Gilts at just over 4 pct but for how long?

British government bonds or gilts are trading at just over 4 pct but for how long? The Bank of England has artificially distorted the market by buying £200bn worth as part of its quantitative easing (QE) programme. There is now a pause in the gilt buying by the UK central bank but inflation is running at 3 pct and the pound is getting a right kicking in the foreign exchange markets at around $.150.

We have annual public borrowing of £180bn, which is over 12 pct of GDP and the highest per capita level of any big economy.

**** These figures were later revised downwards in the last Darling budget but are still high.

Quantitative easing, public sector debt and that nice Mr Blair

There is an excellent article by Claer Barrett of the Investors Chronicle, which tracks the positive effects the UK's quantitative easing programme has had on the commercial property sector. Foreign investors have been making hay with major investments and they have also been helped by the fall in sterling. However, one analyst cited by Ms Barrett notes that the £200bn quantitative easing programme (printing electronic money) of the Bank of England is going to have to be covered by the sales of government bonds (gilts) or government assets.
I don't think there is much left in the privatisation kitty (Scottish Water, the Tote!) and so I believe there should be more UK retail investment in gilts. These securities did have a dreadful year in 2009 but hey we have to think of our patriotic duty!!
It is a truism that Labour governments always run out of money but I wonder what would have happened if Tony Blair had sacked Gordon Brown. Then, we would have avoided unconfirmed reports of the UK premier throwing phones and printers around. There might also have been a chance of a few less gilts about.
Has quantitative easing worked? The UK government and the Bank of England have managed to avoid a complete collapse in economic activity. RBS and HBOS were rescued
and we are just out of recession although the youth unemployment figures are awful.
Lib Dem shadow chancellor Vince Cable had a good soundbite when he said the UK economy had just come through a heart attack.
The deleveraging of both the public and private sectors is going to take a few years. Commentators have been calling for a move from domestic consumption to exports. This is going to need a low pound against the euro for quite a few years yet. How it will be achieved when interest rates go up should be quite interesting.

So more quantitative easing but it is not the same as...

The Bank of England does not think we are out of the woods yet and it is doing some more quantitative easing. It is technically not the same as printing money but it could still debase the currency (Zimbabwe anybody!!). It is going to be painful when the central bank does attempt to raise interest rates. The Bank of England would not want to do this just before the coming general election. Governor Mervyn King must be hoping that his boss Gordon Brown goes for a poll in October. Waiting until May 2010 when the unemployment figures could be pretty bad does not seem the sensible option.

One of my favourite publicatons is Money Marketing especially the articles by Brian Tora. He considers that Ireland is teetering on the brink of bankruptcy and 7,000 teachers will be sacked combined with the closure of many rural schools. Is this was to happen in the UK, the equivalent of 250,000 teachers would go. It is not going to take place but it is nice dreaming about it. In Great Britain we are churning out quite a few kids, who have not benefited from the education process at all, the so-called neets.

Liam Halligan is a bit concerned about the UK printing presses.

Writing in the Sunday Telegraph economist Liam Halligan has expressed his concern about the quantitative easing (QE) being carried out by the Bank of England. This has not led to a lowering of UK gilt yields and will increase inflation. Halligan says the banks are keeping the QE cash themselves, on reserve or lending to their off-balance sheet vehicles.