Positive planning

Latest government proposals on housing-building were revealed today and whilst, Labour have criticized the plans for not being “up to the scale of the challenge”, I myself believe that they may provide the spark required to ignite the stagnating housing market. Here are 3 reasons why...

1)      More work for builders

By allowing for extensions of up to 6m long to be built without planning permission (double the previous distance) more homeowners should be convinced that building an extension will actually add significant value to their home. This in theory would provide more business to builders, plumbers, carpenters and the like where as a result they would be able to offer more jobs and apprenterships to people as demand would require it. A reduction in unemployment would then increase consumer confidence and help to lift the UK out of the double dip recession.

2)      Reduced requirement for ‘affordable housing’

Is this the last we will see of this?

By iniating this the government is effectively giving building contractors the green light to go ahead with projects that previously they would not have attempted due to the margins not existing. This means that more projects will be started providing both more employment and the infrastructure that the UK is desperately crying out for. It will also mean that fewer housing estates will be left as uncompleted ghost towns due to over inflated prices as houses will be built to suit demand rather than out of necessity. The new regulations will therefore, help prevent the building of ‘ghost areas’ whilst encouraging development.

3)      New Firstbuy scheme to help first time buyers

The Firstbuy scheme will allow 16,500 would be home-owners to receive an equity loan of up to 20% of the purchase price. The aim of this would be to stimulate the housing market where due to the current dire state of the economy people are unable to afford a house. This means that at the current time homes are either being rented by demanding landlords or left empty. Therefore, by allowing more people to enter the market there will be more competition for housing which David Cameron hopes will, “Kick start the economy”.

I personally feel that these schemes, whilst only a step are a step in the right direction. By reducing enforcements on planning regulations and affordable housing, more construction will be encouraged and as a result additional jobs will be created. This can only be a positive and the Conservatives should be applauded because of this.

The Monopoly Supremacy

We are told that monopolies are rapidly dominating individual markets and the latest news today seems to confirm this, but what actually are they? A monopoly is characterized by an absence of competition, which often results in higher prices and inferior products and whilst companies such as Dutch Shell and Tesco don’t enjoy a full market share they have enough to have a strong enough influence so that a rise in variable forces will lead to an upwards shift in short run average cost and marginal cost (as shown below in the diagram).

Example 1

Tesco much criticized by economists (Andrew Simms is particularly scathing in ‘Tescopoly’) and consumers alike for their 30.7% share in the grocery market is once again in the news for its latest venture. Since Monday the supermarket has been selling home loans that aren’t exactly good value. At 3.89% Tesco’s five year fix at 3.89% is 0.5% worse than the market leader, a considerable difference. However, despite this the loans are expected to be a hit as club card users will see a private benefit. That benefit equates to one point for every £4 on their monthly mortgage repayments, which can be spent in store. Thus meaning any ‘saving’ goes straight back into Tesco’s pockets. Market dominance at its most evident.

Example 2

The office of fair trade today launched an enquiry into rising fuel prices. With many people unable to afford to drive the main focus of the enquiry will be on the market dominance of the six main fuel suppliers. A call could therefore, be made for more transparency in fuel prices and with the average price of diesel and petrol being 143.52p and 138.99p a litre respectively there is certainly reason for concern there. Whilst, fuel prices were expected to rise due to ‘peak oil’ being reached by 2020, many believe the rise is excessive and as such is a perfect example of a monopolistic market.

Market monopolies are growing all too frequent and are one of the reasons for the death of the high street. Something must be done and soon before we are buying everything from Tesco.

Economic conundrums!

How good is your economic knowledge? Put it to the test in this fun but testing quiz...

