Well, that’s…sort of a relief. The ONS says that whilst everyone thought that total growth for 2012 would end up being zero, it was actually 0.3%. It’s not necessarily a good thing however, since the amount is so small: those mysterious shrouded statisticians somewhere in Whitehall said that a significant portion of that growth would have been powered by the sale of tickets for the Olympics last summer.
Such a revelation suggests that without Olympic ticket sales, we might even have been in negative growth for the year. The ratings agencies, as we discovered yesterday, are not fully convinced by the UK’s ‘growth story’ anyway, as Moody’s downgraded our government’s credit rating from AAA (the best you can get), to Aa1, prompting politicians to dismiss it as ‘largely symbolic’. Unfortunately, whether it is mere ‘symbolism’ or not, this will adversely affect our borrowing costs for 2013.
There is some silver lining however: The ONS said that the original growth figures for the construction sector have been upgraded from 0.3% to 0.9%, offsetting contractions in the production and services sectors.
Part of the problems that these sectors are facing, of course, comes from banks being stingy with their lending. And on that topic, it was revealed yesterday that the Bank of England is mulling the idea of using negative interest rates as a lever to effectively force banks to lend more freely. Paul Tucker, the BoE’s deputy governor brought up the proposal in front of a committee of MPs, saying that this could be a way of the Bank helping the economy more directly.
He did espouse a note of caution however, saying: ‘I hope that we will think about the constraints of setting negative interest rates. This would be an extraordinary thing to do and it needs to be thought through carefully.’ The difficulty with such a policy is that, whilst it would definitely do a bit of bank bashing and probably result in a massive offloading of cash into the economy, it would effectively slam bankruptcy down on all of the smaller building societies, which are relying on the last little 0.5% scrap of an interest rate to make any money at all. Not to mention it would also be a horrendous kick in the teeth for savers...
Tucker added: ‘I am worried that our current policies may not be reaching as far into the SME sector as we would like,’ and he suggested that the government’s Funding for Lending scheme could be extended to non-bank lenders like insurers. It’s good to hear that Tucker has his eye on the UK’s ‘Mittelstand’, as goodness knows they could do with some access to credit after five tough years of economic stagnation.
And while we’re on banks, the Co-op deal to purchase hundreds of branches of Lloyds (which Lloyds is being forced to sell under state-support-of-companies rules by the EU), could be on the verge of falling through. It has emerged that the Co-op may fall foul of new regulatory requirements to hold more capital. It could be as much as £1bn short of being allowed to take over the branches. Plans/solutions are apparently being hashed out as we speak.
So, a rocky day of news in banking and economics. GDP growth is still a Holy Grail, banks are still not lending as much as we’d like, and regulators are making sure deals can’t go off haphazardly like they did in the old days. Things are so slow it’s like one, big, lazy Sunday afternoon.