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Britain Must Do More for Economy, I.M.F. Warns

May 22, 2013 by Leave a Comment

LONDON — Britain should do more to fuel economic growth and be prepared to pump more money into its bailed-out banks if necessary, the International Monetary Fund said Wednesday in a report.

The I.M.F. said that some recent economic data from Britain were “encouraging,” but that the data did not point toward a sustainable recovery in the near term. “Activity appears to be improving, but a slow recovery remains likely,” the fund said.

That view stands in contrast to comments by the outgoing governor of the Bank of England, Mervyn A. King, who said last week that there was “a welcome change in the economic outlook” and that a recovery was “in sight.”

The fund has been a critic of the austerity program designed by George Osborne, the chancellor of the Exchequer, saying that the British economy would recover more quickly if the government slowed its spending cuts and tax increases. The I.M.F. reiterated that warning on Wednesday and called for additional public spending. Especially helpful to the economic recovery, the fund said, would be spending on transportation and energy infrastructure and on training for low-skilled workers.

“The U.K. is, however, still a long way from a strong and sustainable recovery,” the I.M.F. said, adding that the low level of capital investment and high youth unemployment remained a concern. “The prospect remains for weak growth,” the report said.

Mr. Osborne has rejected criticism of his austerity plan, saying that the spending cuts were essential to reduce the budget deficit, which in turn would keep Britain’s borrowing costs low and allow for economic growth to return.

A recovery might take even longer if demand from export markets like the euro zone does not pick up, banks continue to be reluctant to lend and the government’s austerity program turns out to be a bigger drag on the economy than anticipated.

Ed Balls, a spokesman on economic issues for the opposition Labour Party, said the report was “the call for action on jobs and growth that the I.M.F. has been threatening to deliver for many months and a stark warning of the consequences if the chancellor refuses to listen.”

In remarks before the I.M.F. released its report, Mr. Osborne said he broadly agreed with its contents but added, “There are no easy answers to problems built up in the U.K. over many years.” He added that it was “a hard road to recovery. But we’re making progress.”

The I.M.F. also said that the government should not shy from bolstering the capital of two bailed-out banks, Royal Bank of Scotland and Lloyds Banking Group, to ease the process of returning them to private ownership. The government took stakes in both banks during the financial crisis and owns 81 percent of R.B.S. and 39 percent of Lloyds.

In separate statements, R.B.S. and Lloyds said Wednesday that they would increase their capital reserves by retaining earnings and selling assets. Regulators said recently that all of Britain’s largest banks must raise a combined 25 billion pounds, or $38 billion, to make them more stable.

Article source: http://www.nytimes.com/2013/05/23/business/global/britain-must-do-more-for-economy-imf-warns.html?partner=rss&emc=rss

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Fitch Puts British Debt on Review for Downgrade

March 22, 2013 by Leave a Comment

LONDON — Britain’s economic troubles took a turn for the worse on Friday as Fitch Ratings came a step closer to becoming the second agency to strip the country of its triple-A investment grade.

Fitch put the debt on watch for a possible downgrade just days after the release of gloomy government economic data. The figures showed that British debt would “peak later and at a higher level than previously expected by Fitch,” the agency said on its Web site.

The change came a month after Moody’s Investors Service lowered its investment rating for British debt, knocking it to Aa1 from Aaa, saying that one of the principal factors was the very slow pace of the British recovery.

Fitch said Friday that “the persistently weak performance of U.K. growth, in part due to European growth, has increased uncertainty around the U.K.’s potential output and longer-term trend rate of growth with significant implications for public finances.”

Credit downgrades together with a weaker economic outlook could prompt some holders of British bonds to sell their holdings. Government bonds have benefited from the economic turmoil in the euro zone, which had made them more attractive to foreign investors.

The Fitch announcement followed a gloomy speech by George Osborne, the chancellor of the Exchequer, in Parliament on Wednesday. He said that economic conditions remained difficult and that it would take longer than expected to meet his debt-reduction target.

Citing figures from the Office for Budget Responsibility, an independent economic forecasting group, he said the British economy would grow 0.6 percent this year, half of the 1.2 percent forecast earlier. Growth next year is expected to be 1.8 percent, down from a previous estimate of 2 percent, according to the office.

Public-sector net debt as a percentage of gross domestic product would start falling only in the fiscal year ending in 2018. That is a year later than Mr. Osborne forecast in December, when he pushed the goal back to 2017 from 2016.

