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Comment: Stabilisers unlikely to be removed

Martin Flanagan. Picture: Adrian Lourie

Martin Flanagan. Picture: Adrian Lourie

  • by MARTIN FLANAGAN
 

FINANCIAL markets are making hay while the sun shines. New York, London, major European bourses and Asia have all jumped on the back of the Federal Reserve’s decision not to scale back the wall of money it is throwing at the recovering US economy.

And although over here the Bank of England may be pegging its economically stimulative bond-buying programme at £375 billion, new governor Mark Carney stresses the option to increase quantitative easing if the UK recovery falters. The Bank is sensibly keeping its powder dry.

In short, neither the US or UK authorities are showing any indications of taking the stabilisers off their respective economic bicycles, and it has jollied up investor sentiment no end.

Also supporting the UK stock market yesterday was yet more decent data. Manufacturing order books are at their highest since the start of the credit crisis in 2007 when customers were queuing round the block to withdraw their money from Northern Rock. Car production is also motoring ahead, according to other figures out yesterday.

Those pieces of good news come a day after it was revealed that the Bank upgraded its growth forecast for the third quarter from 0.5 per cent to 0.7 per cent.

None of this good cheer amounts to anything like either a dramatic rebound of the UK economy or undiluted sunny prospects for equities’ investors. We will struggle for a long time yet to recover the 7 per cent the economy shrank in the 20008-9 recession ushered in by the banking crisis.

But the CBI industrial trends survey is just the latest in a raft of data that shows there is momentum, even if modest, behind the recovery now.

It is this unmistakable spike upwards, added to the backstop of continuing or frozen quantitative easing on either side of the Atlantic, that is buoying financial markets.

In addition, those markets know big and medium-sized corporates are sitting on mounds of capital with which to invest or do merger and acquisition deals after cleaning up their balance sheets in the lengthy downturn.

For now, there are more factors driving markets up than down.

Lack of expertise a blow to pensions move

IT’S a concern that the Office of Fair Trading (OFT) has found employers often lack the expertise or incentive to assess value for money when deciding what pension scheme to choose for their employees.

The timing is also embarrassing for the government as the Whitehall pensions auto-enrolment initiative, aimed at addressing the UK’s retirement savings timebomb, is now being rolled out across the UK.

On one level, choosing the right pension scheme for staff looks straightforward, with the ratio of contributions to salary the most important determinant to get right.

But the truth is pension schemes are often couched in dispiritingly opaque jargon. And it is also often difficult for employers to make good judgments when another key factor – how long an individual will stay with the company – is almost impossible to know.

The defined-contribution pensions market that the OFT has found fault with affects millions of savers now that more costly final-salary schemes are going the way of the dodo. The OFT and Pensions Regulator’s promised scrutiny about which schemes are failing to give value for money, and the fees involved, is welcome.

 

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