The Office for National Statistics (ONS) will almost certainly show a sluggish growth of 0.3 per cent at best for the second quarter, with some analysts forecasting as low as 0.2 per cent.
The first GDP reading for the second quarter will only provide information about growth in key sectors of the economy, without giving details about consumer, government or export demand. And a low figure will certainly bring calls for the Government to change its deficit policy.
However, Chancellor George Osborne has said that it is important for the government to stick to its economic plan "in a world of very great uncertainty".
"We have brought stability to the British economy, we have brought interest rates down and we are creating private sector jobs. That is all evidence that our economic plan is working and on track," he told a press conference.
Various factors are being blamed for the feeble growth, including the extra Bank Holiday in April and the effects of the Japanese earthquake and tsunami.
Despite the growth or lack of it, many economists are keen for the Government to stick to its deficit reduction plans in an attempt to maintain the UK’s AAA rating.
Ross Walker, UK economist at Royal Bank of Scotland said "What would be more damaging would be if we were to see slippage on spending cuts."
And Danny Gabay at Fathom Consulting added: "The biggest risk to our rating is if the Government caves in. It has set out a plan for short-term pain that leads to long-term growth. That has got to be right."
In support of these arguments the IMF said last month that the UK's high inflation and low growth had been unexpected but were largely temporary and that no changes to policy were yet needed.
"For more information, please contact Glazers, Chartered Accountants London or visit www.glazers.co.uk
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( 3 / 225 )In advance of the publication tomorrow of the last quarter’s GDP figures, Business Secretary Vince Cable has said that growth in the UK economy “isn’t great.”
Dr Cable also suggested the Bank of England may have to engage in more quantitative easing (QE) as growth stalls. He said that the deal struck in Europe last week to bail out countries such as Greece and Ireland had been a "significant step forward".
And in the same interview yesterday he made an astonishing attack on the “right-wing nutters” in the US Congress, who are rejecting a deal over the debt ceiling, saying that they pose a greater threat to the global economy than the eurozone crisis.
Republicans and Democrats have until August 2 to raise the nation's $14.3 trillion (£8.8trillion) debt ceiling. Failure to do so will leave markets facing the prospect of the first ever, major default by the United States.
Coming back to the picture in the UK, Dr Cable said: “"It is not surprising that it isn't great because of the problems we inherited." He added that there was also evidence of "rebalancing" in the economy, and the "beginning of the rebirth of manufacturing and exports".
And speaking of quantitative easing (QE), he said that that would be the right approach if consumer demand remained suppressed and agreed with the Chancellor that the Government should not revert to a ‘plan B’.
"... if there is a sustained period of weakness of demand, the right approach to that is not for the government to relax its fiscal discipline. We have to keep that going,” he said.
"It is about the Bank of England pursuing policies of low interest rates that also helps keep our exchange rate down and helps exports... also using the expansion of QE perhaps in more imaginative ways, not just acquiring government securities. If we have a continuing problem of weak demand that is the way to deal with it," Dr Cable added.
"For more information, please contact Glazers, Chartered Accountants London or visit www.glazers.co.uk
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( 2.9 / 210 )At an historic meeting yesterday, the heads of the 17 eurozone governments agreed that “controlled failure” was the only way to prevent the collapse of the single currency and ensuing global economic crisis.
In the financial deal that was agreed, private lenders, including the IMF and European banks, will contribute to the aid package of €109bn, which is designed to give Greece decades more to repay its debts.
The UK has around £9.1bn in total exposure to Greek debt, of which around a quarter of those claims is held directly by banks. More worrying, however, is the UK exposure in other eurozone countries.
UK banks are most at risk from those in the Republic of Ireland, with eight times more exposure to Irish debt and almost as much Spanish exposure.
A Greek default would put pressure on these countries to default as well, which would put further huge pressures on the UK's balance sheet.
However, the biggest victims of a Greek default would be German and French banks, which would be a disaster for the two biggest economies in Europe and lead to stunted growth, job losses and other economic shocks across the continent.
