Sunday 25 April 2010

No 116: New growth figures

FRIDAY saw the publication of Q1 2010 GDP figures, which completes a new set of not very positive economic indicators.


(Read full article here.)

Yes, the figure may be revised, but I very much doubt if it will go up to anything above 0.5%.

So, if we review the indicators again with how they have changed, what comments would you make about the current state of the UK economy?

  • CPI INFLATION: 3.4% (MARCH)  Up by 0.4%
  • UNEMPLOYMENT 8% (MARCH) Up by 0.2%
  • GDP GROWTH 0.2% (Q1 2010) Down by 0.2%
  • TRADE BALANCE -£2.1 BILLION (FEB) Down by £1.7billion

Wednesday 21 April 2010

No 115: And finally some more good

REGARDING the UK balance of trade:


Read article here.


No 114: More bad

EARLIER this week new inflation numbers were announced.

CPI increased from 3% to 3.4%, and RPI from 3.7% to 4.4%.

Probable causes of this are higher oil prices, a stronger dollar, and the rise in VAT this January from 15% to 17.5%.

Does this mean that the Bank of England should raise the base rate?

No 113: Now some bad!

IMPORTANT new economic figures announced in the past few days.

Today, new unemployment statistics showed a rise in the LFS to 2.5 million out of work, or 8% of the workforce. This is the highest since 1996.

This may not be as bad as it looks. Often, unemployment is "lagged", that is, it increases or decreases more slowly than other indicators such as GDP, due to the time taken for changes in the economy to be reacted to by firms. Therefore, the rest of the economy may be in recovery while the unemployment figures reflect earlier recessionary conditions.

On the other hand, the Claimant Count decreased by 33,000. This, however, is probably not a sign of lower joblessness but of people stopping looking for work -that is, becoming economically inactive. It seems though that a lot of these are becoming students, which, as you know, may mean future private and external benefits.

We must acknowledge that the new unemployment figures are serious, and damaging to a Labour government looking to get re-elected. Their response would proabably be that we have suffered the worst global economic crisis since 1929, and unemployment is still not as bad as it was during the recessions of both the early 1980s and 1990s. Whether recent policies have helped with this, is another question to be debated.

NOTICE MY FRIENDS THAT THIS POST CONTAINS MORE EVALUATION THAN I SEE IN A YEAR OF SOME STUDENTS' ESSAYS.

HOPE YOU CAN LEARN FROM IT!

No 112: First the good news......

A COUPLE of good signs in the UK economy.

First, regarding business confidence:


Full article here.

And this report by a powerful international organisation argues there will be relatively strong UK economic performance in the second half of 2010:

Read more here.

A couple of possible problems. Confidence in the economy, unfortunately, can rapidly disappear if something goes wrong later. Also, while Britain's growth may exceed that of other similar countries this year, its GDP fell by more than most of them during the recession, and many of these other nations are more advanced in their recovery.

Tuesday 20 April 2010

No 111: Resources About Unemployment

SOME resources about unemployment.....

1) BBC UK JOBS TRACKER

This has videos and articles about recent UK news stories about unemployment.

Below is a screen shot, the real graphic is here


2) BBC ECONOMY TRACKER

Shows unemployment in different locations in the UK and how it has changed over recent years.

Screen shot below, real graphic here.

No 110: Advanced Article About Behaviourial Finance

ONE of the areas of economics that I find most interesting is called "behaviourial economics".

It attempts to use ideas and experiments from psychology to explain the behaviour of consumers and firms in economic situations.

In my opinion the book "Predictably Irrational" - about this - is the best economics book published in last five years, and very funny as well. ( http://www.amazon.co.uk/Predictably-Irrational-Hidden-Forces-Decisions/dp/0007256531/ref=sr_1_1?ie=UTF8&s=books&qid=1270245070&sr=8-1 )



Anycase, here is an article using this approach to argue that events like the credit crunch happen every ten years, and that human psychology ensures that people do not learn from the past.


(Read the rest here.)

Tuesday 13 April 2010

No 109: Absence Update

Ill again today and I only managed to get 2 hours sleep last night.

