30th March 2012
A sophisticated joke that signals bad news
The Guardian reports that Bank of England governor Sir Mervyn King believes that the extra bank holiday for the Queen's Jubilee in June could throw the UK economy into reverse again. The governor said it was "quite" possible UK output would shrink over the next three months.
Queen unhinges economy
The rationale is that a day's output will be lost by the extra bank holiday – perhaps a little more as some people will take the following three days as holiday to bridge into the next weekend.
But if UK output for the current quarter – the first in 2012 – rises even a fraction, will the Bank calculate that we've all worked an extra day this year for no pay? Remember Leap Year day?
It adds around 1.5 per cent to working hours in the quarter compared with the previous year – and that could make all the difference between output rising or falling, so fragile is the current state of the economy.
Cause for national celebration is bad for the economy makes for a good headline. But as in previous extra holidays, or time lost through weather or volcanic dust, or strikes, the lost work tends to be made up later on. It's the same with headlines of the "weather costs economy billions" variety.
Variety of good and bad
Every quarter has a mix of "unexpected" items, some positive and some not. The Bank of England denied that inflation was building up during 2010 and 2011 by pointing out that each month had "exceptional" items such as a VAT change, or a fuel duty rise, or a domestic power increase or was due to a drought in a food producing region. But all those exceptionals produced a trend which resulted in the retail prices index topping the 5 per cent level.
Sir Mervyn did make the point that the extra holiday for the Queen would be made up in the third quarter. But that is not headline-worthy.
Even more worrying is the admission in The Daily Telegraph that the Office of Budgetary Responsibility's Steve Nickell told the Treasury Select Committee that he occasionally looks at William Hill betting odds to check the possibility of a collapse in the Eurozone.
Bookies view of euro future
He said: "Bookmakers give a good indication of the average view of people who are thinking about these things – and putting their money where their mouth is."
Is he joking? Investors should hope so.
But if not, does he understand that most people who think about these things do not bet at William Hill? And if betting at the bookies could indicate anything about the euro, then what is the point of all those highly paid Treasury officials?
Very often, betting is a reaction to the news – horse race punters look at a number of online and print sources first – rather than a way of creating a new reality. And can it really be that betting on the euro at William Hill (or any other bookie) is more important than the betting that goes on in investment markets?
It makes a good headline although it offers investors little real information.
But if that is how the OBR works, it could question how close to economic reality the organisation is – and it might be considered deeply worrying.
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