Latest news with #MervynKing
Daily Mail
3 days ago
- Business
- Daily Mail
HAMISH MCRAE: Rules are rules when it comes to trade... until all the major players ignore them
You cannot, Mr Bailey, get the toothpaste back into the tube. Last week the Governor of the Bank of England, Andrew Bailey, gave a speech to investment managers in Dublin on how important world trade was to global growth and how the system had to be reformed. So far, so good. But when you go through the detail it was all about trying to rebuild trading relations with Europe and how to make the so-called 'rules based' world trade system work better. And the problem there is that the world has changed. The UK will not go back to anything like a pre-Brexit relationship with Europe, and the US will not go back to a pre-Trump approach to global trade. The task for British political and financial leaders is to exploit the opportunities that have arisen, rather than hark back to a none-too-brilliant past. On Brexit, the Governor was careful to make the disclaimer that as a public servant he didn't take a position on it, but what he said had a clear spin. We had to 'minimise negative effects on trade' and that the changing relationship with Europe has 'weighed on the level of potential supply'. At least he didn't cite the Office for National Statistics' calculation that in the long run Brexit would cost 4 per cent of national output. On that figure I prefer the comment of one of his predecessors, Mervyn King, arguably the most notable UK economist of his generation: 'They can't possibly know that. They just make it up.' Nor did Bailey refer to the determined drive by Europe to make banks shift their business and people to EU centres, including Dublin. Instead it was all about trade in finance being 'a two-way street', failing to mention that the UK has a huge surplus on exports of financial services, or indeed that there were 678,000 jobs in the City of London at the end of 2023, some 30 per cent more than in 2016. Of course we need as good a relationship as possible with all trading partners, but we need to acknowledge that, insofar as the City has been successful post-Brexit, it is despite hostility from Europe. As the still bubbling row about transferring euro-derivatives clearing from London to the EU shows, realistically that hostility will continue. On world trade the Governor acknowledged that the system has come under too much strain 'and it is incorrect to dismiss those who argue for restrictions on trade as just wrong-headed'. And the blame for imposing that strain goes mainly to China, which as he noted, heavily subsidised key industries to help them dominate world markets. China imposed 5,400 'subsidy policies' between 2009 and 2022, two-thirds of the global total. He made the point, too, that it was reasonable for countries to seek security of supply, but suggested they do so by dealing with reliable partners rather than trying to bring production back home. These are sensible comments, in particular acknowledging that Donald Trump has a point and China has abused global trading rules. He notes the damage done to trade by Covid and Russia's invasion of Ukraine. He points out how important trade in services is, particularly for the UK. It's an interesting, thoughtful and conventional analysis, and maybe that is what we should expect from a central banker – but I fear it is a naive one. Why? Take Europe. There is a huge trading imbalance between the UK and EU. They sell far more goods to us than they buy, and we export more services to them. But they are not going to change their rules to increase their imports of services. Take China. It's not going to stop subsidising its industries for fear of getting ticked off by the World Trade Organization. As for the US, it has given up on the whole International Monetary Fund-WTO system, that's that. So instead we have to negotiate our way through a bilateral trading world. The UK has made a good start. There are lots of reasons to attack our Government's financial policies, but doing deals with the US, the world's largest economy, and India, soon to be the third largest, deserves to be welcomed. We seem to have a slightly better relationship with Europe, and I don't see why we shouldn't get on with China. Let's try to be nice, as Andrew Bailey was in Dublin, but let's be aware that the rules-based order is dead.
