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The UK government’s policy on public sector salaries is foolish

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facing the UK governmentWinter of discontentIn the public services. In response, it insists it cannot afford higher wages and seeks to limit the right of public servants to strike. This may work politically. Rising inflation does not alter this logic.

Since the Conservatives won power in May 2010, average gross real wages (including bonuses) have increased by 5.5 percent in the private sector by September 2022, but have fallen by 5.9 percent in the public sector. Amazingly, between January 2021 and September 2022, the average real wage in the private sector fell by 1.5 percent, but in the public sector the salary fell by 7.7 percent. In fact, all of the decline in real public sector wages since 2010 has occurred in the past two years.

Such a large cut in real public sector wages would not have happened without high inflation. But could one have lowered the real wage in the absence of a rise in the price level? The answer is yes. The UK has suffered a significant deterioration in terms of trade. Thus, the prices of its imports rose sharply against the prices of its exports. The UK is much poorer than it would have been if, above all, the rise in energy prices had not happened. Part of this adjustment in real income must fall on wages. Thus, some decline in real earnings is neither surprising nor inappropriate. Inflation only made it possible to implement.

However, even if some decline in real earnings in the economy makes sense, why is the decline in the public sector so much greater than the decline in the private sector?

One might argue that controlling public sector wages is an effective way to prevent a wage-price spiral, or that the government cannot afford to pay public sector employees any more, or that inflation is an opportunity to reduce excessive levels of public sector wages, especially when one takes into account Perks, in particular a generous pension.

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None of these arguments have merit.

At the outset, Ben Zaranko of the Institute for Fiscal Studies, notes that “it is difficult to see how an increase in public sector wages can contribute directly to the wage and price spiral”, given the price shortages in the public sector. He also points out that one cannot argue that public sector wages are driving inflation, because it is lagging far behind. Above all, wage policy will not bring down inflation. This requires macroeconomic measures.

Line chart of UK average real earnings, ££ per week in constant 2015 values ​​showing public sector salaries have collapsed in the last two years

Secondly, the government’s decision not to increase wages in line with wages in the private sector is not because it cannot afford to. Taxes can be raised if the will is present. It is actually a political decision to make public sector employees pay for unfunded government promises.

In the last argument, as noted by IFS in October 2022 Green Budget, the average wage in the public sector is higher than in the private sector, but this advantage disappears when one takes the characteristics of the worker – age, experience, qualifications, etc. – into account. Public sector workers then earn slightly less than those in the private sector. In fact, the ratio is now more unfavorable to public sector workers than it has been at any time in the past 30 years. True, if employers’ pension contributions are factored in as well, public sector employees earned 6 percent more salaries than private sector employees on average in 2021. But that slight advantage is sure to be eroded further in 2021. 2022.

Line graph of annual change in the percentage of average real earnings in the UK shows that recent declines in public sector real earnings are severe

Above all, the test of whether the pay is adequate is whether it maintains services at the levels promised by the government. There is clearly a major shortage of key personnel, as well as widespread concerns about their quality. thus, Data from NHS England “Showing a vacancy rate of 11.9 per cent as at September 30, 2022 within the Registered Nursing group (47,496 vacancies). This represents an increase over the same period in the previous year, when the vacancy rate was 10.5 per cent (39,931 vacancies).” second, The data shows a huge deficit In hiring teachers in subjects such as physics or design and technology.

as such Chris Cook arguesThe government must ask whether public sector salaries are at a level that will maintain the provision of required services. The country’s social fabric is eroding. In particular, meAll health damage saving labor. If the government is not willing to raise the required taxes, it should be honest about it. To allow inflation to reduce real wages, while expecting services to continue, let alone improve, is manifestly dishonest.

The government must keep wages in line with the private sector, especially when it has significant recruitment and retention problems. If that means he has to reopen spending plans that no longer make sense in the pound today, then so be it. What is happening now may be wise, but it is sterling folly.

