Digital Finance Analytics (DFA) Blog
"Intelligent Insight"
The UK inflation data come in hot today, signalling broad-based inflation, including across services. Gas, electricity costs and food costs were among the main drivers, offset small falls in petrol and used cars.
This suggests the Bank of England will need to hike rates some more – though that may depend on the Chancellors Budget tomorrow.
Go to the Walk The World Universe at https://walktheworld.com.au/
The latest data from New Zealand, the UK and Canada highlights how embedded higher food prices are, something which also came through in recent ABS figures.
Even if petrol prices slide a little (and OPEC+ is trying to reverse that), many households will be wilting under the pressure from everyday costs of living.
And it’s worth noting there are various adjustments to inflation metrics which seem to drive them lower – I wonder why?
Go to the Walk The World Universe at https://walktheworld.com.au/
The U.K.’s Advertising Standards Authority said last week that it had issued notices to over 50 companies that advertise cryptocurrencies, asking them to review their ads to ensure compliance with existing rules.
The ASA has published several rulings about the advertising of cryptocurrencies which fall within its remit. Ads for cryptocurrencies have been ruled misleading and socially irresponsible and also in breach of rules which apply to ads for financial products.
In Australia, it’s a pretty unregulated field. Grey Yanco, ASIC’s executive director of market supervision said advice on cryptocurrency and digital currency could not be monitored by ASIC due to loopholes caused by cryptocurrency not being registered as a financial product.
He told the ABC the lack of protections were ‘concerning’ for the commission.
‘ASIC is not able to regulate crypto assets that are not financial products. So if you do invest in those products, you’re effectively on your own,’ he said.
And I would add the general advertising standards in Australia provide little or no protection other than advertising shall not be misleading or deceptive or be likely to mislead or deceive and should be clearly distinguishable as an ad.
So I believe the template of the UK reforms should be copied here. And the black hole where ASIC has no role in supervising crypo needs to be closed.
Go to the Walk The World Universe at https://walktheworld.com.au/
Research from the UK shows one in ten users of Buy Now Pay Later end up with contact from debt collectors, while in the UK and NZ, BNPL are deemed as credit products. But in Australia, we are pursuing a different and more relaxed path, despite the high volume of late payment fees, despite the harm.
Go to the Walk The World Universe at https://walktheworld.com.au/
Research from the UK shows one in ten users of Buy Now Pay Later end up with contact from debt collectors, while in the UK and NZ, BNPL are deemed as credit products. But in Australia, we are pursuing a different and more relaxed path, despite the high volume of late payment fees, despite the harm.
Go to the Walk The World Universe at https://walktheworld.com.au/
The UK are outlawing Insurance renewal price walking (which relies of loyal customers paying more than new customers on renewal. In Australia things remain muddy at best, and people can save significantly by being proactive – yet most just roll over!
Go to the Walk The World Universe at https://walktheworld.com.au/
The UK has taken unprecedented actions to support households and businesses. It will be interesting to see what the Australian Government comes out with when they announce theirs. The UK is providing wages support, rental support, and more support for the small business sector.
Capital Economics said that it expected the unemployment rate to rise from just under 4% to about 6% due to the crisis. However, without this latest government intervention, that rate would have risen to the financial crisis level of 8%.
The UK Government has announced a new Coronavirus Job Retention Scheme. Any employer in the country – small or large, charitable or non-profit – will be eligible for the scheme. But it does not cover those on zero hours contracts, or are self employed.
Government grants will cover 80% of the salary of retained workers up to a total of £2,500 a month – that’s above the median income. Employers can top up salaries further if they choose to.
Employers will be able to contact HMRC for a grant to cover most of the wages of people who are not working but are furloughed and kept on payroll, rather than being laid off.
The Treasurer said “that means workers in any part of the UK can retain their job, even if their employer cannot afford to pay them, and be paid at least 80% of their salary”.
The Coronavirus Job Retention Scheme will cover the cost of wages backdated to March 1st and will be open initially for at least three months – and I will extend the scheme for longer if necessary.