To help generate growth, Mr. Osborne pledged to divert some of the proceeds of a far-reaching cost-cutting program to lend to home buyers, helping them with deposits for newly built houses. He is also relying on the Bank of England to keep interest rates low for longer even as inflation continues to hover above the central bank’s 2 percent target.

Mr. Osborne is relying on the Bank of England and the housing market to help create the economic upturn he needs to meet his debt targets.

He played down the importance of the Moody’s downgrade, saying it was just another sign of how important its deficit-cutting strategy was. Moody’s decision was “disappointing news,” he said, but it also showed that “Britain cannot let up dealing with its problems” and that “if we abandon our commitment to deal with that debt problem, then our situation will get very much worse.”

Landon Thomas Jr. contributed reporting.

Article source: http://www.nytimes.com/2013/03/23/business/global/fitch-puts-british-debt-on-review-for-downgrade.html?partner=rss&emc=rss

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Britain Braces for Higher Migration From Romania and Bulgaria

March 5, 2013 by Leave a Comment

A decade later, the prospect of Romanians and Bulgarians’ being able to work freely here beginning next year has provoked protests in Parliament and the press. In a sharp illustration of how the immigration debate and Britain’s economic fortunes have shifted, the government was forced to deny that it planned a negative advertising campaign in Romania and Bulgaria to discourage people from coming to Britain.

Prime Minister David Cameron says Britain should not be a “soft touch” for migrants and his ministers are discussing ways to limit access to benefits or public services for those arriving from abroad. In order not to break E.U. rules against discrimination, there are likely to be changes for Britons too, and one newspaper reported Monday that plans were being drawn up to introduce an “entitlement card” that anyone wanting access to services would need to produce.

Among Mr. Cameron’s Conservatives, pressure for action is growing and is only likely to increase after a by-election last week in which the party was pushed into third place by the U.K. Independence Party, which opposes mass immigration.

Even before that shock result, there was a warning from Eric Pickles, Secretary of State for Communities and Local Government, that “any influx from Romania and Bulgaria is going to cause problems.”

“My constituents,” added Philip Hollobone, a Conservative lawmaker, “think it is madness to open our borders to 29 million people when we have absolutely no idea how many are going to come to this country.”

Back in 2004, a healthy British economy seemed to benefit from globalization, booming financial services and open markets. Politicians saw immigrants giving a jolt to growth.

Now a stagnant economy may slip into a triple-dip recession and Britain is experiencing another of its regular bouts of anxiety about immigrants.

“Immigration has always been a hot issue,” said Sandra McNally, professor of economics at the University of Surrey, whose research concluded that immigration from Eastern Europe after 2004 had, if anything, a positive impact on educational standards in Britain. “But it has become a lot hotter.”

The discourse is particularly febrile because, before 2004, a study commissioned by the government hugely underestimated net immigration from Eastern Europe, suggesting 5,000 to 13,000 arrivals a year up to 2010.

In fact, the 2011 census showed 521,000 Polish-born people listed as residents in Britain, with the vast majority having arrived after 2004.

Back then, most other E.U. countries exercised their right to use “transitional arrangements” to restrict access to the jobs market for the eight new ex-Communist members, including Poland, for a maximum of seven years.

But along with Ireland and Sweden, Britain opened up from day one.

By 2007, when Romania and Bulgaria joined the bloc, it was clear that many more immigrants had arrived in Britain from Eastern Europe than expected. So this time the government decided to apply transitional restrictions on Romanians and Bulgarians. Those measures expire on Dec. 31 in all the E.U. nations where they remain, including Britain.

Last year, Ed Miliband, now leader of the Labour Party, conceded that the Labour government got it wrong in 2004 by opening up the jobs market too fast, exposing lower-paid workers to extra competition.

“We were dazzled by globalization and too sanguine about its price,” Mr. Miliband said. “By focusing exclusively on immigration’s impact on growth, we lost sight of who was benefiting from that growth — whose living standards were being squeezed.”

The case for Romania and Bulgaria is hardly helped by their ranking among Europe’s poorest nations, both struggling to combat corruption and organized crime, and to integrate Roma populations.

Migration Watch, a non-governmental organization that campaigns on immigration issues, suggests that inflows could average around 50,000 annually over the next five years. Tabloid newspapers have taken up the issue and The Daily Mail has warned, for example, of “mafia bosses who can’t wait to flood Britain with beggars.”

