Thatcherites hate the ‘big state’, but economic realities are forcing the party into messy compromisesThe days of the big state are back. Plans announced by Rishi Sunak last week mean public spending as a share of the economy is on course to reach levels not seen since the Thatcherite revolution was about to begin in the late 1970s. The Iron Lady’s disciples are having kittens at the prospect.It’s worth saying that the economy has changed substantially over the past four decades, with manufacturing accounting for a much smaller share of national output and the service sector growing in importance. Since the 1980s, the UK has run a large and persistent trade deficit in goods, only partly offset by a surplus in services. Continue reading...

Prince of Wales urges G20 to set aside differences and build sustainable economyCop26 is “the last chance saloon” to save the world from runaway climate change, Prince Charles has told world leaders in Rome ahead of the crucial climate summit in Glasgow.Speaking to an audience including Boris Johnson on the sidelines of the gathering of the G20 group of industrialised nations, Charles said it was the moment to begin a green-led economic turnaround. Continue reading...

The chancellor is politically astute, but there is less substance in his investment plans than it appearsFor a chancellor who billed his budget as a moment to kickstart the UK’s economic rebirth after the pandemic, Rishi Sunak’s hour-long speech lacked substance.A reform of alcohol duties – which seemed to excite the teetotal Sunak enough to visit a brewery immediately after the speech – may help the drinks industry, but it was a distraction too far for many business leaders. They were left in the dark about the overall strategy and how policies were likely to be implemented. Continue reading...

Fishing rows notwithstanding, much of Europe looks on at the UK’s plight with astonishment – and even, still, sympathyAt the recent celebration of the life and achievements of my friend and fellow Remainer John le Carré, I was asked by a leading academic whether I was absolutely certain that we could rejoin the European Union.The answer is that I am not. But as the evidence of the damage of that foolish referendum decision accrues, it is becoming more and more certain that we should try. At the very least, we should be repairing fences and attempting to re-establish as close a relationship as possible – a cause championed by Labour’s impressive shadow chancellor, Rachel Reeves. Continue reading...

Agreement allows duty-free access for limited amounts of EU-made metals and fends off retaliatory EU tariffs due in DecemberThe US and EU have agreed to end a festering dispute over US steel and aluminium tariffs imposed by former president Donald Trump in 2018, removing an irritant in transatlantic relations and averting a spike in EU retaliatory tariffs, US officials have said.Commerce secretary Gina Raimondo told reporters on Saturday that the deal would maintain US section 232 tariffs of 25% on steel and 10% aluminium, while allowing “limited volumes” of EU-produced metals into the US duty free. Continue reading...

Higher borrowing costs will hit hard-pressed families, but the City is betting on an interest rise this weekAfter Rishi Sunak’s budget, it’s over to the Bank of England. On Thursday this week Threadneedle Street will put an end to the frenzied will-they, won’t-they speculation on the matter of whether we are about to see the first interest rate rise since the onset of Covid-19.Financial markets are betting this is the moment of lift-off from the current historic low of 0.1%, against a backdrop of soaring inflation and with the economy within a hair’s breadth of its pre-pandemic peak. Continue reading...

We can respond to environmental crisis with good planning, Jeff Sparrow writes in an extract from his bookIn his book Capitalist Realism, Mark Fisher diagnoses the dominance of a ‘business ontology’, a mentality that can only conceive of human activities insofar as they’re profitable.For instance, researchers associated with the International Monetary Fund recently noted that whales – especially great whales – capture from the atmosphere considerable amounts of carbon, which they store in their huge bodies and take down to the ocean floor when they die. A single great whale can thus sequester 33 tons of carbon dioxide – a not-insignificant quantity, given that a tree only absorbs 22kg annually. Whales also feed populations of phytoplankton with their waste, and, globally, those phytoplankton capture some 37bn metric tons of carbon dioxide, four times the emissions sequestered by the jungles of the Amazon. Continue reading...

Poll also shows that more than half believe it is affecting shop prices, as experts forecast it is likely to be twice as costly as CovidAlmost twice as many voters now believe Brexit is having a negative effect on the UK economy as think it is benefiting the nation’s finances, according to the latest Opinium poll for the Observer, carried out during budget week.The survey comes after Richard Hughes, the chairman of the Office for Budget Responsibility, said his organisation calculated that the negative impact on GDP caused by the UK’s exit from the EU was expected to be twice as great as that resulting from the pandemic. Continue reading...

