Comment: Billions in financial stimulus just to stand still

WITH EACH bit of fragile UK economic data that appears, the likelihood grows that the Bank of England will push the button next month on more bond-buying from the banks via its quantitative easing (QE) programme.

The latest triple whammy to sentiment is worse-than-expected manufacturing in August, lacklustre industrial production and a widening of the UK trade gap.

Even with, say, an extra £50 billion of pump-priming QE in November, the economy will still struggle to register more than modest growth in the second half of 2012 after it slid into double-dip recession.

Without further QE, however, the odds would be on stagnation at best.

The manufacturing fall of 1.1 per cent was particularly disappointing, especially given that it was followed by a weakened purchasing managers’ manufacturing survey in September. Financial services also had a weaker third quarter than expected.

The UK’s widening trade deficit, meanwhile, shows that, even with competitively priced sterling, we are walking up the down escalator as our main trading partner, the eurozone, flails around in trying to prop up Greece and keep Spain out of the intensive bail-out ward.

Despite the latest douche of unfortunate data, it would still be a surprise if the third quarter did not show a little positive growth, given the exceptional negative factors in Q2 including extremely wet weather and an extra public holiday for the Queen’s Jubilee.

But the underlying picture remains cheerless. An extra injection of £50bn of QE would take the overall total up to £425bn.

It sounds a hell of a lot of stimulus but it is difficult to argue with the stream of disappointing data that we don’t need it. Worryingly, though, it seems the economy now needs more and more stimulus to basically stand still.

PPI costs will put Libor scandal in the shade

THE Libor-rigging scandal had the edge in drama because the studied lack of integrity involved was so fluorescent. But when the hubbub dies down and other banks join Barclays in taking their punishment in regulatory fines for Libor manipulation, it is virtually certain that the other banking scandal of mis-selling of payment protection insurance (PPI) will have a far greater financial impact.

Barclays, remember, the only bank so far fined for its part in the Libor scandal, only had to shell out £290 million.

Compare that with the £10 billion Britain’s banks have so far had to earmark for customer compensation on PPI mis-selling. And it is far from over.

The number of complaints against banks wrongly selling PPI doubled in the first half of this year, according to the Financial Ombudsman Service, with about 1,500 new cases arriving at the Ombudsman’s office every day.

Even with the ambulance-chasing lawyers’ industry that has mushroomed around the issue, it is clear the banks are far from being able to say they have drawn a line under the scandal.

The Ombudsman is called upon when financial services groups and their customers cannot agree a settlement.

The fact that he has revealed complaints over PPI made up not far off two-thirds of the 135,000-plus complaints he received during the first half of 2012 speaks volumes about where we are in the process of putting the scandal to bed.

When the history of banking rogue behaviour is written, PPI will be right up there with the likes of endowment mortgage and pensions mis-selling as examples of an industry that went seriously awry.