There is no limit on the amount of funding available for the scheme.
In addition he announced that the Coronavirus Business Interruption Loan Scheme will now be interest free for twelve months, not 6 months.
And a further cash flow support through the tax system for businesses was announced, buy deferring the next quarter of VAT payments.
That is a direct injection of £30bn of cash to employers, equivalent to 1.5% of GDP.
They will be launching in the coming days a major national advertising campaign to communicate the available support for businesses and people.
To strengthen the safety net, the Universal Credit standard allowance, for the next 12 months, will be lifted by £1,000 a year, as well as increasing the Working Tax Credit basic element by the same amount
Together these measures will benefit over 4 million of our most vulnerable households.
As a result, every self-employed person can now access, in full, Universal Credit at a rate equivalent to Statutory Sick Pay for employees.
Taken this amounts to nearly £7bn of extra support through the welfare system to strengthen the safety net and protect people’s incomes.
UK homeowners can get a three-month mortgage holiday if they need it.
They also announced nearly £1bn of support for renters, by increasing the generosity of housing benefit and Universal Credit, so that the Local Housing Allowance will cover at least 30% of market rents.
They called these actions “an unprecedented economic intervention to support the jobs and incomes of the British people”.
Further measures will be announced next week, to ensure that larger and medium sized companies can also access the credit they need.
He said “we want to look back on this time and remember how, in the face of a generation-defining moment, we undertook a collective national effort – and we stood together”.
The spread of Covid-19 and the measures being taken to contain the virus will result in an economic shock that could be sharp and large, but should be temporary. The role of the Bank of England is to help to meet the needs of UK businesses and households in dealing with the associated economic disruption.
On 11 March, the Bank of England’s three policy committees announced a package of measures to support UK businesses and households through this period. In his Budget on the same day, the Chancellor of the Exchequer announced a number of fiscal measures with the same aim. On 17 March, this combined package of measures was complemented by the announcement by HM Treasury of the Covid 19 Corporate Financing Facility (CCFF), for which the Bank will act as HM Treasury’s agent. By purchasing commercial paper, the CCFF will provide funding to non-financial businesses making a material contribution to the UK economy to support them in paying salaries, rents and suppliers while experiencing the likely disruption to cashflows associated with Covid-19.
In light of actions to tackle the spread of the virus, and evidence relating to the global and domestic economy and financial markets, the Monetary Policy Committee (MPC) held an additional special meeting on 19 March. Over recent days, and in common with a number of other advanced economy bond markets, conditions in the UK gilt market have deteriorated as investors have sought shorter-dated instruments that are closer substitutes for highly liquid central bank reserves. As a consequence, UK and global financial conditions have tightened.
At its special meeting on 19 March, the MPC judged that a further package of measures was warranted to meet its statutory objectives. It therefore voted unanimously to increase the Bank of England’s holdings of UK government bonds and sterling non-financial investment-grade corporate bonds by £200 billion to a total of £645 billion, financed by the issuance of central bank reserves, and to reduce Bank Rate by 15 basis points to 0.1%. The Committee also voted unanimously that the Bank of England should enlarge the TFSME scheme, financed by the issuance of central bank reserves.
The majority of additional asset purchases will comprise UK government bonds. The purchases announced today will be completed as soon as is operationally possible, consistent with improved market functioning. The Bank will issue further guidance to the market in due course.
The next regularly scheduled MPC meeting will end on 25 March, with the minutes published on 26 March. The minutes of today’s special meeting will be released at the same time.
UK Treasury and the Bank are coordinating closely in order to ensure that our initiatives are complementary and that they will, collectively, have maximum impact, consistent with the Bank and HM Treasury’s independent responsibilities.
Although the magnitude of the economic shock from Covid-19 is highly uncertain, activity is likely to weaken materially in the United Kingdom over the coming months. Temporary, but significant, disruptions to supply chains and weaker activity could challenge cash flows and increase demand for working capital from companies.
