Economics | The Guardian

Consumer price inflation data shows prices fell by 0.3% year on year in JulyChina's economy has fallen into deflation after consumer prices fell year on year last month for the first time in more than two years, official data shows, as slowing domestic spending weighs on the country's post-Covid economic recovery.The consumer price index, the main gauge of inflation, fell 0.3% in July, the National Bureau of Statistics of China (NBS) said, having flatlined in June. A survey of analysts had anticipated a 0.4% year-on-year decline. Continue reading...

Trade with rest of world is shrinking and youth unemployment is at 20% but state interventions are expectedChina's economy is struggling. The recovery after the lifting of Covid-19 restrictions is faltering. Its trade with the rest of the world is shrinking. A decade-long boom in house prices has come to an end.The most obvious manifestation of the troubles besetting the world's second biggest economy is that China is now officially in deflation. In the US, the UK and the eurozone, prices are rising - albeit not quite as fast as they were a few months ago - but in China they are actually falling. Continue reading...

Rolling coverage of the latest economic and financial news

Report says wealth gap would be wider if not for over-priced or ineffective services such as healthcare in USThe average US household is almost a third richer than its UK counterpart and most of this difference is down to housing being cheaper in the US, according to a study by a leading thinktank.If it were not for the fact that homes are 40% less expensive a square metre on average in the US - allowing them to live in much larger properties for the same outlay - US households would have the same standard of living as their counterparts across the Atlantic. Continue reading...

Economic experts say it will take until third quarter of 2024 for output to return to pre-pandemic peakRishi Sunak will fight the next election against a backdrop of an economy suffering from five years of lost growth and a widening of the gap between the prosperous and less well off parts of Britain, a leading thinktank said on Wednesday.The National Institute of Economic and Social Research (NIESR) said it would take until the third quarter of 2024 for UK output to return to its pre-pandemic peak and that there was a 60% risk of the government going to the polls during a recession. Continue reading...

Rolling coverage of the latest economic and financial news

Proceeds from levy on interest rate income will be used to help mortgage holders and cut taxes

House price falls have been modest given the post-lockdown price boom and interest rate spike but further falls seem likely

Average house price fell by -0.3% in July, and is 2.4% lower than a year ago, but Halifax doesn't expect precipitous decline' in coming months

Insolvencies rocket as army of small firms - seen as backbone of the sector - struggle with falling demand, rising interest rates and higher costsIt's tough out there," says Steve Midgley, the managing director of Fairgrove Homes. His east Midlands firm, which builds about 50 homes a year, is one of Britain's army of small housebuilders that are struggling with falling demand, rising interest rates, labour shortages, and high material and wage costs.It's taking longer for people to sell their own house," says Midgley. So it's taking vastly longer to exchange contracts. After the reservation, we're talking three or four months, whereas at one time we'd have had that down to four to six weeks. And that all puts stress on the working capital, the work in progress and everything." Continue reading...

Decline in July is fourth monthly fall in a row with prices dropping by 2.4% on an annual basis, says lenderThe average UK house price has fallen for the fourth month in a row, according to Halifax, which says higher borrowing costs are increasingly pushing first-time buyers to switch to smaller homes.The average price fell by 0.3% in July, the bank's monthly index showed, with a typical UK home costing 285,044, compared with a peak of 293,992 last August. Continue reading...

Firms have cut back on hiring staff and manufacturing output is at its lowest since May 2020 as supply issues continue, a survey findsBusiness confidence fell last month amid jitters over the slowing UK economy dampening company plans to hire more staff, according to a survey of more than 4,000 firms.Optimism has declined, with higher interest rates and weak global demand contributing to gloom across the services and manufacturing sectors. Continue reading...

The former governor of India's central bank now steers a tricky course between supporting free markets and campaigning against unfettered risk-takingHe was once talked about as a possible successor to Christine Lagarde as boss of the International Monetary Fund. Then there were hints he might become governor of the Bank of England.But Raghuram Rajan says neither job was ever on his radar, despite his position in the front rank of central bankers after a stint running the Reserve Bank of India until 2016. Continue reading...

