Home » Economy
Category Archives: Economy
Hung parliament following the 2015 general election ‘would hurt economy’ | #UK #HungParliament #economy
Item Club warns growth and business investment may be squeezed as businesses are nervous over political uncertainty.
The Item Club predicts that business investment growth will slow sharply next year, from 9% in 2014 to 5.8% in 2015. Photograph: Paul Rapson/Alamy
Graeme Wearden reporting,
Britain’s economy could suffer a “huge uncertainty shock” if next year’s general election delivers a hung parliament, a leading economic forecaster warns.
The prospect of no clear winner when Britain heads to the polling booths in May is already pushing down next year’s growth and business investment predictions, according to the EY Item Club’s autumn forecast. It also cites the weakening eurozone economy and geopolitical tensions, including the Ukraine crisis, as threats that are making businesses nervous.
The Item Club predicts that business investment growth will slow sharply next year, from 9% in 2014 to 5.8% in 2015. That will hamper economic growth, tipped to fall from 3.1% this year to 2.4% in 2015.
The warning comes as new economic data are due that will probably show the British recovery slowed down between July and September.
Peter Spencer, chief economic adviser to the EY Item Club, believes that, with polls showing next year’s election is hard to call, the uncertainty and nervousness in the financial markets around the election will be much greater than in 2010.
“This makes it very difficult for anyone engaged in business planning to manage a company through this uncertainty,” he said. “I don’t think we would have had this conversation in 1997. The gulf between the parties this time is enormous.”
Businesses are also worried by the prospect of a referendum over Britain’s membership of the European Union, Spencer said.
“The comparative advantage we offer foreign investors is dependent on the fact we are a haven of political stability, and our proximity to Europe. If both of those are brought into question, what happens to the likes of Nissan and Toyota, or financial services firms in the City?”
Spencer pointed out that Germany’s industrial productivity and exports had fallen sharply in August, as the Ukraine crisis and eurozone fears had risen. “A huge uncertainty shock is really hammering Germany’s economy now,” he said, illustrating the dangers facing Britain. “It is a very good example of what can happen if businesses get clutched by this sort of risk.”
The UK economy is also a long way from regaining its full potential following the financial crisis, he added.
The EY Item Club, which uses the Treasury’s model of the UK economy, flagged up that exporters are suffering from the stalling European recovery and the fall in the value of the euro.
HM Treasury agreed that the eurozone area, Britain’s largest trade partner, is a “growing risk”, saying: “We have to recognise that the UK is not immune to these problems, which is why we will continue working through the plan that is building a resilient economy.”
Data due on Friday will show how the UK economy performed in the third quarter of 2014. Economists predict that GDP increased by 0.7% in the quarter, a slowdown compared with 0.9% between April and June.
Howard Archer of IHS Global Insight said there was a risk that growth could be weaker, given “limited industrial production and the very real possibility that construction output contracted”.
The retail industry is also struggling. Footfall across UK high streets, out of town retail parks and shopping centres around the UK was down by 0.9% year-on-year in September, according to figures from Springboard, after a 1.1% fall in August.
NEW DELHI (AP) — India’s benchmark inflation rate fell to a five year low of 2.4 percent in September as food and vegetable prices dropped, the Commerce Ministry said Tuesday.
Wholesale price inflation was 3.7 percent in August and 7.1 percent in September last year.
India has suffered chronically high inflation. But the lower level of price increases, if sustained, could pave the way for the central bank to cut interest rates next year to boost economic growth.
The Commerce Ministry data released on Tuesday said the index for the food articles group declined by 1.4 percent due to lower prices for tea, fruits and vegetables, maize, poultry chicken and fish.
India’s recently established retail inflation index rose 6.5 percent in September, its slowest increase on record.
HSBC said in a report that the sharp deceleration in food inflation even with a weak start to monsoons this year showed that Indian government’s efforts, which included close monitoring of wholesale markets and supplementing local supply with imports, had helped contain price pressures.
“Apart from food, softer commodity prices and stable exchange rates have dampened fuel inflation. In addition, tight monetary and fiscal policy conditions have also contributed to the disinflation,” the statement said.
LONDON (AP) — U.K. authorities say inflation fell to its lowest point in five years, dropping to 1.2 percent in September as shoppers benefited from a supermarket price war and lower petrol prices.
The Office of National Statistics said Tuesday the rate dropped 0.3 percent, down from 1.5 percent in August. Food and nonalcoholic beverages fell by 1.4 percent year-on-year, the sharpest decline since June 2002.
The report will further ease pressure on the Bank of England to raise interest rates. The bank’s inflation target is 2 percent — and it’s been below this level for nine months.
Chris Williamson, the chief economist of Markit, says the benign outlook “could even add to calls for policymakers to do more to shore up the recovery amid signs that growth could fade in coming months.”
