Treasury officials’ fear that rising pay in pursuit of rising prices will create a vicious circle may be unjustifiedUnion leaders have derided calls by government ministers for wage restraint, believing their members must close the gap with rising inflation or risk a severe cut in living standards.One of the main reasons cited by officials in the Bank of England and the Treasury for wage restraint is the threat of a wage/price spiral and the fear that this ratcheting effect will make double-digit inflation a longstanding feature of life in the UK. Continue reading...

UK travel chaos deepens

Unsparing inflation across basics from food and energy to housing is pushing millions into poverty, as our correspondents reportAustraliaA photo of iceberg lettuce heads with $11.99 (£6.80) price tags went viral in recent weeks – leading to a wave of a tongue-in-cheek lettuce memes nodding to rising food, fuel and energy prices. Continue reading...

Government urged to act as firms hit by rising costs of energy, raw materials and transportBritish manufacturers have called on the Treasury to urgently provide more support amid a poor economic outlook to help “weather the immediate storm”.Make UK, the trade body for manufacturers, and the consultancy BDO found that costs were continuing to rise and output opportunities had been stifled. Continue reading...

While Boris Johnson plays politics, Britain’s public sector is fraying at the seamsEverywhere we look, the fabric of Britain is fraying at the seams. Strikes on the railways, airports in chaos, severe staff shortages, soaring prices for petrol and food, the biggest fall in living standards since the 1950s.With the biggest industrial dispute on the rail network in three decades due to begin this week, battle lines are drawn. Alongside the succession of shocks caused by the Covid pandemic and Russia’s war in Ukraine, Boris Johnson’s government will add another culprit for our palpable sense of national decline: workers. Continue reading...

Ex-PM says ‘any sensible government’ would be trying to build consensus to tackle economic crisisGordon Brown has said Boris Johnson needs to force global action to deal with inflation and food shortages instead of lurching from “crisis to crisis”, as he predicted planned corporation and fuel tax rises would need to be scrapped.The former prime minister, who was chancellor for a decade under Tony Blair, said “any sensible government” would be trying to get world leaders round the table to deal with the impending economic crisis and creating a plan for growth. Continue reading...

The current economic crisis might finally usher in a more equitable social modelThis is not the 1970s all over again, notwithstanding the apparent similarities – oil shocks, recession, seasons of discontent, inflation. What we are living through is something more profound. It is the painful unwinding of the dysfunctional Thatcherite economic model, driven by credit, consumption and property prices, so careless of investment, productivity and good, high-performance workplaces. Its end started with the financial crisis, accelerated with Brexit and is now sealed by the economic fallout from Ukraine.What is not obvious, given the backward-looking national economic conversation dominated by Thatcherite shibboleths and myths about the horrors of public debt, is what is going to succeed it. With the right leadership, it could be a moment for developing new modes of growth, 21st-century business models and high-wage employment, an attack on regional inequality and a reframing of our relationship with Europe. Continue reading...

Rail unions set to walk out on Tuesday, as clashes loom over public sector pay offers falling short of inflationA wave of 1970s-style economic unrest is threatening to spread from the railways across the public services, as unions representing teachers and NHS workers warn of potential industrial action over pay.With the country preparing for rail strikes on Tuesday, Thursday and Saturday which will see half the network shut down, the biggest teaching union, the National Education Union (NEU), told the Observer that unless it receives a pay offer much closer to inflation by Wednesday, it will be informing education secretary Nadhim Zahawi of its plan to ballot its 450,000 members. The move could lead to strikes in schools in England in the autumn, the union said. Continue reading...

From stagflation to strikes, the only way is down for the prime minister Continue reading...

Central banks rode to the rescue of nervous investors for years. But now they are raising rates just as the world economy spirals downwardsBack in February, plenty of investors were betting that the buildup of Russian troops on Ukraine’s border was no more than an elaborate bluff.The Russian and Ukrainian currencies appreciated in value as hedge funds and private equity firms, signalling their faith in some form of peace deal emerging, confidently bought roubles and the Ukrainian hryvnia. Continue reading...

