What will the UK interest rate be at the end of 2019?

August 18th, 2019

I really don’t know much about economics and the intricacies of how and interest rates are set by the Bank of England, looking at this market from Paddy Power is a bit like pinning the tail on the donkey for me.

My theory on this market is that is Project Fear turns out to be very close to Project Reality then Sterling will seriously and quickly tank as we head to No Deal.

The only time I can remember a similar situation in my lifetime was the legacy of Margaret Thatcher’s final act of European integration came under attack from the Brexiteer bogeyman George Soros on Black Wednesday.

Back in 1992 interest rates were raised from 10% to 12% then a further increased was announced to 15% so raising interest rates is one lever to stop your currency tanking, albeit in 1992 the government set the interest rates, now that power resides with the Governor of the Bank of England. The interest rate increases were cancelled the next day but my hunch any increases will last longer especially given that how historically low current interest rates are

On that basis I think the value is backing the 14/1 on interest rates being 2% or higher at the end of the year but perhaps PBers can convince where the value in this market is. Over to you.



Meet the next Prime Minister. Maybe

August 18th, 2019

Could this former member of the Monday Club be our next Prime Minister?

John Bercow as Prime Minister seems outlandish even in these interesting times. There’s not enough bandwdith on the information superhighway to list all the reasons why this is a bad idea or why John Bercow is so unsuited to be Prime Minister but given the desperation amongst MPs to stop a No Deal Brexit then something outlandish needs to happen.

Do I think Bercow has the ego to think he could be the man to prevent no deal? Hell yes! Is Bercow prepared to set aside Parliamentary convention? Hell yes, in fact he did just that earlier on this year.

Today’s Sunday Times has the following story

Many years ago someone told me that ‘Napoleon had a Bercow complex’, now that Bercow is involved in a plot to stop a No Deal Brexit then it isn’t hard to see how the conversation turns to him offering himself as himself as the man you need if you want a temporary non partisan (sic) Prime Minister to prevent No Deal.

I can see how that might appeal to MPs who really don’t want to make Jeremy Corbyn Prime Minister, it could appeal to Corbyn to make someone Prime Minister who really won’t be Prime Minister for long, nor leads or is a member of a political party.

I’ve stated that I consider this a pretty outlandish suggestion, the bookies agree, at the time of writing no bookie has John Bercow listed in the next PM market, but they do have another Arsenal fan, Piers Morgan, at 500/1 but if Bercow is added in this market I’d be very interested, depending on the odds.

I think MPs who respect the referendum result but are implacably opposed to both a No Deal Brexit and a Corbyn Premiership are looking for a ‘Hail Mary’ option Bercow as Prime Minister could well be it. Having one person concurrently holding the job of Speaker and Prime Minister would ensure the smooth running of the government in Parliament, something that hasn’t been happening recently.



On the betting markets punters are becoming LESS convinced that there’ll be a 2019 General Election

August 17th, 2019

From Betdata.io – the last month on Betfair GE year market

But 2019 still a strong odds-on favourite

As can be seen from the chart there has been a huge amount of volatility on the year of the next general election with punters starting to move back from 2019 which got to a 73% chance earlier in the week.

As we know under the Fixed Term Parliaments Act there are two ways an election can be triggered ahead of 2022 when the next one is officially due – the government loses a vote of no confidence or if two thirds of the entire House of Commons (433 MPs) vote for one.

The former has become less likely following the growing realisation that Corbyn does not have the numbers to bring Johnson down. The law states that a general election should be triggered if a no confidence motion is carried by MPs and not rescinded within 14 days. What happens in that fortnight is less clear.

The current MP totals point to several Tory MPs having to back the no confidence moe for it to succeed and it is hard to see sufficient coming forward.

The other way of an election being triggered is, like happened in April 2017, two thirds of MPs vote for one. If BJohnson sought to call a general election when parliament returns next month he cannot assume that he’d get the numbers. This could be portrayed as a means of avoiding parliamentary scrutiny during the critical build up to the October 31st Brexit date. My guess is that even if Corbyn backed that he would struggle to get the support of his full party.

One element that could cause LAB MPs to be less keen is the pressure from the hard left in the party to be subject to compulsory re-selection. How many would fail to back the move for fear of losing their jobs.

A contrived Johnson/Cummings measure to avoid the Commons on Brexit would be seen for what it is and provide the perfect cover for those LAB MPs worried about being de-selected.

A total of 433 MPs have to actually vote for the move and many could conveniently find reasons not to be in the Commons on that day.

Just because TMay found it easy getting MPs to the vote for GE2017 doesn’t mean that it will be the same for Johnson.

