Month: November 2012

Forecast for Pound Sterling in 2013

Forecast for Pound Sterling in 2013

A look at the future prospects for the Pound in the coming months of 2013. The Sterling index measures the value of the Pound Sterling against a basket of trade weighted currencies. In  Dec 2011 the index was 80.4 By Oct 2011, the exchange rate index has increased to 83.6 This modest appreciation in the Pound has occurred despite: Double dip recession in UK UK Inflation remaining above target Growing current account deficit Quantitative easing increasing money supply. One of largest budget deficits in OECD Therefore…

Investment in UK – Business and Public Sector

Investment in UK – Business and Public Sector

Total UK Business investment, slow recovery from 2009. (seasonally adjusted, Current Prices) Source: ONS Q3 2012 An unconvincing recovery in business investment. But still, business investment increased by £1.3 billion (4.5 per cent) when compared with the third quarter of 2011. The outlook for business investment remains muted: Despite low interest rates, banks are maintaining strict lending criteria and rationing finance. Many small and medium sized firms still state finance is…

Why Can Japanese Government borrow at Low Interest Rates?

Why Can Japanese Government borrow at Low Interest Rates?

Readers Question: After the insightful post on ‘Italian Economic Decline’, I was particularly captured by the % debt to GDP line graph of the different developed countries. The one thing that really caught my eye was Japan’s huge % debt to GDP and yet their government bond yields are consistently declining. Aren’t the markets worried that Japan may default on their debt someday or is the fact that they have a lender of last resort (no fear of liquidity problems) unlike Italy and their 0% interest rates shielding…

Germany’s Current Account Surplus

Germany’s Current Account Surplus

A few years ago, global trade imbalances were dominated by China and the US. At its peak, China’s current account surplus reached over 10% of GDP. By contrast, the US current account deficit reached over 6% of GDP. The classic image was of China manufacturing goods, selling them to the US  consumer. Then with this export revenue, China bought US Treasuries to keep the Chinese Yuan permanently undervalued. Many in the US criticised China for this ‘currency manipulation‘ – In fact, Mitt Romney, the 2012 Republican Presidential candidate,…

Cost of Benefit Fraud v Tax Evasion in UK

Cost of Benefit Fraud v Tax Evasion in UK

Benefit fraud and tax avoidance are currently emotive topics. What is the extent of benefit fraud and tax fraud in the UK? Benefit Fraud For 2011/12 (preliminary), it is estimated that  2.0 per cent of total benefit expenditure  was overpaid due to fraud and error. In 2010/11 – benefit fraud was estimated at £3.4bn – 2.2% of total benefit expenditure (£154bn)  (Dept for Work and Pensions) It is also estimated that 0.9%, or £1.3bn, of total benefit expenditure was underpaid due to error. More specifically 4.4%, or £350m, of Income Support expenditure has been overpaid; 6.5%,…

Italian Economic Decline

Italian Economic Decline

In the past 20 years, the Italian economy has stagnated compared to its main international competitors. Using different measures, such as labour productivity and relative GDP growth – Italy has fallen significantly behind. Despite low budget deficits (and primary surpluses) Italy is facing high bond yields and crippling interest payments. These high bond yields are in response to both the high levels of debt – but also the continued economic weakness. Italian Productivity Italian productivity relative to the UK. In the…

The Economic Cost of High Bond Yields

The Economic Cost of High Bond Yields

Readers Question I’ve recently been looking up on the Eurozone financial crisis for random reasons and i don’t understand the statement in an FT article about what we must acknowledge in order to overcome the Eurozone problems. The statement goes ‘no country can be expected to generate huge primary surpluses for long periods for the benefit of foreign creditors’. Please can you help?! Firstly, it is not an easy article – there is a lot of jargon! To quote: “A fundamental shift of tack is required, towards an…

GDP at PPP compared to GDP in $US

GDP at PPP compared to GDP in $US

A look at how GDP per capita in $US gives different values when measured at purchasing power parity. GDP at Purchasing Power parity (PPP) takes into account variations in living costs. PPP is an attempt to work out how much currency will be needed to buy the same quantity of goods and services in different countries. If this can be done, it can show the underlying exchange rate between the two different countries and a more accurate…