The return of coal?

The Observer reported that Britain is poised to expand its coal mining industry, despite fears that the move will lead to a rise in climate change emissions and harm communities and the environment. In the past 18 months 14 companies have applied to dig nearly 60 million tonnes of coal from 58 new or enlarged opencast mines. At least six coal-fired power stations are planned. If all the applications are approved, the fastest expansion of UK coal mining in 40 years could see southern Scotland and Northumberland become two of the most heavily mined regions in Europe.
The demand for new mines is being driven by dramatic increases in the price of coal. This has quadrupled in two years and has risen by 45 per cent since the start of this year. Opencast, or surface, mines are much cheaper than deep mines, but those living nearby can suffer years of pollution. (Link)

Menu costs

Geoff Riley highlighted the 'menu costs' associated with the cut in VAT. (Link) The FT carries a similar article where retailers, whilst broadly welcoming the chancellor's cut in the rate of value added tax, warned that the reduction was difficult to implement and would be eclipsed by clearance sales in the next few weeks. With many retailers already cutting prices by about 20 per cent to stimulate spending in the run-up to Christmas, the cut from 17.5 per cent to 15 per cent in the rate of VAT comes into force on December 1 and lasts until the end of next year. As retailers privately warned of a "logistical nightmare" in adjusting prices, the pre-Budget report acknowledged that overall prices would be "reduced progressively rather than immediately". The difficulty of physically changing the price of thousands of product lines at the busiest period of the retail year will be a substantial challenge for those retailers that choose to move on December 1. (Link)

'Too low inflation' warning

Speaking to the Treasury Select Committee about inflation, Mervyn King, Governor of the Bank of England, warned that the risk it could fall below 2% in the medium term has "increased significantly" in recent weeks. He said this was due to the sharp fall in global oil and commodity prices, and declining consumer demand. UK inflation fell to 4.5% from 5.2% in October. The government wants inflation to be as close as possible to 2%. and Bank of England targets the Consumer Price Index, which excludes the effects of mortgage interest payments. "We will take whatever action is necessary to ensure that inflation is close to target in the medium term," Mr King said.
UK interest rates are currently at 3% following a 1.5 percentage point cut at the start of this month, and many economists are forecasting a further cut in interest rates in December. He added that the government's cut in VAT will also help lowe the rate of inflation.

Is there an ideal rate of inflation?

Why is the target set at 2%?

What are the dangers of falling prices?

What is the difference between deflation and disinflation?

Pre-Budget Report...or is it a 'Mini Budget'

As to be expected there is wide coverage of the details of Alistair Darling's statement to the Commons. BBC News offers its usual broad coverage with some analysis and reaction. The details of the measures are summarised in the following link. (Pre-Budget details: at a glance) Much more analysis in the FT (Details plus short video analysis) and a more detailed analysis (Link) Jonathan Freeland in The Guardian narates a short video comparing the UK package with that announced by Barack Obama. (Link)

Salvation now...pain later?

As we await the Autumn Statement, speculation is rife as to the ways in which the planned spending increases and tax cuts will have to be paid for in the future. The BBC reports that the top rate of tax will be increased from 40p to 45p in the pound after the next election for those earning over £150,000 per year. This appears to be a reverse in Labour's policy, reierated in their 2005 General Election manifesto, not to increase the top rate of tax. Also, it highlights differences that are starting to emerge between Labour and the Conservatives over future tax and spending policy; the Conservatives have said they would pay for any increase in government borrowing by scrapping planned rises in expenditure. (Link to BBC for details) and (FT)

The FT has produced a 'checklist' for the Autumn Statement, detailing certain aspects of the economy. (Link)

Energy shortfall

The BBC News reports on the possibility of major blackouts in the next 10 years due failure to secure sufficient energy supplies to meet expected demand. Highlights the importance of investment, especially in an industry expected to address serious environmental concerns as well as ensuring supply. Link to BBC News video)

UK already in recession - Bank of England

The Bank of England says the UK entered a recession in the middle of 2008 which will continue through 2009. In its quarterly inflation report, the Bank warns that the economic landscape has changed dramatically since August. It now expects inflation to decline to 1% by 2010, below its 2% target, in a dramatic change to its last forecast. This could open the way for further interest rate cuts if the Bank is to maintain inflation at its target rate in two years' time. "We are certainly prepared to cut bank rate again if that becomes necessary," said Mervyn King, the Bank of England's governor.

UK consumers plan to spend 7% less this Christmas than they did last year, a survey from business advisory group Deloitte has suggested. Deloitte warned this festive season may be "one of the toughest in decades" for retailers. The expected fall compares with a 7% rise in spending in 2007. (BBC News)

Unemployment rise confirmed

The rapid rise in unemployment was confirmed with the publication of figures that show the total to be the highest for 11 years. The number of people out of work in the UK in the three months to September jumped by 140,000 to 1.82 million - the highest in 11 years. The unemployment rate rose to 5.8%, up from 5.4% in the previous quarter, according to official figures. The number of people claiming the Jobseeker's Allowance rose by 36,500 to 980,900 in October - the highest monthly increase since 1992. Many economists believe that the number out of work will rise to 2 million by Christmas. (Link to BBC News)

"The last recession in the early 1990s saw 31 consecutive monthly rises in unemployment so we are likely to have plenty more bad news on the labour market to come," said James Knightley, economist at ING Financial Markets. "We suspect (the claimant count) will push towards 2.5 million in 2010. The LFS measure of unemployment currently stands at 1.85 million and this is likely to push above 3 million over the same time period." (The Guardian)

“The dole queue is now growing by a 1,000 people a day – each one a human tragedy of wasted potential,” TUC General Secretary Brendan Barber said. “And the signs are that redundancies are coming even faster since these figures were collected. Countering unemployment must be public policy priority number one.” (FT)

The BBC News site contains a section looking at how some individuals are coping with unemployment. (Link)

Who can cut taxes the most ... and will it work?

As the leaders of the main political parties announce proposed tax changes to deal with the impending recession, Larry Elliott in the Guardian explains the likely effects of tax cuts and highlights the fact that '... Keynes never saw tax cuts or increases in public spending as a panacea for ending slumps. He believed fiscal policy should only be used once every other economic tool had been exhausted; his remedy for the Great Depression was a mixture of devaluation, protectionism and cheap money, with public works only to be wheeled out as a last resort.' The recent experience of Japan, with a series of tax cuuting measures and the USA, highlights a risk, namely that tax cuts have to be large-scale to be effective and, even then, may only have a temporary impact, which can be limited if consumers believe that tax cuts now mean tax increases later.

(Link to article)

See Geoff Riley's thoughts on the announcements (Tax Stimulation)

Tackling the drinking culture

BBC News has coverage of call by MPs to ban 'Happy Hours' and possibly regulate the price of alcohol, through the imposition of a minimum price The Select Committee report evidence showed the biggest problem faced by police forces was violence and disorder caused by excessive drinking of cheap alcohol. Other official figures on the cost of goods over time show alcohol has become much more affordable in the last three decades. Many of the negative externaliies associated with excess drinking are detailed in the article. (Link to BBC News)

Think about whether the imposition of a minimum price would be effective in reducing consumption of alcohol.

MPC cuts interest rate by 1.5%!

(FT video)