Shocked at the 5p Fuel cut?

Who could have predicted that?

As ever, the Government in their Spring Statement are happy to play the cynical nice guy, making a 5p cut in Fuel tax which actually still leaves them raising taxes over what they expected this year. 

Together with the very high levels of inflation, at over 6% now and heading for 10% as we can all see, is also the rise in NI to pay for the social care fund. yes, a small adjustment to NI thresholds will help the lower paid. 

But overall, this is a high level of financial repression. Let's not mess about, we are here at the start of the recession today. Never has there been this level of energy costs across the world without causing a recession, and that is before we factor in the cost of food thanks to the war in Ukraine too. 

Yes the government is worried about paying for the (ongoing) pandemic, but to raise tax and interest rates in the face of rapidly collapsing demand and confidence is idiocy. You can't tax your way out of this hole. the better strategy to to engender growth a bit faster than planned, with a more conducive environment for business. Unfortunately, the Tories are very lost here, we have high levels of business taxes, unreformed rates and constantly rising personal taxes. Mr Laffer has been long ago executed.

Rishi Sunak will regret this statement at leisure, it will be the thing that kills the Tory chances for an election or two. The fact they won't feel that today is ironic, the blows will come with the economic headwinds later in the year. 

UK growth at 7.5% in 2021

Despite what  the headlines will try to say, the economic growth last year merely puts the UK on par with most other Western Countries post-pandemic. 

The UK had the highest fall in GDP and productivity given we were hit hard like Italy with the first wave of Covid. 

Since then, the successful vaccine roll-out and some spirited determination to live with the virus rather than have constant lockdowns, has allowed the UK to play catch-up. Meanwhile, France and Germany have had a harder time with the later waves and so have not seen their economies re-bound as strongly. 

Germany in particular is in a challenging position. It's main export market for manufacture is China and its main energy supplier is Russia. This is not a good geo-political place to be and there is no easy way out of this for Germany politically or economically. 

Still, that the UK has recovered to near par is a good thing. However, the extra NHS spending, endless tax rises and interest rate rises are going to bake in a nasty downturn at some point, it is quite a way down from such high levels of growth but stagflation beckons for at least a year or two. 

An alternative to lockdown strategy for 2021

The current lockdown strategy in the UK is not working and leaves me enervated. The virus has become more widespread than before it started a month ago, lots of places that were Tier 1 before lockdown are now in tier 2 or 3. 

There is no acknowledgement of this in Government, becuase there is no acknowledgement of this from their scientific advisers. The advisers are obsessed with their forecasting, which has been both broadly right and specifically wrong for the entirety of pandemic. I am tempted to almost to say I have had enough of experts...

Worse, there is not real calculation of the real hrm being done by cancelling other types of care and impoverishing millions through killing jobs. Any work done on this has been buried deep under Whitehall. 

In general, I am supporitive of the Government, the crisis awful to deal with and has hit a cold Europe very hard, even Germany is more or less at the same levels as the UK now - Italy, Spain and France too, if not relatively worse. There are no easy answers. 

However, for me it is time to try something new in the new year. Free everyone, restore liberty to travel and work to most. But, make the wearing of masks and even gloves more or less compulsory. no bleating about asthama or some other excuse. Just behave in public, full social distancing too of course. Shops caught not enforcing can be find as can any other service, public or private. 

Yes, the draconian enforcement is still a breach of habeas corpus, but there is a virus to defeat for antoehr six months. The up side is a recovering economy, the only places to keep closed in bad areas are pubs and nightclubs - no compliance from drunk people is to be expected. The rest of life can continue in a freer way. 

Labour suggest furlough replacement and to fight the last war, again

Quite interesting to read the news out today and the predictably stupid and vain responses from MP's. 

The news I refer too is the predictions for half a million jobs ro so to go this quarter as the furlough scheme ends. Labour of course want the scheme extended and improve upon - with more free money to pretend to keep people employed and also permanent schemes to help sectors of the economy that need it, in their view.

The Government too has its kickstarter scheme and some others, but in the round is interfering a bit less and looking at the costs a bit more. 

The Government is better here, although now is probably the time to look at the benefits system in the round and move to something more on the Swiss model. In Switzerland the Government pay you for up to a year after redundancy 80% of your wages until you find a new job - very generous indeed.