Cop26 breakthrough will require rich nations to finally make good on promise to help poorer onesNext month’s Cop26 talks could end in abject failure. Anybody who has monitored the tortuous attempts of the World Trade Organization to piece together a global free trade agreement knows how hard multilateral negotiations can be.A breakthrough in Glasgow is possible but requires two things to happen: the world’s leading emitters of greenhouse gases need to accelerate their net zero carbon plans; and they have to recognise it is their own self-interest to help the less fortunate countries already struggling with the effects of global heating. Continue reading...

Data from government’s independent forecasting unit suggests interest payments could increase by 13% in 2023Homeowners face the biggest rise in mortgage costs since the financial crisis, with the amount of interest they pay set to jump by 13% in 2023, data from the government’s independent forecasting unit suggests.Politicians and analysts seized on a table “buried” in a report published by the Office for Budget Responsibility (OBR) alongside the budget, which stated that mortgage interest payments were set for their biggest rise since at least 2008. Continue reading...

The Covid threat to GDP is waning, but don’t expect the pain wrought by leaving the EU to subside any time soon

Analysis: Sunak’s latest budget details more than £1tn in spending, but rather less in revenue. Here’s a break down of taxes raised and spending by department Continue reading...

Tougher regulation means banks and insurers face extra audits and capital rules for unsustainable assetsThe Bank of England has told banks and insurers it is prepared to use its powers to crack down on them if they fail to manage climate risks.The warning came as the central bank begins to review a potential introduction of capital requirements linked to unsustainable assets. Continue reading...

IFS says ‘staggering’ annual drop by mid-2020s will follow unprecedented two-decade hit to earnings in UKThe biggest wage squeeze in British economic history will leave the average worker almost £13,000 a year worse off by the middle of the 2020s, Rishi Sunak has been warned.The Institute for Fiscal Studies (IFS), the UK’s leading tax and spending thinktank, said an unprecedented two-decade hit to earnings would leave average household disposable income 42% lower than it would have been had wages grown at pre-2008 financial crisis rates. Continue reading...

Office for Budget Responsibility warns public spending would have to decrease or borrowing go up

IFS warns take-home pay will fall due to rising prices and taxes; Sunak announces universal credit taper reduction and fuel and alcohol duty cuts

Analysis: chancellor left with little choice but to go PM’s way, though one passage of his speech was telling

Chancellor announces measures to help households, with lower alcohol and fuel duties

Rishi Sunak will be looking at key indicators such as GDP growth, public debt levels and inflation as he draws up his autumn budgetBritain’s economic recovery from Covid is at growing risk from severe shortages of workers and materials, as well as mounting living costs for households, as Rishi Sunak prepares his budget and spending review.Here are five key charts that will underpin the chancellor’s statement on Wednesday afternoon. Continue reading...

Analysis: measures will affect the NHS, public sector pay, business rates, climate, levelling up and the cost of livingRishi Sunak will use the budget and spending review on Wednesday to set out the government’s priorities up to the next election, while attempting to move on from crisis-management mode more than a year and a half into the Covid-19 pandemic.The chancellor is expected to benefit from an improved economic outlook after a faster-than-expected recovery from the winter lockdown, although he must balance a desire to end emergency support with pressures from an unfolding cost-of-living crisis before a difficult winter. Continue reading...

Slowing growth and tax rises to come, let alone higher wage costs and staff shortages, mean many firms are facing a grim outlookBudget speeches normally last for about an hour and by tradition chancellors spend the first 10 minutes or so pointing out how well the economy is performing. All do this regardless of their political affiliation, and they usually have to be selective in their choice of statistics to support their claims.We know Rishi Sunak will conform to type because he has already been rehearsing some of his lines: Britain will be the fastest growing economy in the G7 this year; unemployment will peak at less than half of what was feared when the pandemic began; the budget deficit is coming down much faster than the Office for Budget Responsibility expected in the spring. Continue reading...

