• Data boosts expectations rates will be left unchanged this year • ONS confirms GDP only grew 0.5% in the first quarter • But OECD says rates must rise if inflation is not to take hold Household spending has slumped to its lowest rate in nearly two years, underlining the sluggishness of Britain’s economy. The weakness in consumer spending even before the public spending cuts have fully kicked in will boost expectations that the Bank of England will not rush to raise interest rates in coming months, despite high inflation. However, the OECD, one of the west’s leading economic thinktanks, today called on the Bank of England to start raising interest rates this year to prevent inflation – currently at 4.5% – taking hold in the UK. In its twice-yearly report , the Paris-based OECD said Threadneedle Street would have to steadily increase borrowing costs over the next 18 months despite weak economic growth. Revised figures from the Office for National Statistics confirmed that the UK economy grew by 0.5% in the first three months of the year, following a drop of the same magnitude in the fourth quarter of 2010. The two quarters taken together suggest the economy was stagnating rather than continuing its recovery from recession. Some economists had hoped for a slight upward revision to 0.6%. Household spending shrank by 0.6% between January and March, the biggest quarterly drop since the second quarter of 2009 when the economy was mired in recession. Hetal Mehta, UK economist at Daiwa Capital Markets, said: “Most shocking is perhaps the scale of the fall in consumer spending. Following the contraction in the fourth quarter, these figures underline the significant weakness in the consumer sector. And given the recent comments from the Bank of England that unexpected weakness in consumer demand would mean a slower pick up in interest rates than markets have priced in, we believe these figures reinforce our view that the majority of the monetary policy committee will continue to vote for no change in interest rates this year.” However, providing yet more evidence of rising price pressures, the GDP deflator climbed by 1.8%, its biggest increase since 1996 – exacerbating the dilemma for the Bank. Investment spending fell by 4.4%, leaving government spending as the only pillar that was growing, by 1%. But this is unlikely to continue given the chancellor’s vast programme of spending cuts. ING economist James Knightley said: “This reflected the fact that government departments were making sure they spent their budgets ahead of the end of the fiscal year. Now we are in the new fiscal year with lower budgets we will start to see this component dragging growth lower.” The only bright spot in Wednesday’s GDP numbers was a 3.7% jump in exports, as British firms benefited from a weaker pound – while imports were down 2.3%, reflecting the weakness of the economy. “The positive contribution from net trade has been a long time coming, but the fall in investment is a blow to hopes that this would be the other pillar of growth. Instead, surprisingly, government spending continued to support the economy – perhaps the last hurrah before the spending cuts kick in,” said Mehta. Consumer spending Economics Economic growth (GDP) Interest rates Julia Kollewe guardian.co.uk
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Plugging an upcoming story on Tuesday’s CBS Evening News , anchor Russ Mitchell highlighted that “Congress gives Israel's Prime Minister dozens of standing ovations but,” Mitchell warned as if it were just as relevant or surprising, “the Palestinians are not buying his peace plan.” The Palestinians haven’t yet bought into the right for Israel to even exist. Setting up the subsequent report, Mitchell repeated his formulation: “Nancy Cordes reports he got a standing ovation, but the Palestinians were not impressed.” Cordes emphasized how Benjamin Netanyahu “refused to compromise on the biggest prize: Jerusalem” and “an aide to Palestinian leader Mahmoud Abbas called that a ‘declaration of war against the Palestinian people.’” Cordes concluded by justifying President Obama’s hostility to Israel. After a soundbite of House Speaker John Boehner proclaiming “we stand shoulder to shoulder with Israel,” she asserted: “Congress, of course, does not have to broker a peace agreement while the White House must try to get both sides to give.” From the Tuesday, May 24 CBS Evening News: RUSS MITCHELL: Four days after that chilly meeting at the White House, Israeli Prime Minister Benjamin Netanyahu got a warm welcome today from the House and Senate. He said he's willing to make painful compromises in the name of peace. Nancy Cordes reports he got a standing ovation, but the Palestinians were not impressed. ISRAELI PRIME MINISTER NETANYAHU, HOUSE CHAMBER: You got bin laden. Good riddance! NANCY CORDES: Congress greeted Israel's Prime Minister with 29 standing ovations as he vowed he was prepared to negotiate a lasting peace. NETANYAHU: We'll be generous about the size of the future Palestinian state. CORDES: But then he laid out his terms — and it was a long list. A Palestinian state, he said, must have no army of its own and Palestinian leaders must sever ties with Hamas. NETANYAHU: Israel will not negotiate with a Palestinian government backed by the Palestinian version of al Qaeda. CORDES: He said he would give up some settlements, but refused to compromise on the biggest prize: Jerusalem. NETANYAHU: Jerusalem must never again be divided. CORDES: An aide to Palestinian leader Mahmoud Abbas called that a “declaration of war against the Palestinian people.” When President Obama tried to push Netanyahu to go further last week, the Israeli leader pushed back, publicly. NETANYAHU, FRIDAY IN OVAL OFFICE: The Palestinians will have to accept some basic realities. CORDES: Congressional leaders made it clear today whose side they're on.