In the UK this could be a lower amount but with a credit towards re-training, which is desperately needed. 

Keir Starmer's usual vacuous soundbite is to help sectors that need support like retail and airlines. How is this of any use? We will need a lot less airline capacity for many years to come and already need far fewer shops than we used to. Plus retail is unskilled work anyway, those people in retail need some skills that maybe useful to help them earn a better living, otherwise they are going to be unemployed a long time.

Quite the worst thing to do at the moment is to try to resurrect the old economy. 10 years of cultural transformation has happened in 6 months. Offices won't be the same, working from home will be more normal and online purchasing even more of a trend. Plus staycations and home improvements. These changes are schumpeterian ones, the chaos of the recession and pandemic. Really they should be embraced to channel the changes we need into progress rather than fought against like the closure of the mining pits etc a generation ago that achieved nothing. 

Both left and right now agree with analysis that it would be have been better to close the pits and try to retrain everybody with genuine new skills rather than leave them to fester in long-term unemployment. 

So maybe let's not do that again, for example technology means we need less retail workers but far more logistics workers, why not prepare the workforce for the economy now emerging rather than the one the sun has set on?

600,000 unemployed in UK since Corona but QE re-starts

Interesting week of economic news in the UK to round-up:

- The ONS estimates around 600,000 people have lost their jobs in the last 3 months, but that this total will continue to increase sharply as the furlough scheme rolls off. Equally, job creation still remains quite high and also will continue as new companies appear to replace those impacted by Covid-19.

- The Bank of England thinks the economy shrinking 20% in Q3 is a good result as it had feared a 27% fall - however, it and the ONS estimates are very shaky for huge sectors of the economy like Travel and Leisure.

- The Bank of England also has put another £100 billion of quantitative easing into the economy. This will be huge boost to money supply which was lacking as demand fell away so much across the economy.

The big impact is that this money, together with the Federal Reserve, has succeeded where they failed in 2008. We had a 25% sell-off but the bounce back, supported by the Central Banks, has been impressive considering the circumstances. To me still it is only putting off the inevitable and cushioning the blow. However, that may in itself help to temper the worst of the recession. Funds and Asset Managers still have a 'risk-on' mindset.

I still think we are in for a choppy few months and an eventual nasty crash, but with the huge pump priming of the money markets, asset prices will hold up as those lucky recipients of free money it swap it for real assets.

What is the City doing whilst the the politiciams blunder?

I have been amazed this week as the sheer level of stupidity shown by some commentators on the left. Bad enough that they have long flung around phrases like 'Disaster Capitalism' - which can mean anything but overall just is a slang way of saying capitlists = bad people.


But in recent days they have cottoned on to the concept that hedge funds might short positions that will be at risk in a hard Brexit. Obvious things like shorting the Pound or backing the FTSE to fall. This is not evil and it is not willing a hard brexit - it is gambling their hunch will pay off in that scenario. Plus of course, another fund or investor is on the other side of the trade betting the exact opposite. Both won't be right and one will win and one will lose - there is literally no political element to this. So the Angela Eagle level conspiracy is jus the most baseless and ignorant nonsense possible.....and the remainers say the leavers are the uneducated and stupid ones.


Additionally, after ND added in his tuppence yesterday on the Energy market, I thought I would add in a summary of anecdata taken from many of my recent meetings in the City and West End.


The property market is in a bind, the resi market is vey weak at the top end and has been since the stamp duty rises of 2015. Many units in central London are coming to market with very few buyers, but also not yet the huge drops in price that would stimulate real demand - the issue being the cost of building was likely above the now demanded sale price - so profit warnings ahead for these developers. Luckily for the UK economy, most of those parted with their money for these developments are wealthy foreign wealth funds or high net worth families who eventually can and will take the losses. However, as with all markets, construction has dropped off in response so now with much reduced supply pipeline as compared to recent years it is likely that the market will start to move up again in the next few months and years - Brexit or not.


