British academic Angus Deaton awarded Nobel economics prize

British academic Angus Deaton has been awarded the Nobel economics prize for 2015 for his analysis of consumption, poverty, and welfare.

British academic Angus Deaton has been awarded the Nobel economics prize for 2015 for his analysis of consumption, poverty, and welfareThe 69 year old professor of economics and international affairs at Princeton University was previously at Cambridge and Bristol universities.

His research focused on health, wellbeing, and economic development.

Professor Deaton had been in the running for the prize several times in past years.

The Nobel economic sciences committee said that individuals’ consumption choices must be understood before economic policy promoting welfare and reducing poverty could be formulated.

“More than anyone else, Angus Deaton has enhanced this understanding. By linking detailed individual choices and aggregate outcomes, his research has helped transform the fields of microeconomics, macroeconomics, and development economics,” the committee members said.

The work for which Edinburgh-born Professor Deaton has been honoured revolves around three questions:

How do consumers distribute their spending among different goods?
How much of society’s income is spent and how much is saved?
How do we best measure and analyse welfare and poverty?

The secretary of the award committee, Torsten Persson, said Deaton’s research has “shown other researchers and international organizations like the World Bank how to go about understanding poverty at the very basic level.”

Persson praised Deaton’s work for illustrating how individual behavior affects a broader economy and demonstrating that “we cannot understand the whole without understanding what is happening in the miniature economy of our daily choices.”

Deaton, who was born in Edinburgh, and holds U.S. and British dual citizenship, said he was delighted to have won the prize and was pleased that the committee had awarded research that concerns the world’s poor.

“His research has uncovered important pitfalls when comparing the extent of poverty across time and place,” the committee said.

In his 2013 book, “The Great Escape,” Deaton expressed skepticism about the effectiveness of international aid.

He noted, for example, that China and India have lifted tens of millions of people out of poverty despite receiving relatively little aid money. At the same time, many African countries have remained mired in poverty despite receiving substantial aid.

“His view is that we don’t have these ready-made solutions, and money is not going to be the answer to many things,” Rodrik said.

The award includes prize money of 8m Swedish kroner (£637,000).

The economics award was not created by Alfred Nobel in 1895, but was added by Sweden’s central bank in 1968 as a memorial to the Swedish industrialist. The Nobel prizes will be given to winners on 10 December at ceremonies in Stockholm and Oslo.

PPI payout deadline finally considered by regulator

The Financial Conduct Authority (FCA) is finally considering a deadline for claims over mis-sold payment protection insurance (PPI).

The Financial Conduct Authority (FCA) is finally considering a deadline for claims over mis-sold payment protection insurance (PPI)The FCA anticipates that PPI customers would still though have at least until 2018 to claim compensation.

So far more than £20 billion has been paid out for PPI mis-selling to more than 10 million consumers. The policies were supposed to protect people against loss of income or sickness, but were often inappropriate.

The regulator will now launch a consultation, on whether there should be a deadline on compensation claims. It said there should be a window of at least two years after the deadline is set.

This would not be before the Spring of 2016 – meaning that consumers would have until the Spring of 2018 to make a claim through their bank or the Financial Ombudsman.

Shares in Lloyds, the bank most exposed to PPI, jumped by nearly 3% in early trading as it has set aside £13.5 billion to cover claims.

The banking industry welcomed the announcement, saying it provided further clarity for consumers.

Banks such as Lloyds have long argued privately that there should be a cut off point. They are convinced that many of the claims are bogus and are driven by claims management firms rather than by irritated customers.

Of course, many say that the banks are rightly reaping the effects of their appalling past behaviour.

The FCA move today is all about the “normalisation” of relations between regulators and the City.

As George Osborne signalled in his Mansion House speech earlier this year, the government is keen to see a new “settlement” with the financial services sector.

The former, combative head of the FCA, Martin Wheatley, was removed by the Treasury and the PPI deadline means another thorny legacy issue looks close to being dealt with.

The number of complaints about PPI is falling, but still runs in to hundreds of thousands every month.

In the first half of 2015 more than 883,000 customers complained about mis-selling, a fall of 16.6% on the same period in 2014.

