The reasons behind youth unemployment

Over on the FT's blog today,Kiran Stacey tackles the question of why we have so such youth unemployment and what cab=n be done.

With figures on Wednesday likely to show unemployment among 16-24 year-olds is expected to top 1m people, its highest since records began in 1992,Kiran looks at the work of Prof John Van Reenen of the LSE’s Centre for Economic Performance who suggests a few possibilities.

1.Immigration and the question of whether young people's jobs have been taken especially by the influx from Eastern Europe to which he says no.

2.the fact that Labour shifted the emphisis of its new deal away from youth to single parents back in 2004 which may have been a reason for youth unemployment to start rising again.

3.The minimum wage was extended to cover 16-17 year olds but again he dismisses this

4.The fact that wages for qualified people have been rising too, more quickly in fact than those for relatively unskilled people. This would suggest there has been a boom in the demand for skilled workers, which might count against young people with less experience.

but most of all he claims there has been a shift in focus on the part of job centres from young people to lone parents and those claiming IB.

If that is the case, perhaps ministers should look a less at education and more at the benefits system for how to avoid creating a “lost generation”.

CBI cuts forecasts and says we can build roads to recovery

The Confederation of British Industry (CBI) has set out what it calls Plan A+ and calls on the government to "revitalise its growth strategy"

Their report appears to suggest that the UK economy will stall by the year-end but at the same time,it warns the government against moving away from its pledge to erase the country's huge budget deficit.

The CBI cut its forecasts for British growth to 0.9 percent this year and 1.2 percent the next, from the 1.3 percent and 2.2 percent respectively it predicted in August.

However it expects inflation ed to decline from its current rate of 5.2 percent, starting from the first quarter of next year, and reach the Bank of England's target rate of 2 percent in the first three months of 2013.

Amongst its proposals are 26 new road projects, including two privately funded toll schemes: widening the A14 from Rugby to Felixstowe and improving the A1 in the North East.

It also advocates a £500 million package for growth, including credits for companies that hire young unemployed people, and a rebate for energy-intensive industries hit by the carbon floor price, which requires polluters to pay a minimum price for their emissions.

Don't blame our lack of growth on the Eurozone says report

More bad news on the UK economy this morning as a report from the National Institute of Economic and Social research claims that there is a strong chance the UK will fall back into recession.

The report says that the economy has been stagnant for close to a year now, and expects it to continue into the first half of 2012.

More interestingly it says that recent poor performance has been driven by weak domestic demand, rather than developments in the Euro Area.

It is predicting that the economy will grow by 0.9 per cent this year and 0.8 per cent in 2012 and that inflation will fall back to 2.3 per cent next year.

The economy it says will return to more robust growth in 2013.Its forecast though assumes a successful resolution of the euro area crisis.

It says the Bank of England’s decision to undertake another round of
quantitative easing is appropriate but adds that this will not address the fundamental drag on business investment and uncertainty with regards to future aggregate demand.

Growth at 0.5 per cent-should we be worried?

So the growth figures are just out.

The UK economy has grown by 0.5 per cent over the three months to September according to the office of National Statistics

The figure is up on the 0.1 per cent growth in the second quarter of 2011 which the ONS said had been affected by one-off factors such as the Japanese tsunami and the extra bank holiday..

The headlines are that output of the production industries increased by 0.5 per cent compared with a fall of 1.2 per cent in the previous quarter with construction sector output decreased by 0.6 per cent in 2011 Q3, compared with an increase of 1.1 per cent and services increased by 0.7 per cent compared with a rise of 0.2 per cent in the previous quarter.

Meanwhile stock markets are falling after digesting the news from late yesterday that Greece will put the debt package to a referendum.

The FTSE 100 Index opened more than 2 per cent lower whilst Germany's Dax was 4.3 per cent down and the Cac-40 in France lost more than 3 per cent.

Responding to the figures,Labour's shadow chancellor Ed Balls said that today's figures confirm that the British economy has been bumping along the bottom for the past twelve months - flatlining when we need strong growth to get unemployment and the deficit down.

He added that

“Already, the stagnant growth and higher unemployment that George Osborne's failing policies have delivered mean the government is set to borrow £46 billion more than they planned. After today's figures, the Chancellor will now have to downgrade his growth forecasts for a fourth time later this month - and revise up again his borrowing forecasts.

