Brexit…the UK view

At a conference in London, I listened to a Welsh member of the European Parliament’s statements on Brexit this afternoon.

A number of points are worth noting on this MEP’s remarks:

The first point is the intention that has already been stated elsewhere of standing against the whole world to make Brexit a success, and this triumph requires the support of the entire British population.

[Comment: no objections from the floor] Continue reading

The UK will have to agree to single market rules

Agreement on the Brexit “divorce bill” is very good news, involving the UK settling its outstanding commitments to the rest of Europe. Trade negotiations will now be able to start and they will not be straightforward, as Michel Barnier recently explained with the backing of the remaining EU 27. There will be no exceptions to the rule, the UK cannot have a tailor-made agreement, all sectors will be treated equally with no special allowances. Continue reading

On the BoE monetary policy

The Bank of England has increased its main rate by 25 basis points to 0.5%.

Two reasons to explain this movement

1 – The British economy has changed and its productivity trend is much lower now than before the crisis. This means that the risk of overheating is associated with a lower growth rate than before the crisis. Therefore the BoE has to move more rapidly than in the past, the equilibrium BoE interest rate is lower.
Nevertheless, if Brexit is a source of weakness according to the BoE it is not a source of rupture (this can be discussed). The economic scenario of the BoE is quite optimistic as it suggests that productivity growth could improve converging to the momentum seen in other developed countries. Continue reading

Rapid growth in the Euro Area, troubles in Spain and the United Kingdom takes down

The economic prospects in the Euro Area are clearly on the upside in September. The synthetic index which is a weighted average of the manufacturing and services indices is at its highest since April 2011. This suggests a rapid growth figure for the second part of 2017.
The manufacturing index is at its highest since February 2011 and the index for services is close to top levels seen at he beginning of the year.
Growth and employment are on the upside. It’s time for the Euro Area to create conditions for a long term sustained growth strategy with structural reforms locally and for the European institutions
ze-2017-septembre-markit-pib

The graph compares the composite indices for the 4 major countries of the Euro Area plus the United Kingdom
The French economic momentum is now close and in phase with what is seen in Germany pushing the Euro Area dynamics on the upside. Spain remains a major contributor. It’s hard for Italy to follow the other 3 notably in the service sector.
The question of Spain is important: it has been a major contributor to the EA growth since 2014 but internal troubles after the referendum in Catalonia could create a less homogeneous trend in Spain and could damage the EA prospects. For the moment the uncertainty remains high.
The United Kingdom does not take advantage of the contagion that may come from the Euro Area. We see that since mid-2017 there is a divergence between the Euro Area and the UK. That’s Brexit uncertainty.

ea-2017-september-compositeindices

activity-ea-mar_25010139_239a40353d7aab901c846ae17d7a5618733aecad.png

Continue reading

Strikes in the UK – Just the beginning?

The strike in two McDonald outlets in the UK is interesting. The main reason is the lack of security associated with zero hour contracts and the low level of compensation.
It’s not a huge movement yet and McDonald headquarter said it is just 0.01% of their workforce in the UK who are on strike.
My guess is that this movement could rapidly grow in a near future. Continue reading

United Kingdom – The Debt to Income Ratio is now too High

In a recent post I was worried by the potential weakness of UK domestic demand after the fall of the real disposable income for three quarters in a row and by the downturn of the saving rate (see here). I also said in this post that consumer credit was growing too quickly. This post is a complement.
We can go further by looking at all the households’ financial liabilities.
The graph below shows the ratio of the households’ total liabilities to the disposable income. This ratio is now higher than the level that triggered the 2008 financial crisis.
uk-2017-q1-debttoincome-HH
When we go into details we see two divergent trajectories for  the debt and the  disposable income. These profiles are a source of constraints for households.  Debt is growing too fast and a rebound in disposable income is necessary to avoid a further weakness first on consumption and after on real estate.
uk-2017-q1-debt-income-HH-change