With the eurozone accounting for 40 per cent of UK exports, this is a British problem as well.
"If the whole of Europe is pushed down, well, our market is gone," the former trade minister Lord Digby Jones said, "so everyone in Britain should worry about this."
Economists have described the deal as a "significant step towards financial integration in Europe," which has led to some fears in the City that Britain could suffer from being excluded from tighter union in Europe. But Chancellor George Osborne said:
"I think we have to accept that greater eurozone integration is necessary to make the single currency work and that is very much in our national interest…We should be prepared to let that happen."
"For more information, please contact Glazers, Chartered Accountants London or visit www.glazers.co.uk
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( 3 / 200 )From October 2012 employees will start to be automatically enrolled in the employer’s pension scheme and earlier this week the Department for Work and Pensions published draft regulations to cement workplace pension saving reforms.
However, a quarter of employers believe that more than half of their employees will opt out of auto-enrolment, casting further doubt over the effectiveness of the scheme.
According to research from the Institute of Directors, the main reason behind this opinion is employees’ inability to contribute up to four per cent into a pension scheme.
And despite the potential financial strain on lower paid employees of small businesses, many will not opt out through apathy or ignorance, despite the scheme not suiting their needs in many cases.
It has been calculated that contribution from employers to these ineffective pension plans could amount to over £2bn.
Various experts have their doubts about the efficacy of the new plan. For example, David Marlow, Development Manager at Creative Benefits, says:
"We have serious concerns about the cost of auto enrolment on British SMEs. There is no doubt that pension saving in the UK needs to increase, however lumping everyone into the same scheme regardless of a person’s age, existing debts and life plans is extremely dangerous. We believe that it wouldn’t be appropriate for around 20 per cent of today’s employees.”
While Malcolm McLean, Consultant at Barnett Waddingham, while understanding that the funding gap needs to be bridged, believes that the Government may need to rethink its current plan.
“Other possibilities might include much more extensive deregulation, extra tax incentives for employers, a merger of tax and National Insurance, and the introduction of a simplified citizen’s pension arrangement,” he said.
Given the discussions around the scheme, the DWP has announced that there will be a 12 week consultation period on auto-enrolment regulation ending on October 11th 2011.
"For more information, please contact Glazers, Chartered Accountants London or visit www.glazers.co.uk
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( 3 / 158 )The Treasury is looking at a new bond alternative to small business financial lending from banks at a time when high street banks are rejecting entrepreneurs and small business owners at a record rate.
Research has shown that fast-growing, innovative businesses are responsible for the lion's share of economic growth but it is hard to expand a business without access to finance. And despite various government projects, the banks just don’t seem to want to lend to small business.
This new idea for accessing finance was suggested by MP Sam Gyimah, a former investment banker and recruitment entrepreneur, who is leading a joint initiative with business and innovation think tank NESTA, which he said will produce “evidence-based, thoroughly worked through proposals” to the Treasury to improve access to finance for growing companies.
Mr Gyimah said a retail bond market would create competition for small companies’ debt at a time when banks are adopting a “take it or leave it approach” to lending.
A small firms’ bond market would also produce a new asset class for both retail and institutional investors, he said. Individual firms’ bond issues would probably need to be 'rolled up’ with other companies of a similar profile so investors’ risk is diversified, Mr Gyimah added.
Mr Gyimah, Conservative MP for East Surrey, said the bond proposal was just one idea that would be examined and the consultation would consider “many possible solutions”, including lobbying for tax efficient EIS investments to be applicable for debt as well as equity.
“There was a time when we didn’t have 3i and widespread venture capital and AIM wasn’t started until 1995,” he said. “A new wave of financial innovation could come out of the financial crisis.”
Also as an alternative to the High Street, new banks are entering the UK market, such as Sweden's Handelsbanken and start ups such as Funding Circle, so options for small businesses appear to be widening.
For more information, please visit www.glazers.co.uk
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