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The UK should outlaw Danish bacon, modernist furniture and Sandi Toksvig in retaliation The Danish Veterinary and Food Administration has allegedly made the importation of Marmite illegal, apparently on the grounds that the yeast extract is fortified with vitamin B, and therefore doesn’t meet strict safety guidelines. (It’s not the first time Marmite has been banned for health reasons – a few years ago some Welsh schools removed it from breakfast menus because of its salt content.) The possibility of a Marmite war with Denmark seems remote – the half of the UK population who find Marmite disgusting are unlikely to be outraged – but if the ban (which also includes Ovaltine and Horlicks) continues, what Danish produce can Britain boycott in retaliation? • Lego – Lego is a Danish company, but the little plastic bricks are also made in Hungary and Mexico, so a boycott could touch off a complicated trade war. It also might seem odd to ban Lego bricks on health grounds, unless you’ve ever stepped on one in the dark. Legoland in Windsor would probably have to be invaded, if not partially pushed over. • The Killing – The gritty crime drama could conceivably be considered bad for the UK population’s health – especially if one is of a nervous disposition – but so many people have watched it now that it would be like going to a restaurant and complaining about broken glass in your risotto after you’ve finished it. • Cool furniture – Setting fire to classic Arne Jacobsen chairs in the UK would send a strong message to anti-Marmite Denmark, and since they’re stackable the bonfire would be easy to build. • Bacon – Boycotting Danish bacon would be tough, and confusing. More than half of the bacon eaten in the UK is imported, largely from Denmark and the Netherlands. Also, bacon cured and sliced in the UK might be made from Danish pork. There have been calls for bans before – on animal welfare grounds – but Denmark obligingly came up with a “UK pig” specifically reared to meet British husbandry standards. • Biscuits in round tins – Those sugary all-butter biscuits may not be terribly good for you, but giving them up for the sake of Marmite hardly seems a fair trade. I, for one, would miss them. • Sandi Toksvig – The Danish writer and broadcaster has spent so long in the UK that she’s become a British institution, so the Danish government might not want her back. And while there’s no doubt the upheaval would inconvenience Toksvig, there’s no evidence anyone in Denmark would be put out by it. Before we do anything, we should find out where she stands on Marmite. Denmark International trade Tim Dowling guardian.co.uk
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The UK should outlaw Danish bacon, modernist furniture and Sandi Toksvig in retaliation The Danish Veterinary and Food Administration has allegedly made the importation of Marmite illegal, apparently on the grounds that the yeast extract is fortified with vitamin B, and therefore doesn’t meet strict safety guidelines. (It’s not the first time Marmite has been banned for health reasons – a few years ago some Welsh schools removed it from breakfast menus because of its salt content.) The possibility of a Marmite war with Denmark seems remote – the half of the UK population who find Marmite disgusting are unlikely to be outraged – but if the ban (which also includes Ovaltine and Horlicks) continues, what Danish produce can Britain boycott in retaliation? • Lego – Lego is a Danish company, but the little plastic bricks are also made in Hungary and Mexico, so a boycott could touch off a complicated trade war. It also might seem odd to ban Lego bricks on health grounds, unless you’ve ever stepped on one in the dark. Legoland in Windsor would probably have to be invaded, if not partially pushed over. • The Killing – The gritty crime drama could conceivably be considered bad for the UK population’s health – especially if one is of a nervous disposition – but so many people have watched it now that it would be like going to a restaurant and complaining about broken glass in your risotto after you’ve finished it. • Cool furniture – Setting fire to classic Arne Jacobsen chairs in the UK would send a strong message to anti-Marmite Denmark, and since they’re stackable the bonfire would be easy to build. • Bacon – Boycotting Danish bacon would be tough, and confusing. More than half of the bacon eaten in the UK is imported, largely from Denmark and the Netherlands. Also, bacon cured and sliced in the UK might be made from Danish pork. There have been calls for bans before – on animal welfare grounds – but Denmark obligingly came up with a “UK pig” specifically reared to meet British husbandry standards. • Biscuits in round tins – Those sugary all-butter biscuits may not be terribly good for you, but giving them up for the sake of Marmite hardly seems a fair trade. I, for one, would miss them. • Sandi Toksvig – The Danish writer and broadcaster has spent so long in the UK that she’s become a British institution, so the Danish government might not want her back. And while there’s no doubt the upheaval would inconvenience Toksvig, there’s no evidence anyone in Denmark would be put out by it. Before we do anything, we should find out where she stands on Marmite. Denmark International trade Tim Dowling guardian.co.uk