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We need to pay more attention to skewed economic signals

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The writer is chair of Queen’s College, Cambridge and advisor to Allianz and Gramercy

Inflation was the dominant economic and financial issue of 2022 for most countries around the world, especially for advanced economies that have a consequential impact on the global economy and markets.

The effects have been seen in declining living standards, increasing inequality, increasing borrowing costs, stock and bond market losses, and occasional financial mishaps (fortunately small and so far contained).

In this new year, recession, both actual and feared, has joined inflation in the driving seat of the global economy and is likely to replace it. It’s a development that makes the global economy and investment portfolios subject to a wide range of possible outcomes — something that a growing number of bond investors seem to be aware of more than their equity counterparts.

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International Monetary Fund iYou will likely review soon Her economic growth forecasts again, predicting that “a third of the world will be hit by recession this year”. What is particularly notable to me about these worsening global prospects is not only that the world’s three major economic regions – China, the European Union and the United States – are slowing down together, but also that this is happening for different reasons.

In China, a chaotic exit from the wrong Covid-19 policy is undermining demand and causing more supply disruptions. Such headwinds to domestic and global economic well-being will continue as long as China fails to improve the coverage and effectiveness of its vaccination efforts. The strength and sustainability of the subsequent recovery will also require that the country more vigorously renew a growth model that can no longer rely on greater globalization.

The European Union continues to deal with energy supply disruptions as the Russian invasion of Ukraine continues. Strengthening inventory management and reorientation of energy supplies is well advanced in many countries. However, it is not yet sufficient to lift immediate constraints on growth, let alone resolve long-term structural headwinds.

The United States has the least problematic view. The headwinds to growth are due to the Fed’s struggle to contain inflation after mischaracterizing rate increases as fleeting and then initially being too timid to adjust monetary policy.

The Fed’s shift to an aggressive front-load of interest rate hikes came too late to prevent the spread of inflation in the services sector and wages. As such, inflation is likely to remain stubborn at around 4 percent, be less sensitive to interest rate policies and expose the economy to greater risk for accidents from additional policy errors that undermine growth.

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The uncertainties facing each of these three economic areas suggest that analysts should be more careful in reassuring us that recessionary pressures will be “short and shallow”. They need to be open, if only to avoid repeating the mistake of prematurely dismissing inflation as transient.

This is especially important because these diverse drivers of recessionary risk make financial fragility more threatening and policy shifts more difficult, including potentially Japan. Get out of interest rate control Policy. The range of possible outcomes is extraordinarily large.

On the one hand, a better policy response, including improving the supply response and protecting the most vulnerable populations, can counteract the global economic slowdown and, in the case of the United States, avert a recession.

On the other hand, additional policy errors and market turmoil can lead to self-reinforcing vicious cycles with rising inflation and rising interest rates, weakening credit and compressed earnings, and stressing market performance.

Judging by market prices, more bond investors are better understanding this, including by refusing to follow the Fed’s interest rate guidance this year. Instead of a sustainable path to higher rates for 2023, they believe recessionary pressures will lead to cuts later this year. If true, government bonds would provide the yield and potential for badly missed portfolio risk mitigation in 2022.

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However, parts of the stock market is still weakly bearish pricing. Reconciling these different scenarios is more important than investors. Without better alignment within markets and with policy signals, the positive economic and financial outcomes we all desire will be no less likely. They will also be challenged by the risk of more unpleasant outcomes at a time of less economic and human resilience.

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Macro hedge funds end 2022 higher, investors say, while many others take big losses By Reuters

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© Reuters. FILE PHOTO: Traders work on the trading floor of the New York Stock Exchange (NYSE) in New York City, US, January 5, 2023. REUTERS/Andrew Kelly

By Svea Herbst Baylis

NEW YORK (Reuters) – Some hedge funds betting on macroeconomic trends have boasted of double and even triple-digit gains for 2022, while other high-profile companies that have long been on technology stocks have suffered heavy losses in volatile markets, investors said.

Rokos Capital, run by Chris Rokos and one of a handful of so-called global macro companies, gained 51% last year. Fund investors this week, who asked not to be identified, said Brevan Howard Asset Management, the company where Rokos once worked, posted a gain of 20.14% and Caxton Associates returned 16.73%.

