Manufacturing is clearly hurting and needs every support from the MPC and the Government to ride out the difficult situation
“Manufacturing is clearly hurting and needs every support from the MPC and the Government to ride out the difficult situation until the global economy improves.”George Buckley, economist at Deutsche Bank, said: “The manufacturing sector is suffering, not only from a long-term structural decline but also from the cyclical weakness … in global demand recently.”There was slightly more heartening economic data from the US where the unemployment rate fell to 5.7 per cent last month, while the economy created jobs at the fastest rate for two years. The expectation had been for more bad news in the Labor Department report. Instead the headline rate of unemployment declined from 6 per cent to its lowest level in four months, while non-farm payrolls rose by 143,000 after a fall of 156,000 in December. The figures may have been distorted by the traditionally volatile retail sector over the holiday season. “Since there were fewer people taken on before Christmas, there were fewer to lay off,” an analyst said.The surprise improvement could point to an economic upturn later in the year, once the pall of impending conflict with Iraq has lifted.
After rising on the jobless news, Wall Street fell back on worries about war. However, the modest recovery after the 2001 recession has virtually petered out. In the final three months of last year, including Christmas, US GDP climbed only 0.7 per cent, though the Bush administration is forecasting expansion this year of almost 3 per cent.. Sir Nigel Rudd, one of Britain’s leading industrialists, yesterday became the first influential figure to voice growing concerns in the Square Mile that the Derek Higgs review of company boardrooms could seriously harm the City. Even if some people at a company and institutional shareholders think something is good for the company, if it doesn’t comply with the code, the compliance people at a company will vote against it,” Sir Nigel said.He warned that the Higgs review would add to the growing amount of concern in the City to be seen to fulfil corporate governance codes in order to avoid a public roasting by shareholder bodies and the media.Sir Nigel reiterated widespread fears in the City that Mr Higgs’s report, commissioned by the Government last year to try to prevent a repeat of the Enron and WolrdCom scandals in the UK, could undermine the role of the chairman on British boards.
“The senior independent director will take power away from the chairman, which is quite insidious,” he said. “It is also absolutely barmy that the chairman can’t be chairman of the nominations committee because the chairman should have the best idea about how the board is performing and working together.”Sir Nigel’s position goes against the Higgs review proposal that an individual should not be chairman of two companies. He said: “It should be up to boards to decide someone has enough time to do the job.”. A FEW months ago, Mervyn King, the next Governor of the Bank of England, gave a speech in which he warned of the dangers of a potentially crippling demand shock to the economy if the housing boom was allowed to carry on unchecked. He didn’t say it, but he implied that higher interest rates might be necessary to dampen down house price inflation. Central bankers are generally of the belief that they cannot and should not attempt to prick asset price bubbles just for the sake of it, this because it’s so hard to know precisely when a rise in prices becomes a bubble.
Pricking a bubble is the financial equivalent of launching a pre-emptive war.You need enormous self belief to think you know when the time is right for pre-emptive action. Just look at the difficulty Messrs Bush and Blair are having carrying public opinion with them on war against Iraq. The public aren’t going to thank you if you clobber growth in pursuit of a bubble that turns out to be a mirage. Most bubble sightings turn out to have been false.So much for the sanguine view of bubbles. What Mr King did was take the debate a stage further by saying that you should indeed be worrying about bubbles if you think they are going to lead to inflation or deflation down the road. Mr King’s fear was that so much consumption had come to rely so much on ever-rising house prices that when they stopped rising the economic consequences might be calamitous.