Mike Smithson


Woodcock is right: Remain’s grand strategy is so muddled as to not exist

August 17th, 2019

What use do Remainers hope another A50 extension would be put to?

Boris Johnson’s Brexit plan is commendably clear: leave on 31 October without a deal. The clarity might be the only thing that’s commendable about it and it leaves many questions open about what happens into November and beyond but on the central point of Britain’s EU membership, the issue would be closed.

Johnson and the rest of the government might argue that No Deal isn’t technically the government’s policy and that they leave open the possibility of leaving with a deal, and indeed would prefer to. Such an assertion, however, runs contrary to two key facts. Firstly, the demands to remove the N Irish backstop in entirety is clearly so unacceptable to the EU and leaves so little room for concession from London that it’s extremely difficult to see how a deal is remotely possible. And secondly, even if a deal could be done – presumably at the October European Council summit – there simply wouldn’t be time for parliament to ratify it (which requires a Bill to enact the Withdrawal Agreement into law first) before the end of the month. The policy is No Deal, do or die.

Against which, the policy of those opposed to No Deal is what, exactly? In the first instance, secure a further Article 50 extension, either by forcing the government to request and accept one through legislation or by changing the government. That much at least makes sense: lose that battle and they lose the war. But then?

As the ex-Lab, now-Ind, MP John Woodcock rightly pointed out, no-one’s really come up with a credible grand strategy that thinks beyond the next couple of months at most. Indeed, the fact that there are at least three different plans in circulation for that first stage alone (a Cooper II Act, a VoNC and a Corbyn government, and a VoNC followed by a non-Corbyn-led government), highlights the difficulties that the anti-No Deal forces face in September and October, never mind beyond. Unless the disparate groupings can unite around one strategy, chances are that all will fail when the numbers are so tight to begin with.

Of course, the ‘anti-No Deal’ party isn’t anything like a party at all. For one thing, its MPs come from many different political parties – although on an issue this important, that’s not necessarily critical. What is critical is that it’s split into those who are prepared to tolerate some form of Brexit, and those who aren’t. While they’re all opposing No Deal, that division doesn’t matter; as soon as they get the chance to set their own agenda, it is.

Let’s game through those three initial options to identify where they come unstuck.

Constitutionally, the most natural solution where the Commons is opposed to an absolutely core policy of the government is to No Confidence that government and replace it. In this case, where there government has no majority and where no MP from the governing party could take office within the existing administration’s framework (i.e. a Con minority government with DUP Confidence and Supply support), that would usually mean the Leader of the Opposition being invited to the Palace.

Unfortunately, the Leader of the Opposition is toxic to too many MPs to lead a TANDA (Temporary Anti-No Deal Administration – it wouldn’t be a GNU; there is no NU). The Lib Dems might have been the first to pour cold water on the idea but they’ve been joined by what remains of Change UK – unsurprising given both the reasons for the ex-Lab members defecting in the first place, and that Corbyn didn’t even bother to ask them despite their five MPs being critical to the success of the project.

If the purpose of a TANDA was simply to head a government for a few days to gain the A50 extension, it might be tolerable for Corbyn to head it but the reality is that woudn’t be the case. If a Confidence vote is tabled in September, it’d be more than a month to the EU summit and then even if an election was immediately called, polling day wouldn’t be until late November. Corbyn could easily be PM for getting on for three months before an election.

And crucially, the question that’s not been adequately answered: what after the election? We presumably still have Johnson and Corbyn leading the two main parties: the one is still committed to leaving at the earliest opportunity, the other to leaving after negotiating his own deal which could take years. Unless the Lib Dems can somehow form a government, an election still delivers either a No Deal Brexit or a Corbyn government and, maybe, a lesser Leave. For many, both Brexit policies and both PMs are unacceptable.

What then of the ‘Cooper II’ option: forcing Johnson to request and accept (subject perhaps to Commons ratification) another Article 50 extension? Assuming the EU27 agree to the request, the plan’s attractive to some in that it avoids the necessity of having to take control of the executive but it still fails to look beyond that event. May was willing to go along with Cooper I because she wanted a deal. By contrast, Boris isn’t bothered and leaving him in No 10 changes nothing fundamentally.

However, Boris doesn’t have to meekly comply with a Cooper II Act: he could resign. Doing so would not only absolve him of any responsibility to implement a policy he’s committed to reject, and also – probably – trigger an election, though presumably the PM appointed in his place, even though he or she didn’t have the Commons’ confidence, would still – as they’d be obliged to do – request the A50 extension (this may cause problems if Commons ratification is required by the Act but parliament has already been dissolved when the extension is granted).

