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The UK Economy, From the Sublime to the Ridiculous

Immigration to Drive UK Population Growth
The UK population is to rise by more than 10 million over the next 20 years, to more than 71m, according to the Office for National Statistics’ latest bi-annual demographic forecast. More than 2/3rds of the increase will be attributable to immigration. If the prediction is proved accurate the population growth rate would accelerate to the fastest pace for more than a century.

Other forecasts within the report included a fall in the proportion of potential workers relative to those of state pensionionable age (from 3.2/1 to 2.8/1). The number aged 85 or more will double to 3.3 million.

The ONS also predict the UK will receive 180,000 new immigrants on average for the next 25 years. That figure has been reduced from the 190,000 annual intake forecasted in the last report two years ago.

The Labour government reacted to the report suggesting their points based immigration system was “working”. Critics, predominately from the Conservative party, responded highlighting the fact the UK was already overcrowded and that the current pace of immigration was putting a damaging strain on public services including hospitals and transport infrastructure. Less moderate observers suggested the growing influence of far right organisations was a direct result of present government’s “open door” policy.

The report did not include illegal immigrant numbers.

Sir Andrew Green, chairman of think tank Migration Watch UK, said the government was "in denial" and "really serious measures" were needed to bring immigration down. "70% of the fastest growth rate in history is due to immigration," he said. "That is equivalent to the entire population of London in the next 25 years.

The Labour government endorses an expansive immigration policy as most immigrants are working class and therefore thought more likely to vote Labour than other parties. Local government benefits from higher council tax receipts due to the larger household count. Corporations benefit as the strong inflows of price competitive (cheap) labour puts downward pressure on wage costs maximising corporate profits.

Latest official figures confirmed 2.47 million people are unemployed in the UK.

Analysis which includes the inflows of both temporary and permanent foreign nationals seeking to work in the UK better highlights the impact on population and workforce trends.

In the 2007/08 and 2008/09 fiscal years combined 1.42 million foreign nationals were provided with UK National Insurance numbers. Source:

Also, vacancies as a percentage of the unemployed have now fallen to 17%. Put another way, there are now six unemployed people per vacancy compared with 2.3 in January 2008. Source:

Buy and Hold Fund Managers Fail to Beat UK Equity Benchmarks
Between March 3rd and October 16th the FTSE All-Share Index bounced more than 50%. The large capitalisation FTSE 100 Index rallied 48% in the same period.

Unfortunately, according to Morningstar the fund research firm, only one in four of UK equity buy and hold managers managed to surpass UK equity index returns. 304 of the 405 funds tracked fell short.

Many of the best paid managers provided 3rd and 4th quartile returns due to incorrect sector allocation. The weak performance is also attributable to managers failing to understand either investor risk appetite or the impact of the BoE’s monetary policy and quantitative easing program on equity prices.

Actively managed buy and hold funds often apply charges three times larger than the fees associated on buy and hold tracking funds to pay for research and the high wages active fund managers demand.

BoE Monetary Policy Committee Members Differ on Inflation View
The latest Bank of England MPC minutes confirmed members were unanimous in their decision to maintain the quantitative easing program at the current £175bn. The committee also agreed to hold UK rates at 0.5%.

Sterling jumped on the news with currency traders buying into the pound reassured that the BoE is increasingly unlikely to execute further monetary stimulus at least in the short term thereby reducing devaluation pressures on Sterling.

Of equal interest is the committee’s growing uncertainty over inflation. A number of members remain unconvinced that the recent fiscal and monetary stimulus efforts amounting to hundreds of billions of pounds will create additional inflationary pressures.

However, the reality of inflation in 2010 and beyond will create a nightmare scenario for the box-tickers at the BoE. The UK is destined to suffer high unemployment and weak consumer spending for years (implying rates should stay low) whilst asset prices, such as commodities and equities stay strong benefiting from the tidal wave of liquidity fed into markets by central banks globally (implying rates should rise).

UK Public Finances Slump to Worst Six Months on Record
The Labour government now officially presides over the worst 6-month shortfall in revenues, relative to expenditure on record. The Office for National Statistics has confirmed government borrowing in September 2009 reached £14.812 billion. In the six months to end of September government borrowing totalled £77.292 billion. A government spokesman provided a more upbeat interpretation of the data reminding observers that September’s shortfall was “better” than the previous month which saw a public sector net cash requirement of £19.443 billion.

The Labour government may have to borrow a total of £175 billion in the current fiscal year, a figure unrelated, but uncannily similar to the £175bn the Bank of England is injecting into the financial services and banking sector to ensure City leaders have sufficient liquidity to conduct transactions and lending.
The UK’s total national debt now stands at £824 billion pounds, equal to 59% of gross domestic product. If the money used to save the financial sector was removed from calculations net debt would stand at 48.9% of GDP.

FSA to Force Mortgage Providers to Tighten Application Checks
According to the Financial Services Authority there are £1.23 trillion pounds of mortgage debt outstanding in the UK. Loans secured on homes account for 70% of extended credit.

In response to the widespread fraud suffered in recent years in relation to self-certified mortgages (a loan application in which a borrower does not need to prove income) the FSA plans to force mortgage providers to check the income of home loan applicants.

Opposing the proposed rules are hundreds of mortgage consultants who earn thousands of pounds of commission on mortgage applications – if the loan is approved.

The FSA is also to strengthen the affordability criteria within applications forcing mortgage consultants to properly check the spending patterns of borrowers before the submission of the application.

Against advice from some industry experts the FSA refrained from broadening its remit and capping loan to value ratios on mortgages so in theory 125% loans, like those offered by the failed bank Northern Rock, could still be marketed in the future by commission hungry salespeople responsible for ‘advising’ financially unsophisticated home buyers.