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The OECD also said the sluggishness of the UK economy will feed through into higher unemployment The west’s leading economic thinktank warned the Bank of England on Wednesday that it would have to start raising interest rates this year to prevent inflation taking hold in the UK. In a downbeat assessment of the prospects for the economy, the Paris-based OECD said Threadneedle Street would have to steadily increase borrowing costs over the next 18 months despite the weakness of growth. The OECD reiterated its support for the government’s deficit-cutting strategy, but said George Osborne should remove exemptions on VAT in order to boost public spending on Britain’s infrastructure. And it said a full-break up of Britain’s banks should remain an option even though the Independent Commission on Banking set up by the coalition has so far backed only more limited reform of the financial system. Releasing its half-yearly Economic Outlook , the OECD predicted that the UK would continue to lag behind most other leading industrial nations as it recovered from the deep downturn of 2008-09. Growth is projected to be 1.4% in 2011, rising to 1.8% in 2012 – weaker than ministers are expecting. The sluggishness of the economy will feed through into higher unemployment, which the OECD expects to rise from 7.9% of the workforce in 2010 to 8.1% this year and 8.3% in 2012 “Growth is projected to remain slow during 2011″, the OECD said. “Public consumption and investment are set to fall significantly while household consumption is expected to remain subdued, reflecting falling real incomes and stagnant asset prices.” The report added, however, that the Bank of England’s monetary policy committee would have to act before too long to curb inflation. With the government’s preferred measure of annual cost of living increases currently standing at 4.5%, the OECD said the public’s belief that inflation would remain high illustrated “concerns about the Bank of England’s willingness to tolerate significant and persistent deviations” from the government’s 2% target. “A modest increase in interest rates should be taken during 2011 to stave off increases in inflationary expectations, which are already elevated. As the recovery gathers momentum in 2012, the pace of normalisation of interest rates should be stepped up.” The OECD said the government’s mix of tax increases and spending cuts were needed to rein in the budget deficit, slow the build of the UK’s national debt and maintain the confidence of financial markets. “Nevertheless, consolidation measures should be implemented in a way that minimises the impact on short-term growth. Ending exemptions and increasing lower rates in the VAT system would increase efficiency and raise revenues that could be used to lessen cuts in infrastructure investment.” The thinktank also questioned whether the ICB’s proposal to ringfence the retail operations of banks within wider financial groups went far enough. “A full break-up of banks and further increases in capital requirements should also remain options”. For the 34-nation OECD as a whole, the economic outlook report predicted growth of 2.3% in 2011, rising to 2.8% in 2012. While noting that the recovery was becoming “self-sustained and more broad based”, the OECD pointed to significant downside risks including rising commodity prices, a sharp slowdown in China and the soveriegn debt crisis in the eurozone. “All this suggests that the global crisis may not yet be over”, said the OECD’s chief economist Pier Carlo Padoan. He added that policymakers needed to address four big challenges – high unemployment, sustaining growth, repairing public finances and managing global imbalances. “The global economy is exiting recession but is not returning to business as usual”, Padoan said. “The post-crisis economy will have to deal with old and new challenges, while pursuing new, green and inclusive sources of growth.” Interest rates Economics Bank of England Economic growth (GDP) Financial crisis Banking Larry Elliott guardian.co.uk
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US president Barack Obama and David Cameron to discuss troops withdrawal from Iraq and Afghanistan Afghanistan and Libya are expected to be high on the agenda as Barack Obama meets David Cameron for talks at Downing Street. After meeting the Royal family and playing table tennis with the prime minister on Monday , the US president is turning his attention to the two countries’ joint interest in security. In a speech at the Palace of Westminster to address both houses of parliament , Obama will point to the withdrawal of American and British troops from Iraq, the expected drawdown from Afghanistan beginning this summer, the killing of Osama bin Laden and the weakening of al-Qaida as signs that the worst might be over for the Atlantic alliance. But among the most pressing issues he will discuss with Cameron is the bombing campaign against the Libyan ruler, Muammar Gaddafi, amid fears that the operation has reached a stalemate. The US took the