Pandemic has laid bare inequalities in a capital bracing itself for autumn budgetThe morning rush hour used to be the busiest time of day for Jayant Amin’s newsagent in the heart of the City of London, before Covid-19. Having watched five neighbouring shops close in the building he occupies opposite Mansion House tube station, he is one of the survivors hoping to benefit from the slow return of office workers.“I’ve seen ups and downs. We survived the 2008 financial crisis, but this is the worst one,” he said. Trade remains slow for Amin and his wife, Rajeshree, who have run the shop for two decades. Next month he will be granted the freedom of the City of London in recognition of his long service, giving him the right to drive sheep over London Bridge. However, it is flocks of office staff he is hoping for. Continue reading...

Leaked documents by Treasury and Covid taskforce are based on five-month stint of home working in England

Economists have failed to take account of ‘immense risks and potential loss of life’, says author of landmark reviewMany economic assessments of the climate crisis “grossly undervalue the lives of young people and future generations”, Prof Nicholas Stern warned on Tuesday, before the Cop26 climate summit in Glasgow.Economists have failed to take account of the “immense risks and potential loss of life” that could occur as a result of the climate crisis, he said, as well as badly underestimating the speed at which the costs of clean technologies, such as solar and wind energy, have fallen. Continue reading...

Silvana Tenreyro predicts spike in prices in next few months will probably prove to be short-livedAn interest rate rise before Christmas is unlikely despite rising energy prices and supply shortages that are expected to push inflation towards 5%, according to the Bank of England policymaker Silvana Tenreyro.Setting herself against colleagues Michael Saunders and the governor, Andrew Bailey, who have warned in recent weeks that inflationary pressures could warrant a rapid response by the central bank, Tenreyro said it was unclear whether a rise in the cost of borrowing before Christmas would control the escalating price of imported goods. Continue reading...

Government accepts Low Pay Commission’s recommendation of 6.6% increaseThe UK’s “national living wage” is to go up to £9.50 an hour from next April, meaning a pay rise for millions of low-paid workers.Ministers have accepted the Low Pay Commission’s recommendation for a 6.6% increase from £8.91, which applies to workers aged 23 and over. For those aged 21 to 22, the minimum will increase from £8.36 to £9.18. Continue reading...

From a pub owner to the mayor, the city is under pressure from cuts, the Covid crisis and inflationWith business rates due to increase, VAT going up, energy prices on the rise and inflation pushing up food and drink costs, pub owner Sam Hagger is dreading the next few months.“It is going to be catastrophic. There’s no other way to describe it,” says Hagger, the founder of the Beautiful Pubs Collective, which runs three venues in Leicester. “There’s a headwind on the horizon that we can’t deal with.” Continue reading...

From the business section to the food magazine, Guardian editors are becoming focused on one dominant storyOnce upon a time, it was really only environment journalists who covered the climate crisis. At the Guardian, this is rapidly changing, as the emergency sprawls into more and more aspects of our daily lives, from food to fashion, football to finance, art to agriculture.Here, 10 Guardian journalists describe how the climate crisis is changing their job. Continue reading...

The spending review will expose the tensions between the interventionist prime minister and his traditionalist chancellorLook at the two main political parties in England and Wales, and consider which one seems to have most changed.Labour? It has been collectively fretting for decades about the appeal of Conservatism to the working class, while solidifying into a party dominated by the educated bourgeoisie. In terms of basic beliefs, it remains the party of the big centralised state. Leaving aside the brief spells of Margaret Beckett and Harriet Harman as acting leader, all 19 of the party’s chiefs have been white men, and its current frontbench does not quite reflect the diversity its leaders extol. Continue reading...

Chancellor will want to show government is looking to future despite supply crisis and CovidSoaring living costs, shortages on supermarket shelves and a health emergency that was supposed to be all over bar the shouting.Rarely in peacetime has a British chancellor faced a more perilous economic backdrop for a budget, as the Covid recovery runs out of steam amid rising pressure on families and the worst supply chain meltdown since the 1970s. Continue reading...

Market-watchers are expecting an increase as early as next month. Here’s how it would hit mortgages, savings and debtThe era of rock-bottom interest rates could soon be at an end. Expectations are growing that the Bank of England could raise rates as early as next month to tackle rising inflation – a move that could affect mortgage repayments, savings rates and how much of their debts people will be able to pay off.Interest rates are at a historic low of 0.1% but commentators expect an 0.15% increase in the coming weeks and two additional 0.25% rises next year, bringing borrowing rates back to the 0.75% level seen before the pandemic. Last week, analysts at Goldman Sachs predicted that the Bank would raise rates in November, February and May. Continue reading...

