Britain Set To Grow At Fastest Rate For A Decade Due To Oil Price Slump

[thecrashingisles]

http://www.dailymail.co.uk/news/article-2915080/Britain-set-grow-fastest-rate-decade-oil-price-slump-Economists-predict-4-leap-household-income.html

Britain's economy will experience the fastest growth in a decade in 2015 due to the slump in oil prices with household income expected to see a leap of 4%, according to economists.

In a forecast due to be published today, the EY Item Club predicts a growth of 2.9% this year - the highest since 2005 - with families likely to see their real incomes rise by almost 3.7%.

Do these people not know that deflation is the biggest threat to the economy? What kind of dangerous talk is it to say that real incomes will rise if costs go down? Next they'll be saying that cheaper houses will make us wealthier and we all know how wrong that is.

Edited January 18, 2015 by thecrashingisles

[29929BlackTuesday]

http://www.dailymail.co.uk/news/article-2915080/Britain-set-grow-fastest-rate-decade-oil-price-slump-Economists-predict-4-leap-household-income.html

Do these people not know that deflation is the biggest threat to the economy? What kind of dangerous talk is it to say that real incomes will rise if costs go down? Next they'll be saying that cheaper houses will make us wealthier and we all know how wrong that is.

Hmmm. I wonder how long it will be before the low fuel costs begin to get factored in by manufacturers etc. If you see what I mean. Then it becomes the norm. I'm not really sure what I'm trying to say actually. I can see low costs of fuel becoming normal then once they rise it will be quite bad news. Perhaps someone who didn't drink two bottles of wine last night could be more lucid?

[Guest_northshore_*]

EY Item Club Inflation Report May 2013 - "...inflationary pressures should cool in the Autumn, as domestic energy and food prices rise by less than they did at the same time last year, it’s unlikely that CPI inflation will dip below 2.5% before 2016."

They have as much of a clue as we do.

[Venger]

http://www.dailymail.co.uk/news/article-2915080/Britain-set-grow-fastest-rate-decade-oil-price-slump-Economists-predict-4-leap-household-income.html

Do these people not know that deflation is the biggest threat to the economy? What kind of dangerous talk is it to say that real incomes will rise if costs go down? Next they'll be saying that cheaper houses will make us wealthier and we all know how wrong that is.

You have to cut through the views they feed you, hungry for reelection, and make your own mind up and your own decisions.

Even recognising a slump is underway is often beyond the vision of authorities. Consider that the 1973-75 recession began in November 1973, but, reported the Wall Street Journal, "as late as August 1974, Arthur F.Burns, the Federal Reserve chairman, was assuring Congress that the economy was still expanding."

Widespread complacency is not the only parallel. A major confirmation of the onset of depression will be a concerted effort on the part of political authorities to locate scapegoats for the slump. Every slump and market crash in history has been blamed upon something other than a decline in economic prospects. The pattern is infallible. The blame is fixed partly on some technical factor: short-selling, margin abuse, etc.; and partly on some fraud or wicked manipulators. In 1720, it was Sir George Carswall and the Directors of the South Sea Company who were judged to have ruined the London Stock Market. The Panic of 1837 was blamed on Nicholas Biddle. The crash of 1873 was the work of Jay Cooke. In 1893 the blame fell on James M.Waterbury and "international bankers." In 1929 the "international bankers" came in for another tarring, along with President Herbert Hoover, short-selling, and "unregulated securities markets." The Brady Commission after the 1987 crash and the new high-tech villain: the computer. In the future the blame will fall on program trading and derivative instruments like options and futures, and foreigners in general.

The search for scapegoats is in many respects silly. But it unintentionally makes a point that you should take to heart. When the news is bad and apt to get worse you cannot draw your bearings about the economy or the market from channels of mass communications. Can you imagine a major newspaper (much less the leaders of the country) saying that stocks fell because objective conditions no longer supported their further rise? Has it ever been recognised politically that a market has topped out? Or that an economy needed to go through a painful slump to facilitate a transition and shake out dead wood?

In every case which we know, politicians have continued to pretend that all was well long after events provided impressive evidence to the contrary. This is a game that President Hoover, in retirement, described as "sustaining the morale of the people."

In spite of these often well-intended gestures, debt soaked economies will shift into a contraction that government will be powerless to abate. Asset prices, especially real estate and stocks, will tumble. Credit will contract. Governments hungry for reelection will panic as the asset deflation gathers force. Their first instinct will be an attempt to counter the contraction with easy money. .... Central banks could essentially become national pawn shops - economy wide holding companies of insolvent institutions.

