Britain’s economy: How is it really doing? | The Economist

Business

Business (Photo credits: http://www.roadtrafficsigns.com)

The Bank of England in Threadneedle Street, Lo...

The Bank of England in Threadneedle Street, London. Deutsch: Sitz der Bank von England in der Londoner Threadneedle Street. (Photo credit: Wikipedia)

This is an excellent, MUST READ, article in the Economist.

via Britain’s economy: How is it really doing? | The Economist.

A brutally frank and harsh summary might read:

It’s still the banks stupid!

Bank finance to businesses is one of the fundamental weaknesses of the UK economy. Business funding is required to finance investment and growth, in an increasingly globally competitive market place.

The article highlights how business finance is still seriously depressed across important sectors.

Banks prefer the simplicity, profitability and low risk of consumer finance, especially domestic property mortgages which now have Government guarantees. All of these loans are easy to service, with credit scoring and relatively junior call-center staff. Of course, the Economist article recognizes that real growth cannot be generated from consumer finance alone.

Meanwhile, business finance requires greater expertise to analyze business plans, risk analysis and commercial judgement. Speak to any small business owner about their experiences since 2008, and they will tell you that the banks are excessively conservative, putting too much weight on rules and regulations and not enough on knowing the client and the client’s business.

Being candid, another robust view to summarize UK bank commercial lending might be:

Commercial departments of banks are full of bureaucrats, with no knowledge of their customers nor their businesses and very little authority to back their judgement.

The Economist rightly concludes that Mark Carney, the new head of the Bank of England must give urgent priority to commercial lending.

However, I feel that the Chancellor of the ExchequerGeorge Osborne has been seriously remiss too. There is an overwhelming economic case for the Government to deploy fiscal tools to get businesses growing again. For example, capital spending should be 100% deductible, with a multiplier. For example, a £100,000 investment in year 1, could  generate a tax deductability of say £200,000 or £300,000 against profits in year 1. Similarly, special fiscal incentives are required to stimulate language training, especially Mandarin.

Let me conclude by asking two open questions:

  1. Do you agree that commercial departments of banks are full of bureaucrats, with no knowledge of their customers nor their businesses and very little authority to back their judgement?
  2. How do you suggest that the BoE and the Chancellor stimulate growth in UK businesses, especially small and medium-sized businesses?

 

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What will happen to markets when QE ends? | FT – Gavyn Davies

Bank of England

Bank of England (Photo credit: Wikipedia)

This is an excellent article from the respected macro-economist, Gavyn Davies, writing in his FT blog. If you are financially literate, it is well worth a read. Check it out!

via What will happen to markets when QE ends? | Gavyn Davies.

My simple conclusion from reading the article is that we should not necessarily expect markets to crash when QE ends (quantitative easing); there will obviously be a period of adjustment as highlighted by Mervyn King, outgoing head of the Bank of England. However, in my view, by the time QE ends, economic fundamentals will be on a stronger footing. This is good news.

Hopefully, major corporations will start to invest some of their piles of cash soon? When big corporations start investing in major capital spending and acquisitions, it will filter through the economic food chain and hopefully create jobs and give unemployed young people renewed confidence and hope; for many, capitalism is still on trial.

At the moment there is a major disconnect between those with financial assets and those dependent upon wages and salaries. The first group, let’s call them the “wealthy” are doing surprisingly well on the bull-run in financial markets; meanwhile, the second group, we can call them the “workers” are squeezed by austerity measures in the US, the UK and the Eurozone – the “workers” are also being squeezed by non-availability of  low-cost credit.

For me, it is time for the benefits to be shared. I am not talking about redistribution from the “wealthy” to the “workers”, like in Francois Hollande’s France. I am referring to fiscal stimulation and deferring austerity a little; watch the US, the UK and Germany; they will lead and others will follow and share the benefits.

Any thoughts?

The Bank of England in Threadneedle Street, Lo...

The Bank of England in Threadneedle Street, London. Deutsch: Sitz der Bank von England in der Londoner Threadneedle Street. (Photo credit: Wikipedia)

 

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