pro manchester CEO

Sunday Times and Croissants - CEO's update 16th October

There is something special about Sunday morning, the Sunday Times, hot croissants with honey and butter, excellent. Headlines, China has made a secret offer to save the euro with an offer to purchase sovereign debt and infrastructure assets. With three trillion dollars at risk, a strong euro land is a prerequisite of a good asset spread. Euro fans relax.

Inflation is heading to 5% adding further mystery to the Bank asset purchase programme. Oliver Letwin made the news, the minister reads his papers in the park, then adds a new dimension to the freedom of information act by dumping them in the nearest waste bin.

Sad to see Liam Fox resign this week, not sure the if-you-fire-me-it-shows-you-are-weak challenge to the Prime Minister was a great tactic. Hopefully the Strategic Defense Review included a little more guile. Not sure about that.

David Smith, discusses the merits of digging holes and building houses as a way of stimulating growth. Jobs can be built with bricks and mortar the headline and they can.

Economics news this week, production figures are flat, unemployment is rising, the trade figures for August suggest a modest improvement in the trade deficit. Fans of the J curve get excited but imports are down, as the suffocated take less oxygen.

The NIESR preliminary estimate for Q3 GDP suggests growth of just 0.5% year on year. The unemployment figures suggest this is too optimistic. We are in a liquidity trap, the economy is flatlining. To offer more QE, is to throw more water on the drowning. The markets resist the banks offer to buy more gilts this week. They know something the bank does not.

Tuesday next week I am a guest of the Bank of England at the IOD dinner in Liverpool. I will be sitting next to Adam Posen, he has been calling for more QE since Noah landed at Ararat. I decide to read his book - Restoring Japans Economic Growth [1998] by way of preparation. He also wrote on inflation targetting with Bernanke. Have read this also, (not this week), now that is devotion.

Back to the day job, Monday, internal meetings in the morning, then a meeting with Colliers International to welcome them into membership. Colliers together with Ask Developments will strengthen the property group significantly, Colliers complete our property agents set.

Tuesday, Gateway breakfast followed by a pre board briefing meeting with Paul Johnson as the Deputy Chairman, standing in for Paul Lupton this month. Good turnout for Gateway, I surrender my seat to John Young from the Bank of England. It is only fair, John did the seating plan for next week. Lunch, it is Sir Howard and the annual address to pro.manchester members, nearly 200 at Stocks. Sir Howard is on great form and very upbeat about the prospects for our city.

Wednesday, coffee with Jeff Jones from BDO in the morning as we chat about the market and prospects, then off to look at possible property options for a move next year. My office is enormous but the team are worried about delusions of grandeur, as if.

In the afternoon a presentation of the Greater Manchester Forecasting model. Neil Gibson of Oxford Economics is very impressive talking about the Manchester economy. The detail of the Manchester data is excellent. Who would have thought pie makers would offer revealed comparative advantage in Bolton and Wigan?

Thursday, early start for the board meeting, it is over within the hour. The last for Robert Sheffrin, Treasurer and Finance Director. Robert is setting up a new VC advisory business in Belgrade and Sarajevo. Good luck to him, Robert was good to work with and we all wish him well.

Later a meeting with Angela Harrington from Manchester City Council. We discuss the project to assess the future demands of the business and professional services sector in Greater Manchester over the next ten years. A project we will undertake with the New Economy over the coming months. Angela is the regeneration manager for employment and skills.

Friday, the morning is devoted to the Greater Manchester Chamber of Commerce Council meeting. Martin Douglas is in the chair and Clive Memmott on the desk. Dr Brian Sloan Chief Economist, gives a presentation on the latest quarterly survey. Good session.

In the afternoon a meeting with Barry Robinson from Pheonix Venture Partners. Pheonix opened an office in Manchester this year and will be a great addition to the MPEG group.

Saturday, decide not to watch France versus Wales but finish off the Michael Lewis Boomerang book. It is his collection of articles from Vanity Fair about Iceland, Ireland, Greece and sub prime USA. Exploding Range Rovers in Reykjavik, empty building blocks in Dublin and news of the rail system in Greece. The rail losses are so great it would be cheaper to put every Greek rail user in a taxi. It is a sad read about the price populations pay for the failure of leadership, especially in lands of ice and ire.

Saturday afternoon, off to play tennis with Mary, it is a draw eight all. Later today, we are off to a birthday party for Rachel, deputy CEO and head of operations at pro.manchester. Good chance for Mary to meet the team and compare notes. Oops!