In the commercial market, there is a good reminder that Brexit is not everything. A wave of money rushed our of Hong Kong as problems there meant capital fled to traditional safe haves - even French Chateau's have been selling. There are a plethora of fund launches into fine wines and art - things that Asian investors are often very keen on, despite the risks. Money flows are also helped by Sterling weakness as assets are cheap. however, commercial markets are very toppy price wise and a sharp drop is expected- perhaps the Sterling fall means in reality this has already hit, but us domestics don't see it!


With cheap assets comes deals, so lawyers and bankers are busy. Cheap interest rates mean firms can refinance and high levels of foreign investment means lawyers and investment bankers have deals to do. There are not may quiet offices in the City with people panicking over Brexit. They just want it done one way or other (revoke very popular as ever). one area of worry is that Luxembourg will eat the market share of European funds work as London and the Crown dependencies struggle with uncertatinty.


So, against the usual talking down of everything thanks to our universally useless political class, the economy seems OK. Which is why is it not surprising to see high employment and wage growth against this background. What is different I outside of services, where manufacturing has had to stockpile and hoard resources due to the uncertainty and construction is weak, as per above. Overall I think IF we can either Brexit or not and reduce the uncertainty we may even pull off avoiding a recession for another year or two yet, driven by the continued funnel of Foreign Direct Investment into the economy.

Homebase goes for £1

That is quite a hit, an Australian outfit called Westfarmers buys the place for £340 million two years ago and has now sold it for £1 to Hilco - a group of retail turn-around experts, who can actually turn things around. The total write-down for Westfarmers on the whole farrago is £454 million, so more than the cost of acquisition. Ouch!


So why did it go so wrong for Westfarmers...


1) Business Rates - these are simply rising too quickly on larger premises for either landlords or tenants to maintain margins . Retail operates at 3-5% margin and |Rates are often increasing over this which is pushing up rents, even as occupancy falls across the UK retail space.


2) Amazon - Continues to eat everything that moves, it has lower rates and higher volumes, it is happily eating the whole high street and out of town sector.


3) Housing - UK disposable income has been very tight and doing up your garden or bathroom is only very occasionally a necessity so DIY has had a hard time of it. For the benefit of the nation , it is a long time since all TV was wall to wall property shows.


4) They sacked the management on acquisition and tried to make it like the Australian Bunnings business which put Homebase - aimed at DIY enthusiasts - into a place where instead they had more limited ranges to compete with Wickes. Thus instead of moving the market, they destroyed their margins and business.


I am pretty confident of a turnaround that will save more than 50% of the business.


The usual Company Voluntary Agreement will paste the landlords and deal with point 1. Point 2 is horrid, Point 3 may turn in due course and is about market dynamics (non-food is declining for now) and Point 4 is where the action is and something can be done.


So Hilco have a shot at recovering the business, but the loss of £20 million a month means there is significant risk of closure to much of the business.

UK Inflation falls again

Back down to 2.5% today.


I wrote last week of the challenge the Bank of England will have in normalising the economy and this is yet another example of this trend.


Historically, to maintain a 2.5% inflation rate you would have expected interest rates to be at around 4% to 5%. But now, after the financial crash, this just is not the case. Debt loads, both public and private are much higher (excluding the Banks whose balance sheets are around 50% smaller). This higher debt load means we are far more sensitive to interest rate changes than pre-2008.


The oft use quote is "this time its different" - but in many ways this time it really is, the macro-economy seems very resilient inspite of the underlying monetary failure of the State. Unemployment is very low by any historical standard, inflation  - even including house prices - remains low. The Government is glacially eating into the deficit. Even the Pound has recovered, which is a shame in many ways as it was such a boost to the sluggish economy of 2017. Abroad the Trump stimulus will help the US a while and the EU is climbing out of its decade long crash - albeit with some major challenges ahead in Countries like Italy that avoided fixing the banking systems.


As a backgound the, how can the Bank of England continue to raise rates in anything other than a tiny and anemic way? Also, more worryingly, is should anything go wrong with the current goldilocks scenario we are facing prolonged deflation with very few tools left to counter it.


Amazing really the Government, for all its evident crapness of people and policy, has still managed to oversee a good economy amongst the madness its manifest failings elsewhere.

Upbeat news - UK productivity growth...unless you read the FT

If you want to read good news stories, check this out in the Financial Times.