Article source: http://www.nytimes.com/2013/03/05/world/europe/britain-braces-for-higher-migration-from-romania-and-bulgaria.html?partner=rss&emc=rss

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Cameron Asks India to Open Its Trade Doors Wider

February 18, 2013 by Leave a Comment

MUMBAI — Prime Minister David Cameron of Britain arrived in India on Monday asking his hosts to open up their economy because Britain had done the same for Indian companies.

“Britain is an open economy, and we encourage that investment,” he said. “I think, in return, we should be having a conversation about opening up the Indian economy, making it easier to do business here, allowing insurance and banking companies to do more foreign direct investment.”

He said that he was proud that Indian companies like Tata, the owner of the British carmaker Jaguar Land Rover, had such a strong foothold in the British economy but that he expected a reciprocal arrangement.

Mr. Cameron’s trip, his second visit to India as prime minister, comes days after a similar trade mission by President François Hollande of France, underlining how Europe’s debt-stricken states were competing to tap into India, which has one of the world’s fastest-growing economies.

Mr. Cameron’s delegation, which includes representatives of more than 100 companies, is the biggest taken abroad by a British prime minister. It includes four ministers and nine members of Parliament.

Companies with executives traveling with Mr. Cameron include BAE Systems, BP, De La Rue, Diageo, the British unit of EADS, HSBC, JCB, Lloyd’s, the London Stock Exchange, London Underground, Rolls-Royce and Standard Chartered.

Mr. Cameron will meet his Indian counterpart, Manmohan Singh, as well as the Indian president, Pranab Mukherjee.

Mr. Cameron’s office said business deals to be announced during the trip would create 500 British jobs and safeguard an additional 2,000.

Investors have been clamoring for years for India to open up to more foreign investment, and Mr. Cameron complained Monday that India still had outdated rules and regulations.

But the entreaties have been resisted by Indian opposition groups worried about potential damage to home-grown businesses.

At a time when the British government is struggling to get its economy growing, officials see India as a key strategic partner in what Mr. Cameron has called a “global race.”

“India is going to be one of the leading nations in this century, and we want to be your partner,” Mr. Cameron told Indian workers at Hindustan Unilever, a unit of the British-Dutch consumer products giant Unilever.

Mr. Cameron’s visit to India, which won independence from Britain in 1947 and whose colonial history remains a sensitive subject for many Indians, will include stops in Mumbai and New Delhi.

Mr. Cameron has said the two countries enjoy a “special relationship,” a term usually reserved for Britain’s ties with the United States, but it is a relationship undergoing profound change. The Indian economy is forecast to overtake Britain’s in size in the decades ahead. In a nod to how the relationship is evolving, Britain will stop giving India aid after 2015.

Mr. Cameron is expected to lobby India to do more to allow foreign retailers like Tesco, which sells food and consumer goods, to open stores in the country. New Delhi changed the rules last year to allow foreign chains to operate in India but attached conditions including requirements over local sourcing of items and investment in local infrastructure, and restrictions on what goods could be sold.

India is expected to spend $1 trillion in the next five years on infrastructure, and Mr. Cameron said he wanted British companies to help India develop new cities and districts along a corridor stretching 1,000 kilometers, or 620 miles, from Mumbai to Bangalore, generating investment projects worth up to $25 billion.

Some British companies have run into problems in the past. The mobile phone operator Vodafone has repeatedly clashed with the Indian authorities over taxes, and the oil company Royal Dutch Shell has asked the British government to raise a tax dispute it has with India during Mr. Cameron’s visit.

Mr. Cameron promised Monday to try to revive Indian interest in the Eurofighter even though New Delhi has chosen a French-made rival and as a graft scandal is engulfing a military deal that involves a British-Italian company.

India said Friday that it wanted to cancel a $740 million contract for a dozen helicopters made by AgustaWestland, the British-Italian subsidiary of Finmeccanica of Italy, over bribery claims.

That will not make Mr. Cameron’s job of persuading India to buy more civil and military hardware easier, and Indian officials have told the local news media they intend to press Mr. Cameron for “a fully-fledged report” on what Britain knows about the scandal.

Britain has said it wants to wait until the end of the Italian investigation before commenting in full, but has given India an interim report on the subject. “This is something for the Italian and Indian authorities to deal with, and I’m sure they will,” Mr. Cameron said Monday, saying issues had been raised that needed to be settled.