Hope all is well with all, more news next week,
John
John Ashcroft
Follow on Twitter @jkaonline, or join me on LinkedIn or Google+.
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The wrong option : In a liquidity trap - say no to more QE on planet ZIRP

Last week, the Governor of the Bank of England said This is the most serious financial crisis we have seen since the 1930s, if not ever. Well is it? Just like the 1930s the UK is in what we call a liquidity trap, a situation where monetary policy is unable to stimulate the economy either through lowering of interest rates or increasing money supply.   

Liquidity traps occur when rates are reduced to the zero bound or thereabouts and cannot be reduced further. In real terms UK rates (base rate minus inflation) are negative 4% plus.

The liquidity trap is compounded when expectations of adverse events, either deflation or in the current situation, a lack of aggregate demand, are manifest. Firms are loathe to invest, households are constrained to spend, government spending is limited by a desire to resolve a fiscal debt crisis.

In the UK, the first round of Quantatitive Easing or asset purchases was essential to improve liquidity in the banking system at a time of crisis. 

Inter bank lending was dessicated, LIBOR spreads were extending. The central bank was becoming not just the last lendor of resort but the only lender of resort. Action had to be taken to inject cash into the economy by undertaking a series of asset purchases predominantly gilts. The programme of some £200 billion was equal to 14% of GDP it had to be done.

This is not an argument for more asset purchases, for the exercise came at a price. QE forces up bond prices, pushes yields lower, punishes savers, places more pressure on sterling, increases import prices, leads to higher inflation, greater pressure on real incomes, a reduction in household spending, actually reduces demand and leads to lower growth.

Ten year gilt yields have fallen to 2.4% and thirty year gilt yields have fallen to 3.4%. But what does that mean? Gilts are mis priced, the real risk return on ten year gilts is negative. Effectively investors are paying the government to hold bonds.

Policy makers assume that lower interest rates at the longer end of the curve will lead to a higher level of investment. This is not the case. Any return on investment or payback calculation is a function of cash flows from a determined demand horizon. 

Cost of capital does not feature in the basic investment model. Until the uncertainty about the forward level of demand and growth is cleared, investment plans will remain on the shelf. 

The Bank of England suggests that QE increased GDP by between 1.5% - 2.0% but also led to an increase in inflation of between 0.75% and 1.5%. [Joyce M et al in the September Bank of England Quarterly Bulletin.] This is a highly speculative analysis.

If it were right, this would mean, that at best, the QE2 round of £75 billion would kick growth by just over 0.5% but increase inflation by over 1% on a pro rata basis according to the banks own figures.

One cannot be entirely confident in the bank’s hypothesis. QE led to a fall in gilt yields as a first round effect but thereafter the relationship between QE and the effect on growth and inflation is tenuous. The argument for further QE is intellectually weak and at best the potential economic impact minimal. The risks outweigh the return.

In fact I would argue that a further round of asset purchases merely oils the liquidity trap, digging a deeper hole, increasing the inflationary impact and reducing growth as investment plans are reigned back and household incomes are placed under greater strain. Sometimes the correct action is to do nothing, especially when it is more of the same toxic solution.

In 2008, writing about a zero interest rate policy, I wrote “Welcome to planet ZIRP. Unfortunately, we do not have a handbook, or fully understand the terrain. Our process of quantatitive easing, the plan to helicopter money may work but as a fire fighting option, it may be like dropping water into a desert, such are the fissures in the financial system." We just don’t really know what is achieved. So in the meantime we should say no to more QE and or asset purchases.

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The views expressed are my own and in no way reflect pro.manchester policy. In no way should the comments be considered as investment advice or guidelines or reflect political bias. UK Economics news and analysis : no politics, no dogma, no polemics, just facts. JKA is a visiting professor at MMU Business School, an economist and specialist in Corporate Strategy, educated at LSE, London Business School with a PhD from Manchester Metropolitan University.

 

Sunday Times and Croissants - CEO's weekly update 9th October

There is something special about Sunday morning, the Sunday Times, hot croissants with honey and butter, excellent. Headlines, am shocked by news of a UK Saudi bribery scandal in the defence industry, of all places! Surely, this should by subject to a D notice and kept off the front page. 

No such notice for Doctor Fox, who will be called into the headmasters office on Monday for conduct unbecoming. His best man had printed some joke cards which suggested he was an advisor to the defence secretary. Even more shocked. 