Haider Capital Management’s Haider Jupiter Fund rose 193%, an investor said.

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Data from hedge fund research showed that many macro managers have avoided crumbling stock markets that have been rocked by rapid interest rate increases and geopolitical turmoil, including the war in Ukraine, to rank among the best performers in the hedge fund industry. The company’s macro index rose 14.2% while the general index of hedge funds fell 4.25%, its first loss since 2018.

Equity hedge funds, where the bulk of the industry’s roughly $3.7 trillion in assets are invested, fared worse with a loss of 10.4%, according to HFR data. And while that beat the broader stock market’s loss of 19.4%, some high-profile funds posted even bigger losses.

Tiger Global Management lost 56% while Whale Rock Capital Management ended the year with a 43% loss and Maverick Capital lost 23%. Coatue Management ended 2022 with a loss of 19%.

But not all companies that bet on technology stocks suffered. John Thaler JAT Capital finished the year with a 3.7% gain after fees after a 33% increase in 2021 and a 46% gain in 2020.

Sculptor Capital Management (NYSE::), where founder Dan Och is fighting the company’s current CEO in court over his salary increase, posted a 13% drop.

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David Einhorn’s Greenlight Capital, which bet that Elon Musk would be forced to buy Twitter, ended the year up 37% while Rick Sandler’s Eminence Capital rose 7%.

A number of so-called multi-manager companies where teams of portfolio managers bet on a variety of sectors also boast positive returns and have been able to deliver on their promise that hedge funds can deliver better returns in distressed markets.

Balyasny’s Atlas Fund (NYSE: Enhanced) gained 9.7%, while Point72 Asset Management gained 10%. Millennium Management gained 12% while Carlson Capital ended the year with a 7% gain.

Representatives for the companies either did not respond to requests for comment or declined to comment.

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German automakers point to easing supply chain problems

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Sales at BMW and Mercedes-Benz jumped in the final months of 2022 as the German premium auto brands indicated supply chain problems plaguing the industry were abating.

Automakers around the world have experienced parts shortages since the pandemic, especially semiconductors, leaving many of them with large fleets of incomplete vehicles that can’t be delivered to customers.

BMW and Mercedes each said their full-year vehicle deliveries fell last year by 4.8 percent and 1 percent, respectively, due to Suppliers Bottlenecks as well as lockdowns in China and the war in Ukraine.

But supply pressures eased in the last quarter of the year, as BMW recorded a 10.6 percent jump in sales, with 651,798 vehicles delivered, and Mercedes fulfilling 540,800 orders, up 17 percent from the same period in 2022.

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BMW He said the main effects of supply chain bottlenecks and continued lockdowns were felt in the first six months of the year, adding that “sales were steadily picking up in the second half.”

Mercedes boss Ula Kallenius told the Financial Times last week that the list of problems in the auto supply chain was declining, but added that long waits for cars would continue into 2023.

“One chip is enough to be vital [ . . .] Missing, and then you can’t finish the car, even if you have everything else.

Both brands recorded strong sales growth electric car. Mercedes, which last week announced a plan to build 10,000 charging docks, said EV shipments grew 124 percent to 117,800 last year compared with its predecessor.

Similarly, BMW reported strong growth in electric vehicle sales, with deliveries of fully electric vehicles doubling last year to 215,755.

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Analysts at Bank of America said that sales of electric vehicles, including hybrid cars, reached a historic peak last November, with 1.1 million units sold. They attributed this largely to the upcoming phase-out of customer subsidies in Germany.

Participate in Mercedes BMW and BMW prices held steady Tuesday morning as investors priced in an image of an improving showing.

Rolls-Royce, a subsidiary of BMW, announced Monday that sales have hit a 119-year record, driven by strong demand in the United States, its largest market.

The luxury brand has been largely unaffected by the semiconductor pressure, mainly because it makes relatively few compounds and therefore needs fewer chips.

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