But once again: what then? A Cooper II does nothing but kick the can. Remain would be not a jot closer to achieving their aim and the best that its proponents might hope for would be to discredit Johnson and split the No Deal vote – but to what end? The alternative would remain a lengthy Corbyn government that might still take Britain out anyway.

So what of a non-Corbyn TANDA? The first objection is clearly that such a government would be extremely difficult to put together and require Corbyn’s assent – presumably after he’d tried and failed to form a government himself. Such assent may well not be forthcoming and without it, the country might well find itself propelled into the vortex of both a No Deal Brexit and a general election by automatic operation of the law but without any positive intent.

However, let’s suppose it could be done. Again, we run up against the barrier of the likely imminent election. Could Corbyn continue to support a TANDA once it had achieved the first objective of gaining the extension? What would its mandate be? Its policies, domestic, Brexit and otherwise foreign? And if there were to then be an election, wouldn’t the public be being given much the same choices that parliament had themselves rejected – unless there was a major realignment in the parties?

This all sounds fairly hopeless and in the current situation, it is. Not only do the diverse objectives of the anti-No Dealers to some extent cancel each other out, with the likely result that Johnson will get his way, but even if he can be stopped for now, at what cost and for how long? The policy of a referendum under Labour may well be a chimera, with perhaps two years of renegotiations and then months more before a referendum could be held. Could a Corbyn government last that long – and if it could, what would it do in the interim? Yet what is the alternative? The theoretical (if otherwise logical) possibility of discontented MPs defecting from their own party won’t happen because they know that divided, the ‘other side’ will win, which in current circumstances would be even more intolerable than the policy of their own leadership (never mind personal considerations).

The current odds of a No Deal 2019 Brexit are slight odds-against. That seems some way too long to me. The disunity on the anti-No Deal side, both in parties and in objectives – short term and long term – is sufficient to persuade me that Johnson is likely to get his way and lead Britain out of the EU on Halloween.

David Herdson


Get ready for a weekend’s intense campaigning for the Westminster by-election that might never happen

August 16th, 2019

This weekend hundreds of LAB and LD activists will be heading for Sheffield Hallam, home of PB’s TSE, where there might or might not be a Westminster by-election in the next couple of months.

This has been triggered by the statements last month by the man who won it for LAB at GE2017 that he plans to resign as an MP on September 3rd. Jared O’Mara was the person who took this off the ex-LD leader and Deputy PM, Nick Clegg and the LDs, flush from their Brecon success would dearly love to win it back.

Now there are two big question marks over whether this will take place. A general election could be called in early September which would take away the need to elect a replacement MP. Secondly we don’t know how much we can rely on O’Mara’s statement about standing down. This is what he said last month:

 “Let everyone be assured I will be tendering my resignation via the official parliamentary procedure as soon as term restarts.

“I reiterate my apology to my constituents, the people of Sheffield and the people of the UK as whole.”

Mr O’Mara had said he planned to take time out from his official duties to deal with “mental health and personal issues”.

Whatever the party machines of the LAB and the LDs have got to assume that it is happening hence the weekend of campaign activity.

Against the background of the Brexit deadline and the resurgence of the LDs the  attacks by LAB against Jo Swinson might just help their efforts to win over Tory tactical voters.

The LDs are currently 1/14.

Mike Smithson


Elizabeth Warren soars ahead in the Democratic nomination betting after a poll puts her 11% ahead in Iowa

August 16th, 2019

Betdata.io chart of past three months on Betfair Exchange

In an earlier post this week Robert emphasised the importance of the Iowa caucuses in the selection of the Democratic nominee. This is all because the state is the first to decide and voters there tend to pay much greater attention to the contenders at this stage than those states where the primaries are much later in the calendar.

This week has been the Iowa State Fair and all the contenders have been there making sure that they are seen in what is a big public event.

At the start of her campaign in January senator Elizabeth Warren of Massachusetts made a big play of investing her early campaign money in setting up an operation in Iowa because the caucasuses historically have been so influential.

What happens here is quite extraordinary. People attend a caucus meeting in their local precinct. It might just be in somebody’s front room, and they discuss between themselves who they think would be the best nominee. Then they go into a process where supporters of the different candidates gather in different parts of the room and a little bit of horse trading takes place. After that voting takes place and the stats aggregated on a statewide basis. This year there is to be an online virtual caucus.

Iowans take very seriously their status as the first status to decide and the caucus meetings, I’m told, can be quite gripping. My guess is that what they’ll be looking next February for who is the best candidate capable of defeating Donald Trump.