1) Which investment bank collapsed on the 15th of September 2008 leading to a rise in the cost of credit and plunging stock markets?

a) Lehman Brothers                    b) Merill Lynch                     c) JP Morgan

2) Who was the chancellor of the exchequer between the 28th June 2007 and the 11th May 2010?

a) George Osbourne                   b) Alistair Darling                  c) Gordon Brown

3) "The study of strategic decision making" is the definition for what?

a) Game theory                           b) Competitive thinking         c) Inflation

4) Where did the disease that sees an increase in the exploitation of natural resources lead to a decline in the manufacturing sector herald from?

a) Britain                                     b) Holland                            c) Kenya

5) Which company announced recently that it will 'shed' 900 jobs in an effort to save costs?

a) Apple                                      b) Holland and Barrett          c) Direct Line

Answers to the quiz can be found at the bottom of the previous post.

Is price stability all what it cracked up to be?

After the 1970’s and 1980’s where inflation was allowed to spiral out of control in nations such as the UK and in particular the USA (where inflation levels were often in double digits) a controlled low inflation rate has often been seen as crucial to economic stability. Due to this, everyone appears keen to take credit for it, with policymakers and bankers being common claimants. However, is price stability really that important?

Stephen D. King, chief economist of HSBC believes this not to be the case claiming that;

“The blinkered pursuit of low inflation in the west has been a mistake, leading to asset price bubbles, economic booms and busts and excessive accumulation of debt”

This is an intriguing argument and one that needs to be looked at. Whilst controlling inflation helps to enable stable employment with price volatility not effecting prices and wages, its actual relationship with the economy isn’t as stable as one would imagine. With central bankers being perhaps the keenest advocates of controlled inflation they often control short term interest rates in order to meet broader economic aims. This however, isn’t wholly healthy for the economy as it plays upon people’s fears.

For example were interest rates to increase people may fear that more austere times are upcoming and as such be less willing to spend and will have an increased penchant to save. A fall in interest rates meanwhile may lead to a rise in demand for housing due to lower mortgage rates. Whilst both a fall or rise in interest rates will effect the attractiveness of a nation for foreign investment with the latter making it more attractive and as a result leading to a rise in inward investment.

The deutschmark was rendered useless due to inflation

Controlling inflation rates therefore may well appear to help economic stability, and in some sense it does as the value of money is sustained without there being any volatile changes. However, the opportunity cost means that the control of interest rates to help insure the low inflation rates can often lead to negative repercussions such as reduced consumer spending and a decline in the competitiveness of a countries exports. Thus showing that price stability won’t always ensure economic stability.

Answers to quiz: 1-A, 2-B, 3-A, 4-B, 5-C

Book review: Soccernomics

Soccernomics is a very much a 'does what it says on the tin' style book. Whilst this no bad thing it does mean that Stefan Symanskis and Simon Krupers work is sometimes predictable and rather unimaginative. For example large periods of the book are dedicated to finding the biggest overachieving football nation. This process is then repeated for general sports, resulting in a rather tiresome read. However, despite this many aspects of Soccernomics make it a worthwhile read.

One of these is the in depth analysis that Kruper and Symanski undertake when it comes to the research that is the basis of the book. With serious thought and care evidently being put into the research it makes for a inquisitive read as the methodology that the two economists use is in itself as fascinating as the overall conclusions that they reach (which are often debatable to say the least!). The data itself is portrayed in a clear and simple manner and whilst there will always be a risk of data overload, interesting sub plots can constantly be detected helping to allow the book to flow.

Whilst the tittle of the book indicated it is for both the hardened football fan and casual economist, im not totally sure this is the case. With economic terminology such as the 'paradox of power'(where an underdog upsets the odds due to the favourite looking at the wider picture) and 'zibhs rule'(the ratio of rankings) being casually tossed around the book isn't as accessible as it could have been. This being said Kruper and Symanski have done a good job of plugging a gap in a fairly congested market where the have managed to add intelligence and guile to what they call in the context of the FTSE 100 a 'small industry'.

Overall rating- 7/10

The monday night economics pub quiz

After a brief spell on the sidelines the monday night economics pub quiz is back in its fourth installment. prepare to rack your brains to the limit!