Even by the standards of the #despitebrexit media this is a masterpiece. In what is quite a long and intelligent article they managed to get over the good news very quickly. In fact, they managed it in five lines before devoting the next eleven paragraphs to why in fact, everything was indeed terrible and we are all doomed, doomed I tell ya...


I have not been a fan of productivity as the obsessive measurement of it in my own industry leaves much to be desired. From obsessions with productivity come ideas like presenteesim in the office and other pointless paraphernalia of modern working life.


However, for the UK macro there are a few of truth bullets which really paint the picture:


1. The decline of the North Sea production and the easy productivity that went with it (a few people on rigs churning up billions of pounds per quarter) has been disastrous for the UK. This alone accounts for a huge chunk of the measured drop in productivity.


2. There is little retrospection in these numbers, so Financial Services are now way more unproductive than they were 10 years ago for worker output. But, um, most of the output was bullshit and the country had a huge recession, so were the original productivity measures also rubbish - almost certainly yes.


3. Mass immigration and an abundance of low wage labour has kept investment down and wages low. As a huge bonus to this we have had a cheaper cost of living and near deflation in many parts of the economy as well as near full employment - even with the immigration wave. Sadly, all this hugely lowers productivity - why invest in machines when there are people who will do the work for less.




I note the FT lightly touches on the 3rd point but only in passing and dismissively - whilst selectively quoting economists who agree with it and generally hand-wringing. Instead the above tells me we should not overly worry about productivity - the measurement is wrong, its a crap predictor and we cant do much about it anyway, so why worry.

UK Industrial Strategy - Productivity the non-problem

I have finally read some of the UK Government's much heralded industrial strategy. Which is interesting in that there is not much about Industry in it nor does it amount to much of a strategy.


There is much clamour in the Media and from Left-Wing politicians for a strategy, but this long and well-researched report just goes to show how little the Government can really do - it certainly can't pick winners. Just look at the results of hundreds of millions spent on Graphene over 10 years plus - patchy would be to over-state things and now China as ever has stepped up to the plate.


It is not that the Government cannot pave the way with seed money, it is that Government cannot oversee the development of private industry - this has been proven again and again.

So, as the Government sort of recognises this, the main thrust of the strategy is to improve education and infrastructure to enable growth by the Private sector, together with tax breaks to increase R&D.


This is more sensible and harder to disagree with, but it does mean that the Industrial Strategy has 1/3rd of its budget of £3 billion allocated to house-building. Which feels a bit odd overall even if that is a reasonable logical conclusion.


However, the big elephant in the room for me is productivity and its relationship to immigration. I have never agreed with this as a measure since I studied economics at post-graduate level. France is more productive than the UK because people officially work less hours and unemployment is higher. If we fired 5% of people from their UK jobs then our productivity would match that of France! It is a crazy and out of date measure which takes no account of technology impacts nor modern working patterns (such as longer-hours of unpaid work). It is an OK measure when most people work in factories in fixed settings with fixed inputs and hours spent at work, in a post-industrial society it has little meaning.


It is a bizarre thing to measure input times output divided by GDP and I note in the whole document the Government who use the word liberally, don't find space for a definition of productivity. A much superior measurement would be company revenues per employee over the quarter and years - company revenues vs employee numbers give a much better reflection of improvements made. Worrying about the capital investment or hours worked is too detailed to be captured properly and leads to a meaningless figure. The company I work for employs around 10% more people than 10 years ago and yet has revenues 50% higher which is what matters overall - the fact we all work longer hours without overtime is irrelevant to the economy as a whole.


For the UK the currently defined productivity measure is doubly bad for two main reasons - firstly immigration really skews the stats as first generation immigrants lacking language and social skills (for their new market) take-up low wage jobs and encourage their creation (e.g. hand car washes). Secondly, the vast public sector has no revenue increase incentive, as such productivity gains are not only hard to make but rarely even tried given there is no incentive with their cash accounting system; or if they tried are often involve huge, unwieldy IT systems upgrades. As such, UK productivity is always going to be weak whilst immigration is high and the state owns a high GDP share of the economy. Much better to not be seduced by this economist's enigma.

Minimal Brexit economic impact...will it last?

Coming as no surprise to readers here, Brexit has yet to have any meaningful impact on the economy.