David Smith writes on QE and credit easing. Both David and the Sunday Times leader speak against more asset purchases at this time. We are in agreement but DS is slightly more positive about the possibilities for credit easing. Of this more later. 

Economics news this week, the GDP figures are revised down for the second quarter, the good news - the downturn in 2009 was 4.5% not 4.9% and 2007 was even better than anyone realised. Comforting. 

Producer prices head in the wrong direction as September output prices increase to 6.2% and input prices increase to 17.5%. Very strange, concerned about deflation, the Bank of England announced a further round of Asset Purchases as much as 75 billion sterling. What is going on?

Last week, Andrew Tyrie, the Chairman of the Treasury Select committee claimed he was unimpressed by the Big Society and the lack of a growth strategy, saying economic policy was inconsistent, incoherent, contradictory and at times irrelevant. 

At the party conference, Tyrie was mugged by Steve Hilton, and given the hair dryer treatment in a side room. Tyrie emerged claiming, Big Society is the best thing since Bread Sliced and feeling a lot more positive about the growth strategy. As for the Osborne speech, Tyrie exuded praise. It is a huge step forward, a speech focussed on growth for one of the best economies in the world. What did Hilton say - if only he had been in the England dressing room at half time. 

Watching the Osborne speech, at times the Chancellor appeared to stare at the auto cue with a fair degree of incredulity. Such is the danger of auto cue when ideas can be added at the last minute, even the Chancellor appeared bemused by some of the material. 

This must have been the case with the  idea of credit easing. This is a new idea which no one, including the Chancellor, knows anything about. The project appears to suggest SMEs will issue long term bonds with a low coupon, packaged into a series of CDOs, AAA rated by Standard and Poors, bought by the Treasury, sold to the Bank of England and placed off balance sheet in a structured investment vehicle backed by a RMBS (Rumours of Monetary Backing Somewhere) then written off over thirty years.

As one excited delegate explained on Newsnight, there is a company in my constituency that has been turned down ninety times for funding, I am so pleased - now they will be able to get some money, thanks to the new initiative from the Chancellor of the Exchequer. Excellent.

Latest : The Treasury is studying the proposal to see how best to morph into Goldman Sachs or reverse into the Lehman corpse. Credit easing - call it credit fantasy. How can this feature in the November statement? 

Back to the day job, Monday, internal meetings in the morning, across town, bumped into Simon Walker, the new director general of the IOD. It is his first day in the job. I am on my way to meet with Mike Emmerich, Mike is very pleased with the 50 million pound Graphene funding announced by the Chancellor, in which the New Economy had a guiding hand. Mike explains the Graphene manufacturing process involving a food blender, four pencils and two dodgy acids. It seems straightforward. Did not realise Mike was a potential nobel prize winning physicist but he obviously is.

Tuesday, a meeting with Paul Johnson from the Institute of Fiscal Studies, Paul will join the list of great speakers for the business conference in March. In the afternoon, filming with the KPMG team as part of a senior partners presentation. I am asked what does K P M G stand for. It is a trick question, I reply KPMG is a global network of professional firms providing Audit, Tax and Advisory services. 138,000 outstanding professionals many in Manchester working together to deliver value in 150 countries worldwide. Exactly.

Wednesday, I have a Business Leadership Council Transport sub group meeting, at Manchester Airport, then a meeting with Rob Pailin from RBS. Rob and I will appear before

the AGMA employment, economy and skills scrutiny committee later this month. Tom Dempster is in from the council later that day. Tom is preparing an access to finance briefing paper to be presented to the scrutiny committee.

Thursday, Paul Smith from MCR is in for coffee to discuss a series of events. Richard Jeffery calls in to talk about the Business Growth Hub. It is a huge project for Business Solutions and for the city. 

In the evening, the Institute of Directors awards dinner. Simon makes a brief speech as the new DG. I am on a great table with Clive Memmott, Geoffrey Piper, David Highams and others. Fifteen awards and a crooner later, I am heading home around midnight. Clive and I have discussed the merits of a change in title from CEO to Director General. It has legs.

Friday, I am guest speaker at the Manchester Insurance Institute Awards lunch at the Hilton hotel.  I talk about economics and QE2. It is a once in a lifetime to chance to appear more boring than the insurance underwriters group. I succeed. 

Finally, to close the working week, a quick check on Google Earth, to see if Greece, Portugal and Italy are still there, they are. I relax.

Saturday, up early for the rugby, England are out. Gloom. Tennis in the afternoon. I lose 6-3, check the biorhythms, I am on a physical high but Mary has played too well.   