1) Which English cricket ground recently got renamed as the Ageas bowl in a sponsorship deal with the insurance company?
a) Trent bridge                    b) Rose bowl                     c) New road

2) Who announcd that they had recorded the biggest profits of any Western bank in 2011?
a) Barcalays                        b) HSBC                            c) Lloyds

3) Vodafones chief executive recently slammed phone regulators for saying they were slowing the development of 4g by forcing down prices. But what is his name?
a) Richard Branson             b) Majorie Scardino          c) Vittorio Colao

4) How much did the UK's GDP fall by in the last three months of 2011?
a) 0.2%                                b) 0.4%                              c) 3.6%

5)  In an effort to cut down on organised crime the US government has freezed the financial assets of two groups. The yamaguchi-guma yazuka and...
a) Brothers circle                 b) Mafia                            c) Triads

Tough? Or are you a bonefied economics buff? Lets find out the answers are below...

Answers: 1-b, 2-b, 3-c, 4-a, 5-a

And back we go...

Which way will we go?

Last week the UK economy was officially announced to have shrunk by 0.2% in the last three months of 2011. The announcement was a major boost to the economy which had been hoping for an upturn after the preeciding quarter had yeilded a 0.6% growth.

The fall comes amid speculations that the UK’s economy is set for another year of fluctiations a notion suported by Sir Mervyn King the governor of the Bank of England who warned the economy is likely ‘to zig-zag’.

The main contribution to the fall was the drop in business investment on capital goods causing a fall in the UK’s aggregate demand and therefore economic growth. However, on a more positive note consumer expenditure increased by 0.5% indicating an increase in consumer confidence in the market and hopefully an upturn in the future of the high-street.

Despite, this whatever way you look at these figures, this is worrying times for the UK economy. Another quarter of negative growth and another recession will be on the cards leading to the ‘double dip’ many feared at the end of 2010. Whilst, i personally don’t think we will go into another recession in three months time this is certainly a setback for the UK’s economic recovery and will only further add to the coalition governments worries.

How could the government 'jumpstart' the economy?

What can he do?

After the recent announcement that in the last quarter the UK's economy receded by 0.2%, the distinct possibility of another recession is looming. Many have been calling for the government to intervene into the economy. Bu, what could they do and would it work?

One such way in which the government could intervene is through the process of quantitative easing. (I.E printing money) This wold allow the Bank of England to increase the value of government assets whilst maintaining the low 0.5% interest rate. However, quantitative easing may also lead disillusioned; banks, investors and businesses to simply sit on the money and save it for when there is an upturn in the markets fortunes.

A widely spoken about option recently has been to cut people taxes in the form of income tax cuts. This would enable the poorer section of the economy to have more money to spend and therefore provide an injection of funds into the economy. What income tax cuts do rely on however, is the 'poor' spending this extra income rather than paying of depts or saving it. This therefore is a major flaw of this form of government stimulated economic growth.

My final but probably least likely way in which the government can kick start the economy is to 'stoke inflation'. This involves giving people to hoard cash something even greater to fear by hiking up inflation. By rising prices people may be encouraged to do something more productive with their money like spending it. The flaw? Well although hypothetically stoking inflation is all well and good it is highly unlikely that it can actually be achieved and even less probable in the time period that the government so likely desires.

Although, all forms of government intervention have their benefits, most such as toking inflation are implausible and not feasible under current economic conditions. This means that feasibly to improve the UK's economy the government needs to: Inject money into the economy

                                 Improve the confidence of both the consumers and producers so that more money is spent.

Au Revoir, AAA

Standard and poor today announced the somewhat surprising news that France had lost its top AAA status. Other European countries such as; Italy, Spain, Portugal and Cyprus were also cut two notches prompting a large fall in stock markets.

Spain: Downgraded from: AA- to A
Austria: Downgraded from: AAA to AA+
France: Downgraded from: AAA to AA+
Italy: Downgraded from: A to BBB+
Portugal: Downgraded from: BBB- to BB-

The news comes at a terrible time for Nicholas Sarkozy, with elections looming there is a real danger that the latest set of bad news will undermine his bid to become President once more. The bad news has also meant that the euro has reached a new low to the dollar whilst also dropping against the pound at 82.9p.