Exclusive: Emergency council cuts feared across England caused by inflation and higher energy costs

Analysis: Interest rate cuts show central banks willing to plunge economies into recession to halt price risesThe fight against inflation intensified this week as central banks stepped up their efforts to cool rising prices, and a global recession could be the price we pay.Investors reeled from the biggest rise in US interest rates in almost three decades, before Switzerland piled in with a shock increase in its borrowing costs, topped off by the fifth rise in a row from the Bank of England. Continue reading...

Central bank on high alert to raise interest rates more aggressively if needed, says Huw PillThe Bank of England will raise interest rates more aggressively to tackle soaring living costs if there are signs of inflation becoming persistently higher for longer than expected, its chief economist has warned.Huw Pill said Threadneedle Street was on high alert to take “forceful” action if there were signs of a wage-price spiral taking hold or if companies continued to raise their prices. Continue reading...

Forecourt staff feel their customers’ despair but insist there is nothing they can do to keep prices downA new unpleasant routine has begun at Bilal Naeem’s petrol station in sleepy Datchet, Berkshire. Almost every day someone will pull up, fill up and screech away without paying. “The crime rate has been incredible since fuel prices went up,” says Naeem, wincing. “A customer showed me a post on a local Facebook group telling people they only get a £50 fine for driving away without paying. That’s 50 quid of free petrol now.” One theft can wipe out his fuel profits for the day, he says.Thefts at petrol stations have become an increasingly common sight in recent weeks amid record petrol and diesel prices. The mundane ritual of filling up has become a source of anger and frustration for drivers as the bright red neon price figures rapidly tick up by the side of the road. Refuelling an average family car now costs more than £100. Continue reading...

Rolling coverage of the latest economic and financial news

Buyers looking to pay no more than sticker price are flying long distances to snag a carAfter an auto dealer demanded $10,000 above sticker price for a new hybrid vehicle, car shopper Michael Rathjen of Kirkland, Washington, resolved to pay no more than the manufacturer’s suggested retail price (MSRP) for the vehicle of his choice. He never dreamed his quest would take him eight months and 3,000 miles from home.“I’m calling across the entire country. I’m thinking this is not going to be possible. I’m not going to find a dealer selling at MSRP,” recalled Rathjen, a technical writer. “I kept calling further and further away until I hit Vermont.” Continue reading...

Investors wary as other central banks follow US Federal Reserve in raising borrowing costsThe global rout in stock markets, cryptocurrencies and other risky assets has gathered pace amid growing concern that out-of-control inflation, rising interest rates and slowing growth could combine to tip the world into recession.Share prices fell in Asia on Friday at the beginning of what was likely to be another torrid day for investors spooked by the US Federal Reserve’s decision this week to raise interest rates by the largest margin for almost 30 years. Continue reading...

Rate for 30-year mortgage climbed from 5.23% to 5.78% this week, the highest since November of 2008 during the housing crisisAverage long-term US mortgage rates had their biggest one-week jump in 35 years with the Federal Reserve this week raising its key rate by three-quarters of a point in an effort to tame high inflation.Mortgage buyer Freddie Mac reported on Thursday that the 30-year rate climbed from 5.23% last week to 5.78% this week, the highest its been since November of 2008 during the housing crisis. Continue reading...

UK central bank has raised interest rates to 1.25%, warned inflation will exceed 11% in autumn, and cut growth forecast for this quarter

The effect of the interest rate increase on mortgages, savings, annuities, house prices and rentsThe Bank of England has voted to raise interest rates by 0.25 percentage points to 1.25% as the UK grapples with high inflation. We look at what that means for your finances. Continue reading...

