Beware Food Price Inflation

The Office for National Statistics (ONS) have released figures that show that food prices have risen by 3.4% over the last year.

This has prompted Mervyn King, the Governor of The Bank of England, to express some surprise over the size of the rise.

He should not read too much into the numbers, especially as they are unexpectedly high, ONS figures are notoriously unreliable and we may well see contrary ones next month.

China Rising

China has now overtaken Japan as the world's second largest economy, as per data relating to Q2 2010.

Japan's GDP for that period was $1.288 trillion, whilst China's was $1.337 trillion.

According to Goldman Sachs, China will overtake the USA as the world's largest economy by 2027.

Germany Motors Ahead

The German economy surged by a record 2.2% in Q2 of this year. That is the fastest rate of growth since unification.

However, it should be remembered that this is growth from a very poor 2009. In 2009 the economy shrank by 4.9%, the worst performance since World War II.

Online Fraud

Despite the repeated assurances by banks that their online banking systems are secure, it would seem that reality is proving these "assurances" to be less than sound.

The Press Association reports:

"British online banking customers have fallen victim to a sophisticated attack by cyber criminals who have stolen hundreds of pounds from their accounts, an internet security company has warned."

You have been warned!

Trade Deficit Improves

Unexpectedly good news relating to the trade deficit has been reported by the Office for National Statistics (ONS).

Britain's trade deficit narrowed in June to £7.4BN, as a result of exports rising at four times the pace of imports.

However, the country still has a trade deficit and the figures are somewhat out of date (ie they are June's). Additionally, the ONS is not renowned for its accuracy and it is likely the the figures will be revised at some point in the future.

As I have noted before, using out of date inaccurate figures to run the economy (or even to try to make people "feel good") is questionable to say the least.

Credit Task Froce

It has been announced that the CEOs of the UK's leading banks will lead a new taskforce, to help boost the flow of credit to small firms.

The ever "popular" British Bankers' Association's has set up a new group to assess credit demand from firms, and put forward recommendations to boost funding in the banking sector and aid recovery.

The media omnipresent BBA chief executive, Angela Knight, claims that the taskforce (to be chaired by BBA and HSBC chairman Stephen Green) would look to address "pinch points" in the system as recovery and the demand for working capital gradually takes hold.

The taskforce will report its initial findings to Chancellor George Osborne, in early October.

It strikes me that this is likely to be as effective as putting foxes in charge of the hen house, and is nothing more than a "sop" (in the manner of Edward VIII's "something must be done") to try to convey the image that the banks are "concerned".

FSA Investigate Coutts

In its dying days, the Financial Services Authority (FSA) has decided to try to show some teeth.

RBS has announced that the FSA has launched an investigation into Coutts (the Queen's bank which is also, ironically, part of RBS the "people's bank"), over the sale of AIG bonds in the years before AIG's collapse.

RBS issued the following statement:

"In July 2010, the FSA notified RBS Group that it was commencing an investigation into the sale by Coutts & Co of the ALICO (American Life Insurance Company) Premier Access Bond Enhanced Variable Rate Fund to customers between 2001 and 2008 as well as its subsequent review of those sales."

The FSA investigation may be of interest to Keith Mills, who has mounted a high profile publicity campaign against Coutts, including placing billboard advertisements criticising the bank close to its headquarters. He also has launched court proceedings against the bank.

Beware The Hype of The Double Dipper

There are fears, being stoked by the media, that Britain may be heading for a double dip recession.

The service sector, that accounts for the bulk of Britain's economic output, showed that its growth fell to its slowest since the end of the recession last year.

The blame is being laid at the feet of the government, for cancelling public sector contracts.

All very well, but the size of the public sector debt and the fact that certain service sector companies were milking the government for every penny that they could get over many years is reason enough for the government to call a halt to the free for all.

The reality is that the UK has relied for far too long on the public sector to prop up the economy.

Economies cannot survive forever by merely passing one bundle of money from one part of the economy to the other, money must be earned from productive industries and services that sell outside the economy.

Interest Rates May Rise

Despite Mervyn King, Governor of The Bank of England, stating last week that interest rates are likely to stay low for quite sometime, two former colleagues have contradicted him.

