10 October 2018

Stuart Taylor

10 October 2018

Good morning,

As a long-suffering supporter of the Scotland football team, I’m pretty used to us coming bottom of international league tables but this morning’s findings on global public finance succeeded in making me sit upright and take notice. 

A health check by the International Monetary Fund has established the UK economy as the second weakest of 31 nations examined, with only Portugal in a worse state. The data calculated the assets available to a government with its long-term liabilities and found that the UK had a negative net worth of more than £2tn, made up of £3tn in assets and £5tn of liabilities, metrics which mean the UK falls below nations including Gambia, Uganda and Kenya.

The surge of privatisation in the 1980’s and 90’s has been identified as a key factor for the small volume of assets, as well as the significant public debt and future pensions liabilities that sits on the government’s balance sheet. The analysis concluded that Britain has squandered its assets in an attempt to massage traditional public finance metrics. In contrast, Norway, sitting top of the pile in the data, can point to its North Sea oil windfall as a principal reason for building up financial reserves equivalent to almost four times GDP.

The financial crisis saw a particularly large-scale expansion of the UK’s balance sheet, resulting in the negative net worth of the UK government doubling which, as the IMF calculated, represented a £1tn decline in the government’s wealth. Norway saw its net worth rise by 167% over the same period.

The tests are designed to show how well governments are prepared for economic shocks and the UK’s large debt burden means the country has become worryingly exposed to inflation risk, as well as the increased likelihood of tax rises in the future. Steps to balance the assets to liabilities ratio is an action that we can expect future chancellors to take.

Despite the bad results, the IMF did offer the UK some words of support. It acknowledged that the UK government recognised its perilous situation and was willing to take action to address it. This could be as soon as the end of this month when the current occupant of 11 Downing Street, Philip Hammond, delivers the Budget. Look out for a review of the UK government balance sheet, as well as a pledge to issue less debt linked to the retail price index, as the country attempts to work its way back up the league table.


The prime minister has appointed a minister for suicide prevention in England as it aims to tackle the stigma surrounding mental wellbeing and bring down the rate of suicide especially among men under 45. The appointment of Health Minister Jackie Doyle-Price comes as ministers and officials from more than 50 countries assemble in London for the first ever global mental health summit.

Nikki Haley, the US ambassador to the United Nations, has resigned from her role. Haley, known for being a moderate voice in Donald Trump’s administration, will leave at the end of this year in order to "take a little time off". (£)

Theresa May is expected to force her cabinet into agreeing further compromises to her Brexit blueprint ahead of a meeting next week by European leaders. The prime minister is believed to be about to propose staying in the customs union but with a “clear exit process”. (£)

Business & Economy

Britain’s audit industry is facing an immediate sector review by the competition watchdog over concerns it is not working well for the economy or investors in British companies. The Competitions and Markets Authority will investigate the market involving PWC, Deloitte, KPMG and EY and will report its findings towards the end of this year. (£)

Mark Wilson has been ousted as CEO at Aviva after almost six years at the helm. The board of the insurer cited a need for “new leadership” as they asked Wilson to step down with immediate effect. He will however remain at the company until April 2019 in order to “assist with the planned and orderly transition”. (£)

Ben van Beurden, the boss of Shell, has said that a large tree-planting project the size of the Amazon rainforest will be needed to achieve a tougher global warming target, as he argued that more renewable energy alone would not be enough. A landmark report by the UN found that reforestation is seen as essential if the world is to restrict warming to 1.5C.


What happened yesterday?

Europe’s main equity markets all closed higher yesterday as a calm global bond market helped to boost investor appetite, despite fresh losses for Asian stocks.

The FTSE 100 ended the day marginally higher, rising by 0.1%. The pan-European Stoxx 300 and Frankfurt’s Xetra Dax both saw gains of 0.1% and 0.4%, respectively.

The gains came as the CSI 300 index of major Shanghai- and Shenzhen-listed stocks fell by 0.1%, compounding losses from Monday when the index suffered its worst day of trading since February.

On the currency markets, the US dollar index reached a seven-week high during the course of Tuesday, while the pound was down 0.1% at $1.3103, and US sanctions on countries importing Iranian oil made for a choppy day on the commodities markets, with Brent up 0.8% at $84.59 a barrel, after fluctuating between $83.73 and $85.04 over the course of the day.

PRS Reit (The)
Vertu Motors
Walker Greenbank

Trading Announcements   
Hollywood Bowl Group
Liontrust Asset Management
Scapa Group
Telford Homes
Vertu Motors

UK Economic Announcements
(09:30) Balance of Trade
(09:30) Gross Domestic Product
(09:30) Index of Services
(09:30) Industrial Production
(09:30) Manufacturing Production

Intl. Economic Announcements
(12:00) MBA Mortgage Applications (US)
(13:30) Producer Price Index (US)
(15:00) Wholesales Inventories (US)

Columns of Note

The FT’s Martin Wolf says the latest IMF empirical data shows that the effects from the 2008 financial crisis have been long lasting and have extended well beyond the countries that suffered a decade ago. Wolf offers three tasks and a lesson that must be adhered if the world is to avoid a similar fate further down the road. (£)

Writing in the Guardian, Natalie Nougayrède says that Vladimir Putin’s plan to divide Europe is backfiring. She says that even small western European countries with no history of tense geopolitical confrontations with Russia can find themselves being targeted, naming the Netherlands and Greece as two examples.

Did you know?

Under extreme high pressure, diamonds can be made from peanut butter. 

Parliamentary highlights


House of Commons

Oral questions
International Development (including Topical Questions) 

Prime Minister's Question Time

Agriculture Bill - second reading

House of Lords

Oral questions
Action ministers are expected to take when they receive adverse reports on costs or progress from the Infrastructure and Projects Authority - Lord Berkeley

Ensure the NHS has sufficient staff following Brexit - Lord Clark of Windermere

Outcome of the Government's last meeting with the European Union Commission to discuss Brexit - Lord Dykes

Scottish Parliament

In recess until 22 October


House of Commons

Oral questions
Transport (including Topical Questions)

Business statement
Business Questions to the Leader of the House

General Debate
Victims strategy

House of Lords

Oral questions
Impact of changes in the Sudanese government on the UN-African Union operation in Darfur, on President Omar al-Bashir's future in office and on US policy towards Sudan -  Lord Chidgey

Impact on the Good Friday Agreement of the UK’s withdrawal from the EU -  Lord Dubs