The next time the Bank of England debates interest rates, we’re likely to see a half-point increaseFive interest rate rises in a row from the Bank of England would once have been regarded as strong and determined action to tame inflation. The problem for Threadneedle Street is that the US Federal Reserve rather redefined the definition of decisive measures on Wednesday when it hiked by 0.75 percentage points in one go.Versus that full-on display of fireworks, the Bank’s quarter-point move to 1.25% felt like a case of turning up with a couple of sparklers. It was a bare-minimum move given that official forecasts now see inflation at 11% in October when consumers’ energy bills go up again. The inflation forecasts get bigger every time the Bank opens its mouth these days. As recently as February – just before Russia’s invasion of Ukraine – the peak was projected to be 7.25%. Continue reading...

Bank warns of inflation rising to 11% after split vote to lift rate, for fifth time in a row, by 0.25 pointsThe Bank of England has raised interest rates for a fifth time in succession to tackle an inflation rate that is heading towards 11% amid soaring household energy bills.In a move widely expected by City economists, the Bank’s monetary policy committee (MPC) voted by a majority to increase its key base rate by 0.25 percentage points to 1.25% in response to living costs rising at the fastest annual rate for four decades. Continue reading...

Sharp share sell-off as retailer says inflation is giving customers second thoughts about purchases

Former Labour leader’s Peace and Justice Project to be part of new climate and social justice movementJeremy Corbyn, the former Labour leader, has teamed up with direct action campaigners to form a new “red/green” climate and social justice movement which aims to stage a “major wave of popular mass action” later this year.Corbyn’s Peace and Justice Project, which he set up in 2021, is joining forces with Just Stop Oil campaigners who have staged a series of disruptive climate actions over the past six months. Continue reading...

FCA calls for payment holidays and waiving interest charges for customers hit hardest by cost of living crisisThe City watchdog has warned UK lenders to do more to support struggling borrowers hit by the cost of living crisis, including offering payment holidays and waiving interest for some of the most at-risk customers.In a letter to more than 3,500 lenders, including major high street banks and buy nowpay later firms, the Financial Conduct Authority (FCA) said firms needed to respond “flexibly” and offer a range of options to support customers beyond arranging how to collect missed payments. Continue reading...

Banks are raising rates to bring down inflation but there is a risk to economic growthCentral banks around the world are pushing for the sharpest rise in interest rates in decades in response to soaring inflation.With living costs across advanced economies rising at the fastest annual rate since the 1980s, the US Federal Reserve, Bank of England and European Central Bank are taking aggressive action to cool inflationary pressure. Continue reading...

Ukraine war, China lockdowns and Brexit help push up inflation, with products that rely on wheat worst hitFood price rises in the UK could hit 15% this summer – the highest level in more than 20 years – with inflation lasting into the middle of next year, according to a report.Meat, cereals, dairy, fruit and vegetables are likely to be the worst affected as the war in Ukraine combines with production lockdowns in China and export bans on key food stuffs such as palm oil from Indonesia and wheat from India, the grocery trade body IGD warns. Continue reading...

Fed confirms 0.75 percentage-point increase as Americans across country hit hard by rising prices and shortages of key itemsWith soaring inflation and the shadow of recession hanging over the United States, the Federal Reserve announced a 0.75 percentage-point increase in interest rates on Wednesday – the largest hike since 1994.Until this week the Fed had been expected to announce a smaller increase. At a press conference, the Fed chair, Jerome Powell, said the central bank decided that a larger hike was needed after recent economic news, including last week’s announcement that inflation had risen to a 40-year high. Continue reading...

Some economists say it will take an economic contraction and higher unemployment to bring inflation downThe Federal Reserve raised interest rates by the largest hike in 28 years on Wednesday as it fights to drag down runaway inflation – and now economists are weighing whether it’s sufficient to cool the economy without crushing economic growth and slamming the economy into recession.“We’re not trying to induce a recession,” the Fed chair, Jerome Powell, said in comments after the rate hike was confirmed. But Powell made clear that some economic forces behind the 40-year inflation high are out of the Fed’s control. Jumps in commodity prices, he said, could “take the decision out of our hands”. Continue reading...

