A Different Kind of Labour Day Across the Pond

Yesterday it was Labor Day in the US, and a very different kind of Labour day in the UK. While in the US, people were “celebrating” the end of the summer holidays, in the UK the Labour party was working hard at damage control. In an interview over the weekend, UK finance minister Alistair Darling warned that the present economic conditions are “arguably the worst they’ve been in 60 years”, and the economic downturn in the UK as a result of the housing slump would be “profound and long-lasting.”

Not only are ordinary Britons feeling unhappy about those comments, UK prime minister Gordon Brown and his Labour Party are upset (internally) about Darling’s grim prognosis of the UK economy since the government has been insisting publicly it is well placed to weather the economic storm, and that the public should not panic.

Who should the public believe? Is not-very-popular Brown so out of touch with the ground that he believes things will be fine, or is he soothing public fears for his own political reasons? Should Darling have said what he said or should he have stood by Brown’s optimistic message so as to show a united front for the party? Or could it be that Darling is over-exaggerating the severity of the UK downturn? Or could it be that Darling knows more than other ministers since he’s in charge of finance?

These questions will be on many people’s minds and lips for the next few days, but one thing’s for sure, this isn’t friendly for the down-in-the-dumps British pound, which fell a so-far 160 pips against the US dollar Monday, briefly dipping below 1.8000.

As for the US dollar, while it fell earlier Monday, it later bounced up against the Euro, Swiss franc and the Japanese yen on news that Hurricane Gustav was downgraded to a category 2 storm from category 3, which in turn led oil prices to move downward on decreased concerns about Gustav causing a catastrophe in Louisiana.

Economic Calendar For Tuesday:

Reserve Bank of Australia rate decision 0430 GMT (rate expected to be cut to 7% from 7.25%)

Swiss CPI, GDP 0545 GMT

Eurozone PMI 0900 GMT

US ISM manufacturing 1400 GMT

Comments

[OldLimey:]

Brown has no option but to continue with his mantra that the UK's economic fundamentals are sound and to blame the problems on oil prices and spillovers from US subprime. He built his credibility on a 'no more boom and bust' slogan and the constant assertion of his economic prudence. The reality is that the UK's halcyon decade was built on a debt-fuelled consumer spending binge, a house price bubble, cheap Chinese imports, uncontrolled waves of illegal immigrants (sorry, 'asylum seekers'), ludicrously low interest rates, egregious fiscal mismanagement, and a head-in-the-sand approach to financial supervision. Can't see him owning up to that lot.

As for Darling's little moment of enlightenment - it could be an outbreak of realism and honesty; but this guy's a politician and neither is he the patsy mainstream media like to paint him, so I doubt it. What his true motives were is anybody's guess. Mine would be that he's preparing UK taxpayers for a bailout of the securitised mortgage market later this month - but it's just a guess. Another possibility is that he could see himself getting set-up as the fall-guy and replaced by Ed Balls (a close associate of our Great Leader) - so to come over as 'Mr. Honest' might help his personal positioning.

One certainty: you have to live here to get a real grip on just how stupendously incompetent Britain's current government is. One reasonable bet: sterling into the 1.40-1.50 range within 6 months (unless BoE shoves rates up - which is not out of the question but really would take us into a parallel universe).

2008 Sep 03 03:03 PM