Dead Men Left

Friday, August 05, 2005

Omens, portents, dark clouds gathering

Good, short piece by John Butler in the FT today. Two bits stand out, both pointing to crucial, longstanding failures on the part of New Labour's economic policy:

An interest rate peak of just 4.75 per cent continues the pattern in which successive rate cycles have peaked at lower and lower levels. Surprise or no surprise, this latest move is still untypical of the Bank's past moves. That is because it was not associated with a fall in inflation expectations; nor was it in response to a global shock, as in past years. This cut was quite simply a direct response to worsening domestic news.

(See also.) The other bit relates to persistently low levels of investment expenditure by British businesses - something New Labour's wheedling and pampering has been unable to cure:

The level of interest rates is not a major constraint on corporate activity, where the problems seem more deep-rooted. Companies are cash rich, yet the proportion of nominal investment in gross domestic product is at a 40-year low. The legacy of the late 1990s is that companies associate higher risk and lower priority with investment spending. The previous investment surge left behind excess capital and disappointing returns, therefore shifting corporate focus towards rewarding shareholders and reducing pension shortfalls rather than seizing new investment opportunities.