This fall in credit ratings for such a large number of countries can only spell bad news for the European Union. It now means that borrowing costs are going to be vastly inflated for those whose credit rating has been cut and will further deter investors from feeding much needed money into Europe to try and overcome the economic crisis.

The European Union is now relying upon the European Central bank to ease the crisis through quantitative easing a measure that Angela Merkel, the German Chancellor has thus far prohibited.

So close, yet so far...

...Tesco has looked on the verge of a monopoly of the retail market ever since they managed, against all the odds to survive the recession and continue on their upwards curve to dominance. Today, however, for the first time in a number of years Tesco suffered a setback, and not just a minor one.

Is the Tesco monopoly dream fading?

Sales over the Christmas period for the company were down by 2.3%, causing a dramatic fall in share prices by 14%, shedding over £4billion of the companies value. Even more worrying for the retail giant is that this fall in sales comes at a time when fellow retailers such as Sainsburys and Morrison's have announced that sales over the same period have actually increased.

But, why is it now that the brakes have suddenly halted the seemingly unstoppable Tesco train. 

Tesco themselves have pinned the blame on their big 'Big price drop'. Tesco personally believe that although, the price drop put pressure on the margins, they did not receive a drive in sales as anticipated to compensate for it.

Another view of this fall in sales could be that the UK public has simply grown fed up of Tesco monopolizing the market and building obscene mega structures on the outskirts of tranquil towns. This consensus is certainly backed up by the fact that like for like sales in the USA rose by 19.3%, figures that compare highly favorably to those of their UK branch of stores. 

Although, Tesco chief executive, Philip Clarke will certainly be feeling the 'heat' to try and turn around these sales figure in the first quarter. They are by no means disastrous, Tesco still remain the dominant force in the retail market with their 30.1% share a long way ahead of second placed Sainsburys who currently have a 16.8% allocation in the market. 

Tesco may well still be the dominant force in the market, but any hopes for monopolization in the near future appear to have been derailed.

The Monday Night Economics Pub Quiz

Tired of 2012 already? Well why don't you cheer yourself up by participating in the latest installment of the Monday night economics pub quiz.

1) Which BMW owned car company announced record profits and sales during 2011 last week?
a) Rolls-Royce              b) Mini                  c) BMW
2) Which country managed to create over 200,000 jobs in December helping to control their unemployment rates?
a) China                        b) USA                 c) UK
3) What British supermarket announced a slow down in sales over the Christmas period?
a) Tesco                        b) Morrisons         c) Waitrose
4) What is the name of the Swiss bank chief who quit his post today amid the currency trading scandal?
a) Phillip Hildebrand      b) Sepp Blatter      c) Stanislas Wawrinka
5) Who did David Cameron accuse of being overpaid last week?
a) City bankers              b) GP's                 c) Pilots

How did you do? Well you can find out, the answers are below.

Confused.com

Answers: 1-a+c, 2-b, 3-b, 4-a, 5-a

The mystery of 'hire and fire'

Neil Warnock’s recent dismissal as Queens Park Rangers football clubs manager made me think. Why do we ‘hire and fire’ so much and at what cost does it come to both employers and the nation as a whole?

Neil Warnock...A recent casualty of the 'hire and fire' mentality

Hiring is of course necessary for both the stability and stimulation of the economy. If companies were not to hire, then their growth, barring a miracle would remain static and labour reliant companies would struggle to expand. Firing is a more complex issue, often dictated by outside markets company boards are often forced into redundancies when a crash in the market so warrants.

The total cost of these redundancies though, is the truly worrying fact. The average redundancy in the UK costs £16,375 and when you take into account the fact that since the recession over  1.9million people have lost their jobs the numbers begin to become genuinely worrying. Every year employees are spending over £8billion a year on pay outs. To put this into context the Olympics is expected to cost the British government £9.3billion. This means that in theory if no-one were to get fired for 14months the 2012 games would pay for itself. Happy times indeed.

