Some Interesting Bullet Points from the Economic Briefing at AMC Agents’ Seminar 18 March 2010 by Michael Bax

• Current Bank policy is to hold more capital and more liquid assets in the form of gilts/bonds. These liquid assets could have been used for lending. Banks are also looking to extend lending terms and all of this increases costs.
• Equities are not likely to rise in value significantly.
• Oil currently at $70 per barrel will probably rise to +/- $100 per barrel.
• In the residential property market, house enquiries are down after sharp increases last year.
• General view is that house prices in the South East are overvalued by 10%/15%.
• 08 inflation ran at about 4%; 09 at 1% and 2010 forecast at 3% - mainly due to VAT increase, fuel increases and weak sterling putting the price of imports up.
• RPI is at 3.7% with the Consumer Price Index at 3.4% but the existence of massive spare capacity will bear down on inflationary pressure.
• Accordingly, the timing of possible interest rate movements will be very sensitive indeed.
• In the UK economy any growth has been mainly due to the car scrappage scheme and end of year consumer expenditure before the VAT change.
• In 09 consumer spending was actually down 3% with business investment down 15%.
• In the UK household debt is running at about 100% of GDP, corporate debt at 115% and Government debt at 50% - these are the highest figures ever.
• Accordingly, households and companies will try to save and there will be less income available to buy goods and services.
• The proportion of the working age population actually in employment fell to 70% which is the lowest since 1990.
• Nevertheless the public sector has generated 228,000 new jobs out of an overall loss of 799,000 since mid-2008.
• The general view is that fiscal policy is unlikely to change dramatically in 2010.
• The Government will cut spending – consumers cannot afford to spend and companies will be reluctant to spend – accordingly we have to increase exports.
• The forecast is for €1.20/£ and so the climate has never been better for exports.
• A hung parliament would be likely to create fiscal paralysis and foreign investors will stop buying UK debt.
• Accordingly, it is quite possible to see inflation dropping to 1% with the base rate staying at 0.5% through 2011.
• Nevertheless the long-term trend is likely to be increasing inflation but the worse case could be continuing decline and weakening sterling.
• In the exporting sector, we currently stand at 13% of GDP from a high of 30%, but our exports are good on high value items in skilled sectors, such as engineering, pharmaceuticals and professional/financial services.