An economic boom starting????

4 September 2013

....perhaps.

The summer has seen good news piling on top of good news for the economy with more this week....

The OECD has again upped it forecast for UK growth..... as have other forecasting agencies.

Again also the PMI is showing 'real world' growth occurring in all areas of economic activity, construction included - services are booming as is manufacturing.

Returning to services - we are seeing the best PMI figures since 2006 just before the downturn started in 2007. http://uk.reuters.com/article/2013/09/04/uk-british-service-pmi-idUKBRE9830BG20130904

But what does all this actually mean and is it set to carry on?

I believe so. This is not a bubble built on more and more private borrowing as was the false 'growth bubble' that developed prior to 2006.

But there are hazards ahead - the fundamental problem in the UK of excessive private debt remains an issue and we must take Carney at his word when he says he will not allow a new property bubble to develop - a real danger.

Then we have the massive level of public debt and the still huge public spending deficit. The good news is that this growth will impact on tax receipts helping reduce the deficit further but debt will, of course, carry on building at least until the government's current account is out of deficit and in surplus.

UK public spending is still far too high and Osborne should not be tempted with an election around the corner to ease off on cuts, indeed he should accelerate public spending cuts to reduce the tax burden on businesses and individuals. In turn this will speed growth and consequently bear down further on the deficit.

Threats to the recovery exist from the Eurozone in particular. The European politicians have still not properly addressed the structural problems in the Eurozone, the currency itself, excessive spending and too much red tape and tax.

China remains a concern but personally, regardless of immediate worries, I am not overly concerned for the medium to long term. Developments in China with their economy transitioning from one led by capital investment to a consumer economy will be good for developed markets.

The mighty US economy has its problems too but, make no mistake, longer term the sheer strength and resilience of the USA will see it through.

So I believe that the economy is looking to be in a good position for the start of an extended growth cycle. But the government has a duty to make sure our businesses are well placed to capitalise on this. For that we need...

...a lower public sector burden, brought down below 40% of GDP, preferably over the long term to under 35% of GDP.

...lower and simpler taxes

...supply-side reforms to reduce the costs and risks of expanding a business and employing people.

A massive opportunity will open up over coming years - but it would be only too easy to miss it.....

Guest 696 wrote:
Barry, oil prices are spiking, they may go up by a very large amount, and that will drain many economies of their financial revenue. The results and backlashes will be felt, even in Britain.
Most European countries have no oil and may literally crash overnight financially.
Guest 710 wrote:
That you are blowing hard does at least bode well for your health Barry, all the better to keep the beach out of your lungs. For truely your head is still firmly set into the sand.

To conflate 'BOOM' with a growth cycle can only mean we are heading back to the bad old days of BUST!

This incessant over-egging bodes ill, again. IF money is indeed beginning to circulate at long last, all well and good, but all eyes must remain on sustainability. The very minute you attach 'extended' to the prediction you automatically introduce a limit, an end.
It is about time we progressed beyond this sidereal cycle of hay-making light and retrenching dark.

Better to hold off on the euphoria until work begins to pay and wages begin to rise.

Construction on the up, private debt bubble countered by the BoE???

Does this mean an increase in Council House building, or an increase in private rents that fewer and fewer can afford?

As ever, there is a whole world "out here" that you will not see.
Guest 655 wrote:
Tom - the economy always works on a natural cycle of growth and decline. What is important is to see that a bubble does not develop such as did in the early naughties. We should have had a period of correction around 2000 but we did not get it because Brown used excessively low interest rates to keep the growth cycle going and then right into bubble territory. We are paying for that with a massive and painful 'double correction' made worse by his many other errors to which I have previously referred.

I make reference to the need to avoid a bubble now in my post.

Alexander - oil prices will fluctuate, specially if the problems in the middle east continue, going up in price. But it is only one factor and not the kind of doom and gloom you seem to want.

Once again you make the classic error of thinking there is a fixed set amount of cash resources in the economy - a typical misconception that leads many to misunderstand economic dynamics - socialists in particular who idiotically think that high pay for one person automatically means less for someone else.
Guest 745 wrote:
And inflation from money printing and EU membership will be Barry ???
Guest 655 wrote:
Inflation is an unenviable consequence of QE Keith, no question and I do not support that. Those that advocate it say it is a price worth paying to deal with an immediate problem - I disagree.

You know how I feel about the EU.
Brian Dixon wrote:
just a thought barry,but never its there in black and white.

http://ec.europa.eu/unitedkingdom/blog/
Guest 696 wrote:
There is a fixed set amount of cash resources in the economy, Barry, unless money is printed out of thin air. We are currently heading for an oil crisis.

When petrol goes up in price at the pump, people who purchase it pay more.
Because the people who drive cars and vans and lorries all have a fixed amount of cash resources, the will consequently have less money for other expenses, which drags the economy down.

This should deflate your argument, Barry. Or do you have a contrary theory to this above-explained fact.
Guest 655 wrote:
This illustrates how you misunderstand economics Alexander. You still have not read those books I recommended have you?

To quote Milton Friedman (look him up...)

'Most economic fallacies derive from the tendency to assume that there is a fixed pie, that one part can gain only at the expense of another'

http://en.wikipedia.org/wiki/Milton_Friedman

http://www.brainyquote.com/quotes/authors/m/milton_friedman.html

http://www.goodreads.com/author/quotes/5001.Milton_Friedman?page=1
Guest 698 wrote:
Barry, there is a fixed pie in command economies. Also in socialist la-la land.
Guest 696 wrote:
Barry, good evening!
If a person tanks at the pump and the price of petrol has gone up, and assuming they (the person) have a fixed salary, that means more of their salary going on petrol.
The have lees salary to do the shopping.

Are you disputing this?
Guest 696 wrote:
Barry, you haven't got an editing tool on your blog. Couldn't correct a few typos.
Guest 655 wrote:
Alexander - in an individual case perhaps but then something else might go down in price. What is more we are talking about an economy, not an individual your comparison just does not work.

Peter - you are of course absolutely right. We have seen the disaster of the type of command economy Alexander would like, the old Soviet Union and, today - North Korea.
Guest 696 wrote:
Of-course my comparison works, Barry, as the end-consumer ultimately pays the price.
Guest 655 wrote:
Well Alexander, we all know that in economics you know better than Nobel winning economists, as in heart surgery, you know better than heart surgeons.
Guest 696 wrote:
Actually, Barry, the end-consumer pays the full tariff, which includes everything including tax.
The State can make a debt and call it "public", but the consumer must pay the full price.

Unless, of-course, Barry, you are suggesting a remission of private debt, and State hand-outs of free food vouchers on top of all existing incomes and benefits, I stick to my version that an increase in oil prices will hit the wallet Ltd. of the vehicle owner WITH NO RETURN!