The CCFF will provide funding to businesses by purchasing commercial paper of up to one-year maturity, issued by firms making a material contribution to the UK economy. It will help businesses across a range of sectors to pay wages and suppliers, even while experiencing severe disruption to cashflows.
The facility will offer financing on terms comparable to those prevailing in markets in the period before the Covid-19 economic shock, and will be open to firms that can demonstrate they were in sound financial health prior to the shock. The facility will look through temporary impacts on firms’ balance sheets and cash flows by basing eligibility on firms’ credit ratings prior to the Covid-19 shock. Businesses do not need to have previously issued commercial paper in order to participate.
The scheme will operate for at least 12 months and for as long as steps are needed to relieve cash flow pressures on firms that make a material contribution to the UK economy. The Bank will publish further details of the operation of the CCFF in a Market Notice on Wednesday 18 March. The Bank will implement the facility on behalf of the Treasury and will put it into place as soon as possible.
By providing an alternative source of finance for a wide range of companies, the scheme will help to preserve the capacity of the banking system to lend to other companies, including small and medium-sized enterprises, which rely on banks. Last week, the Bank of England boosted this capacity by:
Taken together the actions announced by HM Treasury and the Bank of England will help UK businesses and households to bridge a temporarily difficult period and thereby to mitigate any longer-lasting effects of Covid-19 on jobs, growth and the UK economy.
HM Treasury and the Bank will take all further necessary steps to support the UK economy and financial system, consistent with its statutory responsibilities.
The budget released overnight reads more like a Labor than Conservative strategy, with big spending on infrastructure – including in the UK’s north, as well as a significant spend on combating the virus.
Rishi Sunak delivered his first budget with both the tactical and strategic in mind. He focused first on the public health challenges of coronavirus but went on to “levelling up” across the country.
His virus emergency package totaled £30bn, included welfare and business support, sick-pay changes and local assistance. This includes £7bn for businesses and families and £5bn for the NHS. Statutory sick pay will be available to individuals self-isolating and self-employed or gig workers will be able to access support from Government more easily. The requirement to physically attend a job centre will be removed – everything can be done on the phone and online.
The chancellor announced £1bn of lending via a government-backed loan scheme, with government backing 80% of losses on bank lending and £2bn of sick-pay rebates for up to 2m small businesses with fewer than 250 employees.
He will also abolish business rates altogether for this year for retailers, in a tax cut worth more than £1bn. Any company eligible for small business rates relief will be allowed a £3,000 cash grant – a £2bn injection for 700,000 small businesses.
Beyond the virus, Sunak said the government is tripling its investment in transport and infrastructure spending to the highest levels since 1955. The government will provide additional funding worth £640m for Scotland, £360m for Wales and £210m for Northern Ireland.
The government will spend £27bn on more than 4,000 miles of roads. £5bn of funding will be invested in gigabit-capable broadband. An additional £1.5bn will be made available for further education funding.
Sunak said almost £1.1bn of allocations from the housing infrastructure fund will be made to build almost 70,000 homes in high-demand areas.
The chancellor announced a Grenfell building safety fund worth £1bn. The funds will help to remove cladding from tall residential buildings.
He said almost £650m of funding will be made available to help rough sleepers into accommodation.
Sunak said the government will increase NHS funding by £6bn during this parliament. Reiterating campaign pledges, he said the package will help to hire 50,000 nurses and build 40 hospitals. The chancellor announced the NHS surcharge for people from overseas will increase to £624.
As a result, the chancellor forecasted growth before the coronavirus hit of 1.1% in 2020, then 1.8%, 1.5%, then 1.3% and 1.4% in the following years. Already lower than expected in earlier forecasts. So growth has been downgraded BEFORE the virus impact.
UK Government borrowing as a percentage of GDP will be 2.1% this year then will rise to 2.4% in 2020-2021, 2.8% in 2021-22, then falls to 2.5%, 2.4% and 2.2% in the following years. Debt as a share of GDP is forecast to fall from 79.5% this year to 75.2% in 2024-25. UK Austerity is over.
