No UK rates hike, French toast & buy Bitcoin

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Happy New Year.

Since early January tends to be a time of predictions, I thought I would wade in.  There seems to be a common consensus that we can be cautiously optimistic about UK plc. A gentle reminder though that it is a debt-fuelled boom, albeit one  that will see the economy grow, GDP rise, employment too, construction recover and house prices continue to creep higher. For the throngs who feel locked out of the ever-pricey UK housing market, the key to a happier new year may be whether, and when, real wages start to recover from the longest squeeze in more than a century. But with a large pool of jobless workers and an extraordinary 3 million people saying they are “underemployed” and would prefer to work more hours, there isn’t really any incentive for employers to start paying more. Something that ought to happen, but won’t, is a hike in the Bank of England’s interest rates – or any changes in UK monetary policy. Bank of England Governor Mark Carney’s line has been to reassure consumers and companies that the Bank won’t “pull the rug out” from under economic recovery by raising rates too soon – and that’s likely to take us into 2015 at the earliest.

In the Eurozone, the worst is probably over, but keep an eye on France which is teetering on the edge of a new recession. In its annual review, Berenberg Bank said “France remains the only major European economy which is beset by serious health problems and has not yet done much about it”. Will the French economy become toast? Hoping to avoid that is President Francois Hollande, who seemed to take inspiration from his Socialist predecessor Mitterand when he talked up a pro-business tax break in his New Year address. Recap: 30 years ago, Mitterand spent his first two years in office nationalising industries and expanding worker benefits, only to switch course abruptly in 1983 with an austerity drive when public finances (and his popularity) crumbled. Things were up and down for his party for a while, but the French economy and Mitterrand’s personal popularity both eventually recovered, and Mitterrand was re-elected to a then-unprecedented second term in 1988. I question whether history can really repeat itself. Considering the polls show Hollande to be the least popular French President in modern history, I feel his tax-break scheme is too little about about restoring economic competitiveness and too much about saving (his own) face.

I think Bitcoin will have a moment in 2014, increasing in popularity and value. Bitcoins exist as software that isn’t controlled by any country or banking authority. The virtual currency can be traded without being tracked. Bitcoins have pipped the $1000 mark a few times now on the Mt.Gox online exchange, one of several markets where they are traded for dollars, euros and other currencies.  They have also dipped an awful lot lower and I would expect some wild fluctuations to come. Yet all it is going to take is for Amazon or another major retailer to start accepting the virtual currency and Bitcoins could start looking like a good buy.