The last few days have shown us that the Uk economy is generating a good number of private sector jobs. They also reveal that most of these go to a growing workforce, and do not go to those on unemployment benefit. It shows that the welfare reforms and the help with skills and training need to go further and faster to make an impact.
Inflation at 5.3% (RPI) is still squeezing real incomes and living standards hard. It is not surprising that recent shop sales figures are poor. Many people are finding it a struggle to pay for the petrol, the heating and the food after big price increases have gone through. The UK, China and Brazil all have similar inflation rates – 5.3% (RPI), 5.4% and 6.3% respectively. The response of the authorities is very different. The UK has an official interest rate of 0.5%, China 6.3% and Brazil 11.75%. In the faster growing countries they want a higher savings rate and fear the impact of rising prices on the public, so they are taking action to curb inflation.
Meanwhile the UK’s gross contribution to the EU, the amount we have to pay in tax or borrow, has shot up to £19.7 billion last year. Many of us would like to start the public spending cuts with that item.
On the other side of the world China announced that her foreign exchange reserves now exceed $3 trillion. Such has been her success at making and exporting, at building up a big balance of payments surplus. The good news is that China may now let her currency rise a bit more a bit faster, which will help manufacturers in the over borrowed large importers like the US and Uk to make more at home and export more to China. UK exports of goods are now more to the non EU than the EU, on top of the majority of our trade in services being outside the EU as it has been for many years.
The European Central Bank revealed that it is now the proud owner of Euro 77 billion of bonds. It has been active in buying up sovereign debt in the distressed parts of the Euro area to try to help out. With its assistance to Euro area banks as well, it is now highly leveraged with a portfolio of assets that reflect the realities of the current Euro area. It is strengthening its share capital, but from a low base. The new rules on capital and risk that apply to commercial banks do not of course apply to Central banks.
It is taking a long time to sort out the huge imbalances around the world. China needs to import more and save less. The US, UK, and the weaker parts of Euroland need to export more and borrow less. It is taking a long time to get these countries into a safer relationship one with another.