Economics | The Guardian

BoE insists that monetary policy must remain restrictive for an extended period', after money markets anticipated five rate cuts in 2024

Threadneedle Street says Britain faces tougher job to crush inflation than other advanced nationsThe Bank of England has said Britain is facing a tougher job to crush persistently high inflation than other advanced nations, as it kept interest rates on hold at the highest level since the 2008 financial crisis.Pushing back against expectations in financial markets for a deep round of interest rate cuts next year, the central bank said there was still a long way to go before it could declare victory on inflation, despite a worsening outlook for the UK's stagnant economy. Continue reading...

Bank of England expected to keep rates at 5.25% on Thursday but abandon current strategy next yearFinancial markets are betting the Bank of England will be forced to launch a deep round of interest rate cuts in 2024 amid the growing risk of a recession.Threadneedle Street is widely expected to leave borrowing costs unchanged on Thursday after warning that interest rates would need to remain high for a prolonged period to tackle stubbornly high inflation. Continue reading...

US central bank holds interest rates at 22-year high, but expects to cut rates three times next year as inflation continues to fadeOfficials at the Federal Reserve expect to cut interest rates three times next year as US inflation continues to fade from its highest level in a generation. The news sparked a rally on Wall Street with the Dow Jones index closing at a record high.Policymakers opted to hold rates steady at a 22-year high at their latest meeting, as expected, while they scrutinize the impact of their campaign to bring down price growth. Continue reading...

Rachel Reeves warns that economic growth is going backwards after GDP shrinks by 0.3% in October, prompting City to predict 100bp of rate cuts in 2024

High interest rates siphoning money away from spending on health, education and tackling climate crisisUrgent action is needed to prevent record debt repayments by the world's poorest countries developing into a full-blown crisis, the World Bank has warned.The Washington-based multilateral body said the escalating cost of servicing past borrowing caused by rising interest rates was siphoning money away from spending on health, education and tackling the climate crisis. Continue reading...

Bank of England and Niesr have not forecast a recession but October fall in GDP may suggest one is on the way

Package of spending cuts introduced in attempt to tackle country's worst economic crisis in decadesArgentina has devalued its currency, the peso, by more than 50% as part of a package of large-scale spending cuts intended to address the country's worst economic crisis in decades.The plans, introduced under the newly inaugurated administration of Javier Milei, include cutting energy subsidies and cancelling tenders for public works. Continue reading...

GDP fell by 0.3% in October as Bank of England prepares to keep interest rates on hold

US consumer prices rose at a slower rate last month, with energy costs dropping in a boost to America's drivers

The Federal Reserve's report was a mixed picture, with slowing inflation that still exceeded the central bank's target of 2%US inflation ticked down again last month, with cheaper gas helping further lighten the weight of consumer price increases in the US.At the same time, the latest data on consumer inflation showed that prices in some areas - services such as restaurants, used cars and auto insurance - continued to rise uncomfortably fast. Continue reading...

Bank of England could hold interest rates steady despite markets' expectations of cuts in new year

Bank of England will be monitoring figures as it decides whether to cut interest rates this week

Strong growth in earnings has been driven by increases in cost of living, says Resolution FoundationBank of England concerns over the high level of pay awards are likely to be eased in the coming months as wage settlements fall in response to a tumbling annual inflation rate, a thinktank has said.The Resolution Foundation said recent strong growth in earnings was primarily caused by a sharp increase in the cost of living, with workers trying to prevent their living standards being eroded. Continue reading...

Rolling coverage of the latest economic and financial news

Gita Gopinath says global economy's fragmentation into power blocs risks wipeout of trillions of dollars in GDPThe world economy is on the brink of a second cold war that could annihilate" progress made since the collapse of the Soviet Union, a senior International Monetary Fund official has warned.Gita Gopinath, the IMF's first deputy managing director, said the accelerating fragmentation of the world economy into regional power blocs - centred around the US and China - risked wiping out trillions of dollars in global output. Continue reading...

Insolvency specialist recruits more staff as small businesses are hit by tough economic climateHigher interest rates are pushing an increasing number of companies into insolvency, according to one of the UK's biggest insolvency practitioners.Begbies Traynor said it expected to see more businesses tip into insolvency in tandem with the indicators of corporate financial stress in the UK", alongside its financial results published on Monday. Continue reading...

Cost of festive season is up almost a quarter in three years, according to the Centre for Economics and Business ResearchConsumers will pay more for less this Christmas, economists have warned, getting less of a bang for their buck than the faint phutting of a puny, overpriced cracker being pulled.Although Britons will spend more than in the belt-tightening 2022 festive season, the resultant fare won't yet match the pre-pandemic Christmases past. Continue reading...