Hope all is well with all, more news next week, 

John

Follow on Twitter @jkaonline, or join me on LinkedIn or Google+. Check out the pro.manchester blog post for regular updates. 

 

Why more QE is the wrong policy option..

The UK is in a liquidity trap, a situation where monetary policy is unable to stimulate the economy either through lowering of interest rates or increasing money supply.  Liquidity traps occur when rates are reduced to the zero bound or thereabouts and cannot be reduced further. In real terms UK rates (base rate minus inflation) are negative 4%.

The liquidity trap is compounded when expectations of adverse events, either deflation or in the current situation, a lack of aggregate demand, are manifest. Firms are loathe to invest, households are constrained to spend, government spending is limited by a desire to resolve the debt crisis.

The first round of Quantatitive Easing was essential to improve liquidity in the banking system at a time of crisis. Inter bank lending was dessicated, LIBOR spreads were extending. The central bank was becoming not just the last lendor of resort but the only lender of resort. Action had to be taken to inject cash into the economy by undertaking a series of asset purchases predominantly gilts. The programme of some £200 billion almost 14% of GDP had to be done.

This is not an argument for more asset purchases, for the exercise came at a price. QE forces up bond prices, pushes yields lower, punishes savers, places more pressure on sterling, increases import prices, leads to higher inflation, greater pressure on real incomes, a reduction in household spending, reduces demand and leads to lower growth.

Ten year gilt yields have fallen to 2.4% and thirty year gilt yields have fallen to 3.5%. Policy makers assume that lower interest rates at the longer end of the curve will lead to a higher level of investment. This is not the case. Any return on investment or payback calculation is a function of cash flows from a determined demand horizon. Cost of capital does not feature in the basic model. Until the uncertainty about the forward level of demand and growth is cleared, investment plans will remain on the shelf.

In 2008, I wrote :  Welcome to planet ZIRP. Unfortunately, we do not have a handbook, or fully understand the terrain. Our process of quantative easing, the plan to helicopter money may work but as a fire fighting option, it may be like dropping water into a desert, such are the fissures in the financial system."

In 2004 a Bernanke paper  “Monetary Policy Alternatives at the zero bound” concluded :
“Despite our evidence that alternative policy measures [QE} have some effect, we remain cautious about relying on such approaches. We believe that our findings go some way to refuting the strong hypothesis that nonstandard policy actions, including quantitative easing and targeted asset purchases, cannot be successful in a modern industrial economy.  The effects of such policies remain quantitatively quite uncertain”.

The Bank of England suggests that QE increased GDP by between 1.5% - 2.0% but also led to an increase in inflation of between 0.75% and 1.5%. [Joyce M et al in the September Bank of England Quarterly Bulletin.]

At best, QE2 round of £50 billion would kick growth by just 0.4% and inflation by over 1% on a pro rata basis according to the banks own figures.

One cannot be entirely confident in the bank’s hypothesis. QE led to a fall in gilt yields as a first round effect but thereafter the relationship betwen QE and the effect on growth and inflation is tenuous. The argument for further QE is intellectually weak and at best the potential economic impact minimal. The risks outweigh the return.

In fact we would argue that a further round of asset purchases would merely oil the liquidity trap, digging a deeper hole, increasing the inflationary impact and reducing growth as investment plans are reigned back and household incomes are placed under greater strain. Sometimes the correct action is to do nothing, especially when it is more of the same toxic solution.

Sign up today and "subscribe" for e-mail notification of updates. Or follow me on Twitter @jkaonline , join a great network on LinkedIn or Circle me on Google+.

The views expressed are my own and in no way reflect pro.manchester policy. In no way should the comments be considered as investment advice or guidelines or reflect political bias. UK Economics news and analysis : no politics, no dogma, no polemics, just facts. JKA is a visiting professor at MMU Business School, an economist and specialist in Corporate Strategy, educated at LSE, London Business School with a PhD from Manchester Metropolitan University.

Regeneration is more than a phase - The Times Business Insight today

The danger when we think of regeneration is to think of it as a phase. It is not a phase, it is a continuum, a constant process of Darwinian evolution and adaptation. It is a slow and steady process but it is a RAPID movement, one in which businesses and economies,  React, Adapt, Plan, Invest and Develop.

The problem with the French as George Bush might have said, is they don’t have a word for Renaissance, or if they do it is a bygone era, a phase long discontinued. Regeneration is a constant ongoing process. It is what we do to survive.

