It’s Friday and it’s been a long, hard week. But in case you missed anything in the world of finance, here’s the second edition of the Financial & Professional Services team’s Friday Fiver. Big thanks to our contributors this week Ed Jones, Karen Butcher and Nick Woods:
1. Inflation is still stubbornly high…Inflation in the economy is a bit like salt in the human body – a bit of it is good for you, but too much and you can quickly run into a lot of trouble. The latest official figures on inflation (which came out on Wednesday) confirmed that the economy is still oversalted. Inflation rose either 3.7% or 4.8% year-on-year for December depending on which measure you choose to use.
Why does this matter? Well, for one thing consumers are feeling the pinch in their pockets – wages are rising nowhere near as fast so desposable income is falling. From a larger point of view, the Bank of England is supposed to try and keep inflation under 2% – unfortunately, they’ve failed to do this for quite a while now. That failure is leading some in the City to question the Bank’s credibility on tackling inflation. Watch this space on this one…
2. Consumers and Credit…PWC’s report “Precious Plastic 2011” revealed consumer confidence is suffering a case of the January blues. According to the report, consumers are reining in their borrowing on the back of continued fear of pay cuts and pay freezes.
The annual report also showed that household borrowing fell by £500 in 2010 to around £8,000 per household. But PWC are predicting even more caution to come with a further fall of £300 in household borrowing expected for 2011. It seems consumers are taking a safe and steady approach to their finances with plans to save more and pay off their debts – 41% want to put more money away compared to 35% in 2009
We’ll be waiting for the next survey to reveal whether this is a real shift in attitudes or just an optimistic New Year’s resolution.
3. AJ’s gone, and now Andy Coulson too…Last night Alan Johnson, Shadow Chancellor resigned citing family reasons for his departure. A hasty reshuffle sees Ed Balls take his job, Balls’ wife Yvette Cooper become Shadow Home Secretary and Douglas Alexander step up to the plate at the Foreign Office.
Then the second bombshell hit just as we were preparing to post this blog – Andy Coulson, the Prime Minister’s Director of Communications, has finally caved into the pressure from the NOTW phone hacking scandal and resigned as well. Labour party officials probably can’t believe their luck, but what does this mean in the wider context?
Earlier this week there was a fascinating article in The Independent which highlighted the increasing friction between Coulson and Steve Hilton, Director of Strategy. Whilst it was the ongoing phone hacking allegations that caused his demise, what is perhaps more important for the long-term is that Steve Hilton is now the undisputed king of David Cameron’s ear.
4. The taxman gets tough on football…It’s been a difficult week for the Football Association. First, HMRC declared they will tackle the legislation that grants preferential treatment to football club debts during insolvency procedures. Then, Sports Minister Hugh Robertson described the game as “the worst-governed sport in this country, without a shadow of a doubt”.
Consider the case of Portsmouth FC and it’s easy to see why tensions run high. Faced with debts of £24.8m, just £4.8m was received by HMRC and returned to unsecured creditors. The unpaid included St John’s Ambulance, a local scout association, local schools and scores of small businesses. Conversely, all football clubs that were owed money in transfer fees were paid back in full.
As this debate rumbles on, what will be interesting to see is not only the extent to which regulatory reforms develop but also the measures clubs and authorities take to educate themselves about what constitutes good governance to avoid being caught offside.
5. Bonus season…In case you’ve been in a Tibetan cave over the past week, it’s bonus season in the City which means a lot of noise and furore being made about the size of pay packets – hats off to the TUC’s Brendan Barber for the most quoted line of the week.
Leaving aside the wearily well-trodden arguments from both sides though, a more pressing question is this: are shareholders getting value for money? The facts about the most prominent bank, Goldman Sachs, are this – profits for Q4 2010 were down 51%, yet the pay and bonus pool fell by much less. From a shareholder point of view, you might just question why more of the reduced pot of money the bank is making is going into pay packets and not dividends.
Incidentally, The Guardian’s Nils Pratley had a little dig at large or ‘instituional’ shareholders in his column yesterday.