Sir Keir Starmer has popular plans to green the economy but electoral support is the crucial precondition to make them a realityPoliticians know they can't win an argument without making it. Yet unfortunately that is what Sir Keir Starmer seems to believe. In 2021, the party earmarked 28bn a year for a green industrial strategy to rid the economy of its carbon addiction and create a wave of clean jobs". This summer, however, the spending was postponed to the second half of the next parliament. Then it was reported that it would take a full term to ultimately redeem the pledge. Last week, because of self-imposed fiscal rules, Sir Keir suggested it might not happen. This was unsettling, especially as Labour is miles ahead in the polls. Yet more disappointment is in store. On Tuesday, according to reports, the Labour leader will extol the virtues of small technocratic policies rather than big transformative ones.Sir Keir is mistaken if he thinks he can avoid a fight by not turning up. British governments are unusually free to overhaul the country's economy, but electoral support is the crucial precondition for such changes. Green policies won't happen by themselves. This week, Cop28 will reach a climax, spotlighting the climate emergency. Inaction is not an option: relying on volatile gas prices would cost Britain double that of achieving 2050 net zero targets. Sir Keir knows that Labour spending will be caricatured as a tax bombshell" by the Tories. Ministers hope to overwhelm facts with emotional force. But Labour should take heart that Rishi Sunak's U-turn on climate targets in September, coupled with a conspiracy-laden assault on the opposition, fell flat with voters. Continue reading...

Interest rate hikes will probably end by next year, but small business owners should be prepared for a consumer slowdownIf this year has been all about interest rates, next year is all about the consumer.Rising interest rates were a shock for small businesses in 2023, climbing from 3.25% in early 2022 to 8.5% - a 20-year high. As a result, many of my small business clients - who usually pay a few points above prime if they can get the financing at all - found themselves unable to afford the capital they needed to grow while many others faced a credit tightening. Continue reading...

Stubbornly high inflation forces central banks to avoid cuts, but markets expect falls next yearThe western world's largest central banks are poised to keep interest rates on hold this week amid concerns over stubbornly high inflation, despite growing expectations for sharp cuts in borrowing costs next year.In a crunch week for the global economy, the US Federal Reserve, Bank of England (BoE) and European Central Bank are expected to keep interest rates at their current restrictively high levels to ensure inflation continues to fall back from the highest levels in decades. Continue reading...

Inflation is coming down, but Keir Starmer will need to improve public services when there is a lack of ready cashOpinion was divided in the Labour party after its crushing defeat in the 2019 general election. Optimists thought it would take two terms for the party to have a chance of again forming a government. Pessimists thought it was doomed to permanent opposition.Yet four years on, the polls suggest Labour is on course for a thumping victory. With the Conservatives gripped by an existential crisis, Rishi Sunak could be the last Tory prime minister for a long time to come. Continue reading...

Tory policy has caused huge damage over the decades. In praising it, Starmer has ventured too far behind enemy linesAs a longtime critic of many of Mrs Thatcher's economic and social policies, I was somewhat taken aback by the enthusiasm with which the Labour leader, Sir Keir Starmer, recently bracketed her with Clement Attlee and Tony Blair.I don't think I am alone. In what was a none too subtle, indeed blatant, attempt to attract voters away from the fissiparous remains of the Conservative party, Starmer has taken quite a chance. It can be hazardous to venture behind enemy lines: he risks alienating traditional Labour voters, indeed whole communities, for whom the memory of the social scars of the 1980s is still very much present. Continue reading...

Stronger than expected population growth made inflation hardier than most experts predicted and property prices defied successive rate rises

Two years on from the first in the Bank's run of rate hikes, how have they changed the shape of Britons' finances?Two years ago, Britain's economy was entering an uncertain winter. The Omicron variant of Covid-19 was hitting businesses hard. Furlough had ended. Inflation was at a 10-year high of 5.1%.Against this backdrop - two years ago this week - the Bank of England took its first tentative step to raise interest rates from 0.1% to 0.25%. A month earlier, the Bank had ducked a decision to raise rates given concerns over the end of the government's furlough scheme, wrong-footing financial markets. Few predicted how far Threadneedle Street would go next. Continue reading...

Readers respond to an article by Larry Elliott that said the UK's departure from the EU hasn't been as bad as predictedLarry Elliott makes two main arguments in his article (I've got news for those who say Brexit is a disaster: it isn't. That's why rejoining is just a pipe dream, 5 December). He's wrong on both.His first point is that the EU is faltering and the UK is recovering more quickly from global headwinds. However, he is using the wrong comparison. We should not compare the UK with the EU, but with what the UK would have been like without Brexit. The opportunity cost, not the relative comparison, is the relevant factor. And on this correct measure, Brexit is deeply damaging to the UK economy. Continue reading...