The FCA said a deadline would “bring the PPI issue to an orderly conclusion, reducing uncertainty for firms about long-term PPI liabilities and helping rebuild public trust in the retail financial sector.”

The watchdog said too many people were taking too long to bring their claims, and that a deadline – along with an advertising campaign promoting any potential deadlines – would spur any outstanding claims to be brought.

Consumers who want to complain about PII should do so as soon as possible

In the first instance, complaints should be directed to the bank that sold the policy.

If customers do not receive a satisfactory response from their bank, they should take it up with the Financial Ombudsman Service.

Consumers do not need to use a claims management company to help them, advises the FCA, as such complaints are free.

UK productivity lags behind rest of G7

The UK was much less productive than the rest of the G7 in 2014- lagging by the most since 1991, official figures have shown.

The UK was much less productive than the rest of the G7 in 2014- lagging by the most since 1991, official figures have shown.The Office for National Statistics (ONS) said output per hour was 20 percentage points below the G7 average.

The UK was behind the US, Germany and France by a large margin and was slightly worse than Italy and Canada.

Productivity is seen as key to helping increase living standards in the UK by many experts.

“These figures show UK productivity continues to lag behind other developed economies,” ONS chief economist Joe Grice said.

“Since the economic downturn, productivity growth has slowed in most developed economies, but by more in the UK than the average.”

The Chancellor, George Osborne, pledged in July to take steps to encourage more long-term investment in infrastructure and by businesses to boost productivity.

Institute of Directors chief economist James Sproule said that UK firms should focus on “agility” rather than productivity.

“The economy of the future looks set to be dominated not by big companies, but by fast, agile, quick-moving and reactive ones,” he said.

“The firms that can respond to consumer demands most effectively and bring new products and services to market will reap the rewards.”

Productivity isn’t everything, but in the long run it’s almost everything – as Nobel Prize winner Paul Krugman noted 25 years ago in his book The Age of Diminished Expectations.

Unless you improve the amount each worker produces, you can’t expect living standards to rise.

It’s a harsh verdict on British economic performance that since 1991 when the ONS started making international comparisons, the gap between our productivity and the rest of the world’s advanced economies widened to a chasm.

Sure we have had economic growth. But the fact that we’re still 18% less productive than we would have been on pre-crisis trends gives you some idea why that growth hasn’t always flowed through to higher wages.

If each worker produced more, employers could afford to pay higher wages. That – of course – isn’t to do with workers working “harder”.

Much more decisive in improving how much each produces is investment – in plant and machinery, in skills and in public infrastructure such as roads.

The ONS international comparisons relate to 2014, so they’re a bit behind the times.

The latest official data on UK productivity, released in July, recorded a sharp pick-up in productivity at the start of the year.

Investment has also picked up. But if we’re going to catch up with the rest of the G7, we’ll have to sustain that for years.

UK interest rate debate continues

The Bank of England’s deputy governor for monetary policy has said that it would be “foolish to preannounce” a date for an interest rate increase.

UK interest rate debate continuesYesterday the Bank’s Monetary Policy Committee voted to keep interest rates at their current historic low of 0.5%.

Deputy governor Ben Broadbent said the Committee had no specific time in mind for a rise and comments by governor Mark Carney had been misinterpreted.

The interest rate has remained unchanged for 78 months.

The ultra low interest rate regime has boosted the housing market as homeowners enjoy record low mortgages rates, but penalised savers whose returns have dwindled to almost nothing.

Speaking to Radio 5 live’s Wake up to Money programme, Mr Broadbent said: “We are responding to things that are essentially… unpredictable.  And that means that it would not just be impossible, it would be foolish to pre-announce some fixed date of interest rate changes.”

Mr Broadbent said he saw no “urgency” to increase interest rates at present.

He added: “The economy clearly is recovering, but we had the most almighty financial crisis and there is still a bit of spare capacity left.”

“There is not that much inflationary pressure at the moment, [although] we expect that to build over time.”

The Consumer Prices Index, the most commonly used measure of inflation, fell to 0% in June, while earlier this week, the cost of a barrel of crude oil fell below $50, its lowest point since April.