Meanwhile the Institute of Directors Chief Economist James Leach said


“You can’t see the road ahead from the rear-view mirror: today’s GDP figures are welcome news, but they fail to capture the dramatic events of recent weeks in the eurozone. GDP growth is almost certain to flatten off, or even fall, in the fourth quarter of this year due to postponed business investment and consumer caution, even if the eurozone crisis stabilises. Unfortunately we don’t think the crisis is over, it will continue to haunt recovery prospects in the UK.”

The mad Aunt of household debt

Like a mad aunt in the attic, the problem is not going away, indeed it can only get worse, yet we’re encouraged to pretend that the embarrassment doesn’t exist

The mad Aunt is Britain's household debt which says Jeff Randle writing in the Telegraph this morning stands at £1.5 trillion in mortgages, overdrafts, loans and credit cards and the day of reckoning nears.

The numbers he says are shocking,they point to another looming crisis,which, perhaps, explains why no one at Westminster is willing to highlight them.

Of cause,;ow interest rates have masked the problem but the concern is that once they rise and they surely will,catastrophe could ensue.

George-Please can we have Plan B

The 80's are returning in more ways that one and in a move similar to that under Margaret Thatcher,100 economists have written to the Observer this morning telling George Osborne to move to plan B.

They call for an immediate halt to cuts, to protect jobs in the public sector, a new round of quantitative easing to finance a "Green New Deal" to create thousands of new jobs,benefit increases to put money into the pockets of those on lower and middle incomes and give a boost to spending and a financial transaction tax to raise funds from the City to pay for investment in transport, energy and house building.

The letter headed by former European Investment Bank consultant Dr Ha-Joon Chang urges the government to engage with new ideas on stimulating growth, and warns the chancellor that his policies may push the country into further deficit rather than erase the national debt.

The paper's editorial backs up the call.

Whilst it saysvoices are not all in accord on what Plan B might constitute.

How to diversify and rebalance the economy; how to promote growth and how to restore ethics, mutualism and a sense of fair play to an economy and society does not easily command a consensus. However, we are witnessing an important shift. There is an awareness that a "business as usual" approach is no longer acceptable. The Observer welcomes this change of direction and the initiation of a debate that could prove historic in the salvaging and reshaping of our economy and the resetting of our national priorities for years to come.

Retail sales rises all thanks to computer games

Some good news on the economy this morning as retail sales are up in September.

According to the latest figures from the Office for National Statistics (ONS),sales rose 0.6 per cent reversing a 0.4 per cent fall in August.

The rise,says the ONS,is down to back-to-school sales of laptops and a number of big video game launches.

However clothing sales fell 2.1 per cent on the year, their biggest annual fall since April 2008.That fall may well be down to the unseasonably warm September that we had

We are even growing less than we thought

More bad news on the economy this morning as the Office for National Statistics revises its growth figures down.

According to the new figures,growth in the second quarter of this year was down from 0.2 per cent to 0.1 per cent, and growth for the first quarter down from 0.5 per cent to 0.4 per cent.

Basically that means that the economy hasn't grown for nine months.

The ONS said that the weak growth so far this year reflected continuing declines in real wage growth, an uncertain labour market, relatively high rates of inflation and the weakening global economic position, in particular the UK's key export markets in Europe and the US.

Rather worrying is that whilst the government has repeatedly stressed the importance of export growth for the UK recovery,the latest stats show that exports of goods fell 3.5 per cent in the second quarter although exports of services rose 2 per cent

When sub prime is not sub prime

One of the more worrying statements to come out of the Chancellor's mouth earlier today is that news that the Treasury is to back a new bond market that lends cash to small companies.

The government is concerned that banks are simply not lending enough to drive the economy forward.

These loans won’t show at part of the national debt, because the assumption is that the companies will repay them.

Does this all sound rather dangerous? Well some commentators are using the word sub prime,a phrase that sets the heart racing.

The Treasury says that the comparison is not the case.Indeed the loans will be completely different to the American version adding that there is no risk of being undermined.

But as Fraser Nelson writes

In 1995, the Clinton Administration said the same about the US mortgage industry. The Treasury’s view is that Britain’s banking system is “impaired”, and ill-placed to judge who is creditworthy and who is not. So ministers must intervene.

