It’s for the children….errr…or something.  You guys don’t mind, right?  And you Americans thinking that this can’t happen here – think again.  Consider yourself warned.

* Govt targets pension funds for spending boost

* OECD sees UK economy slipping into recession in 2012

* Series of measures aimed to bolster growth

LONDON, Nov 28 (Reuters) – Britain unveiled plans on Monday to tap pension funds for the lion’s share of an investment of up to 30 billion pounds ($46.5 billion) in big building projects to help to revitalise a stagnant economy forecast to slip back into recession next year.

The measures are the latest in a drip feed of government announcements ahead of Finance Minister George Osborne’s autumn statement on Tuesday when growth forecasts will be cut as the euro zone crisis bites.

The OECD forecast on Monday that Britain would suffer a modest recession next year, urging the Bank of England to expand its asset purchase programme designed at shoring up a faltering economy.

Adding to the gloom, British retail sales fell at their fastest pace in 2-1/2 years in November, a survey by business lobby the CBI showed.

Britain’s Conservative-led coalition has made it its priority to erase a budget deficit that peaked at 11 percent of national output.

It is cutting spending by around a fifth across most government departments, but the domestic squeeze has coincided with plunging demand from continental European markets hit by the eurozone crisis.

The unemployment level has hit a 15-year high and the government is likely to fail to hit a target of wiping out the structural deficit by 2015, when the next election must be held.

Responding to industry calls to help companies to access cash, Osborne announced measures on Sunday to underwrite 20 billion pounds of loans to smaller companies which are struggling to get credit.

Analysts backed the plans but said that they would take time to feed through into the economy.

“Measures to reprioritise capital spending and start the credit easing programme are welcome, but they are coming too late to do much about the impending recession in the UK,” BNP Paribas economist David Tinsley said in a note.

“With the domestic demand in the UK already very weak heading into the crisis, it is hard to see where any growth next year will come from.”

 

NO NEW BORROWING

Treasury Minister Danny Alexander said that the government would reallocate 5 billion pounds of spending to capital projects by 2015 but crucially added that a deficit-cutting coalition would not borrow any more.

“Through working with British pension funds, we’re identifying ways to unlock around 20 billion pounds of pension fund investment to go into privately funded infrastructure,” Alexander told BBC Radio 4.

Osborne said the government could invest up to 30 billion pounds in schools, roads and rail projects, a much needed boost for the country’s creaking infrastructure.

He got a boost on Monday when the head of China’s sovereign wealth fund said the country was keen to invest in the ailing infrastructure of Western countries, especially Britain.

“Britain has got to get away from the quick-fix, debt solutions that got us into this mess,” Osborne said.

“We’ve got to weather the current economic storm but we’ve got to lay the foundation for a stronger economic future.”

Pension funds are looking to ensure better returns after yields on British government bonds or gilts fell following buying by the Bank of England and by investors seeking a haven from eurozone turmoil.

Pension funds saw great potential in the scheme but again its effects would take time to work through.

“This could be a real win-win. The UK desperately needs to update its infrastructure, and pension funds are looking for inflation-linked, long-term investments,” said Joanne Segars, chief executive of the National Association of Pension Funds.

“Pension funds hold over a trillion pounds in assets, but only around 2 percent of that is invested in infrastructure. There’s the potential for that to be much higher.”

Analysts at Panmure Gordon said the additional investment would provide a boost to British construction and engineering firms including Balfour Beatty, WS Atkins, Kier and Costain.

I’m sure this will end well.

A week after the BBC exploded Alessio Rastani to the stage, it has just done it all over again. In an interview with IMF advisor Robert Shapiro, the bailout expert has pretty much said what, once again, is on everyone’s mind: “If they can not address [the financial crisis] in a credible way I believe within perhaps 2 to 3 weeks we will have a meltdown in sovereign debt which will produce a meltdown across the European banking system. We are not just talking about a relatively small Belgian bank, we are talking about the largest banks in the world, the largest banks in Germany, the largest banks in France, that will spread to the United Kingdom, it will spread everywhere because the global financial system is so interconnected. All those banks are counterparties to every significant bank in the United States, and in Britain, and in Japan, and around the world. This would be a crisis that would be in my view more serrious than the crisis in 2008…. What we don’t know the state of credit default swaps held by banks against sovereign debt and against European banks, nor do we know the state of CDS held by British banks, nor are we certain of how certain the exposure of British banks is to the Ireland sovereign debt problems.”

But no, Morgan Stanley does, or so they swear an unlimited number of times each day. And they say not to worry about anything because, you see, it is not like they have any upside in telling anyone the truth. Which is why for everyone hung up on the latest rumor of a plan about a plan about a plan spread by a newspaper whose very viability is tied in with that of the banks that pay for its advertising revenue, we have one thing to ask: “show us the actual plan please.” Because it is easy to say “recapitalize” this, and “bad bank” that. In practice, it is next to impossible. So yes, ladies and gentlemen, enjoy this brief relief rally driven by the fact that China is offline for the week and that the persistent source of overnight selling on Chinese “hard/crash landing” concerns has been gone simply due to an extended national holiday.  Well, that holiday is coming to an end.

http://www.youtube.com/watch?v=6UGDTtqklSo

By the way, Reuters, Shapiro is not a Yes Man – we’ll spare you the ruminations.

h/t Scrataliano

ZeroHedge

Europe’s Banks Brace for UK Debt Crisis

UniCredit has alerted investors in a client note that Britain is at serious risk of a bond market and sterling debacle and faces even more intractable budget woes than Greece.