There was a 2 week heart attack in June/July after the scaremongering panicked everybody on the result. However, since then we have seen retail sales are up, inflation up slightly, a weakened pound has powered tourism and employment has continued to slightly fall. The FTSE is hugely up for good measure.


However, much as it is fun to point at the increasingly more desperate remainiacs and their howls of outrage, we won't really see the impact over the short-term. When article 50 is enacted, when the fate of EEA or not is decided, then bigger decisions about UK investment will be made. Of course, in the meantime things carry on and in and of itself this will protect the UK against the longer term threats. Companies already here are going to get stickier as time progresses and they see the effects of Brexit taking years or decades.


So perhaps Remain are right, 6% less GDP potential by 2030, I cant see how that will ever really be noticed.


As a bet, I can see growth for the 3rd quarter coming in at 0.5% or better, when the doomsaying remainiacs are saying it is nailed on shrinking and recession.

Fox will go Tuesday, then who and then what?

Tory Leadership elections are quite something. Labour really could learn a lot from their opponents..as could UKIP!


By teatime tomorrow the Tory field will be down to 4 already, May, Leadsom, Crab and Gove.


Given that Crabb is not really in it the race at all, then it is the 3. By Tuesday next week then we will have the final two and the vote for the party will be being arranged.


I find it hard to see beyond Teresa May who personally I would not go for. After the Brexit vote, strong Brexit leadership is called for. If we want a remainiac, we could have just stuck with Cameron.


Still, I don't get a vote these days so my tuppence is not worth even that.


Of more interest this week and far, far more importance is:


1) Will the markets and Sterling settle down at last?
2) Will all the deals and IPO's put on hold start to come back at all?
3) Will big ticket retail spending come back?


I certainly don't expect all 3 to happen, but the latter could turn around quite quickly and the first of those should be the case. They key is point 2 - that alone is a big weakening of the economy and it has to be reasoned that the suspensions will continue as it is the middle of the summer anyway and decision-makers who are not already on Ramadan will be off to St Kitts anyway in a few days.

Not shaping up as the best year

Businesses go bust all the time. It is the way of Capitalism and overall is a force for the good. Rubbish is cleared away and shiny, new and hopefully more efficient beasts are freed to emerge.


More likely, old and knackered companies are taken out where the new ones have already won the field.


BHS going into administration is the latest such event. Online retailing and a changing high street (seriously, youngsters die for iphones and wifi, they have few material needs beyond this that I can see apart from cheap fashion) mix have done for a format that was all things to all men circa 1995.


It is said a buyer will be sought, but they have already tried that and Dominic Chappell did not really have any answers to the business model, just attempted financial engineering.


So the shops will be sold piecemeal and BHS will be gone with Woolworths. Of course, there is the Tata steel issue too, where doey-eyed management is trying to get the Government onside with a sizeable bale out. No such thing is required, there is plenty of steel in the world and plenty for the future. It is not like the iron ore is from the UK so it is hard to make this a 'national security' issue.


But taken together these two sad stories do not do much to show the country is robust health. The high street continues its long term re-arrangement but does the online world generate the jobs and economy of the pre-online high street. If not, what are we to do to cover the gap? In steel we cannot compete with China's over-investment - same as in ship-building previously. Again, what can be done.


Currently unemployment is low in the UK, but for how long if the economy remains uncompetitive and based on a zero interest rate policy. The UK should make it through this bumpy period post the referendum, but it is a sign perhaps that resilience has its limits.

UK 80% services and rising..

In the light of the Port Talbot mess, we find today that Services as a percentage of the UK economy has reached 80%.


We really are officially post-industrial now, which is amazing when you consider in the long scheme of history we only really just invented the industrial revolution and have given up on it already. Who would have thought even 30 years ago that the economy would turn out like this.


Indeed, shuffling bits of paper IS our economy.


I am reminded of the quote from the now defunct Xerox where an ex-CEO said:


"The definition of middle management is sending half-finished documents via email to each other, forever" or something like that.


But this is now officially the UK. Crazy policies around energy costs and farming subsidies/non-subsidies as well as Marxist unions and the drive of globalisation have ended our role as providers of real products.


There is much to be said for an Intellectual Property led economy and creatively led economy. On the other hand, as we are rapidly discovering, there are far more losers than winners in the new economy.