The credit easing scheme would issue gilts to raise money this would then be used to buy financial assets which would sit on the government’s balance sheet.

For matters of complex economics,it is ofen best to refer to Robert Peston.

These are his up to date thoughts on the announcement

First it demonstrates,if such demonstration were needed,that the Treasury is seriously worried that deterioration in the eurozone's financial crisis could lead to a full scale credit crunch, since phase one of credit easing would be designed to keep the supply of loans flowing to businesses in those appalling circumstances.
Second, it's proof the Treasury has given up hope that - in the absence of structural reform of the credit market - small businesses will find it any cheaper or easier to borrow, even in the longer term.

Crumb of comfort for UK economy

Confounding some of the dire economic predictions,Britain's manufacturing sector has registered growth for the first time in three months.

CIPS Purchasing Managers Index (PMI), a measure of activity in the manufacturing sector, rose to 51.1 in September despite analysts predicting the lowest figure in two years.

It may be a small crumb of comfort for the government and may persuade the Bank of England to wait a little longer before approving a second dose of quantitative easing.

However before we all get too excited, over the third quarter as a whole, the PMI averaged 50.0, down from 52.7 in the second quarter and 59.4 in the first.

"Put your trust in us and I will not let you down"

Perhaps today will be seen as the start of the election campaign.

Gordon tells his audience at Thomson Reuters in Canary Wharf that

Our opponents build their policy on political ideology. Ours is a policy built on the experience of economic history. That is why we have rejected from the outset the laissez faire approach that would have let the recession take its course - and it is why we are investing now in the industries of the future."

The message is essentially put your trust in us and I will not let you down adding that

we avoided adepression not by accident, but by design; by learning from the mistakes made and experience gained in previous recessions and making tough but necessary decisions.

At the same time framing the battle he announced that there will be pay freezes for doctors, dentists and hospital consultants as well as senior managers across most of the public sector.

At the same time confirming the budget will be on 24th March

Budget set and PM to tell us we are weathering the storm

We should finally have a budget date by the end of this morning.

It seens that the 24th March will be the date that Alistair Darling presents the last budget of this government to the country.

It will be the start of the election countdown.Parliament will debate the budget for the following week, before Gordon Brown is expected to ask for the dissolution of parliament for the election on the 6th May.

The Prime Minister meanwhile is expected to tell us today that whilst the recovery is fragile,by following Labour's plans,the country will be be best placed to tackle the recovery.

It is reported that he will say "We are weathering the storm; now is no time to turn back,"

Bad debts and sterling under pressure

Rather worrying news from the banks this morning as the level of debts written off because defaulting borrowers will never repay them shot up last year.

£4.12bn in credit card loans,and £984m in mortgages were written off last year as well as other loans of £4.2bn.

In total £9.3bn will be uncollected.

It hasn't been a good day for the banks with HSBC reporting a 24 per cent fall in pre-tax profit to $7.1bn for last year mainly down to loan write offs but these were mainly in the UK.

Just to put a cap on the financial news,sterling is under pressure mainly as a result of uncertainities as to who will win the next election.The pound is currently trading under $1.50 amid concerns over who will tackle the UK’s record budget deficit.

Comment of the day

Comes from William Hague speaking at the Tory party spring conference in Brighton

Gordon Brown is like a credit card company who will always send you another letter saying it would be so easy when in debt to borrow even more. Every family, every small business, everyone except this Government knows it is the road to ruin.

Courtesy of Iain Dale

It's Ok we are growing after all

Try not to get too excited but we are in fact coming out of recession faster than we thought bu a whole 0.2 percentage points.

Boosted by improvements in manufacturing and the massive service sector,the UK economy grew by 0.3% in the fourth quarter of 2009,says the Office for National Statistics.

The revised figures confirmed suspicions among many commentators that earlier estimates were underestimating the performance of the economy.

The service sector in particular did well in the final quarter up half of a per cent its best result since the end of 2008 and manufacturing grew by o.8 points.

The Index of Production was also revised upward for the quarter to 0.4 per cent from 0.1 per cent,

Memories of 1992

Today's must read article is surely in the Independent.

According to Dominic Lawson,The Conservatives should be praying to lose this election.

