Global threat to UK growth

The belief that somehow Britain, one of the most open economies in the world, is insulated from global events becomes harder to sustain each day despite the rosy Office for Budget responsibility forecasts.

The depth of the downturn in newly rich nations such as Brazil is underlined by third-quarter output data showing the economy slid by an alarming 4.5pc year on year, placing it in 1930s territory.

It has been particularly hard hit by the draught from Beijing which has been a big contributor to the meltdown in commodity prices.

Brazil’s consumer boom is coming to an abrupt end and could face another blow in a few days if the Federal reserve, the US central bank, follows through with its expected rise in its key interest rates. Indeed, the most worrying section of the Bank of england’s Financial Stability report relates not to Britain’s buy-to-let market but the exposure of the UK’s financial system to emerging markets.

At the end of 2014, private sector debt across emerging markets stood at 110pc of output, an increase of 40 percentage points since 2008. China may have a toehold at the International Monetary Fund, with the promotion of the renminbi to its currency basket, but private debt levels are rashly high at 200pc of total output.

The Bank notes that exposures to the debt of the non-financial sector have reached $940bn and this will increase substantially in 2017 and 2018 as refinancing has to take place.

even a small upward adjustment in borrowing costs on these loans could wreak substantial damage.

At the annual meetings of the IMF in October, managing director Christine Lagarde was quietly reminded to adopt a more positive tone after the release of a series of negative forecasts showing the ballooning of private sector debt and the fourth year in a row of slowing emerging market output.

The concern was that after a nervous summer, when China’s stock market was in convulsions, the last thing that was needed was for assembled policymakers and bankers to return home with the idea that the global economy is doomed.

At present we look to have a reverse situation to that which pertained after the great financial crisis when the big emerging market nations recovered much more quickly than the developed world.

The magical potion of quantitative easing and low interest rates, plus looser-than-wise fiscal policy, has produced robust recoveries in Britain and the US.

It has been less effective for Japan (possibly because of its big China trade) and only now is showing signs of lifting the moribund eurozone out of the turmoil and stagnation that began in 2010.

UK banks are heavily exposed to China, hong Kong and other emerging market nations with loans estimated at 340pc of their core capital. The Old Lady is confident that the banks could weather a severe downturn in emerging markets as well as a period of debt deflation on the Continent. We should be thankful for that.

But it wouldn’t be pretty, and the fallout in terms of sustaining the recovery and meeting stretched fiscal targets could be very bloody.

Lack of reach

There was much relief at BT late last month when the Competition and Markets Authority gave a preliminary thumbs up to the proposed £12.5bn takeover of mobile operator ee.

It looks as if the going will not be quite as smooth when it comes to the future of Openreach, the central provider of broadband services in the UK.

In her first public comments on the issue, Ofcom chief executive Sharon White said that keeping the status quo, where BT is in charge of the exchanges and the wires, is ‘unlikely’. rivals including TalkTalk and Vodafone have been demanding that Openreach be separated from BT which, in their view, offers poor service and has been too slow in rolling out superfast broadband.

White argues that it is unacceptable that 2.5m homes have suboptimal broadband speeds. This is particularly embarrassing at a time when, for instance, the Treasury is counting on hMrC to roll out digital accounts for every taxpayer.

BT argues that the UK’s broadband market compares well with other major european countries.

If the UK really wants to be at the forefront of the digital revolution, then maybe a better comparison would be with South Korea or Japan.

Sumner blues

ONe of the more charming aspects of US corporate governance is the lack of ageism.

however, 92-year-old Sumner redstone, the executive chairman of media giants CBS and Viacom, may be taking things a little too far.

his capacity to run the companies is being challenged in the courts by former female companion Manuela herzer who claims he can no longer take decisions for himself. redstone’s lawyers reject the claims.

Minority investors in the $42bn media empire may have good reason to be concerned.