Mr. Cameron said he would tell the Indian government that the Eurofighter jet, which is partly built in Britain, remained an attractive option if India decided to review a multibillion-dollar deal to buy 126 French-made Rafale fighters. New Delhi rejected the Eurofighter last year.

Article source: http://www.nytimes.com/2013/02/19/business/global/cameron-asks-india-to-open-its-trade-doors-wider.html?partner=rss&emc=rss

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Economix Blog: Former Bank of England Official Criticizes British Policies

December 12, 2012 by Leave a Comment

LONDON – Adam S. Posen, the former Bank of England policy maker, is breaking his silence to criticize the British government’s austerity plan, and he is not mincing words.

The government’s economic policies have “eaten away at British economic capabilities,” are “misguided” and left Britain’s economy “malnourished,” Mr. Posen wrote in the January edition of Prospect magazine.

Mr. Posen, who left the Bank of England’s monetary policy committee in August and is expected to take over as president of the Peterson Institute for International Economics in January, said he kept his opinions about Prime Minister David Cameron’s austerity plan to himself while he was a central banker. But now, it was “past time” for him to speak up.

In the article, Mr. Posen admonished the government for stubbornly sticking to deficit reduction as a priority while failing to address a shortfall in investments.

“For two-and-a-half years, the coalition government’s economic policies have focused on the wrong narrow goal, been self-defeating in pursuit of that goal, and in so doing have eaten away at British economic capabilities and confidence,” Mr. Posen wrote.

He added that it was not enough for Mr. Cameron and George Osborne, the chancellor of the Exchequer, “to claim that they have done what they promised to do. Their policies have left the British economy malnourished, and indeed made parts of it quite ill.”

Mr. Posen proposed five steps to help the British economy. The government, he said, should find ways to encourage companies to invest the large cash piles they accumulated during the crisis.

He also suggested increasing competition in the domestic banking sector by selling parts of the stakes the government continued to hold in banks like the Royal Bank of Scotland and Lloyds Banking Group. And the government should create a public bank especially for lending to small businesses, he said.

“There are alternatives available, and the British government should switch to these now,” Mr. Posen said.

Article source: http://economix.blogs.nytimes.com/2012/12/12/former-bank-of-england-official-criticizes-british-policies/?partner=rss&emc=rss

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Wall Street Rises After Europe Rally

October 6, 2011 by Leave a Comment

The Standard Poor’s 500-stock index closed up 1.8 percent, while the Dow Jones industrial average gained 1.7 percent. The Nasdaq composite index was 1.9 percent higher.

Weekly jobless claims in the United States rose to 401,000, from a revised level of 395,000 last week. The four-week moving average was 414,000, which was lower than the previous month and slightly better than analysts’ expectations.

But the action was mostly in Europe. The central bank moved to help European banks that are having trouble raising short-term cash, while the Bank of England decided to resume its bond purchases to help support a slowing British economy. Both central banks left their key benchmark rates unchanged, at 1.5 percent for the euro area covered by the European Central Bank and 0.5 percent for Britain.

While most economists did not expect the E.C.B. to cut rates, some said they were disappointed with the bank’s actions, particularly because this was the last policy meeting to be headed by Jean-Claude Trichet, who will be replaced by Mario Draghi, governor of the Bank of Italy, on Nov. 1. Mr. Draghi will face pressure not to cut rates immediately in order to establish his credentials as an inflation fighter, analysts said.

But the Bank of England’s resumption of its bond buying program was a surprise, said Mark McCormick, a currency strategist at Brown Brothers Harriman, a boutique banking firm in New York.

“Bank of England exceeded the markets’ expectations, the E.C.B., I would say, disappointed. But they’re both trying to ease financial conditions and in turn support economic growth from a monetary perspective,” he said.

French lenders posted solid gains, leading European indexes upward, after the financial daily Le Figaro reported that the French government was prepared to act to help “two or three banks.” The Figaro report did not identify the source of its information, and news agencies cited French officials as denying that such a plan was in the cards.

BNP Paribas rose 7.5 percent, Société Générale rose 3.16 percent and Crédit Agricole gained 3 percent. Dexia, the failing bank that the French and Belgian governments this week said they would guarantee, began the day higher but by afternoon was 17.2 percent lower.