Rolling coverage of the latest economic and financial news

Jobless rate down to 3.7% as world's largest economy grapples with interest rates and American policymakers plot next movesThe US workforce added 199,000 jobs last month, a robust reading as the world's largest economy continues to grapple with higher interest rates.Employment growth has been fading this year after the Federal Reserve launched an aggressive campaign to pull back inflation from its highest levels in a generation. Official data has bolstered hopes that the central bank will manage to guide the US economy to a so-called soft landing", where price growth normalises and recession is avoided. Continue reading...

Even if inflation falls, soaring debt levels, deglobalisation and populist pressures will have an impactEven with the recent part retreat in long-term real and nominal interest rates, they remain well above the ultra-low levels to which policymakers had grown accustomed, and they are likely to stay at such levels even as inflation retreats. It is now past time to revisit the widely prevailing free lunch" view of government debt.The idea that interest rates would be low for ever seemed to support the view that any concern about debt was an endorsement of austerity". Many came to believe that governments should run large deficits during recessions and only slightly smaller deficits in normal times. No one seemed concerned with the possible risks, in particular to inflation and interest rates. The left championed the notion that government debt could be used to expand social programmes, going beyond what could be generated by reducing military spending, while those on the right seemed to believe that taxes exist only to be cut. Continue reading...

Number of borrowers in severe financial stress' has risen but most showing resilience, Reserve Bank's Andrea Brischetto says

Vacancies declining as growth falters, recruiters' body tells Bank of EnglandBritain's largest recruiters have warned the Bank of England that demand for permanent hiring among UK businesses has plunged at the second fastest rate since the pandemic, amid worsening headwinds for the UK economy.Ahead of the central bank's decision on interest rates on 14 December, the Recruitment and Employment Confederation (REC) trade body said lingering economic uncertainty and hesitancy to commit to new hires had weighed on activity in November. Continue reading...

Treasury select committee says Edinburgh reforms launched a year ago have had little impact on UK economyJeremy Hunt's post-Brexit City shake-up has been dismissed as a damp squib" that has had little impact on the UK economy a year after its launch.The chancellor announced the bold collection" of policy changes known as the Edinburgh reforms in December 2022 with the claim they would create jobs, support businesses and power growth across all four nations of the UK". Continue reading...

Multinationals in particular hiked prices far above rise in costs to deliver an outsize impact on cost of living crisis, report concludesProfiteering has played a significant role in boosting inflation during 2022, according to a report that calls for a global corporation tax to curb excess profits.Analysis of the financial accounts of many of the UK's biggest businesses found that profits far outpaced increases in costs, helping to push up inflation last year to levels not seen since the early 1980s.ExxonMobil: profits of 15bn increased to 53bnShell: 16bn up to 44bnGlencore: 1.9 bn up to 14.8bnArcher-Daniels-Midland: 1.4bn up to 3.16bnKraft Heinz: 265m up to 1.8bn Continue reading...

There was no miracle, only a myth manufactured by the Iron Lady herself. It's time Westminster woke up to thatA spectre is haunting British politics. Its outline is instantly recognisable to every Briton of a certain age:hair coiffed into a halo, shoulders firmed up withpads and, jutting out from the left wrist, the inevitable handbag.More than three decades after she was driven out of No 10, and a decade after her death, Margaret Thatcher still casts a long shadow over the country she once ruled, and her party. Rishi Sunak sat in her old Rover (and tweeted about it, naturally) and LizTruss copied her wardrobe. She influenced the Labour party under Tony Blair, though this admiration was first tempered by Labour under Ed Miliband and even more under Jeremy Corbyn. Sir Keir Starmer's praise for Mrs Thatcher is perhaps more about internal Labour politics than about the Tories' leaderene". Continue reading...

Live, rolling coverage of business, economics and financial markets as Bank of England's Andrew Bailey calls for UK to embrace AI'The Bank has said that the full effect of interest rate increases is yet to come through to the economy, suggesting there may be more pain ahead.It said:The full effect of higher interest rates has yet to come through, posing ongoing challenges to households, businesses and governments, which could be amplified by vulnerabilities in the system of market-based financeThe full impact of higher interest rates will take time to come through. Given the impact of higher and more volatile rates, and uncertainties associated with inflation and growth, some risky asset valuations continue to appear stretched.Conditions remain challenging, given increased geopolitical tensions and uncertainties over growth, inflation and interest rates.The UK banking system is strong enough to support households and businesses, even if the economy does worse than expected. Continue reading...