Despite problems in the wider global economy, caused by the continuing crisis in Greece and fall in Chinese stock prices, Mr Broadbent said the overall outlook for the UK remained steady.

“We’ve seen unemployment come down pretty steeply,” he said, “and some signs of improving productivity growth. We’ve seen a material pick-up in wage growth, not sufficient to give us any big inflationary risk.

“But all of that would naturally lead to the case for some normalisation of interest rates to start building.”

He added that the economic recovery looked “well embedded and solid”, with the Bank expecting “steady growth over the next two years”.

Mr Broadbent was responding to media coverage of remarks made last month by the Bank’s governor, Mark Carney.

In a speech at Lincoln Cathedral on Monday Mr Carney gave what was interpreted as his clearest hint yet that the cost of borrowing would go up before 2016.

He said: “The decision as to when to start such a process of adjustment will probably come into sharper relief around the turn of this year.”

UK economic growth increases to 0.7% in second quarter

UK economic growth increased in the second quarter of the year- helped by a big jump in oil and gas production.

UK economic growth increased in the second quarter of the year- helped by a big jump in oil and gas productionThe UK’s economy grew by an estimated 0.7% in the April to June period, the Office for National Statistics (ONS) said which compared with growth of 0.4% in the first quarter of the year.

Britain’s recovery strengthened, as the official figures suggested growth per head was finally back to pre-crisis levels.

Output in the economy during the second quarter was 2.6% higher than the same period a year earlier, the ONS said.

“After a slowdown in the first quarter of 2015, overall GDP growth has returned to that typical of the previous two years,” said ONS chief economist Joe Grice.

The UK’s economy has now seen 10 quarters of sustained economic growth.

The ONS stressed the first estimate was based on about 40% of the available economic data and is subject to revision.

It said manufacturing output experienced its first fall in two years with output dropping 0.3% in the quarter.

However, a surge in North Sea oil and gas production lifted overall industrial output by 1% – the biggest increase since late 2010.

The “mining and quarrying” component of the industrial output figures, which includes oil and gas extraction, rose by 7.8% in the quarter, the biggest increase since 1989.

The ONS said the increase, which came despite falling oil prices, was driven by tax cuts in March designed to support the sector.

Construction was flat in the period, the ONS said, recovering from a slight fall the previous quarter.

The UK’s dominant services sector recorded growth of 0.7%, following a rise of 0.4% in the previous three months.

Domestic demand is expected to remain strong, as wages rise and with the temporary effects of low inflation boosting consumer spending.

The ONS said there were also signs that businesses were finally increasing investment.

George Osborne, the Chancellor, said the figures showed Britain was “motoring ahead”. He tweeted: “We must stay on road we’ve set out on.”

The economy is now 5.2pc larger than its pre-crisis peak, and ONS said the 0.7pc expansion in the second quarter suggested that gross domestic product (GDP) per head was now “broadly equal to the pre-economic downturn peak” in the first quarter of 2008. This is expected to be confirmed by the ONS next month.

Mark Carney, the Governor of the Bank of England, has said that “sustained growth” of “around 0.6pc per quarter” will be needed for the remaining “spare capacity” in the economy to be eliminated and for rate setters to start tightening policy.

Mr Carney said in a speech this month that the decision to raise rates would come into “sharper relief” by “the turn of this year”.

UK government borrowing falls in June after record tax haul

UK government borrowing fell to £9.4 billion in June, down £0.8 billion from a year earlier- as income and corporation tax receipts rose to record levels.

UK government borrowing fell to £9.4 billion in June, down £0.8 billion from a year earlierThe Office for National Statistics (ONS) said income tax receipts rose to £11.5 billion, while corporation tax brought in £1.7 billion- both record monthly highs.

It was lowest borrowing figure for June since 2008. However analysts had been expecting it to drop further to £8.5 billion.

In the financial year so date UK Government borrowing has fallen by £6.1 billion to £25.1 billion.

The ONS figures showed government finances received a £117 million boost last month from a fine paid by Lloyds Banking Group over its handling of payment protection insurance (PPI) complaints.

In the summer Budget earlier this month, the Office for Budget Responsibility (OBR) forecast public borrowing would be £69.5 billion this year.

