The growth figures may be insipid, the headlines may seem dour but the reality, whilst not being exactly the opposite, are certainly not as negative as some would imply.  There are some positive dots that we can join together when looking at the UK economy, which when viewed as a connected string, is beginning to show a slightly more creditable and credible pattern.

• Inflation. The headline CPI and RPI rates are both falling, although this should not be seen as an amazing surprise as VAT and some other rises have now dropped out of the 12 month calculation. This, of course, could be affected by any rise in oil from any of the geo-political threats, as well as some of the price rises coming out of China, whose inflation, although low, has in effect reversed the old ‘China Price’ of being the lowest in the world.
• Government tax receipts last week were at a respectable level, although January is usually a positive month for government income. The figures were better than expected and although there is still a long way to go, this will hopefully allow the Chancellor to have a slightly more optimistic and encouraging tone to his Budget speech next month.
• Manufacturing figures in the latest industrial trends survey are showing that UK firms are keeping up an encouraging momentum, with order books well above long run averages and both domestic and overseas demand seeming to have strengthened.
• Employment. Although unemployment has been rising and the level of youth unemployment being of especial concern, the actual number of people in employment has been rising. For me, this is a key figure as the more that are employed implies there are more paying tax and therefore actively contributing and spending.
• Mortgages. January saw a significant rise in the number of new mortgages being approved. This figure rose to 38,092, the largest since December 2009. Now, of course, this is still nowhere near the peak levels of a few years ago, but at least it has been moving in the right direction. A word of caution here though, as much of this could be down to first time purchasers trying to get into the Stamp Duty holiday before it shuts for purchases of up to £250,000 on 24th March. This is a stupid, old fashioned and regressive tax which is no longer appropriate as I believe that William III is no longer fighting the French. We should do away with it altogether as it prevents expenditure and the Government would probably earn more from VAT expenditure on property decoration and refurbishment than this tawdry little grasping tax that dissuades spending. At the very least they could transfer it from the buyer to the seller.
• Debt. One of the key indicators of a bubble which was well telegraphed before the crash was the amount of UK personal debt, where we had even managed to beat the Americans at such personal finance irresponsibility. Our borrowing ratio had risen from some 60% of GDP to over 104%, which was a clear sign of overheating. Quite rightly, although painfully, many households are paying down debt. Some politicians keep urging us to go out and spend to get the economy going – that as a general comment is wholly irresponsible especially at times like this and will only encourage more debt pain and no doubt find more falling into the grasping hands of the usurers and those pay day loan sharks.  Families need to learn to financially plan (go and see a financial planner) and manage their finances responsibly and then expenditure will increase but in a more managed manner.
• New business start ups. This has to be the firelighter in our damp bonfire of an economy. The indicative figures are that these are still running at a rate of some 400,000 per annum, and of course each one that starts is a new job and if that one employs another – that alone is a big dent in unemployment. Again a key area that could be addressed in the budget is with a properly joined up package of National Insurance, Employment Legisaltion holidays for start ups with investment packages and incentives channelled through their financial advisers – often their accountants.

To balance these positive dots being joined there are also some nasty shards of glass which will cause much pain as we tread carefully through this difficult economic path.

• Unemployment will continue to rise and especially in the state sector, and for those areas where such employment is a very significant part of the local economy (like 60% in Doncaster I understand) this will be more painful over the next few years.
• Investment and cash flow support. The figures of lending from the banks need to be regarded with a whole heap of salt as they can include rollovers of lending and other renewals. The fact is there is less capacity which is an issue I have bored about before.

There is, though, one very important negative which the Chancellor must address, and come to that many of those faceless ministers (can you name many of them?) who seem just to do passing impersonations varying from sullen spaniels to hysterical hyenas – and that is confidence.
You have to “tell’em, tell’em and tell’em again” and even then they may only just believe you. The Chancellor can highlight that the UK has been damaged and the repair work is long and painful – but he must also emphasise that we are not doomed. Damage can and is being repaired – so measure it, show it and prove it to the population – that way we will see more confidence – and thus more spending, more investment and more recovery.
I think it’s called leadership.

***

And finally… Fans often question whether wealthy club owners have a real passion for their teams but the followers of ailing A-league outfit Gold Coast United in Australia were left in no doubt at the weekend when Clive Palmer said he did not even like the sport.

A billionaire mining magnate, Palmer launched the club to much hoopla as an expansion team in 2008 and they finished third and fourth in the regular season in their first two years, albeit in front of the smallest crowds in the league.

The crowds have dwindled further this season – just 1723 turning out to watch them play Adelaide United two weeks ago – as the club has struggled on the pitch to fall well adrift at the bottom of the 10-team league.

“I don’t even like the game,” Palmer told Brisbane’s Sunday Mail. “I think it’s a hopeless game. Rugby League’s a much better game.”

Palmer’s comments cut deep for a sport still striving to gain a foothold in a crowded Australian market where rival codes Rugby League and Australian Rules rule the roost and FFA chief executive Buckley condemned them.

“The comments are offensive to the players, coaches, administrators and volunteers who are the life and soul of Australian football,” he said in a statement.

“We welcomed Clive into the game and lauded his investment, but no matter how frustrated Clive may feel about his involvement, these comments are out of order.

“I remind Clive that as a chairman and owner of a club, he has obligations to the competition, his fellow club chairman and investors in the other nine clubs, and to the game itself.”

And on this day…

• 425 AD The University of Constantinople was founded the Byzantine Emperor Theodosius II at the urging of his wife.
• And in 1900 on this day the British Labour Party was founded at London’s Memorial Hall in Farringdon Street.

Have a good week.
Justin Urquhart Stewart
Director
Seven Investment Management Limited