehicles, the future is looking more optimistic."
Vehicle manufacturing was up by 14% in the year to date. Output is expected to hit just under 900,000 vehicles in the year as a whole. A recovery perhaps, but still well down on the output peak of 1.7 million units in 2016. The era of Brexit overhang began.
New registrations are expected to hit 1.9 million this year, generating a one million car import liability for the economy.
EV's and hybrids will account for 55% of registrations creating a challenge for future growth as the SMMT explains ...
Headwinds Ahead ...
The changes to Rules of Origin thresholds are due in just four months time.
"New Rules of Origin thresholds will pose a significant challenge to manufacturers on both sides of the Channel. The prospect of tariffs and, potentially, price increases on electric vehicles will inhibit sales, investment and production." The SMMT warns.
Tougher rules, when applied, underline the critical need for the UK to increase its own battery and EV supply chain manufacturing capability.
"Recent announcements are, of course, incredibly important and have helped rewrite the narrative around the UK sector. But we now need government to build on this momentum with a dedicated, cohesive strategy to attract further investment and a developed skills base in battery output and technology." said Mike Hawes.
Meanwhile In China ...
"Can anyone challenge China's EV Battery dominance", writes the FT last month. Technology breakthroughs and trade barriers will be need to take on CATL and BYD. It's going to be tough.
CATL and Shenzhen based BYD have raced ahead of battery rivals in South Korea and Japan, leaving the US and Europe contemplating how to stoke an electric car industry without relying on China for the most important and costly piece of the puzzle.
Louis Gave the CEO of Gavekal claims "China is now the biggest automobile exporter in the world, from nowhere five years ago. China now exports more cars than South Korea, Japan, or Germany."
"BYD, is the biggest electric car company in the world in terms of production. BYD sells the BYD Seagull. It's a small hatchback, full electric, 220-mile radius, selling for 11,000 US dollars."
"They just started selling them in Australia. They sold 10,000 in the first 24 hours, and then that was it. That's all they had. Like the first 10,000, gone, boom. So now they've got to send another 10,000 because, at that price point, you can put it on your credit card".
UK Car production under threat ...
Dominance in EV production, hegemony in battery supply. A monopoly in rare earth minerals. It is far too early to write off the Chinese economy. China is leading the world in new technology as we argued last week.
Brexit overhang, the customs union circle, the rules of origin looming, the option to create a pan European solution for the UK no longer an option. The economies of scale required and the start up risks applying, a volt to British production would require, buyer forward commitments and a government underwrite to make the investment work.
Car Production under threat, the SMMT warnings of headwinds to growth could be upgraded to a hurricane caution as the Brexit restrictions draw near ...
Central Bankers In A Hole ... That's Jackson Hole of Course ...Jackson Hole Economic Symposium is the three-day annual international conference hosted by the Federal Reserve Bank of Kansas City at Jackson Hole, Wyoming, USA.
The event is attended by central bankers from around the world. Discussions and speeches are closely followed to divine clues for the likely direction of interest rates in the U.S. and globally.
It has been described by The New York Times as "the world's most exclusive economic get-together".
Why Jackson Hole?
The Kansas City Federal Reserve originated an annual conference in 1978. In the early years, the discussions focused on agriculture. Organizers had aspirations for a more high-profile event.
With a proposed focus on economics and monetary policy, the ambition was to lure Paul Volcker, then Chairman of the Federal Reserve to attend.
Volcker was fond of fly fishing. "We need a place for our next symposium where people can fish for trout," said Tom Davis, head of economic research at the Kansas City Federal Reserve.
In 1982, Jackson Hole was chosen. Volcker took the bait. The venue became part of the annual calendar, the Fed event of the year. Volcker did reportedly raise questions about the distance. "He said, "How in the hell did we ever get to Jackson, Wyoming?"
In the early days, communication was also a challenge. To get a copy of the Wall Street Journal, allegedly, yesterday's edition was always the most up to date available. "If you want a copy of today's edition, you would have to come back tomorrow", the riposte.