In this photo taken on Wednesday, Oct. 1, 2014, people walk past photos of shoppers on O’Connell Street, Dublin, Ireland. The Irish Central Bank has sharply raised its economic outlook for Ireland but cautioned the government not to soften austerity plans in this month’s budget, the first to be unveiled since the country’s exit from an international bailout. (AP Photo/Shawn Pogatchnik)
Shawn Pogatchnik reporting,
DUBLIN (AP) — The age of austerity is ending in Ireland after six years of grueling tax hikes and spending cuts.
Finance Minister Michael Noonan and Public Expenditure Minister Brendan Howlin are unveiling a 2015 budget Tuesday expected to contain around 1 billion euros ($1.3 billion) in income tax breaks and spending increases, ending a seven-budget run that slashed 30 billion euros from the economy.
The move follows Ireland’s 2013 exit from an international bailout and unexpectedly strong economic growth this year driven by robust exports to Britain and the United States. This has made it much easier for Ireland to meet its deficit-reduction targets without more cutting.
It has been a stunning turnaround for Ireland, which in 2010 teetered on the brink of national bankruptcy after being overwhelmed by the cost of rescuing its banks. At the start of this year, Ireland remained committed to a European-International Monetary Fund plan that foresaw a further 2 billion-euro ($2.6 billion) dose of austerity in 2015, but Tuesday’s budget represents a decisive break from that outdated blueprint.
“The budget today is the first one that I will be able to present that will not be reducing expenditure, so that is a milestone,” Howlin said.
In this picture taken on Monday, Oct. 6, 2014, Dublin’s colonnaded General Post Office is seen, left, a national monument to Ireland’s independence fight. The Irish nationalist Sinn Fein party is seeking to triumph in Ireland’s next elections expected in 2016, the 100th anniversary of an Easter Rising against British rule that rebel commanders directed from the post office. A new poll has made Sinn Fein as popular as the main Irish government party for the first time. (AP Photo/Shawn Pogatchnik)
“All the hard work and sacrifice of the Irish people was for an objective, and we really have reached that objective today,” he told reporters before Tuesday’s Cabinet meeting to approve the budget. “But this is the start of recovery. We have to lay out, in the specific measures today, a budget that will sustain recovery.”
Government leaders say Ireland should achieve a deficit target well below the EU limit of 3 percent of GDP in 2015 without net cuts. This would be the first time Ireland observes that ceiling since 2007.
Noonan also plans to announce reforms to controversial Irish corporate tax rules that allow U.S. multinationals to minimize taxes on overseas profits using a complex accounting maneuver called the “double Irish.” It exploits differences in U.S. and Irish tax law to permit a globally active company to use two Irish-registered companies — one of them located offshore — to bank its non-American, non-Irish profits without paying tax.
Noonan’s Finance Ministry said the loophole would be closed for new applicants in 2015 and for existing users by 2020.
Ireland, which hosts the European bases of hundreds of tech and pharmaceutical companies, has faced mounting criticism for its facilitation of global tax avoidance. The European Commission this year opened an investigation into alleged abuse of the “double Irish” by Apple, which in the 1990s and 2000s reported much of its non-U.S. profit through Irish subsidiaries.
House prices to rise by 40% over five years.
Neil Vowles reporting,
House prices in Brighton and Hove will skyrocket by more than 40% over the next five years, according to a new report.
The cost of buying a home in the city is set to rise higher than anywhere else in the country according to the newly published report by property website Rightmove and financial forecasters Oxford Economics.
Brighton and Hove’s close proximity to London, which makes the city an attractive commuter destination, is considered the major factor which will see the housing market continue to flourish.
Local estate agents have described the prediction as “bold” and raised concerns about the impact on first-time buyers’ ability to get on the housing ladder without the “bank of mum and dad”.
The report says that Brighton and Hove’s property will outperform both London, predicted to rise by 33%, and the South East region in general which is calculated to increase by 37%, to join Luton and Southampton as the fastest growing markets up to 2019.
Employment rates and population growth are also considered to be major factors in Brighton and Hove’s soaring house prices in the forecast. The research is based on asking and sold prices, surveyor valuations and analytics from the Oxford Economics’ Global, Industry and Regional forecasting models.
Paul Taggart, associate director of Hamptons International in Hove, said: “It’s very difficult to predict but 40% is a very bold prediction. At the moment the housing market has gone up 8-10% this year so what happens to affordability and how do people get on the property ladder if that rise continues?”
Steve Cales, of Portslade estate agents Cales and Co, said: “I think it’s foolhardy to predict so far in advance because global events impact our domestic housing market in a way they never did before.
“It is widely anticipated that the historically low interest rates we have seen over the past five years will go up after the election and that has always impacted on the residential housing market.”