Second guessing the Fed

ONE of the biggest games of ‘will they, won’t they?’ in recent economic history continues to intrigue global markets. Tomorrow’s decision from the US Federal Open Market Committee is one of the most hotly anticipated meetings of recent years.

Investors know it’s only a matter of time before Janet Yellen and co must raise the cost of borrowing from its historic lows.

Nevertheless, it has become almost impossible to second guess when this might happen.

Respected economist Larry Summers is not the only one who believes the chances of a hike this month have receded into the distance, with a mere 28pc expectation of an increase in the benchmark rate for the first time in nine years, whereas the odds on a raise in September previously hit 80pc during July.

The World Bank, International Monetary Fund and the Bank for International Settlements have all warned of severe market shocks when an increase finally comes.

Why is this? Analysts at City trad- ers IG have identified the commodity super sell-off as one reason, with slumping prices of oil, minerals and other essentials trickling down to the cost of living and pushing inflation back down to zero.

This deflationary threat poses tough questions for monetary policymakers when combined with weakness in Asia, where fears about China’s slowing economy are causing major market volatility, while slowing employment growth is worrying.

It’s therefore unlikely we’ll see any move from the Fed this week, IG contends, with a growing consensus in favour of no change.

The Fed wants to avoid a major policy shock which could send global markets into a tailspin when it does act. Without a clear rationale for a policy shift no action is probably the best course. December, therefore, looks a better bet for Fed action.

Makers’ March

THE best of British manufacturing is on display in Frankfurt and London at a time when George Osborne’s much-derided 2011 drive for a new ‘March of the Makers’ looks to have screeched to a halt.

In Germany, British-built cars are centre stage as bosses from marques as diverse as Jaguar Land Rover to Bentley, Nissan to Vauxhall laud the level of investment being ploughed into the sector.

With some £2bn already being pumped into car manufacturing in the first eight months of 2015, our automotive sector is certainly heading in the right direction, accounting for almost 12pc of the nation’s total exports.

The importance of the sector to Britain’s exports was illustrated by the presence of business secretary Sajid Javid at a special pre-Frank- furt send-off in Greenwich for ten of the leading manufacturers heading to the show.

It’s not the only bright spot. At the ExCel Centre in Docklands the makers of equipment for the military and security sectors are showing off technology from fighter jets to cyber security and even the latest drones.

All told, some 40pc of the gear in the ExCel is British made. The question of whether the Government should support such an event remains controversial – anti arms industry campaigners have been trying to disrupt the show.

But this two-pronged prowess comes at a time when the wider manufacturing sector has disappointed. A weak month in July saw output decline compared with a year earlier.

The overall index of production – which accounts for 15pc of the UK economy – was better but includes mining and utilities among others.

Nevertheless, production and manufacturing remain a long way below their pre-downturn peak and UBS analysts have even suggested Britain’s factories are definitely on a weaker trajectory.

Yet what is clear from touring manufacturing sites around the country, where some of our brightest engi- neers and scientists are bristling with cutting-edge designs – and from the enthusiasm on show at ExCel and Frankfurt – is that recent economic data does not detract from the effort that’s going into innovation.

The perennial problem now remains how to turn that genius into further export success.

Cash Incentive

ANYONE who has ever been pleasantly surprised to find a rogue fiver tucked in their wallet or purse won’t be surprised to learn that oodles of cash languishes in our homes and offices.

But data from the Bank of England has revealed there could be a staggering £5bn of money hidden under our mattresses.

It’s easy to assume this may be down to the lack of trust in our banks allied to record low interest rates and the fact that, with inflation at close to zero, the cash is not devaluing as rapidly in the past.

Dipping further into the numbers reveals this equates to an average of £345 per head specifically held ‘just in case’.

It may still be worth delving down the back of the sofa for the odd pound coin.