The Euro Stoxx 50 index, a barometer of euro zone blue chips, closed up 3.2 percent, while the FTSE 100 index in London rose 3.7 percent. The DAX in Frankfurt gained 3.2 percent and the CAC 40 in Paris increased 3.4 percent.

Longer term, however, the picture remained as murky as ever, and financial markets continued to face what strategists at HSBC, in their latest quarterly assessment, called “an unbearable degree of uncertainty.”

“After falling 22 percent from their April highs, global equities are likely to remain tricky,” Garry Evans, head of global equity strategy at HSBC in Hong Kong, wrote. “There are few signs of a bold solution to Europe’s sovereign debt issues, and the 23 November deadline for U.S. debt negotiations looms.”

Moreover, he added, economic growth prospects have not bottomed. Although the jury is still out on whether the world will actually tip into another recession, markets will continue to fret that it might, he said.

Asian shares rallied. The Tokyo benchmark Nikkei 225 stock average rose 1.66 percent. In Hong Kong, the Hang Seng index rose 5.67 percent.

Crude oil futures for November delivery rose .57 percent to $80.20 a barrel. Comex gold futures slipped 0.2 percent to $1,637.60 an ounce.

The dollar was mixed against other major currencies. The euro rose to $1.3384 from $1.3348 late Wednesday in New York, while the British pound rose to $1.5697 from $1.5460. The dollar rose to 76.86 yen from 76.79 yen, but fell to 0.9225 Swiss francs from 0.9232 francs.

Yields on the government bonds that investors see as the safest assets rose, as money flowed into stocks. The yield on the 10-year United States Treasury rose 5 basis points to 1.958 percent, while the yield on the comparable German security rose 5 basis points to 1.88 percent.

David Jolly reported from Paris. Bettina Wassener contributed from Hong Kong.

Article source: http://www.nytimes.com/2011/10/07/business/daily-stock-market-activity.html?partner=rss&emc=rss

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I.M.F. Backs Britain’s Recovery Efforts

August 1, 2011 by Leave a Comment

LONDON — The International Monetary Fund endorsed Monday the British government’s tight budget policy and loose monetary stance, while warning that the authorities should stand ready to change course if growth did not gather pace.

In a regular report on the British economy, the fund noted the weak economic environment and an increase in inflation had raised questions about whether macroeconomic policies should be adjusted. “The answer is no,” the report said, “as the deviations are largely temporary.”

Britain has been cutting spending and raising revenue to bolster its weak fiscal position, a legacy of the financial crisis, when it spent public funds to bail out large lenders like Royal Bank of Scotland, Lloyds Banking Group and Northern Rock.

The crisis pushed the fiscal deficit to 11 percent of gross domestic product in the 2009-10 financial year, the highest level since World War II and one of the highest rates in the world. The deficit fell to 9.75 percent in the 2010-11 financial year, and the I.M.F. said a further decline to 8 percent was expected for the following year.

Strong fiscal consolidation “remains essential to achieve a more sustainable budgetary position, thus reducing fiscal risks,” the fund said.

It forecast that growth would pick up to 1.5 percent in 2011 from 1.4 percent last year, and accelerate to 2.3 percent in 2012. Inflation is expected to decline to 2.2 percent next year from 4.5 percent this year.

The current high inflation rates are driven by transitory factors, it said, “and hence maintaining the current scale of monetary stimulus is appropriate given fiscal adjustment and subdued wage growth.”

Still, the fund cited “significant risks to inflation, growth, and unemployment arising from uncertainties surrounding sovereign turmoil in parts of the euro area, headwinds from fiscal policy, volatile commodity prices, and the housing market.”

And the authorities will need to retain flexibility to respond to shocks, the report added.

“If there is mounting evidence that weak demand is likely to cause the economy to stall and enter a period of prolonged low growth and subdued inflation, a significant loosening of macroeconomic policies will be required,” it said.

For British banks, a continued buildup of capital and liquidity buffers remains essential, the fund said. Needing to refinance a large amount of government support as well as private-sector debt over the next two years, banks will remain vulnerable to higher financing costs and disruptions in wholesale funding markets, it warned.

The high level of indebtedness of households and some companies aggravates these vulnerabilities. And weak home prices are likely to weigh on consumption going forward, the fund said, forecasting a reduction in the house price-to-income ratio of 12 percent over the medium term.

Article source: http://www.nytimes.com/2011/08/02/business/global/imf-backs-britains-recovery-efforts.html?partner=rss&emc=rss

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