At present businesses and economies in Manchester and the North West are having to react and adapt to a economic outlook which offers low growth and a higher level of inflation. One in which incomes are squeezed by higher food, energy and utility prices putting real incomes under pressure for the foreseeable future.

A government policy aimed at rebalancing the economy involving the march of the makers, rebuilding the workshop of the world is a novel trope. The desire to rebalance the economy and an external deficit which has been out of synch since The Treaty of Versailles and beyond, is misplaced.

A monetary policy, which undermines the exchange rate, leads to a depreciation of Sterling and generates price inflation compounds the problem, more QE will compound the problem. The private sector has to accept the challenge, of policy priorities misplaced.

Nevertheless, across the North West examples of regeneration apply. Blackpool Pleasure Beach continues to invest heavily in new initiatives to stimulate traffic to the award winning site. Nickelodeon land is open and SpongeBob’s Splash bash is there to welcome all.

In Liverpool, the huge investments on the waterfront continue, with the opening of The new Museum of Liverpool. It is the largest newly-built national museum in the UK for more than a century.

Across the road from the Museum and the Liverpool One Shopping Centre is a brand new development with more than 160 high street stores assisting the regeneration programme for the city.

Moving East and the Atlantic Gateway is a framework for collaboration between Manchester and Liverpool city regions. The challenge of the Atlantic Gateway is to become one of Europe’s leading low carbon, economic growth areas, second only to London.

Further East and the finishing touches are being made to the future new home of Salford Rugby League Club. Salford City Council formed a joint venture company with Peel Holdings to develop the £16 million stadium, seating 20,000.

It is in Manchester where the best examples of regeneration can be found, setting an example for the North West and the UK. Plans for the integration of the city transport network continue with an extension of the modern and impressive tram system across the city and into the travel to work areas.

In new industries, the city sets the example with new industries encompassing digital, media and creative well blessed with Media City in Salford and Trafford, the Sharp project in East Manchester, the Hive and Corridor projects in the city centre.

Incubators thrive in the developments within the University, including UMIC, the Manchester University Innovation Centre and Manchester Science Park.

The cranes hover again over Manchester as the plans for the Co-operative bank NOMA development take shape. NOMA,  comprises a 4 million square feet, 20-acre mixed-use project. Further East and the £100 million investment in the Manchester City FC academy has recently been announced. It's a great project for our city.

The Nobel prize for physics in 2010 was awarded to the university’s Andre Geim and Konstantin Novoselov for the groundbreaking development of Graphene. The real challenge now to grapple with graphene and develop marketetable products capitalising on the inherent strengths of the product.

Manchester has developed as a modern service sector economy with a very strong business,  professional and financial services sector. pro.manchester is the members organisation for this important sector in the city. It represents the largest advisory group in the North West. This month we launched our SME club, a free advisory service for businesses in Greater Manchester and beyond. Why? Manchester is a great community, we all want businesses in our city to survive and thrive as part of the regeneration process. JKA

This article was originally published in The Times Business Insight on the 27th September 2011.

Sign up today and "subscribe" for e-mail notification of updates. Or follow me on Twitter @jkaonline , join a great network on LinkedIn or Circle me on Google+.

The views expressed are my own and in no way reflect pro.manchester policy. In no way should the comments be considered as investment advice or guidelines or reflect political bias. UK Economics news and analysis : no politics, no dogma, no polemics, just facts. JKA is a visiting professor at MMU Business School, an economist and specialist in Corporate Strategy, educated at LSE, London Business School with a PhD from Manchester Metropolitan University.

Sunday Times and Croissants - CEO's update 25th September

There is something special about Sunday morning, the Sunday Times, hot croissants with honey and butter, excellent. What a week! Headlines, the global economy is pushed to the brink according to the Saturday FT but within 24 hours the G20 announced a three trillion deal to save Euroland. Even the Greeks get to stay but with a haircut. David Smith suggests we should pick a pump to rescue recovery. Not more QE says DS, it is good call. 

This week, the LIb Dem conference. Vince Cable talks of a gear change in Whitehall, a reference to dress down Friday as opposed to any change in economic policy, as hints of an infrastructure spend are knocked back by the Treasury. We are in a crisis, says Cable, it is the economic equivalent of a war, building from the rubble, the people need to be told the truth, there is no Father Christmas. Ouch! Politicians can be so brutal.

According to Vince Cable, the world is in a difficult place. Plans are afoot to relocate to another part of the Galaxy, where the gravitational pull of sovereign debt on growth is much lower.