[interestrateripoff]

And what will happen to tax revenues? I'm guessing the Chancellor will already be several billion worse off.

[spyguy]

No its not. Most of the cost of oil is tax.

The effect of the oil price on the economy is pretty small.

[gf3]

In theory any extra money will be mopped up by rent increases.

[billybong]

It seems to be race against time for the general election.

Whether the oil price reductions will produce enough benefit to workers and consumers in time for the election. For sure they're making every effort to propagate any benefit angle of the oil price reduction as the general election approaches - and anything else for that matter.

Or will the real stuff in the background beat them to it.

The lack of global demand causing the oil price drop, deflation (the bad sort of course ), possible problems relating to Russia, possible problems relating to China and other countries, the background reasons for the ecb likely to start printing money, Switzerland ditching the euro or at least ditching the peg, the possibility of next weeks elections in Greece causing them to eventually ditch the euro and the knock ons including Italy and Spain, continuing problems with the UK and US economies and London house prices continuing to collapse etc etc etc.

All on a far bigger scale than the banking collapse in 2007/2008 because it's all on a sovereign level now.

Looking ahead to 4 months before a 2020 general election expect newspaper headlines about how Cameron, Osborne, Clegg and Cable all knew about the impending economic collapse in 2015 but kept it secret because of the 2015 general election.

Edited January 18, 2015 by billybong

[Gigantic Purple Slug]

No its not. Most of the cost of oil is tax.

The effect of the oil price on the economy is pretty small.

If you compare fuel costs they are what 20% down from the beginning of the year even if you do pay tax on it. That is significant.

Red diesel is down from what about 70 p/litre at the beginning of the year to 50p litre now ?

[Gigantic Purple Slug]

It seems to be race against time for the general election.

Whether the oil price reductions will produce enough benefit to workers and consumers in time for the election. For sure they're making every effort to propagate any benefit angle of the oil price reduction as the general election approaches - and anything else for that matter.

Or will the real stuff in the background beat them to it.

The lack of global demand causing the oil price drop, deflation (the bad sort of course ), possible problems relating to Russia, possible problems relating to China and other countries, the background reasons for the ecb likely to start printing money, Switzerland ditching the euro or at least ditching the peg, the possibility of next weeks elections in Greece causing them to eventually ditch the euro and the knock ons including Italy and Spain, continuing problems with the UK and US economies and London house prices continuing to collapse etc etc etc.

All on a far bigger scale than the banking collapse in 2007/2008 because it's all on a sovereign level now.

Looking ahead to 4 months before a 2020 general election expect newspaper headlines about how Cameron, Osborne, Clegg and Cable all knew about the impending economic collapse in 2015 but kept it secret because of the 2015 general election.

It's just a lucky break that fell into their laps. Just as there are sometimes some unlucky ones. You don't look a gift horse in the mouth in politics. You take it and make the best you can out of it. You can't blame the politicians for this. After all there will be another negative thing you can't control happening just around the corner.

[spyguy]

If you compare fuel costs they are what 20% down from the beginning of the year even if you do pay tax on it. That is significant.

Red diesel is down from what about 70 p/litre at the beginning of the year to 50p litre now ?

At work, the highest spend is 300/month by someone who drives an exceptional distance - for the UK.

At a do, he wa saying he's saving about £80-100/month. Its a saving but hardly going to prop the economy up.

[thecrashingisles]

At work, the highest spend is 300/month by someone who drives an exceptional distance - for the UK.

At a do, he wa saying he's saving about £80-100/month. Its a saving but hardly going to prop the economy up.

Oil is used for more things than filling up personal cars.

[Bill D'arblay]

In theory any extra money will be mopped up by rent increases.

+1

Spot on.

[zugzwang]

The UK is a net oil importer, but not by much. A sustained £30/barrel price cut would represent almost as big a reduction in national income from production as it does a saving via consumption. Add to that the inevitable loss of investment and jobs in the North Sea and the sizable hit to the Exchequer which will need to be made up elsewhere then the net impact on the economy is likely to be neutral at best. The idea that this represents a giant tax cut is simply absurd. Spending is being reallocated not increased.

[Wurzel Of Highbridge]

We were discussing the impact of oil price falls at work Friday, and decided that it seems to go like this:

We are a large retail business that imports about 80% of our stock.

