December 2007

Christmas Day

Worcester Cathedral tower, bathed in an orange light from the setting sun, today.

Inside, the cathedral was littered with snaking cables and floodnights, remnants of yesterday's televised Midnight Mass.

A reminder of this summer's floods.

Xmas sunset.

Photos Copyright © 2007 Phil Randal

Pounded

The BBC reports that the British pound has fallen to an all time low against the Euro, down to just €1.376 today in quiet Christmas Eve trading. They note that "Britain's record trade deficit has also helped push down the value of sterling", but don't tell us why we have such balance of payments woes.

Hasn't Gordon Brown been the saviour of the British Economy, after all?

"The fundamentals of the British economy are, and remain, sound ... we stand able to weather the global financial storms and to respond where necessary," Brown said last week.

Others are not so sure.

Reuters reported on Thursday that "the current account deficit hit a record high of 20 billion pounds in the third quarter, equivalent to 5.7 percent of gross domestic product", and that "the huge rise in the Q3 current account deficit is likely to put further pressure on sterling in the medium-term and is a result of a big rise in the deficit on income as well as trade in goods."

The Times thunders that "claims by Gordon Brown and Alistair Darling this week that the economy is fundamentally sound and well placed to ride out worsening world conditions were badly undermined yesterday by a spate of bleak official figures."

Well, yes, we knew that, and?

"The severe deterioration in the balance of payments was driven by a combination of a record £22.6 billion trade deficit in Q3, with an abrupt shift in Britain's investment income from abroad."

Oh, we've built our economy on the shifting sands of funny money? How foolish!

The Telegraph chimes in too, but says little more of interest.

So what's lacking in all their analysis?

Oil.

The Oil Depletion Analysis Centre's Doug Low, writing at The Oil Drum, reminds us that these articles do not mention anything about energy imports with regard to the UK’s atrocious balance of payments deficit. "According to the latest DBERR statistics (UK govt, 29 Nov 2007) the UK was a serious net importer of oil and oil products for quarter three (see column H in the Quarter and Month tabs). No wonder we hit a record deficit. Except that the UK’s oil and gas production is now headed south big time, and with it our net imports, and trade deficit, will grow."

"At the Energy Institute’s oil depletion conference in London last month, November, I concluded my talk on UK oil and gas production / depletion with a brief mention of the UK current account deficit and where it was headed due to increased imports of oil and gas. After my talk, an economist / financial analyst in the audience said that growing oil and gas imports would not present a financial problem for the UK because ‘the City’ (the financial services sector based in London) brought in so much money it dwarfed the amount of money we would have to spend on energy imports – all is well, don’t worry. The financial services sector is in meltdown, and those with oil / gas are unlikely give it to us for free / on the cheap."

The Telegraph also told us that the Office of National Statistics "also calculated that the shortfalls [current account deficit] in previous months had been even bigger than previously thought".

Low explains why: "DBERR (the former DTI) re-adjusted its oil statistics for most of 2007 in November. Previously, it showed the UK being a net oil exporter, the readjustment made us a net oil importer, especially in the third quarter."

UK oil production peaked in 1999. It's now running at about half the 1999 peak level.

And, according to ODAC, the UK became a net importer of oil in 2006.

The IEA and EIA forecast that this would happen in 2007.

And with our oil production declining at 8% per annum, things can only get worse.

Save Frosty!