You realise times must be tough when you spot colleagues smoking electronic cigarettes at their desks.
I think most of us will be glad to see the back of 2012 … strip out the Olympics, the Jubilee and a couple of other golden moments and it feels like very little progress has been made over the past 12 months.
George Osborne was forced to share some harsh truths with us all when he presented his Autumn Statement last week: growth in Britain will be weaker than previously expected over the next five years, borrowing higher and austerity longer. The Chancellor admitted that he will almost certainly miss his own target of reducing national debt by 2015-16, raising the likelihood that Britain will be stripped of its treasured AAA credit rating in the near future.
AAA-rated sovereigns have become an increasingly exclusive club during the crisis, with the likes of the US and France suffering the indignity of a downgrade. While a downgrade for the UK would likely have little impact on Britain’s borrowing costs in the current climate, it would be a huge embarrassment for George, who, on taking office, said preservation of the country’s AAA status was one of his key priorities.
Economists I know are not feeling very optimistic about the general outlook and say the British economy is likely to get worse before it gets better. Poor trade and manufacturing data has raised the prospect of a triple dip recession, with a shrinking economy in both the final quarter of 2012 and first quarter of 2013 looking increasingly likely.
The Chancellor may have pulled a rabbit out of his hat with the appointment of Mark Carney as Sir Mervyn King’s successor as Governor of the Bank of England, but the Canadian is facing an extremely challenging inbox when he arrives. There was no extra stimulus from the Bank when it announced its final policy decision of 2012 last week, nor from the European Central Bank, but economists are not ruling out further action in early 2013.
In terms of commodities, gold has been weak of late but there could be some sharp moves next week if the US Federal Reserve opts for more stimulus. Most brokers think it’s unlikely but there is an outside chance after gloomy consumer confidence data on Friday. An increase in QE is not yet priced into the precious metal. Silver is another one to watch. My mining friends tell me that production growth has stalled because of weak zinc and lead prices. These other metals are mined alongside silver, so their value is important.
Away from metals, wheat looks as if it has priced itself out of farmers’ shopping bags. Traders I know tell me that wheat has become too expensive to use as feed for livestock – so we are looking at a corn substitution. This is likely to keep the price of corn buoyant, while wheat should slide as consumption falls.
That’s all for now, time for some Christmas shopping. Top of my list are growth, prosperity and low taxes … in other words a one way ticket out of the UK.
Only joking!
Until next time…
To give our clients a different and uniquely informed perspective on the financial markets, Capital Spreads introduces “The City Insider”, a fortnightly view from a City expert, with a senior network of influential bankers, investors, economists and analysts. The identity of the Insider is anonymous – and a closely guarded secret – in order to allow our expert to express forthright, personal views and to protect the identity of the City figures upon whose opinions the Insider draws.
by City Insider
UK’s AAA rating at risk as austerity digs deeper
Dec 15, 2012 at 6:17 pm in Market Commentary by City Insider
You realise times must be tough when you spot colleagues smoking electronic cigarettes at their desks.
I think most of us will be glad to see the back of 2012 … strip out the Olympics, the Jubilee and a couple of other golden moments and it feels like very little progress has been made over the past 12 months.
George Osborne was forced to share some harsh truths with us all when he presented his Autumn Statement last week: growth in Britain will be weaker than previously expected over the next five years, borrowing higher and austerity longer. The Chancellor admitted that he will almost certainly miss his own target of reducing national debt by 2015-16, raising the likelihood that Britain will be stripped of its treasured AAA credit rating in the near future.
AAA-rated sovereigns have become an increasingly exclusive club during the crisis, with the likes of the US and France suffering the indignity of a downgrade. While a downgrade for the UK would likely have little impact on Britain’s borrowing costs in the current climate, it would be a huge embarrassment for George, who, on taking office, said preservation of the country’s AAA status was one of his key priorities.
Economists I know are not feeling very optimistic about the general outlook and say the British economy is likely to get worse before it gets better. Poor trade and manufacturing data has raised the prospect of a triple dip recession, with a shrinking economy in both the final quarter of 2012 and first quarter of 2013 looking increasingly likely.
The Chancellor may have pulled a rabbit out of his hat with the appointment of Mark Carney as Sir Mervyn King’s successor as Governor of the Bank of England, but the Canadian is facing an extremely challenging inbox when he arrives. There was no extra stimulus from the Bank when it announced its final policy decision of 2012 last week, nor from the European Central Bank, but economists are not ruling out further action in early 2013.
In terms of commodities, gold has been weak of late but there could be some sharp moves next week if the US Federal Reserve opts for more stimulus. Most brokers think it’s unlikely but there is an outside chance after gloomy consumer confidence data on Friday. An increase in QE is not yet priced into the precious metal. Silver is another one to watch. My mining friends tell me that production growth has stalled because of weak zinc and lead prices. These other metals are mined alongside silver, so their value is important.
Away from metals, wheat looks as if it has priced itself out of farmers’ shopping bags. Traders I know tell me that wheat has become too expensive to use as feed for livestock – so we are looking at a corn substitution. This is likely to keep the price of corn buoyant, while wheat should slide as consumption falls.
That’s all for now, time for some Christmas shopping. Top of my list are growth, prosperity and low taxes … in other words a one way ticket out of the UK.
Only joking!
Until next time…
To give our clients a different and uniquely informed perspective on the financial markets, Capital Spreads introduces “The City Insider”, a fortnightly view from a City expert, with a senior network of influential bankers, investors, economists and analysts. The identity of the Insider is anonymous – and a closely guarded secret – in order to allow our expert to express forthright, personal views and to protect the identity of the City figures upon whose opinions the Insider draws.