Analysis: Wall Street braces for rises in borrowing costs in July and September as 8.6% inflation spurs on central bankThe ghost of Paul Volcker is haunting Washington today after the US Federal Reserve announced it was stepping up the fight against inflation with an aggressive 0.75 percentage point increase in interest rates.Four decades ago – the last time the annual increase in the American cost of living was higher than its current 8.6% – Volcker became legendary as the central banker who was prepared to drive the world’s biggest economy into deep recession to squeeze inflation out of the system. Continue reading...

Christine Lagarde is failing to heed the lesson of last decade’s crisis: act quickly and act clearlyPerhaps the European Central Bank was feeling left out as the financial world turned its attention to the US Federal Reserve’s interest rate hike. But emergency meetings of major central banks are supposed to produce more substance than the weak offering that emerged from Frankfurt after a morning of contemplation: a plan to accelerate work on a “new anti-fragmentation instrument”.The fragmentation in question is the widening of bond yields between eurozone countries. In short, as interest rate rises have come into view, weaker economies are having to pay meaningfully greater rates to borrow than the likes of Germany – about 2.4 percentage points more in the case of Italy. Continue reading...

Federal Reserve expected to increase cost of borrowing by 0.75 percentage points to curb rising inflationThe world’s financial markets are preparing for the sharpest rise in US interest rates in almost 30 years, as America’s central bank took action to halt rising inflation.After days of frenzied investor speculation and signs of growing central bank anxiety, the Federal Reserve is expected to increase the official cost of borrowing by 0.75 percentage points for the first time since 1994. Continue reading...

Join me in asking the government for a fourth budget to halt the biggest rise in family poverty seen in our lifetimes

David Buttress says Welsh council estate upbringing adds wealth of experience needed to help others make ends meet

Unemployment rise and prospect of new Scottish independence referendum fuel recession fearsThe pound has fallen to its lowest level against the dollar since the onset of the Covid pandemic amid growing concern over the strength of the British economy.Sterling dropped by more than a cent against the dollar to trade below $1.20 on foreign exchange markets for the first time since March 2020, as City traders reacted to mixed figures from the jobs market and the prospect of a fresh referendum on Scottish independence. Continue reading...

Sterling is hit by fears over slowing economy, tensions over Northern Ireland protocol, and push for new Scottish referendum

Analysis: Slow earnings growth and unemployment rise do not mean labour market is collapsing, but they could be a signThe idea that Britain’s labour market is booming sits oddly with evidence that the economy has stalled since the turn of the year. Job vacancies are at record levels, the unemployment rate is below 4% and competition for workers – as the cancelled flights and check-in delays at airports show – is strong.Even so, there were hints in the latest figures from the Office for National Statistics that the jobs market is starting to cool slightly. This trend can be expected to continue over the coming months if growth continues to be weak. Continue reading...

Producers fear losing £150m in annual sales unless government keeps ‘steel safeguards’The government is facing pressure from the UK steel industry and Labour to extend metal import limits brought in after Brexit, after a warning that a flood of products could cost British producers £150m in lost sales.The international trade minister, Anne-Marie Trevelyan, must decide by 30 June whether to keep “steel safeguards” set out last year or remove the import limits on five categories of products, which include tin mill products, steel quarto plates and wire rod. Continue reading...

Document sent to journalists to critique opposition’s policies says Labour has had more budget surplusesA private Treasury attack dossier circulated to critique Labour’s economic policy includes detailed figures in the small print that highlight difficult statistics on the public finances under Conservative governments.Labour said the figures in the dossier, seen by the Guardian, were “embarrassing” because they showed Labour’s favourable record on budget surplus compared with the Conservatives’. Continue reading...