Sir John Gieve, an ex-deputy Governor, and Charles Goodhart, a previous member of the Monetary Policy Committee addressed Fathom Financial Consulting's Monetary Policy Forum.

The Telegraph quotes Sir John as saying:

"I am expecting a recovery – when that is strongly established I'd expect rates to start rising faster than the market currently expects. I wouldn't be at all surprised to see interest rates at 2.5% a year from now."

Mr Goodhart was worried about the effects of food price inflation on the overall economy.

"We're going to have subdued growth for five or six quarters but a temporary increase in inflation. What do you do when inflation is still above the upper limit when the economy is looking extremely soggy?"

Were the MPC et al always 100% accurate with their forecasts, then we would not be in the mess that we are in now. Therefore, these predictions should be taken with a large pinch of salt.

The Good, The Bad...

In a rather amusing display of "irony" the results for the two offshoots of Northern Rock (the once proud bank that, owing to its greed and stupidity, self imploded at the start of the financial crisis) have confounded expectations and their nicknames.

Northern Rock (Asset Management), the "bad bank", which houses the mortgage portfolio posted a first-half pre tax profit of £349.7M.

Meanwhile Northern Rock, the "good bank", which houses its savings accounts and undertakes new mortgage lending posted a £142.6M pre-tax loss.

How ironic!

Bank Bashing

Citywire reports that the new chairman of the Treasury Select Committee, Andrew Tyrie, has told the Times that bank-bashing by ministers is 'unconstructive'.

What planet does this man live on?

Banks have failed the British people and the British economy. They continue to offer lousy service, and treat their customers with contempt.

Until they improve their ways, "bank bashing" is exactly what is required.

Goldman Sachs Bans Swearing

Goldman Sachs, known by some as the "giant blood sucking squid", has issued a rather bizarre directive to employees banning them from swearing in internal emails.

Employees emails will be censored, and unacceptable words removed. Employees are also banned from using swear words with asterisks and shorthand for expletives.

Is this due to a sudden twinge of morality?

Errrmm...no.

Goldman Sachs have been highly embarrassed by the release of emails, during investigations into the bank's conduct, that contained a fair number of swear words.

Given human nature, and particularly the aggressive nature of those who work for Goldman Sachs, I doubt that this ruling will have much effect. Their staff will find ways around it.

I suspect that the next release of emails from Goldmans (if there is one) will doubtless emulate the Nixon tape transcripts "expletive deleted", which is just as bad.

I would suggest that they devote their energies, and morality, to more pressing matters.

Metro Bank Opens Its Doors

Britain's financial services industry has, without a doubt, a well deserved lousy reputation for customer care, honesty, service and providing reliable decent products.

Therefore it is to be welcomed that Metro Bank, the first new high street bank in 100 years, has opened its doors today.

Metro Bank claims that it will revolutionise British banking by offering retail opening hours, unparalleled service (eg toilets in branches) and a simple range of products that will be suitable for everyone.

The first branch has been opened in Holborn. It plans to have 200 branches within 10 years.

The bank will keep its branches open from 8am to 8pm Monday to Friday, as well as from 8am to 6pm on Saturday and from 11am to 4pm on Sunday. The bank will be closed on four days of the year; Christmas Day, New Year's Day, Good Friday and Easter Sunday.

However, as with all matters financial, it pays to look at the fine print.

Sadly the products offered are not yet competitive enough to appear on the best-buy tables, many in fact pay below the industry average.

The question is will this bank survive ten years to grow and prosper, or is it just a short term gimmick?

Interest Rates To Stay Low

Mervyn King, Governor of The Bank of England, has told the Treasury Select Committee that given that risks posed to the economic recovery there will be no rush to raise interest rates.

King also gave the Chancellor, George Osborne, a mild vote of support noting that the recent emergency budget had not made a "significant difference" to the chances of Britain suffering a double-dip recession.

Hardly a ringing endorsement!

£1M Payoff

Tony Hayward, the outgoing CEO of BP, has negotiated a £1M payoff and a £10M pension pot.

As a result of the oil spill BP reported in its Q2 results a provision for $32.2BN and a loss of $17BN, the largest loss in British corporate history.

Quite why BP's all but invisible chairman, Carl-Henric Svanberg, who described the residents of the Gulf Coast as "small people" remains in situ is a mystery.