He harks back to 1992,an election that Neil Kinnock seemingly had in the bag only for votes to literally cahnge their mind as they entered the ballot box.What happened next

Within months of the Conservatives' improbable victory in the midst of a recession, the pound sterling had been vomited out by the European Union's Exchange Rate Mechanism (ERM); and since our membership of this club had been hailed by Mr Major as the sole guarantor of our economic health and future prosperity, his party's reputation for competence was shredded beyond repair.

Is 2010 going to be the same? Will the Tories simply inherit an economic mess that they are going to be unable to sort out

Most likely, enough voters will be so desperate to see the back of Gordon Brown – the width and depth of the popular dislike of the Prime Minister inspires pollsters with awe – that David Cameron and George Osborne will get their chance to try to sort out the mess

Maybe this will be the issue for the election-cut now or cut later

So now we have the war of the economists.

After last Sunday's pro Tory tacckling the deficit strategy in the Times,comes the FT's pro Labour response.

Far from worrying about what the financial markets will do to our credit rating 60 other economists have signed two open letters backing Labour's policy of delaying spending cuts until 2011.

According to the paper

The letters, while not overtly political, reject the Tories’ claim that cuts are needed now to reassure the markets and head off the risk of Britain losing its triple A credit rating.

The second one in particular will hearten Labour after yesterday's deficit figures for it backs the chancellor’s plan for tackling the deficit, warning that “with people’s livelihoods at stake, a responsible government should avoid reckless actions”.

So the battlelines on the economy are drawn and maybe this will be the issue for the election-cut now or cut later

Abandon ship

Should we be getting worried?

This morning's figures on borrowing showed that the government has borrowed £4.3 billion in January, which was a lot higher than forecast.Analysts were initially forecasting a surplus of £2.8 billion and compares to a £5.3billion surplus in January 2009.

The main reason for the increase is falling tax receipts and it is the worst figure eveer for a January which is usually a surplus month as people complete tax returns and hand over money to the treasury.

We can't go on like this shouts Philip Hammond who adds that

The Prime Minister must now heed the advice of leading economists and business leaders and set out a credible plan to get the deficit under control, starting this year to put Britain back on her feet. The longer he delays, the more the recovery and our credit rating will be put at risk."

More worryingly government bond prices fell, as concerns grew about the credibility of Labour's plans to curtail a record budget deficit forecast to top 12 percent of gross domestic product this year.

We are now on course to run a higher deficit than the Greeks.

On top of that more bad economic news as mortgage lending dropped by nearly a third to £9.1 billion in January, that's 21 per cent down on this time last year.It is now at its lowest level since 2000.

Inflation-should we be worried?

It's due to the return of 17.5 per cent Vat,a rise in petrol prices and a weak pound pushing up the cost of imports,that's if you believe the Governor of the Bank of England.

Or this is a worrying trend and the country could be returning to the dreaded 70's phenomena of stagflation,that's low growth and high inflation.

Today's inflation figures at 3.5 per cent forced an exchange of letters between BoE governor Mervyn King and Chancellor Alistair Darling.

According to the shadow chief secretary to the treasury,Philip Hammond "the figures will be worrying news for millions of families facing falling real incomes.

Mervyn King though appears not to be worried believing that the "blip" will return to normal by early summer.

The only good news is that inflation will help to reduce the fiscal deficit and will help those who now hold negative equities on houses.

Jobless figures set to rise as the election looms

After yesterday's letter from 20 economists which the Chancellor robustly attacked earlier on the Today programme comes more bad news on the economic front.

The Chartered Institute of Personnel and Development (CIPD)are forecasting that just as the election campaign gears up,dole queues will increase to 2.8 million.

I think that it is safe to say that we have been spared the worst forecasts of unemployment made at the start of the financial crisis,but as many economists will tel you,unemployment will lag behind economic performance.

The forecast says that at least a quarter of firms are still planning to shed positions.

John Philpott, chief economic adviser at the CIPD, said: "The UK jobs market is still on the ropes, with a public sector fall in employment now a reality as it feels the impact of the longest recession in modern times. Despite the jobs market proving resilient in recent months, this represents a mere pause for breath with the number of redundancies easing in the private sector and spending cuts yet to be felt by large swathes of the public sector.