Is the UK economy going off the boil? There is certainly evidence that the hectic pace of the past year is slackening.
Annual growth in the third quarter has moderated to 3 per cent as the recession in Europe and a strong pound have eroded exports. Services are also in trouble as cash-strapped consumers keep their wallets closed. Unemployment may be down to a notional 6 per cent, but retail volumes fell in September and the index of consumer confidence has just taken its biggest hit since 2010.
Chancellor George Osborne blames external factors and reminds us that UK growth is still the strongest in the G7. Across in Threadneedle Street, the Bank of England is busy pouring cold water on any suggestion it will raise interest rates for a long time.
Surely a combination of 3 per cent growth – a heady brew by UK standards – and cheap money must raise real incomes and consumer morale eventually?
Then again, perhaps not. For starters, it will take a political miracle to reverse the Japanese-style deflation starting to grip Europe. With North Sea oil down a quarter in price, deflation is spreading across the Channel.
Yes, lower prices help consumers. But they also hurt retail sales. Worse, deflation increases the real burden of debt – household, corporate and state. If September’s poor retail figures are anything to go by, consumers are using lower prices to pay off debt, not to buy more stuff. Ask Mr Tesco.
Bull markets are fragile beasts
It WAS a better week for shares following a month of unusual volatility, and US stocks staged a strong rally on the back of healthy Q3 corporate earnings.
Unfortunately, there’s a catch.
During October, when earnings are reported, American (and British) companies are prohibited from buying their own equities. Yet increasingly these stock repurchases are driving the equity bull market. S&P 500 companies will spend around $565 billion (£352bn) on repurchases this year. October’s purdah on such activity could explain the weakness in the market early in the month. Ditto for the FTSE.
Will there be a return to normal stock market service now the hiatus on buy-backs is over? Pfizer, the big US pharmaceutical, has just announced a vast $11bn repurchase, ending expectations that it will make a renewed bid for AstraZeneca. Here’s the catch: companies are borrowing to finance their stock buy-backs. It will take only one serious exogenous shock (political or economic) to raise rates and this liquidity will dry up. That will end the bull market, leaving a hollowed out industrial structure in its wake.
Ultra-local STV in tune with Thomson
In 1957, when Canadian newspaper mogul Roy Thomson set up STV, he claimed he would need only two things: a telecine projector to show Wagon Train, and another to show the commercials.
These days, a multiplicity of channels and broadcasting platforms has made the TV business much harder to thrive in. However, STV seems to have identified a niche for itself in ultra-local television.
The company has applied to run three more local services – in Aberdeen, Ayr and Dundee. It launched its first, STV Glasgow, in June, while STV Edinburgh goes live in January. Market analysts were sceptical that local TV would find a sufficient audience to generate advertising but STV’s strong brand, low costs, and genial young presenters seem to have done the trick. Roy Thomson would approve.