The latest poll from Change Research is here.

Carrying out opinion polls in a caucus context like this can be extremely challenging because the key thing is to determine who are going to be caucus goers and most Democratic voters do not fit into that category.

Having good organisers across the state is key to success here and the top 4 in the polling have all invested heavily in their Iowa operation.

A recent development is that the national frontrunner, Joe Biden, is being increasingly scrutinised an other indications that his age might impact on his ability to be the nominee and President.

There is, however, a long way to go till February 3rd when the caucuses take place.

Mike Smithson


Trump and the inverted yield curve

August 16th, 2019

2 to 10 year yield spread

President Trump would seem to have an advantage over whoever the Democrats select as his 2020 challenger: since the Second World War, nine elected presidents have sought a second term, and seven of them succeeded.

The two exceptions were Jimmy Carter in 1980, and George H. W. Bush in 1992. In both cases, the US economy was performing badly in the lead-up to the election. US voters seem to be indulgent towards their incumbent presidents, but less so if jobs are being lost. In 1980, the Ronald Reagan was able to attack Carter with a memorable line: “A recession is when your neighbor loses his job. A depression is when you lose yours. And recovery is when Jimmy Carter loses his”. In 1992, Bill Clinton’s campaign was similarly focused on the recession then affecting the USA: “It’s the economy, stupid”.

As Trump is fond of telling us, so far the US economy has been doing well under his watch. Unemployment is historically low, and consumer spending has held up well. The long recovery and bull market which followed the 2008/9 financial crisis have continued into his term, boosted by historically low interest rates, tax cuts, and Trump’s sensible decision to make it more attractive for US companies to repatriate foreign profits.

But there is a warning sign flashing a very strong danger signal for the US economy. The graph shows the difference between the interest rates on ten-year and two-year Treasury bonds. Usually this is positive – you get more interest for locking your money away for a long period, but it has just gone negative. Historically this ‘inversion of the yield curve’ has been a very good indicator of impending recession: not only has it preceded all economic downturns since WWII, but also it hasn’t given any false signals, as can be seen on the graph above where recessions are shaded in grey.

What should worry Trump most is that in each case there has been a lag, of around 6 to 18 months, between the curve inverting and the US economy entering recession. If that correlation holds, voters could be casting their votes just as the economy worsens considerably. Given Trump’s dependence on support from blue-collar workers in the central industrial belt, that could cost him his second term.

Of course there is one easy thing he could do to help avoid this. Economists don’t know much, but they do know one big thing: there are no winners in trade wars, only losers. If Trump wants to be re-elected in 2020, he’d better get on the phone to President Li and do a deal to cancel the spiral of competitive tariffs which China and the US are imposing on each other, and which is damaging both economies.

The Democrats should also heed a lesson from history, and especially from Bill Clinton’s 1992 campaign. You don’t win elections by playing to your base and calling your would-be swing voters stupid or racist. You win elections by winning the argument on the economy, jobs, and health-care.

I don’t expect either side will take my advice, though!

Richard Nabavi


The whole Corbyn GNU story is based on a false premise – that MP numbers are there for a no confidence vote to be passed

August 15th, 2019

The US President who took over after Kennedy was assassinated, Lyndon Baines Johnson, was famed for his sayings that wonderfully summed up political situations one of which was that the first rule of politics was that its “practitioners need to be able to count”.

If only MPs and the media circus had thought about that last night when Corbyn made his ludicrous pitch to try to embarrass new LD leader Jo Swinson.

For the main requirement for the circumstances envisaged to be apply is Johnson’s government being defeated on a confidence motion and that based on current numbers is highly unlikely. For the only way that this could get through is for three CON MPS to rebel. This is how Stephen Bush puts in in the I:

“Getting even three Tory names is a major difficulty, but clearing that hurdle on paper still isn’t enough. There are also the ten MPs who were elected in 2017 under Labour colours, but who have since quit because they believe that Jeremy Corbyn is unfit to be Prime Minister. This is due to what they see as, at best, toleration of anti-Semitism in the Labour ranks and a collection of political views that are dangerous to the country. Then there is Sylvia Hermon, an independent Unionist MP who opposes the Conservative party but has vowed never to make Corbyn Prime Minister due to his historical ties to the Republican movement. So to cancel out their votes you need not three Conservative MPs, but fourteen. There is no chance of attracting anything like that many Conservative rebels.

Jo Swinson got round to this during the afternoon in her letter to Corbyn. But this is good reminder that the chances of such a vote succeeding is highly unlikely under the current composition of the Commons.

Next story..

Mike Smithson