Public sector net debt at the end of June 2015 was £1.513 trillion, or 81.5% of annual UK economic output- up from 80.8% in May.

A Treasury spokesperson said the figures showed the UK government’s deficit reduction plan was working but added “the job is not done”.

The UK government is aiming to eliminate the budget deficit by 2019 and to run a £10 billion surplus in 2020 and in subsequent years.

Chancellor George Osborne announced £37 billion of spending cuts during this parliament in the summer Budget.

In November, the government’s spending review will set out £20 billion worth of departmental budget cuts over the next five years.

Global stock markets slide on Greece debt crisis

Stock markets in Britain, Europe and the US have fallen after Greece closed its banks and imposed capital controls.

Stock markets in Britain, Europe and the US have fallen after Greece closed its banks and imposed capital controlsThe moves by the Greek authorities came after the European Central Bank decided not to extend any extra emergency funding.

London’s FTSE 100 index was down 1.47% and Germany’s Dax index fell more than 2%. In the US, the Dow Jones fell nearly 1% early in the session.

Bank stocks are among the hardest hit, with shares of Deutsche Bank and Commerzbank both losing more than 4%.

The Athens Stock Exchange and Greek banks will be closed all week.

On the money markets, the euro lost ground against other major global currencies.

The London FTSE 100 share index was down 98.47 points at 6,655.23 with other European markets seeing even bigger falls. Earlier in Asia, Japan’s Nikkei index fell nearly 3%.

On the currency markets, the euro saw volatile trading in Asia, falling by 2% at one point. However, it has since recovered some ground, with the euro down 0.15% against the dollar at $1.1149.

The euro has weakened against the pound, with one euro now worth £0.7089, while the pound buys €1.4108.

Oil prices are heading lower. Brent crude oil futures fell more than 1.5% to $62.10 a barrel.

Bond yields (an indication of borrowing costs) for Italy, Spain and Portugal – which are considered some of the weaker eurozone economies – rose sharply.

In contrast, German bond yields fell. German bonds are seen as safer investments in times of crisis.

Greece was due to make a €1.6bn payment to the IMF on Tuesday – the same day that its current bailout expires.

Last week, talks between Greece and the eurozone countries over bailout terms ended without an agreement, and Prime Minister Alexis Tsipras then called for a referendum on the issue to be held on 5 July.

At the weekend, the Greek government confirmed that banks would be closed all week, and imposed capital controls, limiting bank withdrawals to €60 (£42) a day.

There is zero chance of the European Central Bank turning Emergency Liquidity Assistance back on – life-saving lending to banks – unless Greeks give an affirmative vote to a bailout proposal from the rest of the eurozone and the IMF, which Juncker sees as a proxy for Greece’s monetary future.

As for Athens, most of the Syriza government detests the bailout offer – for the way it pushes up VAT and cuts pensions.

So we will have the bizarre spectacle of a Prime Minister, Alexis Tsipras, arguing both against the bailout and for remaining inside the eurozone – so goodness only knows how he will vote.

And Greek people will be torn between fear and loathing of bailout proposals that will damage the living standards of many of them, and fear and loathing of abandoning the euro and seeing their banks closed.

UK government borrowing deficit falls in May

UK government borrowing debt fell to £10.13 billion in May, the Office for National Statistics (ONS) said, down from £12.35 billion a year earlier.

UK government borrowing debt fell to £10.13 billion in MayA rise in income tax and VAT receipts helped to cut UK government borrowing in May, official figures have shown.
It was the lowest borrowing figure in May for eight years.

Public sector net debt excluding public sector banks now stands at £1.5 trillion, the ONS said, which is 80.8% of gross domestic product (GDP).

“While the deficit in the financial year ending 2015 has fallen by more than a third since its peak in the financial year ending 2010, public sector net debt has maintained a gradual upward trend,” the ONS said in a statement.

Income tax receipts recorded their highest level for May in four years, rising £0.5 billion, or 5.3%, from a year earlier to £10.8 billion. VAT receipts rose by £0.6 billion, or 5.6%, to £10.7 billion.