1, Price of imported goods goes down (lower transport and production costs)

2, The competition and us lower prices

3, Our turnover goes down.

4, Wages are put under pressure as margin as a percentage is reduced.

I think that's the deflation the central bankers warn us of. To be honest it wouldn't be a problem if there was not so much debt around.

[Gigantic Purple Slug]

The UK is a net oil importer, but not by much. A sustained £30/barrel price cut would represent almost as big a reduction in national income from production as it does a saving via consumption. Add to that the inevitable loss of investment and jobs in the North Sea and the sizable hit to the Exchequer which will need to be made up elsewhere then the net impact on the economy is likely to be neutral at best. The idea that this represents a giant tax cut is simply absurd. Spending is being reallocated not increased.

Yes, but it's how it is being reallocated.

This is like helicopter money into the streets rather than helicopter money to the 1%.

[Sour Mash]

Yes, but it's how it is being reallocated.

This is like helicopter money into the streets rather than helicopter money to the 1%.

Indeed - some extra money left in the pockets of most people instead of a ton of money being gifted to the elite ... we have to do something. If only there was some way to print money and put things back to the way that they were, eh?

[goldbug9999]

The cost of oil affects the cost of everything due to cumulative effect throughout goods supply chains so a lower cost is massively deflationary (in a good way), the savings of punters at the petrol pumps is small beer in the grand scheme of things. Cheap oil is like cheap IT/telecoms - everyone wins.

Edited January 18, 2015 by goldbug9999

[Venger]

All on a far bigger scale than the banking collapse in 2007/2008 because it's all on a sovereign level now.

That's where it mostly all got shifted to, to keep the party going, without allowing enough bad positions to be challenged by market forces (eg = HPC... to them... why do that when you can protect the complacent home-owner VI at super high prices, and create and further advance a BTL lazy economy?).

I thought I knew my stuff when balance sheets were ragged back in early-mid 2000s... not the joke they have become today. Central banks can't print capital. Only the market can create capital by valuing assets higher than liabilities.

Structural deficits are unsustainable in a low nominal growth environment once markets realize that rapid recovery is unlikely. The promise of governments to bail out insolvent banking systems and finance unemployment benefits ultimately must be paid either from budget surpluses or by depreciation of the currency.

With budgets chronically in deficit in many Western countries, the expectation of currency crisis can lead rapidly to a crisis. Funds flow out of the highly contractory phenomenon of interest rates rising as economies weaken. The effect is to take away much of the freedom that governments seem to have to finance their deficits through inflation. Governments facing the need to finance massive structural deficits due to the slowdown in economic activity may find that the markets can set the price of funding high enough to offset any stimulative gains from inflation. If so, there will be no alternative to direct debt liquidation, and the second, deeper stage of depression.

..Most economists and almost all of the investment community continue to expect economies to recover without widespread debt liquidation. They may pay lip service to the idea the debt burden has slowed recovery. They do not doubt for a minute that a sustainable recovery can be engineered without disturbing or lightening the debt load. In fact, the worst thing they could imagine is actually liquidating any considerable amount of debt - an unpleasantness which in logic might be a necessary step to clear the decks for recovery. Clearly, if you really thought that someone was slowed to a halt because of a heavy weight strapped to his back, you would favor shedding enough of the burden to make movement possible again. That is not the case with the conventional economists who talk about the debt burden. They do not concede any level of debt stands in the way of rapid income growth, or that such vast debts are a structural impediment to growth.

Edited January 18, 2015 by Venger

[Nationalist]

The price of oil permeates everywhere in the economy. Every business uses power; most use the roads for deliveries, and if Joe Public is saving at the pumps he'll be spending more in the shops. It's win-win; more cash in pocket and cheaper goods to buy.

There is a down side. Profits made by our oil companies will fall but this will mainly impact longer term issues like the value of pension funds. Also the government will seek to take its share of the gain by taxing petrol more. There has been forbearance at the pumps for a few years now - don't expect that to continue. The government has seen that £1.30 per litre didn't end the world so when they see a £1.00 litre they'll want some of that.

And of course this is a highly artificial slump in prices. The Saudis are taking a hit now to kill off shale oil producers so they can raise prices later. Shale oil needs a $70 barrel and if the Saudis are selling for $50 it's only so they can put the price back up to $100 in due course rather than living with a permanent $70.