To answer some students' queries, our mock exam was never going to happen this week, always going to be next. Not sure exactly when since I haven't seen my timetable yet!

Monday 12 April 2010

No 108: Delayed Easter Egg Competition

BELOW is an article from the "Daily Express" about recent events in the economy. (A bit old now - I first wrote this post over Easter! Still useful to read though.)

Below the article are some questions.

To every student who brings the answers to their economics class on Monday 19th April - I WILL GIVE YOU AN EASTER EGG! (As long as I can still find some, otherwise some substitute chocolate product.)

Easter Holiday Boost as Pound Leaps Against the Euro                                                            


1) What are the 3 factors which have led to the rise in Sterling and the FTSE 100? (Hint: 2 are near the beginning of the article and 1 is near the end.)


2) How will the rise in Sterling affect British people going on holidays abroad?


3) Why do finanical institutions want a clear election result?

No 107: Competition Policy Story 3 - Naughty naughty Benz

WITH some monopoly power stories is quite difficult to see exactly what a firm is doing wrong, and often economists disagree if what has happened was "against the public interest" - that is, unfair to consumers or other firms in the market.

However, I think that this one is clearly a case of unfair competition:


(Full article here.)

These countries include China, Russia, Thailand, Greece, and Iraq, and the money was mostly given to government officials to get contracts.

Anybody still think this was acceptable? Well, that's your opinion, but at the time Mercedes Benz certainly tried to make sure what they did was secret. Otherwise, why did it use "offshore bank accounts, third-party agents and deceptive pricing practices"?

It has since fired 45 of its employees who involved in this.

2 clear signs that a company may have been doing something naughty. It hides its behaviour at the time, and then gets rid of the employees who were doing it afterwards.

No 106: Absence

I SEEM to have caught every virus around these last few months.

I'm just getting over a nasty chest infection, hence my absence today. I am, however, mostly sure I will be at school tomorrow, so I look forward to seeing you all then.

Wednesday 7 April 2010

No 105: Election Time!




YESTERDAY Gordon announced that the General Election will take place in one month, on May 6th.

This is what David Cameron hopes



This is those of you who have seen the Alice in Wonderland movie (more about this later)...


The economy will definately be the most important issue in the election which has not been the case for at least the past 15 years, when economic performance was stable.

As a coincedance, yesterday was also the date on which the new rate of income tax started. Anyone who earns over £150,000 will now have to pay 50% income tax on what they get above that amount.

However, the biggest controversy has been over another Labour tax plan which is yet to be introduced.

Next April, there are plans for a rise in National Insurance of 1%. National Insurance is a direct tax which helps to pay for an individual's health care, state pension, etc.. It is paid both by a worker, and by the firm which employs him/her. Therefore, it affects 2 parts of Aggregate Demand, which are..............?

The Conservative Party opposes the rise, saying it will affect jobs. Employers agree. So far 68 bosses of large British firms have signed a letter agreeing with David Cameron and criticising Brown.

Labour have countered that abandoning the rise will lose £6 billion in government revenue at time when it needs the money to pay off its debts and avoid big cuts in spending. The Conservatives argue that the money is better left in the pockets of households and firms.

This in fact follows a time honoured argument between economists: will an economy be helped more by giving government extra money, or by leaving it in the private sector.

Do you agree with Labour or the Conservatives over this issue?

This article from the Guardian says more and has a video of Brown and Cameron arguing about it during PMQs.

Monday 5 April 2010

No 104: Russian Interest Rate Cut

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THIS article will of course be of interest to our friends from Russia.

However, it is also interesting to the rest of us, to remind us that not all countries have very low interest rates, and therefore that some countries are still able to use interest rate cuts in order to boost the economy.


The full article is here, but it doesn't really explain much, Perhaps some of you Russia experts can suggest why interest rates there are relatively high, and how this affects things such as house buying.

Friday 2 April 2010

No 103: Competition Policy Story 2 - More about banks

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THIS one concerns ISAs (Individual Savings Accounts), tax free savings accounts in which every UK adult can invest up to about £10,000 a year.

