Uncle Audley says “it’s the (Global) Economy stupid!

Uncle Audley has been keenly following the credit crunch and recession, as you might well expect. You might know, from reading his comment that Uncle Audley has always been a fierce critic of Gordon Brown from day one. I was very surprised, then, to find that Uncle Audley seemed to be defending the “great Scotsman”.

“In fairness to Gordon Brown, I think he is right in saying that the current crisis is a global one. I think it might have been better for him if he did not keep continually stressing the point. People just think that he is playing the blame game and trying to shift any censure from what has happened away from himself. Thus, it may be a global recession, but it was made in America and therefore the fault of the US. What has happened over here in the UK, well that’s all down to the greedy bankers, including the ones Labour has given knighthoods to for their services to…er… banking (or was it for donating some of their bonuses to the cause?).

Let’s not dwell either on the failure of the regulatory system, introduced by Gordon, on its first test. It needs a global solution but Gordon has come forward with the blueprint for that to try and take all the credit. I could tolerate to all this but the only problem is you cannot have it both ways. In the late 90’s and early years of this decade, Brown kept trumpeting on about the success of the economy under his inspired stewardship. Our success was all down to him. He had banished boom and bust and you might be forgiven for thinking that it was done single handedly.

There was no credit given to Ken Clarke and his 4 years at the helm prior to Labour being in power. No UK Government has ever been given such a strong financial legacy in which to start their administration. Nor was the strength of the economy down to the power house US economy. This is despite the fact that any self respecting economist will say that the US economy is always the driver for the world economy.

You might well perhaps have attributed some of the success to the IT revolution and microchip technology which drove down costs. Well, you might have done but Gordon certainly didn’t.

Finally, one might have wondered whether the gradual emergence of the BRIC economies was a factor in establishing demand and helping our financial services industry, prosper. Gordon never acknowledged that any of these factors had any part to play in the well being of the UK in the 10 years or so he was Chancellor. The success was down to him and his prudent handling of the economy.

Well, I am sorry. You simply can’t have it both ways. If you want to take all the credit for success, even if your part in it was relatively minor, then you have to take the brick bats when something fails, even if it was not all your fault. Nevertheless, Brown will keep on repeating the mantra that it is a global crisis requiring global solutions in the hope that we eventually just accept this and forget that he deserves so much of the blame for what has gone on”.

So is Uncle Audley right? If you wish to comment please use the box below.

Lambert Chapman LLP’s Nick Forsyth sees Bank Rates rising

One of the early indicators of recession in the early 1990’s was the increase of the lending rate above base by the major clearers to its smallest businesses. Imagine the sinking feeling to discover that Barclays are to increase their rate margin from 6.8% over base rate to 10.8% above base. What this effectively means is that some Barclays customers will now be paying an interest rate to the Bank of 15.8% overall.

 

As you might imagine the Federation of Small Business were not impressed by this move and have suggested that the Bank are preparing themselves for requests for further advances come from existing customers. This may well be correct and it is a trend that the market will see over the coming months from all Banks as they price lending to customers at more commercial rates and higher than above margins on bank base rate. The reason for this is the movement of LIBOR rates which fluctuate outside the scope of a Countries bank base rates which remain fixed for periods. As an example on 30 September LIBOR stood at 6.87% against a bank base rate of 5%.

 

As a consequence the traditional close proximity between LIBOR and Bank Base Rate has slipped over the last 12 months and this means that to reflect pricing and profitability Banks need to price upwards deals to make them viable. I am not sure whether this point is understood by many economic commentators who consistently call for a drop in the base rate to stimulate demand. Whether this base rate fall takes place if LIBOR remains at current levels all that the fall will achieve is Banks wanting to renegotiate rates or increasing pricing on future deals so that they do not lose out.

 

I have not seen the letter sent out by Barclays to its affected customers but would be pleased to do so; my information came from the Sunday Newspapers. If you are affected or wish to comment on this announcement please feel free to do so.