The head of the World Bank warned the world is in a dangerous zone thus ruling out relocation within the Milky Way as a short term solution. The IMF World Economic Outlook produced a down grade for growth in the world and the UK. The elegant Christine Lagarde gets the terminology right suggesting the world is in a difficult phase. Here but not forever.

Economics news this week, the borrowing figures were not great for the Chancellor, the worst August figures since the abacus was created. Targets will be missed, we need growth to make the numbers work. Otherwise, automatic stabilisers kick in, reducing tax receipts and pushing up spending. Why do they call them stabilisers when they just upset the debt reduction plan?

Hints from the Bank of England of more QE in November, as much as £50 billion. QE forces up bond prices, pushes yields lower, punishes savers, places more pressure on sterling, increases import prices, leads to higher inflation, greater pressure on real incomes, a reduction in household spending and possibly lower growth. What is the point of more QE, we might as well give the money to a group of UBS traders.
Policy makers genuinely believe that ever lower interest rates will stimulate investment. Not one, can ever have ever done a payback calculation, in which return on investment is a function of cash flows from a defined demand horizon in which cost of capital is irrelevant. Eliminate uncertainty, offer growth, only then will investment return.

What is happening to markets? The FTSE closed the week at 5067, marginally above the critical 5,000 level. Which way next, it is a fifty fifty call. (See what I did there?) Ten year gilts are 2.4% and thirty year gilts yield 3.5%. Something is wrong, it is like the tide receding from the beach before the Tsunami. A desiccation of yield and liquidity. Say no to more QE on planet ZIRP. Google - planet ZIRP - for more information.

By the end of the week, more economics humour as the Chancellor lectures Europe re inaction on debt and Greece. Osborne warns that patience is running out and the eurozone has six weeks to sort out the problem. He even asked on Friday where do the Europeans think the growth will come from? Now, that is a good question, not from net exports, the march of the makers and capital investment, that is for sure. Qui s’appelle la bouilloire noire, monsieur George?

Back to the day job, on Monday, Robert Chote Chairman of the Office of Budget Responsibility is with us for a private lunch which included Sir Richard Leese, Robert Hough and a trio of Chairman past, present and future of pro.manchester. The OBR revised forecast for the UK economy is due in November. Robert spoke candidly and off the record.

Tuesday a day off to meet with two old friends and former Coloroll Directors, Jeremy Sholes and Bill Dobie. Bill is 82 and recently had a severe heart attack and near death experience. Cholesterol - as a Scot and a great bag pipe player, Bill looked well as he tucked into Stuffed Mushrooms, Calves Liver and Onions, excellent. We reminisced and recalled great moments.

Wednesday and early start for an economics presentation at Colliers. Walter Boettcher chief economist depressing everyone with his overview. Walter placed some hope on QE2 for recovery but according to the Bank’s own dubious calculations, 50 billion would kick the economy by less than half of one percentage growth. Not sure Walter really believed it anyway.

Later a meeting and lunch with Chris Bagley from the Federation of Small Businesses. Chris will be a great ally for SME club. Lunch at Rossos, Forty Quid for two. Not bad.

In the evening, launch of the future pro·manchester Professional Innovator Challenge at MOSI, the Museum of Science and Industry. Mark Rock, founder of AudioBoo made the keynote presentation. Sponsored by Beever and Struthers the challenge promotes innovative flair in financial and professional services in the city. future.pro manager, Sam AudioBooth recorded the first pro.manchester boo ever. Great stuff.

Thursday, early start for the pro.manchester plenary board meeting at Deloitte. All over within the hour. Excellent. Time for a lie down before the BDO dinner at Manchester City in the evening. Hugely impressive venue and key Manchester City execs outline their international plans for the club and the brand over the next ten to fifty years. Thanks to Jeff Jones and the BDO team for the invitation.

Friday and it is the Marketing Manchester Tourism Awards lunch at the Lowry Hotel. A three hour session with fifteen awards. Drew Stokes and Paul Simpson presented with Eamonn O’Neal from MEN media anchoring the show. I am on a great table between Angie Robinson and the Linda Thomas, Deputy Leader of Bolton Council. Great fun. I am a thorn between roses. Excellent event, it is my first visit.

End of the day close of polling for the pro.manchester Business Conditions Survey, sharing the data with Brian Sloan from the Chamber of Commerce to finish the week.  Finally, a quick check on Google Earth to see if Greece is still there, it is.