Those financial insitutions who provide ISAs have just become subject to a "super complaint".

Now you may think you are a big complainer. Or perhaps someone in your family. Or even your Economics teacher. However, none of us qualify to be called a "super complainer".

Super complainers are independent organisations who try to look after consumer rights. If one of these makes a super complaint, the government competition authorities have to investigate immediately.

There are 8 super complainers (here is a list of them from my least favourite website). They include CAMRA, a most excellent organisation that tries to keep beer cheap.

The ISA super complaint in fact has two parts:

(Read full article here.)

I have in fact experienced both of these problems.

My first ISA paid 4.6% interest, far above the Bank of England base rate and well above the inflation rate of the time. I was happy to leave my savings there, until one day I discovered that for six months I had only been receiving the much lower rate of 0.4%. The bank hadn't told me about the change.

Part of government policy to improve competition is to encourage information comparison websites about such products as bank accounts, insurance, home gas and electricity costs and telephone charges.

When consumers find out they can get better a deal with another company it should be made easy for them to switch to the cheaper provider.

Unfortunately though, most of the paperwork has to be done by the company who the consumer is leaving. Therefore, there is little incentive for this firm to do the paperwork quickly. In fact, switching often takes a very long time.

Last year it took 2 and a half months for me to switch my energy provider. My wife wanted to move her phone number from one mobile provider to another, and this took 2 weeks.

Strangely though, this BBC article reports a very high rate of consumer satisfaction with UK banks.


One aspect of economics I love is the detective work - of seeing beyond what seems to be a confusing surface picture to what really is happening.

Does the fact that only 7% of people with bank accounts are likely to switch next year prove they are happy with their accounts? Or is something else happening?

If you post a comment about this, I'll tell my recent experience with this also.

The final sentence of the quote above may help you, as may reading the full article.

No 102: Competition Policy Story 1 - RBS and Barclays





OUR esteemed Head of Department, Mr Bowen, has many theories.

One of them seems to be coming true. It states that when we come to study certain topics in the syllabus, many news events about that topic suddenly appear.

In A2 classes we will be looking next at government action over problems with monopoly power and lack of competition. The past few days have seen several stories about this issue printed in newspapers.

The first features everybody's favourite bank, RBS.


This story from the Independent (read more here) reports that 2 members of RBS were caught telling Barclays' workers some secret information. As those of you who were in last week's A2 classes will know, this is an example of collusion. Presumably they were hoping Barclays would fix their fixes at the same level as Barclays, allowing both to benefit.

How did we find out about it? Barclays told the Office of Fair Trading, and under competition law, anyone who reports anti-competitive behaviour gets much lighter treatment - a bit like if you were to tell a teacher that yourself and a classmate were breaking school rules.

In fact, Barclays don't have to pay anything, even though they might have used the information, and even RBS have had their fine reduced by about £5 million for agreeing to cooperate with the OFT.

This of course makes me feel very happy. The now mostly government owned RBS will be using my LESS of my tax money to pay for a fine for breaking government laws. Is this a new kind of recycling?

No 101: Update to Key Information

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THERE have been a few changes to the UK macroeconomic indicators.

First was a fall in the rate of inflation in February, partly due to falling home fuel costs.

Second, another update that slightly increases 2009 Q4 GDP growth.

Third, a small fall in unemployment that has not changed the overall percentage.

So now the figures are:

  • CPI INFLATION: 3.0% (FEB)
  • UNEMPLOYMENT 7.8% (FEB)
  • GDP GROWTH 0.4% (Q4 2009)
  • TRADE BALANCE -£3.8 BILLION (JAN)
I don't want to repeat myself - I'm sure it bores you - but I  am disappointed when some students don't know these numbers. It will help you to get a better grade if you remember them!

No 100: Number One Hundred!!!

LOOKING for something to celebrate this with, I remembered a youtube video from some months ago (maybe you have already seen it).

Crazy things happen when you add Mentos (a type of mint) to Diet Coke.....