initial lead in the campaign to protect civilians from the brutal crackdown led by Gaddafi’s forces, under the condition that Nato eventually would take over the operation, with the US providing support. Some British MPs say Britain and France have shouldered an unfair burden in the campaign and are calling on the US to deploy additional planes in an attempt to increase air strikes. The White House says it has no plans to change that arrangement and is confident that Gaddafi is close to falling. After Obama meets Cameron the pair will hold a joint press conference before dropping in on a barbecue hosted by their wives for families of military personnel involved in joint UK-US missions overseas. Obama’s Westminster speech on US foreign policy will be the first time a US president has addressed both houses of parliament there. Much of the speech will pay tribute to the transatlantic alliance and discuss its role in the 21st century. But Ben Rhodes, the US president’s deputy national security adviser for communications, said Obama would express optimism that the worst of the bloodletting was over. “I think he’ll speak to the fact that we’ve obviously come through a very difficult decade, but in some respects we’re turning a corner in so far as we’ve successfully ended our combat mission in Iraq, removed 100,000 troops. The British forces of course have left Iraq. “Our efforts to dismantle, disrupt and defeat al-Qaida have weakened that organisation, of course including the killing of Osama bin Laden recently. We are preparing to begin a transition – or have already begun a transition in Afghanistan to Afghan lead that we’ll continue to undertake … until 2014.” There will be discussion about how to bolster new democracies in northern Africa. Obama and Cameron are to back multi-billion-dollar plans to pour greater international financial and political support into Egypt and Tunisia in a bid to stabilise political reform. The US president has already called on Congress to forgive $1bn in debt owed by Egypt, and to provide loan guarantees for up to $1bn in new borrowing for the nation. While the US president gives his speech, his wife, Michelle, will travel to Oxford University where she will host an open day for pupils from the Elizabeth Garrett Anderson school in north London. She has a close relationship with the school, having first visited in 2009 , when she urged students to “control your own destiny”. Barack Obama David Cameron Michelle Obama Libya Afghanistan Iraq Military US military Haroon Siddique guardian.co.uk
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A selection of Steve Bell’s witty cartoons and cutting political commentary marking 30 years drawing for the Guardian Steve Bell
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The top job at the IMF usually goes to a European while an American leads its sister organisation, the World Bank The battle for the top job at the IMF has intensified as a group of leading emerging economies attacked Europe’s “obsolete” grip on the position ahead of an expected declaration from French finance minister Christine Lagarde that she wants to be head of the organisation on Wednesday. The Bric nations – Brazil, Russia, India and China – along with South Africa said in a rare joint statement that the choice of managing director on the basis of nationality undermines the legitimacy of the International Monetary Fund, and stressed it should be based on competence. “The recent financial crisis which erupted in developed countries, underscored the urgency of reforming international financial institutions so as to reflect the growing role of developing countries in the world economy,” they said. They called for the end of the “obsolete unwritten convention that requires that the head of the IMF be necessarily from Europe,” which dates back to the founding of the agency at the end of the second world war. The top job at the IMF usually goes to a European while an American leads its sister organisation, the World Bank. However, the Bric countries did not suggest an alternative candidate to Lagarde, who is set to formally announce her candidacy on Wednesday. She has garnered support in Europe – including from the UK government – and the United States. Hours before the Bric statement was issued in Washington, France’s government said China would back Lagarde to succeed Dominique Strauss-Kahn, who resigned after being charged with sexually assaulting a hotel maid in New York. China’s foreign ministry declined to comment. Lagarde has played a key role in protecting France’s financial system since the crisis struck, but she faces a possible legal probe of her role in a payout to Bernard Tapie, a prominent French businessman, to settle a dispute with a state-owned bank in 2008. Mexico has nominated its central bank chief , Agustin Carstens, for the IMF role. Former South African finance minister Trevor Manual has been mooted as a possible candidate, although he is currently involved in a racism row which would undermine his diplomatic credentials, and Russia has said it would back Kazakhstan’s central bank chief, Grigory Marchenko. IMF Christine Lagarde Economics Global economy Dominique Strauss-Kahn Julia Kollewe guardian.co.uk