Tennis on Saturday and later today, a family gathering for the christening of Emily, our first grand child. Should be a fun afternoon,

Hope all is well with all, more news next week,
John
John Ashcroft
Follow on Twitter @jkaonline, or join me on LinkedIn or Google+.
Check out the pro.manchester blog post for regular updates.

China's Foreign Direct Investment : which way does the Renminbi river flow?

Which way does the Renminbi river flow, is it east or west?  An analysis from US based heritage.org into China’s global foreign direct investment between 2005 and 2008 provides interesting reading.  

We have long argued China’s FDI is determined by three issues, access to markets (ATM), access to technology (ATT) and access to resource (ATR). By far and way the greatest determinant is access to resource.

Consider that Australia is the largest single country destination for China’s direct investment according to heritage.org using data from a report first by Scissors [2011]*. Investment is valued at $34 billion and 15% of the total, according to the data.

This investment could be motivated by the market of some 23 million people (ATM) , or possible access to technology (ATT) represented by boomerang flight dynamics perhaps. Far more likely is access Australia’s thriving resources sector particularly minerals and petroleum. Australian coal, liquefied natural gas, iron ore, copper, diamonds, zinc and many other minerals provide the essential incentives for the FDI direction. In 2006–07, over 80 per cent of Australian output was exported, accounting for approximately 49 per cent of total goods and services exports.

Nigeria, Iran, Brazil, Kazakhstan, Canada, Indonesia, Algeria and Venezuela all rank above Britain in the foreign investment rankings. China invests almost twice as much in Nigeria as it does in the UK mainland. Unless copper deposits in Cornwall or zinc in the lakes are discovered, the UK will remain outside of the top ten destinations for Chinese investment.

China is the second largest economy in the world growing at 9% per annum. With a population of 1.3 billion it struggles into the world top 100 in GDP per capita parameter. With $3.2 trillion of reserves, it has the financial resource to lock up the finite resource of world commodities and continues to do so at a vast rate. Almosty eight per cent of investment is into the food, energy and metals sectors.

The challenge for the growing China economy is to secure resource. It is acquiring and developing the technology. It already has the market, the export growth model abandoned post 2008 in favour of domestic expansion. Europe and the West may yet pay for the occupation of Peking. The price is lower growth and higher inflation as demand for resources grows in the East at the expense of the West.

So which way does the Renminbi river flow. The renminbi flows East, West, North and South but the resources flow back just one way. JKA 2011

Scissors Derek, 2011 China's Investment overseas in 2010 Heritage Foundation.

Sign up today and "subscribe" for e-mail notification of updates. Or follow me on Twitter @jkaonline , join a great network on LinkedIn or Circle me on Google+.

The views expressed are my own and in no way reflect pro.manchester policy. In no way should the comments be considered as investment advice or guidelines or reflect political bias. UK Economics news and analysis : no politics, no dogma, no polemics, just facts. JKA is a visiting professor at MMU Business School, an economist and specialist in Corporate Strategy, educated at LSE, London Business School with a PhD from Manchester Metropolitan University.

Inflation above target, the governor writes another letter, we have the real version!

Dear Chancellor, The office for national statistics has published data showing that CPI inflation was 4.4% in July. As it is three months since I last wrote an open letter to you, and CPI inflation remains more than one percentage point above the target, I am writing a further open letter to you on behalf of the MPC. Please add this to the other eight letters I have already written.

The letter explains why inflation has moved away from target and why we intend to do nothing about it. Really it is not our fault, you put up VAT, oil prices have increased beyond reason and the Chinese have stopped shipping all those really cheap products that deflated the goods inflation in the past. [Chart 2]. Yes, that an the depreciation of sterling by 25%.

If all of the items that have pushed inflation above or below target are stripped out, the MPC would be able to claim the 2% target rate is being achieved on a month on month basis. RPI and RPIX inflation rates have hit 5% but CPI-DGI ie domestically generated inflation is showing no signs of an increase and our preferred measure CPI-MK, (named after myself) confirms the return to target has already been achieved.

As set out in the August Inflation Report, it is likely that CPI inflation will rise to around 5% in the coming months, boosted by increases in utility prices and reflecting the continuing effects of temporary factors, best described as anything above the 2% target rate.

Inflation should fall back through 2012 assuming you don’t put VAT up again and other prices begin to fall sometime soon.

