3rd October 2013 by Shaun Richards
Today opens with yet another sign of institutionalised inflation in the UK as the price of a National Lottery ticket rises from £1 to £2, and those who bought odd numbers of tickets are left in a quandary (especially those who could only afford one). However inflation as recorded by the Office for National Statistics will be unaffected as it does not take account of lottery tickets. Also as the prize payout ratio remains at a lowly 50%, the rise in some headline payouts is taken back by reductions in others. Such a move is the biggest kick in the teeth for those who can only afford one ticket currently and it is plainly regressive. Indeed as lotteries full stop have a regressive element I guess that this is just another sad feature of the times. Or as a reply on twitter has just put it, the price of hope has just doubled.
Oh and in case you were wondering the rise in the Retail Price Index since 1994 has been 73% so the extra 27% of the increase is just that – extra. Please remember that when Camelot (the lottery operator) and its apologists say that this is the first increase etc….
They too are at the institutionalised inflation game, if the email they have sent me is any guide.
From 4 January 2014, we’re putting some of our prices up. Line rental will go up by just 3.5 per cent – from £15.45 to £15.99 a month.
Also I note that prices not quite so headline seem to be going up at an even faster rate.
Calling features will increase up to 6.5%.
The Bank of England
We have been subject to a flurry of speeches by members of the Monetary Policy Committee over the last week. They are hurrying to explain how the idea of forward guidance occurred to eight of them simultaneously just as a new Bank of England Governor, who is a fan of it, arrived. What a coincidence! Or how weak and easily led they all are. One subject missing is why they had not thought of it before?
Added to this, no doubt, they wish to bathe themselves in the reflected glamour of the current improvement in the UK economy. Unfortunately those who have followed their efforts in the grimmer period preceding this will recall their constant siren call along the lines of this from Shaggy.
It wasn’t me
Apparently now it was!
Paul Fisher gives us his thoughts
Dr.Fisher first updated his audience on recent financial events and there were a couple of somewhat bizarre statements.
A mini-crisis in Cyprus had been dealt with, without too many spillovers.
Er dealt with? You could say that July’s industrial production figure of 86.1 compared to the 98.7 of July 2012 representing a 12.8% annual fall has dealt with it! But somehow I suspect that this is not what he meant. The poor woman who lost much of the proceeds of her house sale would be unlikely to agree. Those much nearer to home reviewing the problems at the Co-Operative Bank and worrying about “bail-ins” ,which some bondholders argue is already happening, will not agree either.
Also with much of the US government in shutdown mode with for example tomorrow’s non-farm payroll report postponed it may not have been the best time to say this.
The US ‘fiscal cliff’ at end-2012 had passed by with some relief
It did not take long for it to re-emerge did it?
Dr.Fisher rather ties himself in a knot here and the emphasis is mine.
It is important to remember that monetary policy is about decision making under uncertainty. Considerable uncertainty. Policy makers get surprised by economic developments just like everyone else,
Actually if you look at the appalling forecasting record of the Bank of England policymakers like Dr. Fisher “get surprised” as he puts it a lot more often than others. In fact life must feel full of surprises at the Bank of England. Those who recall when both official measures of inflation went above 5% in the autumn of 2011 may also recall that the Bank of England was forecasting in the August 2009 Inflation Report (the policy horizon) that it would be less than 1.5%!
Somehow the promises of a group of people with a track record that includes not being able to see their nose let alone the end of it has this effect according to Dr.Fisher.
The important thing is to get the message across to businesses and households about what the outlook for monetary policy really is.
It’s a case of so far, so good, on that front
He seems to be handling that particular ball with all the current aplomb of England goalkeeper Joe Hart.
The Funding for Lending Scheme (FLS)
If you think that Dr. Fisher is muddled and confused on the subject of forward guidance wait until you see his views on FLS. Although his opening effort is more revealing than perhaps he realises.
Our first objective was to reduce bank funding costs – and this phase has been remarkably successful
I rather suspect that he did not intend to say so openly what critics of the scheme such as me have argued all along! It is a bankers’ paradise to misquote Coolio who if he wishes to bring his song up to date might like to try this.
We keep spending most our lives
Living in the Banksta’s Paradise
Tell me why are we so blind to see?
Dear Chancellor look what we have done for your re-election plan
On average we’ve seen rates on two-year fixed rate mortgage products come down by around 110bps since the FLS was announced, and floating rate mortgages by a bit less (around 60bps) (by bps he means basis points so 1.1% and 0.6% respectively).
I guess this is being reflected in the higher mortgage approval numbers we saw released earlier this week. Also in this from the Halifax Bank of Scotland today.
House prices in the three months to September were 2.0% higher than in the previous quarter…………… Prices in the three months to September were 6.2% higher than in the same three months last year.
One place where Dr.Fisher and his colleagues can be sure of a warm and friendly reception is at Number 11 Downing Street. Perhaps somewhat better than just beer and sandwiches.
What about lending to businesses?
This was supposed to be the modus operandi for the FLS. Indeed it was supposedly further improved in April in this area as this from the Chancellor of the Exchequer pointed out.
This is a big boost for the small and medium sized businesses that are at the heart of the British economy.
So interest-rates for businesses have fallen like mortgage rates? Apparently not according to Dr.Fisher.
It’s harder to measure what has happened to lending rates to businesses
So not down then, but lending must be up after the big boost?
You sometimes see the phrase ‘the banks are not lending to SMEs’. That is simply not true when you look into the details…….. But the data we do have suggest that since the launch of the Scheme, gross lending to SMEs has been around £40bn
Oh wait a minute we have forgotten something rather inconvenient.
although repayments have been slightly higher (than the £40 billion)
So we observe that down is as so often these days the new up. Dr.Fisher tries to cover it up with some waffle.
Within that aggregate picture there are many individual banks which have expanded their net lending to SMEs whilst others have contracted
It is a bit like a football manager praising his team for scoring two goals and hoping that nobody will notice that they conceded four.
Oh and it seems that “slightly”, “mixed picture” and “harder to measure” will be finding their way into my financial lexicon for these times.
Perhaps Dr.Fisher might have spoken to the Bank of England’s own Agents who keep reporting things like this.
But for small businesses with few assets or those operating in riskier sectors, the availability of bank finance remained tight
The UK economy has entered into an apparent stronger phase as this week’s series of purchasing managers indices have reinforced. Today’s reading for the services sector of 60.3 indicates very strong growth although such measures do tend to exaggerate at times like this. Whilst we should welcome an apparent improvement there are genuine fears about the way things are developing and this has been illustrated this week by the numbers from our housing and mortgage sectors. We have been down such a sugar dependency road before and look where it led us. The “independent” Bank of England was supposed to lead us away from that road whereas it keeps signposting us back to it.
Also we have come across an unintended beneficial side-effect of the Funding for Lending Scheme as was pointed out to me recently by Francis Coppola. It gives us a warning signal for banking institutions in what Taylor Swift called.
Trouble, trouble, trouble
The answer to the question you are no doubt asking is the West Bromwich Building Society. Not for some of their borrowers the mortgage rate cuts boasted about by the Bank of England. From the BBC.
Some 6,700 landlords who hold buy-to-let tracker mortgages with the West Bromwich Building Society face a two percentage point rise on 1 December.
But then we live in an era where ever more often some animals are more equal than others don’t we?