The most hotly anticipated event is the speech by the Fed chair. Scheduled for a Friday morning, the speech is often used as a chance for the central bank to send a signal about policy.
"We are navigating by the stars under cloudy skies.
This year's conference 2023 was focused on the presentation from Jerome Powell. Markets waited with bated breath and a finger on the buy sell button as the hour of the Fed Chair speech drew close.
Fed Chairman Jerome Powell Kept His Jackson Hole Speech Vague. It was mostly a reiteration of what we already knew: The Fed would be proceeding cautiously. The economy might not be cooling as much as we previously thought.
Powell didn’t commit to any particular way forward, leaving the door open to additional interest rate increases while declining to say what would be coming or when. His closing line, that the central bank would “keep at it until the job is done,” was included almost verbatim from the speech he delivered in the same setting a year ago.
"We are navigating by the stars under cloudy skies. In such circumstances, risk-management considerations are critical. At upcoming meetings, we will assess our progress based on the totality of the data and the evolving outlook and risks. Based on this assessment, we will proceed carefully as we decide whether to tighten further or, instead, to hold the policy rate constant and await further data.
Restoring price stability is essential to achieving both sides of our dual mandate. We will keep at it until the job is done.
So there you have it. Let's hope the fishing was more conclusive ...
China Leads the U.S. in Advanced Technology ...
More significantly research from the Australian Strategic Policy Institute suggests China leads the U.S. in technology, despite the restrictions on Huawei and the chip squeeze. ASPI claims China leads in 37 out of 44 key advanced technologies.
Research reveals China has built the foundations to position itself as the world’s leading science and technology superpower, by establishing a stunning lead in high-impact research across the majority of critical and emerging technology domains.
Western democracies it is argued, are losing the global technological competition, including the race for scientific and research breakthroughs and the ability to retain global talent. These are crucial ingredients that underpin the development and control of the world’s most important technologies, including those that don’t yet exist.
China’s global lead extends to 37 out of 44 technologies that ASPI is tracking, covering a range of sectors spanning defence, space, robotics, energy, the environment, biotechnology, artificial intelligence (AI), advanced materials and key quantum technology areas.
The Critical Technology Tracker shows that, for some technologies, all of the world’s top 10 leading research institutions are based in China and are collectively generating nine times more high-impact research papers than the second-ranked country, most often the U.S.
The Chinese Academy of Sciences ranks highly (often first or second) across many of the 44 technologies included in the Critical Technology Tracker. ASPI sees China’s efforts being bolstered through talent and knowledge import. One-fifth of its high-impact papers are being authored by researchers with postgraduate training in a Five-Eyes country. Five Eyes Countries are Australia, Canada, New Zealand, the United Kingdom and the United States
A key area in which China excels is defence and space-related technologies. China’s lead is the product of deliberate design and long-term policy planning, as repeatedly outlined by Xi Jinping and his predecessors.
The ASPI dataset reveals there’s a large gap between China and the US, as the leading two countries, and everyone else. The US comes second in the majority of the 44 technologies examined in the Critical Technology Tracker. The US lead is confined to areas such as high performance computing, quantum computing and vaccines.
Hope for the UK?
The race to be the next most important technological powerhouse is a close one between the UK and India, both of which claim a place in the top five countries in 29 of the 44 technologies. South Korea and Germany follow closely behind.
Could a bigger Brics bloc be a global match for the G7? The new members of the China-led group will add to its economic clout but that is unlikely to translate into political weight any time soon. Brazil has no intention of being drawn into an East West paradox. India still has significant territorial disputes with China. Russia will remain a pariah on the international stage following the invasion of Ukraine and South Africa would be loathe to accept engagement in the second partition of Africa by colonialist powers.
Our hypothesis remains. China will overtake the U.S. as the largest economy in the world. It may just take a bit longer than we first thought. It may have to do it, with its own chips. Clearly it has the technology to achieve that, with or without the Taiwan Semiconductor Manufacturing Company.
The Saturday Economist
John Ashcroft publishes the Saturday Economist. Join the mailing list for updates on the UK and World Economy.
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