By Ambrose Evans-Pritchard, International Business Editor

No turning back: Sterling is going to fall further over coming months, warns Unicredit

The Italian-German group, Europe’s second largest bank, said Britain’s tax structure will make it hard to raise fresh revenue quickly enough to restore confidence in UK public finances.

“I am becoming convinced that Great Britain is the next country that is going to be pummelled by investors,” said Kornelius Purps, Unicredit ‘s fixed income director and a leading analyst in Germany.

Mr Purps said the UK had been cushioned at first by low debt levels but the pace of deterioration has been so extreme that the country can no longer count on market tolerance.

“Britain’s AAA-rating is highly at risk. The budget deficit is huge at 13pc of GDP and investors are not happy. The outgoing government is inactive due to the election. There will have to be absolute cuts in public salaries or pay, but nobody is talking about that,” he told The Daily Telegraph.

“Sterling is going to fall further over coming months. I am not expecting a crash of the gilts market but we may see a further rise in spreads of 30 to 50 basis points.”

Yields on 10-year gilts have already crept up to 4.14pc, compared to 3.94pc for Italian bonds, 3.48pc for French bonds, and 3.19pc for German Bunds, though part of this reflects worries about higher inflation in Britain.

Ian Stannard, currency strategist at BNP Paribas, said markets are fretting over how the UK will cover its deficit following the pause in quantitative easing by the Bank of England. The Bank has absorbed £200bn of debt, more than total Treasury issuance over the last year.

“The UK may have difficulty in attracting extra investors to fill the gap. We think they will have to do more QE as recovery falters,” he said.

BNP Paribas expects sterling to drop to $1.31 against the dollar this year and reach parity against the euro despite troubles in Club Med. “We’re very bearish on the UK,” he said.

Big global banks are divided over Britain’s economic prospects . Goldman Sachs is betting on a turbo-charged recovery as the delayed effects of sterling devaluation kick in. Britain’s trump card is an average debt maturity of 14.1 years, nearly three times US maturities and double those of France. This greatly reduces the risk of a “roll-over” crisis.

UniCredit said Greece is better placed than the UK in coming months even if deficits look comparable. “The polls point to a minority government in the UK, while Greece’s government can count on a majority to push austerity measures through parliament. Secondly, the British tax system offers less leverage for a rise in revenue,” he said.

Paradoxically, Greek tax evasion creates scope for a surge in revenues from tougher enforcement. “It is not out of the question that we will see a positive surprise in Greece: is there any such hope for Britain?” said Mr Purps.

Still, while it is arguable whether a hung Parliament in Britain will lead to policy drift, analysts said Greece was in trouble already. The country was brought to a standstill on Thursday by the second general strike in weeks. Police clashed with rioters , again reducing Athens to a fog of tear gas. Observers said that did not augur well for a nation that has hardly begun its three-year ordeal of draconian cuts.

Pimco move to sell gilts raises spectre of a UK sovereign debt crisis

Fears that Britain may be heading for its first sovereign debt crisis since the 1970s hit a new intensity after Pimco, the world’s biggest bond house, declared that it is starting to sell off its holdings of gilts.

By Angela Monaghan and Edmund Conway

The American investment group said it will be a net seller of UK Government bonds this year, at the very point when the Bank of England brings its £200bn programme of purchases to and end and the Treasury attempts to raise unprecedented sums through the capital markets.

The move is doubly embarrassing for the Government because the head of Pimco’s European investment team is Andrew Balls, brother of Schools Secretary Ed Balls, who is mastering the Government’s re-election strategy. The move will be seen as a financial vote of no-confidence in the Government’s handling of the economy.

Paul McCulley, a managing director at Pimco, said: “We are currently cutting back in the US and UK because… supply and demand dynamics are likely to be negatively affected as borrowing rises and central bank buying declines.”

The yield on the benchmark 10-year gilt has leapt from below 3pc to above 4pc in the past year amid concerns about the Government’s capacity to bring its budget back under control, and worries about the coming end of quantitative easing (QE), under which the Bank has been buying massive numbers of gilts. However, UK equities staged a strong start to the year, with the FTSE 100 up 87.46 points to a 16-month high of 5500.34.

The Pimco switch was described by Mike Amey, its portfolio manager in London, as “a significant policy statement”.

“Those areas of the bond market that have had greatest support from central banks will be most vulnerable as that support comes to an end,” he added. Few economists expect the Bank, whose monthly meeting begins tomorrow, to extend the QE scheme beyond February, meaning the private sector will soon be solely responsible for demand for government debt. The gilts market has also been supported by new liquidity rules, which have seen banks buy large gilt holdings to bolster their balance sheets. These purchases, too, are seen as one-off, again implying a sudden drop in demand in the coming months.

Although the QE scheme has had its detractors, it has kept gilt yields down and helped prevent the flow of money in the economy from dropping into “depression territory”, according to economists. Figures from the Bank yesterday showed a welcome 0.3pc rise in the holdings of broad money, M4, by non-financial companies, in November, indicating that the radical policy of pumping cash directly into banks’ balance sheets may now be yielding effects.

Some accuse the Government of failing to lay out extensive enough plans on how to bring the budget deficit back under control, with the major ratings agencies threatening to downgrade the UK’s credit rating unless the next Government provides more ambitious plans for budget reduction. In what was seen as the starting gun for the pre-election battle, Labour yesterday published a document accusing the Conservatives of hiding the full details of its tax and spending plans from the public, sparking a war of words between the parties.