Non high value services, retail, leisure, packaging etc are all minimum wage stuff. High value lawyering and accounting etc is very well paid.


Losing manufacturing, inevitable as it may seem, will lead to a much worse division incomes overtime. How Governments deal with this will be very interesting in the next 20 years or so.

Is the economic boom ending?

It always had to happen, as it always does. Normally the UK has operated on a 7 year economic cycle from boom to bust since the second world war, with a year or two's grace at either end. Of course, with the huge crash of 2008 (coming seven years after the dotcom bubble burst in 2001 when there was a recession in a few key areas of the economy, now overlooked), we would expect the resulting recovery to have a bit more legs left in it.

Certainly, a fall in input prices of oil and commodities should be very stimulative to the overall global GDP. But the World Bank has been cutting its forecasts. Post 2008 the main global growth engine was China which is now rapidly slowing down.

Closer to home, with debt levels still very high in both the public and private sector in the UK, there is no more room to stimulate demand. Housing supply shortages also drain money from more useful economic activity to pay rents instead. The biggest dove in the Bank of England is forecasting a reduction in UK economic activity

My own direct experience of the market at the moment is seeing management start to discuss the next downturn - be it one year or two years away. Certainly, when this happens in the past my experience is that it comes quicker than we think.

Having said that, in 2011 in the Euro Crisis the UK managed to avoid recession in the face of a calamitous external event and a big jump in Sterling. So, the die is not yet cast and perhaps a very shallow drop-off is on the cards for the UK, even if the likes of China and Brazil fair worse.

One thing I can't see though is how the UK will avoid a significant economic slow down before the next election; perhaps a window will open for Mr Corbyn after all? The state of the UK public finance is poor when faced with a renewed global slowdown.

A feel good factor for the UK but not the Government

Good news on both unemployment today for the UK and also for wages.

For the first time in 5 years, wages have grown above inflation - albeit almost imperceptibly.

Another 155,000 jobs have been created too and the stark reality is that most jobs created in the past year are in the professional services and business services sector, with science and engineering close behind. These are no Mcjobs, much to the dismay of the Labour party peddling the self-employed and part-time worker mantra.

SO, when will this good news feed through to the benefit of the Government? It won't do necessarily of course, we saw in 1997 that a strong Tory growth economy did not matter - 18 years of the same Government were enough along with Tony Blair's schtick.

But really, in 2014, it is quite surprising that the Government is not ahead in the polls against such weak opposition. For the many faults, if this was an appraisal you'd be quite encouraged at the progress made, even if you thought things could be better.

So what will it take? It is hard to know, after all the macro picture is deteriorating for next year so things are unlikely to get better and those promised tax cuts are out of the question really...we will find out in the Half year budget statement shortly.

CBI demand ever more subsidy for Business

Now as a Capitalist site, you may be surprised about what you read below, thinking we would always back the CBI.

But you would be wrong. The CBI is a useless institution - cheerleaders for corrupt corporatism rather than capitalism. Ably demonstrated by their insane demand that we sign up to more Europe rather than have a referendum or leave the broken project.

Today, in this traditional manner, they are demanding that the Government offer free childcare to working mothers and take more people out of tax, whilst raising the threshold of National Insurance tax so as to remove more people from tax.

All the while of course, the Government deficit of £100 billion a year needs to be tackled

All this because average families are struggling as businesses hold down wages. But surely with inflation at only 1%, wages cannot have fallen too much.

Sadly, as we know, inflation is not 1%. House price inflation, which drives rents, has been over 5% a year. Energy price inflation, once you include Green Taxes to pay for our wayward energy policy, is also around 5% a year.

So no wonder people are struggling. However, for companies to demand more Government assistance to help with low pay is to completely miss the point. The economy is not struggling because mums are not going back to work quick enough - a Dickensian approach to the world anyway, to be expected of the Bosses Lobbyist perhaps.

The economy is struggling as a low inflation wage environment is matched to a mis-matched supply of key resources such as property and energy. If these costs could be lowered, people would have better standards of living and they would also have more disposable income.

To suggest more subsidy for jobs when one of the main drivers of the deficit is exactly the tax credits issue which is already a huge subsidy for jobs is to pile insanity onto recklessness.