There is of course, no chance of this happening, so in the meantime it seems that employers will quite literally burn money away as they continue to ‘hire and fire’. 

Another one bites the dust!

Blacks leisure has become the latest in a long line of companies to fall into administration, putting 3500 jobs at risk in the process. Whilst, the operator of Blacks and Millets had previously hoped that they would have found a buyer before it got to this stage, it is not short of suitors once its assets are put onto the market on Monday.

Blink and you'll miss it!

Favourites to snap up the brand include Mike Ashley’s Sports Direct and Peter Jones, who is best known for his role as a Dragon on Dragons Den (he has recently denied such a deal on Twitter such is the world nowadays). With shares closing at 1.38p, the Blacks leisure group is expected to be valued around £10million which will mainly take into account the 306 stores and assets that Blacks currently owns.

In an attempt to save as many jobs as possible a controversial insolvency operation will be undertaken. This will involve the buyer being able to wipe out any debts the group may have and reject any unprofitable stores. This is hoped to allow the new owners to plough more money into re-establishing the firm on the market and help minimise the number of redundancies.

Blacks joins an ever growing list of companies which have into administration including; La Senza, Hawkins Bazaar and Barratts. I personally think that this growing trend is likely to continue with firms such as Kitchen Company Homeform and the DIY shop Focus likely to face the same fate in the upcoming months. One thing for sure is that 2012 is going to be an even longer and harder struggle for both employees and employers than could have possibly been expected.

An all too common problem...

In the wake of Danny Care’s omission from the England Rugby Squad for the forthcoming Six-nations due to being caught drink driving, it has seemingly become apparent that he suffers from an alcohol problem.

This is not the first time that Danny Care has been punished for indiscipline when drunk. Only three weeks ago he was reprimanded for being drunk and disorderly by head coach Stuart Lancaster for an incident which he described as “completely unacceptable”.

Danny Care is suffering from a common problem

The effects of this case of alcoholism are relatively simple. The national side have been deprived of one of their better players, whilst Care until consulted will continue to suffer from alcoholism and will therefore continue to make the same mistakes he is making. However, in other cases alcoholism can have much more serious effects and on a national scale the economic effects can be huge.

In the UK, alcoholism leads to a serious reduction in the productivity of the workforce. It is estimated that the inability to work and the premature deaths that alcoholism causes costs the UK economy £6.4billion each year. Alcohol use can also reduce employment figures in the UK, this account for a further £1.9billion cost to the UK tax payers as there is a reduction in unemployment activity.

Alcoholism is a serious problem in the UK and needs to be addressed soon. Over 17million working days are lost each year to alcohol and the economic effects are huge, putting a humongous strain on the NHS.

Contrasting fortunes

Tough times...

Whilst, John Lewis enjoyed ‘outstanding’ sales over the festive period, clothes retailer Next had contrasting fortunes seeing a fall in sales lead to lower share prices.

Sales in John Lewis were up by 6.2% from a year ago which was largely helped by ‘out of this world’ sales leading up to Christmas Eve and its biggest ever week ending on December 17^th which saw a collective total of £133.1million of revenue being brought in. Next, on the other hand saw a disappointing set of results reveal that since the start of January 2011 sales have fallen by 2.2%. Although sales via the internet were up, high street sales diminished to such an extent that both Next and the rest of the high street look set to endure a torrid period going into the traditionally stale spring.

Simply the best...

To find out just how torrid 2012 will be for the high street, will only truly be revealed to a greater extent next week when Marks and Spencer’s unveil their festive figures for last year. One can only hope that that they lean to those of fellow retailers John Lewis than those of Next.