The ONS also said that it now estimated total public sector borrowing in the financial year to March 2015 was £89.2 billion, or 4.9% of GDP.

While this figure was slightly higher than the previous estimate, it was still £9.3 billion lower than the previous year’s total.

Analysts said the drop in government borrowing during May was good news for Chancellor George Osborne at the start of the new fiscal year.

Last week, the chancellor said he would attempt to bind future governments to maintaining a budget surplus when the economy is growing.

However experts say that the rise in public sector debt above £1.5 trillion will be troubling for Mr Osborne.

UK inflation rate goes positive

The UK inflation rate- as measured by Consumer Prices Index (CPI) rose to 0.1% in May, up from -0.1% in April.

UK inflation rate goes positiveThe biggest contribution to the rise came from transport, notably air fares, the Office for National Statistics said.

In April, CPI inflation turned negative for the first time since 1960, mainly due to a drop in air and sea fares.

ONS statistician Philip Gooding said: “Last month CPI turned negative, mainly because of falling transport fares due to the timing of Easter. This month, that fall has been reversed.”

He added that the falls in food and fuel costs over the past year “have eased this month, helping to push inflation up”.

While the prices of food and fuel rose in May from the previous month, the prices were still lower than a year earlier.

However, while the overall effect of food and fuel on CPI inflation pulled the rate down by about 0.5 percentage points in May, this was less pronounced than the month before when the prices had a negative effect of 0.7 percentage points.

In May Retail Prices Index (RPI) inflation, a separate measure which includes housing costs, was 1%, up from 0.9% in April.

Bank of England governor Mark Carney has said he expects inflation to remain low in the short term.

The Bank expects near-zero inflation to help the UK economy by boosting the spending power of households.

Chancellor George Osborne said “a powerful mix of low prices and rising wages” was “good news for working people and family budgets”.

Nevertheless, he said: “Of course the job is not done and we will continue to remain vigilant to all risks, particularly when the global economic situation is so uncertain.”

Greek worries wise money markets

European stock markets have fallen sharply as senior EU officials have discussed a possible Greek default for the first time.

European stock markets have fallen sharply as senior EU officials have discussed a possible Greek defaultThe Athens stock exchange closed nearly 6% lower, while Germany’s Dax and France’s Cac 40 closed more than 1% lower.

Stocks in the National Bank of Greece fell by more than 10%, while Piraeus Bank fell more than 11.5%.

According to official sources quoted by news agencies, senior eurozone officials meeting in Bratislava on Thursday held their first formal talks on the possibility that Greece might default on its debt payments.

Also on Thursday, officials from the International Monetary Fund (IMF) pulled out of talks with Greek politicians in Brussels, citing “major differences”.

Greece is seeking to avoid defaulting on a €1.5 billion debt repayment to the IMF by the end of June.

Shares on the Athens Stock Exchange had soared on Thursday amid renewed optimism about Greece’s talks with its creditors.

The index climbed more than 14% – the best performance in several weeks, but the IMF’s withdrawal has dampened investors’ moods.

On Friday, Jeroen Dijsselbloem, president of the Eurogroup of finance ministers, said a deal without the IMF was “unimaginable”.

However, German Chancellor Angela Merkel urged all parties to continue negotiations.

Speaking at a business conference in Berlin, Ms Merkel said: “Where there’s a will there’s a way, but the will has to come from all sides, so it’s important that we keep speaking with each other.”

In London shares continued their downward slide as fears over Greece’s ability to negotiate a settlement with European creditors dented sentiment.

At the close, the benchmark FTSE 100 index was down 61.82 points, or 0.9%, at 6,784.92.

The top riser was Royal Mail, up 2.78%, recouping some of Thursday’s losses.

The postal services company had fallen 4.5% on news that the government had sold 15% of its remaining 30% stake in the company, raising £750m.

The biggest faller on the 100-share index was Johnson Matthey, down 3.1%. On the FTSE 250, platinum producer Lonmin fell 7.1%, compounding earlier losses in the week, after mining and commodity firm Glencore distributed its 23.9% stake in the company to investors.

On the currency markets, the Pound was up 0.41% against the Dollar at $1.5581 and up 0.25% against the euro at €1.3818.