Has the Government done enough to aid UK recovery?
Leading fund managers Stewart Cowley and Trevor Greetham have clashed over whether the Government has done enough to aid a recovery in the UK.
Speaking at the Fidelity FundsNetwork investment debate on the UK vs US recovery yesterday, Old Mutual’s head of fixed income Stewart Cowley said the UK recovery is being impacted by a soft approach to austerity while Fidelity’s director of asset allocation Trevor Greetham warned against more austerity in the UK policy approach and expects more QE to come.
Cowley said: “There’s not enough austerity in the UK to reduce the deficit. We’re only cutting expenditure by 4 per cent a year.”
He added: “You only have to look at the weakness of the sterling against the euro to see that the UK is slow on recovery.”
He said that CPI of 4 per cent is eroding the value of gilts. He added: “With a two-year gilt, you get less than 0.75 per cent. The government bond market is difficult.”
However, Greetham said: “The UK is slightly ahead of the US in implementation of austerity measures when the credit crisis hit. We needed to tighten fiscal policy and we did. The risk on the UK side is that austerity results in another recession and running to standstill in terms of government debt.”
He added: “We’re towards a peak rather than a trough. We expect more QE in the UK after about six months as core inflation is still too high.”
Greetham said equity investor sentiment is far too downbeat and markets are now more likely to rise than fall.
Former Bank of England deputy governor and GLG partners adviser Sir John Gieve said there would have to be “quite a turn” in the UK to see another round of QE.
Cowley said that loose US policy is “grotesque”, with the real rate of annualised inflation at 7 per cent.
Greetham said that until wage inflation spirals out of control, the US should inject QE into the economy to push growth, otherwise it will impact employment.
He said: “We are not anywhere near noticeable wage inflation in the US and therefore I believe you have to be pragmatic about it. You should go for growth and if you start to get wage inflation picking up, you will be late but I would rather make that mistake than enshrine high unemployment forever.”