Cashing in on the Continentals

In the latest sales figures released today the luxury ‘British’ car maker Bentley saw sales figures rise by 37%. In 2011 Bentley managed to sell 7003 cars almost 2000 more than in 2010, showing a marked improvement in the fortunes for the manufacturer.

Bentley has stepped into a new market

But where are these sales coming from? In the main, Bentleys are brought from consumers in the US which is represented by the fact that out of the 7003 Bentleys sold, 2021 of them were sold to US consumers. However, China is an ever emerging market for Bentley cars with 1839 vehicles being sold there in the last year. Bentley also has a strong foothold in the UK market selling 1006 of its luxury cars including the Continental V8 model to UK buyers in 2011.

These improvements in sales for Bentley are due a series of reasons. One of these reasons is the newly introduced Continental GTC convertible which helped enhance sales in December by 69% based on the previous year’s results. The carmaker has also made a purposeful bid to try and corner the Indian and Chinese luxury car markets, something they will look to continue into 2012 and beyond. This has involved increased funds for an aggressive advertising campaign consisting of lengthy TV adverts and billboards which feature national superstars within the cars themselves. By doing this Bentley has become the mainstream luxury car brand and has thus improved sales figures.

Bentley has managed, by aggressively cornering the fastest growing economy in the world in the form of China to achieve a profit for the first time since 2008 and provide welcome employment for the residents of Crewe. 

The Monday Night Economics Pub Quiz

In a continuation of my pub style quiz, test yourself on how much you remember from the last week of economical news and see if you can improve on your previous scores.

1) Which telecommunication company has been forced to pay £62million to settle US charges that they bribed government officials in Macedonia and Montenegro?
a) Deutsche Telekom          b) Orange mobile          c) Virgin mobile
2) Which countries prime minister last week called for a "united response to the debt crisis"?
a) Germany                        b) Italy                          c) United Kingdom
3) Which country is ranked ninth in the worlds biggest economies?
a) India                              b) Russia                       c) Italy
4) How much did the FTSE fall in 2011 wipe of the value of UK firms?
a) £16billion                       b) £43.4billion               c) £85billion
5)Which company last week had to make 1,610 people redundant due to it heading into administration?
a) Barratts                          b) Morrisons                 c) Thornton's

How do you think you did? Well you can find out, the answers are below.

Happy new year!!!

Answers: 1-a, 2-b, 3-b, 4-c, 5-a

Justice, at long last

The former Lloyds bosses, Eric Daniels and Sir Victor Blank are to be sued for their role in the takeover of HBOS in 2008. The claim forms have been lodged by US based shareholders of Lloyds banking group who are unhappy with the manner in which the company took over HBOS at the height of the credit crisis and just days after the Lehman brothers fell into administration.

The claim forms which have been lodged with the Southern district of New York accuse the bank’s board, of making misleading statements about the solidity of the transaction and making false promises to employees.

(left) Andy Hornby, (centre) Sir Victor Blank, (right) Eric Daniels

The transaction in September 2008, led to a massive fall in the prices of Lloyds shares, falling from 279.75p on the day of the purchase of HBOS to 108p a year later. Although, the two bosses have always defended the deal, with Sir Victor saying that the problem ‘was the speed with which the economy went into recession, pulling down HBOS with it’. The simple truth of the deal is that the Lloyds ‘big wigs’ got greedy.

By purchasing HBOS in the £12billion deal, Lloyds aimed to create a new super bank which would corner over a third of the UK’s savings and mortgage market. But, Lloyds overvalued the shares of HBOS by purchasing them for 232p per share (they were only valued at 147.1p at the close). This meant that when Lloyds were forced to overwrite some of HBOS’s debt they were unable to as they did not have enough reserve funds and in 2009 were forced to record a £4billion loss. Due to this over 40,000 people were made redundant, causing much distress and only inflating unemployment figures, which in turn harmed the UK economy.

Having been close to someone who has been directly affected by the decisions made by Eric Daniels and Sir Victor Blank those three years ago, I personally feel that it is about time that justice is finally carried out and these two men are punished.