CNA
6 days ago
- Business
- CNA
Commentary: Chaos is taking a sabbatical in Indonesia
SINGAPORE: Bad news can be good for Indonesia. A slowdown in economic growth and the prospective hit from US tariffs may be imposing some discipline on President Prabowo Subianto's government. It's a welcome change. The former general is only seven months into his term and some of the toughest decisions probably still lie ahead. Nonetheless, the sense of chaos that characterised the very start of the administration has abated. Markets approve the return of normalcy: The rupiah has gained this quarter after disappointing last year, and a recent bond auction was well received. Offshore investors are warming to the nation's stock market after seven months of outflows. The central bank felt comfortable enough to lower interest rates last week and signal further easing to come, in a decision that was forecast by most economists. So why the big deal? Bank Indonesia had been hard to read in the closing months of 2024 and the start of this year, when officials oscillated between shoring up the rupiah and stoking growth. Holding on to predictability might not sound exciting, but it's the way monetary affairs are supposed to work. The shift is refreshing. Former Bank of England governor Mervyn King once remarked that the ideal condition is one of boredom. HITS TO THE ECONOMY While many economies will be hurt by the tariffs imposed by President Donald Trump, the 32 per cent so-called reciprocal levy handed down on the country is among the highest in the region. Duties have been reduced to 10 per cent for a few months to allow for a deal. Indonesia is hopeful for an accord but can't count on it. The upside is that disenchantment with American trade policy, and the ham-handed way it has been implemented, has pushed the dollar down against most peers. This has helped boost currencies like the rupiah that were decidedly wobbly last year. It's a silver lining to a poor US approach. The second fright is domestic in origin. Central to Prabowo's campaign was a pledge to accelerate the pace of growth from the average of about 5 per cent recorded by his predecessor, Joko Widodo, to around 8 per cent. That was always going to take some doing; no economy of any consequence is expanding at that clip. First quarter figures, however, showed an unexpected slowdown. The main culprit was a sharp drop in state spending and investment. Household consumption was also lackluster. This wasn't the way it was supposed to work. Prabowo had talked about using the government purse to lift the country's performance, not diminish it. CHAOS AS A DEFINING FEATURE The president has been a victim of his own rhetoric and populist impulses. The new year didn't begin auspiciously. A long-planned increase in a value-added tax was gutted at the last minute. Markets reacted poorly. The perception was that the nuts and bolts of economic policy, previously left largely to technocrats, was being hijacked by Prabowo. Speculation grew that the respected finance minister, Sri Mulyani Indrawati, would soon depart. The tax U-turn was then followed by a drive for savings that became almost comedic. Spending by ministries, agencies and local authorities was frozen; some offices switched off lights and suspended the use of elevators to save electricity. The president attacked some civil servants as 'little kings' intent on stymying his agenda. If he cared so much about fiscal probity, wouldn't it have been better to let the broad VAT hike proceed? The government looked like it didn't know what it was doing. Instead of emphasising stability, a hallmark of Indonesian economic policy in the decades since the Asian financial crisis, chaos looked like it would become the defining feature. A MOMENT OF CALM That's a dangerous development for a country with a current account deficit dependent on capital pouring in to maintain the rupiah's value. That things seemed to have settled down is a blessing. Markets in Jakarta no longer gyrate on speculation about cabinet shake-ups. Meanwhile, Trump's assault on governing norms makes Prabowo's early reversals look minor. Indonesia isn't necessarily out of the woods. The president hasn't walked away from the general idea that a muscular fiscal policy is desirable. Spending on his signature initiative, the provision of free school lunches across the vast archipelago, will probably show up in second-quarter growth figures. And in the event that Trump is able to secure a string of trade deals and the dollar rallies, the rupiah could again buckle. For now, though, let's cautiously celebrate that chaos has taken a sabbatical. The relative stability hasn't come through ideal circumstances, though that it has happened matters. We have had a glimpse of what can happen when Indonesia gets out of its own way.
Bloomberg
23-05-2025
- Business
- Bloomberg
Allegra Stratton: Is Starmer's Team Getting a Trophy?
I love this detail sent to me by our Joe Mayes. Fresh off the plane from a trip to Canada following the chancellor and Bank of England Governor Andrew Bailey, Joe messages from the hoi polloi passport queue as the chancellor sails past through fast-track. Bailey was not so lucky, and got stuck with Joe. But, Joe says this is characteristic of ' Bailey's man-of-the-people vibes: he gets the train to work.' That's a break from former governors: '[Mark] Carney and [Mervyn] King were chauffeured – and [Bailey] has waived pay rises in recent years.'