Of course, there are those who would point out that CPI service sector inflation has averaged 3.6% for the last sixteen years and the 2% target rate has only been achieved by an extremely flattering 1% rate of goods inflation. This of itself a function of a relatively high sterling exchange rate, an undervalued Renminbi and cheap products from the Asian block. Such facts are unhelpful in our model understanding of the way the world really works.

I am copying this letter to the Chairman of the Treasury Select Committee. Signed the Governor.

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The views expressed are my own and in no way reflect pro.manchester policy. In no way should the comments be considered as investment advice or guidelines or reflect political bias. UK Economics news and analysis : no politics, no dogma, no polemics, just facts. JKA is a visiting professor at MMU Business School, an economist and specialist in Corporate Strategy, educated at LSE, London Business School with a PhD from Manchester Metropolitan University.

UK GDP - if the recovery is on track, I am on the wrong train!

On track delivering the growth plan to rebalance the economy. I have just been watching the Faisal Islam interview with the Chancellor of the Exchequer and everything is OK. The economy is rebalancing, the supply side is improving, the Chancellor is not for turning because there is no alternative. The borrowing figures are on track and growth in the British Economy is welcome.

If this recovery is on track, then I am on the wrong train. Growth in the second quarter was just 0.8% year on year compared to 2.5% in the third quarter of 2010. The economy is slowing and it is difficult to see the impetus to growth in the second half of the year. Slow growth is already impacting on government borrowing and the targets for the year will be dificult to achieve.

The UK economy has grown by just 0.2 per cent (quarter on quarter), with the Japanese tsunami, Royal Wedding, and April bank holidays all having an impact, according to the ONS.

“The latest gross domestic product figures for the second quarter of 2011 suggest the economy has grown by just 0.2 per cent following an increase of 0.5 per cent in the first quarter of 2011. The April bank holidays, the royal wedding, and the effects of the Japanese tsunami, all had an impact on the growth rate. These estimates are broad brush and illustrative. There can be no certainty as to the impact of the special events and there may be other factors at play," the ONS said.

The ONS is beginning to sound like a beleaguered sales team under pressure to hit targets. Too hot, too cold, too wet, too dry, Christmas too early, Easter too late. Missed sales targets that’s our fate, the old mantra.

According to the ONS in Q4 there was too much snow, in January not enough snow, April was too warm and the bank holidays and the Royal Wedding hit the growth figures in the second quarter. Heaven knows what would have happened to GDP if it had snowed on the day of the Royal Wedding.

The march of the makers, rebuilding the workshop of the world, is beginning to slow with manufacturing growth up by 2.3% compared to a high of nearly 5% last year. Service sector growth was just 1.2%. We are no longer a nation of shopkeepers, we will become a nation of online traders. This recovery is not on track, it is slowing badly. The economy is not rebalancing, it’s slowing down.

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The views expressed are my own and in no way reflect pro.manchester policy. In no way should the comments be considered as investment advice or guidelines or reflect political bias. UK Economics news and analysis : no politics, no dogma, no polemics, just facts. JKA is a visiting professor at MMU Business School, an economist and specialist in Corporate Strategy, educated at LSE, London Business School with a PhD from Manchester Metropolitan University.

CPI inflation falls to 4.2% CPI basis - CPI-MK is on track

The rate of UK inflation fell from 4.5% in May to 4.2% in June according to latest ONS data. Despite a significant rise in food prices and transport costs. Recreation and culture prices fell to produce an overall slowdown in the headline rate by 30 points. RPI and RPIX inflation indices were up 5% year on year. Goods and service sector inflation were in line with the overall rate at 4.2%. 

A closer look at the sectors suggests the inflation watch is not yet over. Food inflation was up by 6.9%, alcohol and tobacco increased by 9.6%, transport costs were up by 7.9% restaurants, hotels and even household goods and services were up by 4.5%.

The biggest impact to the lower rate was the recreation and culture sector. Games, toys and hobbies, computer games, consoles, digital cameras, TVs and other electricals were the main contributors to a lower rate of inflation. 

As if three inflation indices were not enough to provide some confusion CPI-Y and CPI-CT also slowed. Only CPI-MK, the Governor’s favored measure of inflation remained constant and on target at 2%. 

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The views expressed are my own and in no way reflect pro.manchester policy. In no way should the comments be considered as investment advice or guidelines or reflect political bias. UK Economics news and analysis : no politics, no dogma, no polemics, just facts. JKA is a visiting professor at MMU Business School, an economist and specialist in Corporate Strategy, educated at LSE, London Business School with a PhD from Manchester Metropolitan University.