Inflation and soaring energy bills cause squeeze on living standards, as unemployment rises slightly

US investors fret about possible recession as S&P 500 plummets into bear territory and global markets feel aftershocksFears about a possible recession have pounded stock markets around the world amid reports that US Federal Reserve could raise interest rates by as much as 0.75% this week – its biggest single hike in borrowing costs for nearly 30 years.As Wall Street’s benchmark S&P 500 index fell almost 4% on Monday into bear territory, prompting selloffs from Sydney to Shanghai, US central bank policy makers will begin a two-day meeting on Tuesday with expectations mounting that they will lift rates by at least 0.50%. Continue reading...

Pound hits one-month low after UK GDP falls 0.3% in April and European stock markets drop to three-month lows

What options are open to EU as Britain publishes bill detailing plans to override parts of protocol?

The government’s push to bridge Britain’s geographical divide is unlikely to work – and there are better policies that willLast autumn, Boris Johnson brought the Department for Levelling Up, Housing and Communities into being. Naming a ministry after a catchphrase seems to suit our age of rhetoric as policy. How long before we see a Department for Getting on Your Bike, or a Department for Unleashing the British Entrepreneurial Spirit?The levelling up initiative was born out of the Conservatives’ 2019 election victory, in which many former Labour constituencies in the north and Midlands – the so called “red wall” – changed sides. The thinking was that these acquisitions, the fruits of the war over Brexit, could not be kept once Brexit was “done” unless their needs were addressed. The idea of levelling up – finding policies to reverse regional gaps in income, health, education and jobs – was part of a wider narrative of a “realignment”, moving left on economics, right on questions of social policy. It was a way to consolidate the coalition brought together by Brexit so that it would have a life beyond Brexit itself. Continue reading...

FTSE 100 index closes more than 100 points down as GDP falls amid inflation and soaring energy costs

Women born in the 1950s have been hard hit by rushed changes to the state pension ageThousands of older women are struggling with the cost of living because of a pensions “injustice” dating back years that has never been put right, according to campaigners.They say large numbers of women born in the 1950s are having to go without, or can only afford basics, often because they have used up their savings and do not have the financial cushion to cope with soaring living costs. Continue reading...

Analysis: Fall in GDP in April also increases probability of 0.25-point increase in interest rates this week

The case is morally compelling – but it might leave Ukraine less able to sustain stable economic growthRussia’s war on Ukraine shows no sign of ending, but it is not too soon to start thinking about how to ensure postwar Ukraine’s stability, prosperity, and security. Already, two discussions are occurring: one about financing economic reconstruction, and the other about affirming Ukraine’s external security. The problem is that these discussions are proceeding separately, even though the issues are intimately related.Reconstruction costs are uncertain because the course of the war is uncertain. Ukraine’s prewar GDP was about $150bn (£120bn). Given a capital-output ratio of three, and assuming that a third of the capital stock will be destroyed, we are again talking about $150bn. As always, alternative assumptions yield alternative scenarios, but $150bn seems like a reasonable starting point. Continue reading...

Impasse over Brexit deal forcing companies to reconsider investing in Britain, says business lobby groupThe UK’s foremost business lobby group has warned the government that its threat to override the Northern Ireland protocol is forcing companies to think again about investing in Britain and dragging down the economy.The Confederation of British Industry (CBI) said immediate talks with the EU, rather than political grandstanding, were needed to resolve the impasse over the protocol, which governs post-Brexit trade between the EU, Northern Ireland and Great Britain. Continue reading...

Exclusive: Debt Justice calls on UK to use power to make private lenders take part in effective relief schemeThe lack of an effective debt relief scheme is forcing some of the world’s poorest countries to cut public spending to keep up payments to their creditors, research reveals.A report by Debt Justice says the most heavily indebted nations were expected to reduce public expenditure by 3% on average between 2019 and 2023 despite the need to counter the impact of spiralling food and energy prices. Continue reading...