Still, a good rule of thumb, if the CBI are saying something needs to be done and this is a good idea, then you know they have it all wrong.

Is Housing the biggest risk to the UK economy- no, here are 5 bigger risks

This is what the Bank of England say. here are 5 much bigger risks though:

1. FRANCE - The Country is on its knees and led by a completely ineffectual left-wing Government. At the rate of decline it is experiencing France is going o drag the Eurozone back into a crisis.

2. EUROZONE - This has never gone away as an issue, the currency will not in the long-term work out for the Southern European states. We are only ever a quarter or two away from a renewed crisis.

3. SCOTTISH Referendum - If the Scots vote yes there will definitely be a run on the markets and a big hit to economic confidence for a few years.

4. CHINA - There is a huge debt bubble in China, no idea when it is going to break, but surely it will, if China catches a cold, we will get pneumonia.

5. IRAQ - A further escalation in Iraq, which may include fighting South of Baghdad would see a big jump in oil prices- oil prices over $120 have always caused a recession in the West - 100% of the time.

Over-heating UK economy?

Now this may feel a little premature, but with the OECD announcing yesterday that the UK is expanding fastest amongst the major Western economies, is there a chance that we could over-heat too quickly?

Rather like the now nicknamed Walkie Scorchie building in London, the new is not always without teasing problems. Indeed, the building is a metaphor for the wider economy too. On the dust if the financial crisis a new boom has begun. That of London property. Yields are plummeting and prices rocketing as investors from all over the world seek "London Gold".

Last week a banker who is well placed to know, suggested to me that nearly 1/3rd of the world's movable wealth was either being managed in London or looking to be invested here. The new boom has carry over effects as the prime parts of the City have short supply, slowly outer areas of the City are gaining investment.

Another huge benefit for the Banks comes in the form of their over-weight property lending portfolio's, as prices improve these become less toxic, profitable even and the banks' financial worries go away. Indeed a big chunk of the new lending by banks is on property; traditional corporates shy away from debt and with property lending comes an asset that can be held as security. Banks love it again.

All of the above is good news and is praised by the Government as the end of the long recession. However, its birth is inspired too by Government programmes of keeping interest rates artificially low, printing money and the 'Help to Buy' scheme that will see Government invest with people in residential property too.

Does anybody else see a problem with all this? Anybody else reminded of the craziness of the early 2000's as the recipe is the same. A positive now is that overseas equity is investing rather than our own bank's debt at huge leverage, meaning the bust will be less painful for UK Government and people - but bust there will be.

This is no way to run an economy either or ti try to re-balance. A much better bet would be huge investment via tax breaks into the North Sea and Shale exploration. Cheap energy would help non-service industry and lower inflation. Interest rates need to rise, very, very slowly, but rise they should to more normal levels to curb the housing bubble. The Government has no business in Help to Buy and this policy should be scrapped in the face of a recovered housing market.

The party has begun, its nearly time to take away the punch bowl before it gets out of control again. 

How much longer for the property bubble?

The news that Ping An, a Chinese Insurance, has bought the Lloyds of London building is interesting in that it may prove a turning point of sorts.

The London commercial and residential markets for property have been going at a fair clip this past 2 years, although not without their failures along the way. Minerva plc, now defunct, built a lovely huge office space right opposite Cannon Street which is has managed not to let for 3 years now - quite some feat for an investment of that size in such a prime area. In the property market, as much as the prices in London continue to rocket upwards, they were not enough to save the bad buys of projects such as Chelsea Barracks which has been put on hold.


Nonetheless, with low interest rates and good property rights in the UK, a bonanza has generally been underway. How long can it last though. The obvious point is that the rise in interest rates will kill-off the huge speculative buys. But if new, wealthy players like Ping An are still entering the market then it will support prices for some time yet. This deal for Lime Street is quite a good one too, the rent should mean a yield of over 5% at this price which is a good return on your money for long-term commercial letting, the German fund selling originally wanted more like £300 million, so a 10% discount was negotiated. So the property boom looks set to last a while yet and with the flow of work to support industries and boost to potential construction work, this will be a big factor in powering forward the economy for the next year or two at least.