Category Archives: UK Economy

everything related to UK economy

More anger pours in on the £900,000 bonus to RBS Chief

Royal Bank of Scotland
Royal Bank of Scotland

The Royal Bank of Scotland took a decision recently, which has drawn many a criticism from all the sections of the financial markets. The decision was to award the CEO, Stephen Hester, a bonus of nearly a million pounds! Latest addition to the brigade of people criticising Royal Bank of Scotland’s decision are Ed Miliband and Boris Johnson. More than 80% of the bank is owned by the taxpayer and the Conservative Mayor of London, Johnson has asked the Government to step in and sort out the matter. The bonus is being described by all as utterly unacceptable.

After the bonus, RBS Chief’s net increase would be another 3.6 million bank shares apart from a basic salary that he gets of about £1.2m. The shares that have been awarded can be cashed in by Hester in the year 2014 and at present are worth £963,000. Miliband who is a Labour leader said that David Cameron has failed to deliver in accordance with the rhetoric that he gave regarding shareholder activism and the executive pay. He said, “It’s a disgraceful failure of leadership by the prime minister. He has been promising, for months, action against excessive bonuses, executive pay – and now he has nodded through a million-pound bonus. He has also been lecturing shareholders about how they need to be more active in holding executives to account. He owns, through the British government, 83% of the Royal Bank of Scotland. He must now explain, not least to the British people, why he has allowed this to happen.” Johnson spoke from the World Economic Forum in Davos, Switzerland and described the bonus as bewildering.

He added that this award must have been stopped by the ministers. Johnson further added in an interview with BBC, “The idea that this is not in the control of the government seems to me to be far-fetched. Stephen Hester is an able man, probably doing a difficult job, and his contract must have been drawn up, I guess, when he was appointed in 2008 under Alistair Darling and Gordon Brown. I do not know what they were thinking of when they drew it up that way, but it certainly seems to me to be right that the government should step in and sort it out. People will not understand how somebody can get a whacking great bonus like that when they are basically running a state-owned concern, and I am at a loss to justify it.”

Nick Clegg, the deputy Prime Minister said that it was Hester’s call whether to accept the award or not. He put the blame on the previous Labour Government for the inability of the Government to stop the payout. He said, “The chancellor and the Treasury have explained the frustrating realities about all of this, which is that if we ripped up the contracts which the Labour government had signed with them, or changed the arrangements of these arms-length taxpayers bodies that manage our stake in the banks, we probably, as taxpayers, would have ended up paying even more money.”

Britons face the menace of inflation

Inflation
Inflation

During the tough financial times two major problems which UK is facing at the moment are fiscal deficit and inflation. The level of inflation in 2010 has been higher than what the official target had been at and also what was forecasted by the experts. In February the Consumer Price Inflation (CPI) was 3% and this rose to 3.4% in March. This level is 1.4% beyond the targets that have been set.

The menace of inflation has become a cause of great trouble to the common man. The attitude of the Bank of England shows that they are not taking the steps which are essential for controlling of inflation in the country. Many people believe that the bank is not working towards solving the problem of inflation and is not taking the right measures. The Retail Price Index (RPI) rose to 4.8% in March from 4.2% in February. At the current level it is 2.3% over the set target level. Like these there are many more bad numbers which show the deteriorating condition of the economy of the United Kingdom. In the month of August last year a survey was conducted by the Bank of England to find out the reaction of the Britons on the steps it was taking to control inflation. The results of the survey were disappointing as only 16% people thought that the bank was doing the right things to control the menace of inflation. In November a similar survey was conducted by the bank again. The results of this survey were shocking and it showed that only 9% people were satisfied with the efforts of the bank. In the survey the participants said that they were expecting that the inflation rate would become 4.1% by the next year. This shows that they had no faith in the bank’s efforts and they did not expect any results from the actions that were being taken by the bank. In the survey conducted in the month of August, 7% people believed that the inflation rate will come down by the next year. This figure then dropped down in the next survey and became 6%. This again proved that people were absolutely dissatisfied by the steps taken by the administration and their attitude. The survey which was conducted in November also saw an increase in the percentage of people who believed that the interest rates would go up. The August survey reported these people to be 38% of the participant population. In the survey conducted in November, this number became 39%.

The figure of satisfaction shown by the survey conducted in November was the lowest level of satisfaction among the citizens of UK with respect to the issue of inflation. Ever since the bank had started such types of surveys, since 1999 this survey showed the worst scenario. Almost 1800 people participated in these surveys. All of these people were above the age of 16. The Bank of England had given the responsibility for the survey to the GFK NOP.

A deeper recession is on the way for UK

Recession
UK Recession

If the respected Economists at Standard Chartered Bank are to be believed then according to them, by 2012, the economy of United Kingdom will contract by 1.3 per cent. This is not a good report, as the people are already very much depressed about the current situation throughout the UK. Inflation, recession, job cuts etc. are already taking a toll of the day-today life of the Britons at the moment. News of this kind will bring only greater stress to the minds of the people of UK.  Nevertheless, the truth is that they will have to learn to live with bitter truths.

The Eurozone crisis has been the chief reason for this current condition of the UK financial market and economy. Earlier a growth of 0.6 per cent had been predicted by the authorities but the survey conducted by the Standard Chartered bank recently that covered three hundred and fifty companies showed that there is an increasing possibility of a sharp recession owing to the crisis in Europe. Eurozone economy is supposed to contract by a greater proportion, almost 1.5 per cent, by this year. There are three factors, which can be considered major contributors towards the recession in the UK. The first one would be a decline in the confidence of the consumer and businesses. The Second one is the tighter control of the banks on the credit. Third and the last contributing factor would be the cuts in the budget of governments across Europe. While all this is happening in the west, in Asia, growth will see a substantial decline. From what was 7.3 per cent in 2011 to 6.5 per cent in this year. The east will be responsible for saving the world from a global recession once again. The resilience it will provide to the declining economies in the west will keep the growth chart of the world economy in the upwards direction with an overall increase of 2.2 per cent in the world economy as a whole. Gerard Lyons, the chief economist for the Standard Chartered Bank said that the recovery will be made in the East and it would be felt in the West. If anyone ever needed to show that the balance of power being shifted to the East gradually, this is the best time to do that. The Treasury however is a bit optimistic for now. It predicts that UK will avoid recession even though it will be a very narrow escape. Predictions like these bring back hope in the times of despair in the minds of people.

The Bank of International Settlements has already warned the Bank of England that the Quantitative Easing programme being followed by the latter might fail to give a helping hand to the economic recovery of the UK as is being expected by everyone. The Telegraph reported that the BIS has claimed that QE’s effectiveness will get diminished as it will be impossible for it to reduce the debt that is already becoming a burden for the UK Government.