11th December 2009

Little or nothing, far too late

Pre-Budget Report: the Overture. There was a brief shower of cold reality in the sunshine la-la land of the FTSE on Tuesday, when the market dropped 1.7%. For once, this was the right response to bad news. The foursome of Apocalyptic Horsemen was as follows:

* Tesco Plc, the world’s third-largest retailer, reported slowing sales growth that missed analysts’ estimates as food price inflation cooled. (Sir much for Terry Leahy's "we're out of the woods" bollocks.

* Retail sales increased at a slower annual pace in November as Britons curbed spending on food. (British Retail Consortium)

* Taxpayers are to insure more than 167 billion pounds of RBS sub-prime debt assets outside the U.K.

* U.K. manufacturing stalled in October, a sign the economy is struggling exit the longest recession our history.

Awaiting what the Chancellor might say the following lunchtime, Citigroup's head of interest rate strategy Mark Schofield told the FT:

'“The U.K.’s fundamentals are dismal, and don’t support the current Aaa rating. Only if some pretty draconian fiscal measures are in place will the U.K. keep hold of its rating.”

The PBR: The main Event. A clear enough warning from Schofield, you'd have thought: but nowhere near clear enough for the Muppets now driving strategy in Downing Street. As nby's dark gag showed, the loopy-loos did, effectively, nothing to stimulate growth or reduce debt. This PBR had Fondlebum's grubby fingerprints all over it.

In the main 2008 Budget Darling asserted the following:

1. Just look how absolutely ghastly things are everywhere else

2. Listen to all these top bananas who agree with us

3. Imagine how much better it's all going to get if you just leave us in charge

Eighteen months on, things are better almost everywhere else, none of the main economic data sources agree with Darling's forecasts, and leaving New Labour in charge has made things worse. (Forget whether it would've been even worse without the action they took: most of it was their fault anyway - and the promise was 'better', not 'nothing like as bad'). Doo-lally couldn't say any of those things this time. So he stood up for fifty minutes and said nothing.

But the numbers remain, and they can't be denied: New Labour is trying to, but the IMF doesn't do spin. In a nutshell, the growth forecasts and tax incomes were optimistic, the banking exposures ignored, the tax raised minute, the stimulation measures non-existent and many of the statistics used (as usual) doctored.

The likely aftermath. In the international community, it won't wash. Like it or not, many of those who judge prospects, collateral and credit-worthiness are still American. In the East, Britain is viewed increasingly as a decrepit, decadent nation deluded by the notion that the present is still the past. The Americans have aways seen any Labour Government as one step down from the Soviets; the Asians see us an irrelevance - and certainly not a good credit risk at the moment.

Time will tell what Moodys and S&P think, but my hunch is their opinion will be very negative. As for the IMF, they probably have this filed somewhere under1976 II: This time it's Disaster.

However, my money is still on a Sterling rise in the Spring, because every currency dealer in the world will feel - after today - that there is bound to be a Tory Government come May 2010. And once they're in and taking some real action (speculators will figure) the Pound will rise. Further, by then I'm sure the true fiscal disaster that is the EU will have come to light.

But that's the short-term. Just look at some of those projections moving out beyond 2012: they describe a nation paying for years of excess in the most appalling ways. And they confirm what nby has been saying since 2006: the NHS, aged care, policing, unemployment benefit, education and economic output will all change in ways most people have never imagined.

I still have my bet with Paddy Power at 28-1 on a National Goverment before the end of 2012. In the College of New Labour Studies, Osborne screeched yesterday like the adolescent Fourth Former he is. But Vinny Cable was the Headmaster ordering a brace of detentions for the yobboes. I think my bet is a safe one.

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