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Focus had 178 shops and employed 3,920 people when it collapsed but E&Y managed to sell 55 stores to B&Q owner Kingfisher Up to 3,000 jobs are to be lost at Focus DIY as the administrators announced the closure of its remaining 120 stores, crushing hopes that a buyer could be found. The loss-making DIY chain, owned by US privatey equity firm Cerberus, collapsed into administration three weeks ago, burdened by debts of around £230m. Administrators at Ernst & Young are appointing Gordon Brothers, a specialist retail agent, to liquidate stock and shut the remaining shops. Focus had 178 shops and employed 3,920 people when it collapsed but E&Y managed to sell 55 stores in tranches to B&Q owner Kingfisher , rival DIY chain Wickes, owned by Travis Perkins, and discount chain B&M Retail, saving some 900 jobs. A mooted management buyout led by former Focus chairman Bill Grimsey has not materialised. An E&Y spokeswoman said the administrators would continue to try to sell the remaining stores, but closing down sales are set to start on Wednesday. Focus has blamed the recession and the housing slump for its troubles, but analysts say it has always been squeezed by the two bigger DIY chains, B&Q and Homebase, and never managed to carve out a niche for itself. Retail industry Job losses Julia Kollewe guardian.co.uk
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Bombing campaign steps up pressure on Gaddafi regime amid upbeat assessments of dictator’s ‘inevitable’ departure Nato has carried out its heaviest air strikes against Libya’s capital in more than two months of bombing, amid upbeat comments from France and the US on progress towards ending Muammar Gaddafi’s rule. Six loud explosions rocked Tripoli within 10 minutes late on Tuesday. These followed powerful strikes 24 hours earlier, including one on Gaddafi’s compound, that Libyan officials said killed 19 people and state television blamed on “colonialist crusaders”. The French foreign minister, Alain Juppé, said on Tuesday that the Nato bombing campaign was making progress and should achieve its objectives within months. An alliance official said Tuesday’s early strike was “the most concentrated to date”. France, Britain and the US are leading the air strikes, which started on 19 March after the United Nations security council authorised “all necessary measures” to protect civilians from Gaddafi’s forces as he sought to crush an uprising against his 41-year rule. The three countries have declared they will keep up the campaign until Gaddafi leaves power. Juppé’s upbeat assessment came after the US said the Libyan leader’s departure was inevitable. “There are more and more centres of resistance (to Gaddafi), especially in the west,” Juppé said during a question and answer session in the French parliament. “Defections are speeding up.” “I can assure you that our will is to ensure that the mission in Libya does not last longer than a few months.” France said this week it would deploy attack helicopters to ensure more precise attacks against Gaddafi forces embedded among the civilian population of Libyan cities. Britain said on Tuesday it was considering doing the same. Military analysts said these plans and the intensified bombing of Tripoli reflected growing western concerns that Libya’s civil war was dragging on. But they said the latest moves may not be enough to tip the balance quickly. While critics argue that Nato has overstepped its mandate, rebels have complained western forces are not doing enough to break Gaddafi’s army. Gaddafi denies his forces target civilians and says the rebels, who control the east of the oil-producing country, are criminals, religious extremists and members of al-Qaida. The US bolstered the credentials of the Benghazi-based rebel National Transitional Council as a potential government-in-waiting on Tuesday when an American envoy invited it to set up a representative office in Washington. Unlike France, Italy and Qatar, the US has not established formal diplomatic ties with the rebels. Jordan said on Tuesday it recognised the rebel council as a legitimate representative of Libya’s people and planned to open an office in Benghazi. Libyan news agency Jana said targets hit by Nato on Tuesday included a Tripoli mosque called Nuri Bani, though this could not be independently verified. A French newspaper reported that Gaddafi was tired of fighting a civil war under constant pressure from Nato bombs, and would step down if allowed to remain in his country. France Soir, citing “reliable sources, close to Libyan power”, said people in Gaddafi’s entourage had been holding secret meetings with representatives from western countries, including France, for weeks. It said Gaddafi, traumatised by the death of a son and three grandchildren in a Nato raid, was tired of living as a hunted man and spent several hours a day watching Arabic news channels and surfing news on Arab, English and Italian websites. In his public pronouncements, Gaddafi has vowed to fight to the death. Libya Nato Muammar Gaddafi Middle East Africa France United States Jordan United Nations guardian.co.uk
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