The budget to foot the coronavirus bill will inflict more miseries on the less well-off‘You never want to be in debt,” my grandmother used to say to me as a child. For her generation, debt equalled subservience to higher-ups. She was also a firm adherent to the Micawber principle: “Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness.”But it’s pretty obvious we don’t always see it as wrong to get into debt – many people have mortgages, after all. Nor, sadly, is it always avoidable. The findings from a new report demonstrate as much. An analysis by the Joseph Rowntree Foundation has found that nearly 4m low-income households in Britain have fallen behind on rent, bills or debt payments. The report warns of a debt crisis. Continue reading...

The UK rushed out its climate plan just days before Cop26 – and it shows. The planet can’t afford further bluster and delayIn politics, timing is everything. Last week the government set out its strategy for meeting its net zero carbon targets: this came a year later than expected, and less than a fortnight before the UK finds itself front and centre on the global stage as host of the Cop26 UN climate talks in Glasgow.The long-awaited climate blueprint covered wide-ranging “net zero” ambitions from renewable energy and electric vehicles to carbon capture and electric heat pumps – and yet still offered too little, if not entirely too late. Continue reading...

Retail sales and confidence are falling, and the net effect of the budget will be deflationary. Rate rises will prove unnecessaryNext month the Bank of England might begin the long road back to higher interest rates. Plenty of financial traders believe comments and speeches by the governor Andrew Bailey and some of his colleagues make it a likely possibility.If it doesn’t happen in November, the central bank’s monetary policy committee (MPC) will meet again in December to survey the economy. It could be then that the nine-strong group takes on the Grinch’s mantle, stealing Christmas cheer with a hike in the nation’s cost of borrowing. Continue reading...

A chancellor bent on trimming the deficit will face opposition from MPs, business and more this weekFor the past 20 months Rishi Sunak has been fighting to limit the economic damage from Covid-19. This week marks the chancellor’s first real opportunity to set out proposals for the rest of the parliament, and demonstrate to backbench Tory MPs that the Treasury’s tax and spending plans support the ambitions of his neighbour in No 10.There is a danger for Sunak that many of his supporters will turn on him if a harsh, joyless budget is seen as crushing much of the goodwill the Tories are still enjoying from the speedy rollout of vaccines earlier this year. In the summer Boris Johnson threatened to demote his chancellor as punishment for daring to challenge the government’s handling of the pandemic. With no replacement on hand, it was an empty threat, but Liz Truss, newly promoted to foreign secretary, is ready to fill the chancellor’s shoes should he stumble. These are the issues now facing Sunak as he looks forward, and back over his shoulder. Continue reading...

Funding will be used to help ‘level up’ regions including Greater Manchester and West MidlandsAlmost £7bn will be allocated in next week’s budget to “level up” urban transport in cities around England, the government has said.City regions will receive a total of about £5.7bn in sustainable transport cash, while another £1.2bn will go towards improving bus services. Continue reading...

Rolling coverage of the latest economic and financial news

Social geographer Danny Dorling says the cost of buying a home will fall, one day – but what’s harder to predict is whenThe UK, and London especially, is home to Europe’s most expensive housing market after Monaco. For a generation of young people who have watched home ownership slip out of reach, the thought of prices going down significantly is inconceivable.But in a period of inconceivables – a global pandemic, Christmas turkey shortages, Kanye West releasing his album when he said he would – could house prices be next? Continue reading...

MPC ‘finely balanced’ over whether to raise interest rates in November, adds Huw PillInflation in the UK could rise above 5% by early next year, according to the Bank of England’s new chief economist.Huw Pill, who replaced Andy Haldane in September, said that the Bank of England’s monetary policy committee was “finely balanced” over whether to raise interest rates at its next meeting on 4 November and that it would be a “live” decision. Continue reading...