All you need to know about the European Commission's new proposal to delay its 10% charge on EVs

Economy grows more slowly than expected, with consumer spending flat under the pressure of high interest rates

Commission moves to delay 10% sales charge after intense lobbying by EU and UK carmakersThe European Commission looks set to propose a three-year delay to a 10% tariff on sales of electric vehicles between the EU and the UK, in a major boost for car industries across Europe.Duties were due to kick in on 1 January 2024 but all the major carmakers in the UK and Europe including BMW, Volkswagen and Stellantis have been lobbying for a temporary reprieve. Continue reading...

European Commission chief Ursula von der Leyen to meet Chinese president Xi Jinping at summit on ThursdayThe EU is to tell China that its 400bn (343bn) trade deficit is not sustainable long term amid fears that it will flood the bloc with subsidised electric cars, solar panels and medical devices, threatening European manufacturing and jobs.Ursula von der Leyen, the European Commission chief, and Charles Michel, the European Council president, will meet Xi Jinping at a summit on Thursday, the second of its kind this year. Continue reading...

Moody's cuts its outlook on China's credit rating, while trading in smaller stocks in London is hit by systems problems

Festive feast for four rises in price far below annual food inflation rate with sparkling wine and pudding cheaper than in 2022The cost of a traditional Christmas dinner for four has risen 1.3% this year to 31.71, as fierce competition between supermarkets offsets high inflation.The increased cost of a festive family feast is far below the 9.1% rate of general grocery inflation tracked in November, which marks a further easing from 9.7% in October, according to research by Kantar. Continue reading...

Rating agency says Beijing may need to bail out local governments as property sector collapsesChina's ability to repay its government borrowing has been downgraded by the credit rating agency Moody's, which said the ripple effects from a crisis in the property sector would undermine efforts to revive its flagging economy.Moody's warned that Beijing would need to bail out local and regional governments and state-owned enterprises that were struggling with rising debts, hampering efforts to boost investment and growth. Continue reading...

Many still hanker for how things were: but looking across the Channel, it's completely illogical to do thatBrexit is a dead issue at Westminster. There are any number of issues where it is hard to separate Labour and the Conservatives, and the reluctance to reopen the 2016 referendum debate is one of them. As with tax and spending, Keir Starmer is broadly offering continuity Rishi Sunak.That doesn't mean the debate about leaving is over. Plenty of people still nurture the hope that the decision will be reversed and are working to that end. But any successful campaign would need to do two things: convince voters that the UK economy had become a basket case since the Brexit vote and that life for those still in the club was so much better. Continue reading...

Fixing a broken economy with service-led growth and increases in public investment as well as welfare spending should be seriously consideredAdam Smith, the father of economics, condemned as unproductive the labours of churchmen, lawyers, physicians, men of letters of all kinds; players, buffoons, musicians, opera-singers, opera-dancers". How wrong he turned out to be, says the Resolution Foundation thinktank. It points out that the creative industries accounted for 6% of the UK economy last year, and have grown faster than the UKeconomyoverall since 2011.The report, Ending Stagnation, says the last 15 years of low growth and high inequality have seen a living standards gap worth 8,300 open up between typical households in Britain and those in France, Germany and the Netherlands. It suggests fixing this by growing the UK economy through its service sector - and the work of Smith's grave" lawyers and frivolous" musicians - to pay for higher investment and higher benefits. Continue reading...

Resolution Foundation report underlines lack of progress by Tories but Labour proposals seem woolly

Home secretary to announce big hike in salary requirement for migrants to the UK as Rishi Sunak tries to cut net migration figuresHunt says the government wants to speed up the time it takes to get a connection to the national grid by 90%.Zanny Minton Beddoes, the editor of the Economist, is interviewing Hunt. She says he has mentioned the 110 policies, but she wants to know what the growth strategy is. Continue reading...

Labour leader refuses to rule out keeping planned cuts to government departments if he wins power

Gold at all-time high, and bitcoin at 20-month peak, as traders bet on US interest rate cuts early next year, while ONS shows that mortgage holders face higher inflation

Ours is the most unequal major economy in Europe, with poorer workers losing out most. It's time to start playing to our strengthsBritain has huge strengths, but it is now impossible to miss that we're in a phase of relative decline. A year or two of poor productivity growth and flatlining wages is survivable, but 15 long years of stagnation is not: workers today take home no more than they did heading into the financial crisis. The cost of wages not growing as they used to? 10,700 a year for the average worker.Slow growth combines with longer-lasting high inequality: the UK is Europe's most unequal large economy. That combination has proved toxic for people in Britain on middle and low incomes. We think we're similar to the likes of France or Germany, but our poorer families are now a staggering 27% worse off than their French and German counterparts.Torsten Bell is chief executive of the Resolution Foundation Continue reading...

Chancellor says vote led to incredibly challenging time' as he defends tax cuts paid for by public sector austerity