The Bank of England has dramatically upgraded its UK growth predictions. Just like HM Treasury, the International Monetary Fund and all those other official bodies that took an astonishingly pessimistic view of Brexit, the “Old Lady of Threadneedle Street” has somewhat changed her tune.
Ahead of last June’s referendum, Bank Governor Mark Carney warned of “a technical recession” – two consecutive quarters of shrinking GDP – if we voted to leave the European Union. Even in August, as the economy remained buoyant despite the Brexit result, the Bank was forecasting growth of just 0.8pc in 2017.
Only a fool or a liar claims to know where the oil price is going. I like to think I’m neither – although some may disagree. While predicting the future path of crude is almost impossible, the oil price remains the most important economic variable on earth.
So, despite the pitfalls, any self-respecting economist needs to take a view. Mine is that oil is priced some way below its fundamental value, and has lately been artificially deflated by a soaring dollar and excessive fears the Chinese economy is about to implode, based on the dramatic volatility of its relatively small but highly visible stock market.
“Be careful what you wish for, because you just might get it”. Some say this aphorism has Spanish origins. Others attribute it to Oscar Wilde. Wherever it comes from, as sayings go, this one contains much truth. Getting what you want can indeed have unseen and unpleasant consequences. That’s worth remembering, as we celebrate cheaper oil, while watching the Russian rouble plunge.
Since mid-summer, the rouble has largely tracked the decline in global oil prices. Last week everything changed. Crude remained stable but the Russian currency collapsed, losing a third of its dollar value in a day. Responding to “Black Monday”, Russia’s central bank hiked interest rates from 10.5pc to 17pc.
Attempting to forecast the oil price is a mug’s game. But that hasn’t stopped me in the past (ahem!) The reality is that crude is so important to modern life, and the path of the global economy, that for all the pitfalls of prediction, any serious economist needs to have a view on the future cost of the black stuff. Pivotal not just in terms of energy and transport, but also the manufacture of vital inputs from polymers to fertilizers, the dollar oil price is perhaps the world’s single most important economic variable.
My view is that the current price dip is temporary, partly illusory and that oil is now heavily over-sold, having fallen way below its fundamental value. As such, I’d venture that, in the absence of a 2008-style systemic meltdown on global markets, $100-a-barrel oil will return by the middle of 2015.
I’ve been reading “A Line in the Sand”, a riveting book by James Barr. It’s about the incredible manner in which the British and the French re-made the map of the Middle East during and after the First World War. Barr tells a sordid tale of hubris and eye-popping political skullduggery, as two colonial powers cooked up the Sykes-Picot Agreement of 1916, dividing Le Moyen Orient along a line drawn from the Mediterranean to the Persian frontier.
This book is vital reading, not only for the author’s gripping portrayal of high politics, intrigue and espionage, involving the likes of Lawrence of Arabia, Churchill and De Gaulle. The story also has deep contemporary relevance. For the Middle East’s colonial boundaries now look under severe threat, as the region is convulsed by a renewed outbreak of intra-Islamic conflict.
UK car sales are now the second-highest in Europe. I know that’s true because I repeatedly heard it on a variety of national news bulletins last week and read it on the front page of several respected business newspapers. Yet it’s only true up to a point.
No-one is denying that 2.3m new cars were sold in Britain in 2013, according to the Society of Motor Manufacturers and Traders. That compares to 2.9m cars bought in Germany and marks a 10.8pc increase on UK car sales the year before.
We’re told the Federal Reserve has “ended easy money”. I’m not sure that’s true. Yes, the US Central Bank announced last Wednesday that its gargantuan money-printing habit is soon to be scaled back. Instead of creating $85bn per month ex nihilo, the Fed will from January conjure up just $75bn. That’s still a massive base money expansion of $900bn a year.
At the same time, in a move apparently meant to help cash-strapped US mortgage-payers, but actually aimed at global financial markets, Ben Bernanke bolstered his “forward guidance”. America’s benchmark interest rate is likely to stay near zero “well past the time when the jobless rate declines below 6.5pc”, the Fed Chairman told the world. So US monetary policy remains ultra-loose but is now slightly less ultra-loose than before. Maybe.