Sales fall unexpectedly for fifth month in a row in September despite removal of most Covid controls

Trade body says higher taxes will discourage necessary investment in high-wage green economyBritain’s foremost business lobby group has warned Rishi Sunak that his tax and spending plans risk undercutting government ambitions for a green, high-wage economy by discouraging the necessary investment.Ahead of the chancellor’s budget next week, the Confederation of British Industry (CBI) said there were fundamental inconsistencies in the government’s economic strategy that needed urgent attention. Continue reading...

Deal means US will not retaliate against UK for imposing digital services tax, Treasury saysThe UK has agreed to phase out its tax on US tech giants such as Google and Facebook, averting the threat of retaliatory tariffs from the United States.A deal between the two countries will keep the digital services tax in place until 2023, when it will make way for a newly agreed global tax system. Continue reading...

Historian Adam Tooze explains why, despite the pandemic, voters are still being told there is no alternativeWill the market revolution – the predominant ideology of our time – survive the pandemic? Events this week suggest that the UK government certainly hopes so. Ministers’ statements suggest a desire to return to a mode of governance where choices about resource distribution and priorities are dodged by mechanisms that depoliticise decision-making. The messaging from Whitehall is that if the worst of Covid is over, then Britain should return to policies that have failed. Earlier this week, the prime minister extolled the virtues of free market capitalism to tackle the climate emergency; the chancellor wants a “competitive” tax cut for City financiers; the Bank of England signalled a premature interest hike. These are moves to convince voters that, post-pandemic, the state must forfeit economic power to the market. Such a retrograde shift must be resisted.The historian Adam Tooze’s recent book Shutdown explains how difficult it will be to change the course of the river of history. Last year the pandemic revealed that states did have the tools they needed to exercise control over the economy. They could – and did – spend whatever it took to deal with Covid. The UK state forked out £370bn from February 2020 to July 2021. The sky has not fallen in. Prof Tooze writes that the government’s “economic logic confirmed the basic diagnosis of interventionist macroeconomics back to Keynes. They could not but appear as harbingers of a new regime beyond neoliberalism.” Continue reading...

Rolling coverage of the latest economic and financial news

CBI survey of businesses reveals concern a week before chancellor delivers budget and spending reviewBritain’s manufacturers are struggling with their worst supply shortages since the mid-1970s, as fears grow in the sector over the economic fallout from rising costs and a lack of key materials.Almost two-thirds of the businesses surveyed in the snapshot from the Confederation of British Industry (CBI) warned that shortages of components would hit factory output in the next three months. Continue reading...

Group behind Dove and Domestos ‘steps up’ pricing as packaging, energy and distribution costs surgeUnilever has warned that inflation could worsen next year as raw material and energy costs push up the prices of its food, toiletries and cleaning products.The maker of brands such as Marmite, Dove and Domestos said it had increased prices by 4.1% in the three months to September – the biggest jump since early 2012. Continue reading...

Stronger tax receipts and end to furlough scheme credited with faster than expected fallGovernment borrowing fell at a faster than expected rate in September as the furlough scheme came to an end and tax receipts recovered strongly.Figures published by the Office for National Statistics show borrowing fell to £21.8bn last month, from £28.8bn in the same month a year earlier, as Covid support measures were unwound. It was still the second highest September borrowing since comparable records began in 1993. Continue reading...

Readers on the consequences of leaving the EU, and the need for opposition parties to hold the government to account for its broken promisesJohn Harris’s excellent article (The gap between reckless Brexit promises and reality will soon be too big to ignore, 18 October) was extremely sobering. “What happens,” he asks, “when some watershed is reached, and the fact that people were conned becomes inescapable?”, linking the way public trust was undermined by the Iraq war and by Brexit. Both before war was declared on Iraq, and also before Brexit was enacted, some 1 million people marched through the streets of London in opposition. These people were engaged, informed, enlightened folk from across the country, committed enough to march for policies that to them represented the right way forward, for Britain and the world. The governments of the day ignored them.The consequences of the Iraq war and Brexit are now all too clear. We should not have made war; we should not have left Europe. As John Harris says: “People in the political mainstream – by which I chiefly mean Labour MPs – need to start loudly talking about Brexit … and what life outside Europe is doing to us.” Absolutely. I feel sure there are millions of voters desperate for Keir Starmer, the shadow cabinet and all Labour MPs, at every opportunity, to do exactly that.

Rolling coverage of the latest economic and financial news