Participants also including banks and pension funds will have to reveal how activities could harm financial systemMany of the world's largest hedge funds will reveal whether their investment activities risk amplifying economic shocks and harming the UK's financial system, after being recruited into the first-ever stress tests involving the shadow banking sector.The Bank of England has released the names of more than 50 City institutions taking part in the exercise, which will measure the ways that banks and non-bank financial institutions - often referred to as the shadow banking sector - affect financial stability. Continue reading...

Western economies must adopt industrial strategies, boost R&D and exploit new tech to prosper - Americans realise this better than EuropeansThe US economy is growing more quickly than expected. The eurozone avoided a winter recession after all. In the UK, the Bank of England says the economy is showing surprising resilience.Everywhere in the developed west the story seems to be the same. Countries are coping with the tough anti-inflationary measures imposed by central banks over the past 18 months or so. Inflation has peaked and there has been no sharp increase in unemployment. Recession fears are old news. The talk now is of soft landings across the board. Panic over. Continue reading...

Like characters in Dario Fo's farce, we complain about, but tolerate, the most damaging political scandal of our timeAt the beginning of the first Thatcher government (1979-83), the economist John Kenneth Galbraith wrote that Britain was the perfect place to conduct the dubious monetarist experiment recommended by his fellow economist Milton Friedman. This was because although Galbraith (rightly) thought the policy was crazy, British phlegm" would see us through, and the tolerant nation would not take to the streets".This memory came to mind recently when I was at the revival of that great 1970s classic Accidental Death of an Anarchist. Dario Fo and Franca Rame's farce has been updated by Tom Basden, and is a five-star triumph. The memory was evoked by the central character, the maniac", declaring: Scandal is to society what confession is to the sinner. It's a catharsis [that] fixes nothing: the hostile environments, the sewage in the seas, the peerages for political donors. And what's the result? Do we arrest anyone? Can we change anything? Of course not ... In glorious democracies such as ours, we get to moan about it instead." Continue reading...

Key data this week will offer a hint as to whether the eurozone's powerhouse can shake off recent stagnationEngine of the eurozone, industrial powerhouse, export world champion - just some of the ways Germany's economy has been described over the years.However, recent figures have indicated that the good times have come to an end, with Europe's largest economy stuck in recession. Continue reading...

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Fewer jobs created last month than expected, but economists hope the US can avoid recession

Figure is less than expected in first jobs report since Fed raised interest rate to 22-year highUS employers added 187,000 jobs in July, less than expected and a sign that the labor market is cooling after a series of interest rate hikes by the Federal Reserve have driven rates to their highest level in 22 years.The jobs market has continued to add at least 200,000 new jobs each month this year, according to the US Bureau of Labor Statistics (BLS). But that compares to an average monthly gain of 400,000 in 2022. Continue reading...

That seaside staple is up by more than 50%, while car hire is up 75% ... add an item to our visual tool to see how costs have risen in the past five yearsIt's enough to make you drop your chips - official figures show that over the past five years the price of a takeaway fish supper has risen by more than 50%.A portion of fish and chips isn't the only British summer break staple that has become far more expensive since then: hotel, restaurant and bar bills have also all shot up. Continue reading...

Tory MPs call for targeted tax cuts as Labour criticises 14th interest rate hike as mortgage bombshell'

Britain's 14th successive rise signals a grim 2024 for the economy and for Rishi Sunak's governmentThe surprise would have been if it had not happened. As a result, the markets - political markets as well as financial ones - were able to greet this week's 0.25% increase in the cost of borrowing with something resembling a collective shrug of the shoulders. This 14th successive rise, taking UK base interest rates to 5.25%, had been largely priced in. A 15th is widely expected, so the price of money for businesses and mortgage holders is likely to go on rising to levels that have not been seen since before the financial crisis of 2008.Ordinary borrowers are unlikely to be so phlegmatic. More than 1.4 million people hold variable rate mortgages. For them, the latest rise twists the screw even more tightly, piling on fresh costs to the hundreds of pounds that have been added to their monthly bills since rates began their steep climb from that distant 0.1% rate that still applied at the start of last year. Do not forget the additional deterrent effect of all this, not just in discouraging new customers from taking out new mortgages but also in the inevitable knock-on consequences for an increasingly sluggish construction sector. Continue reading...

Protests take place outside the Bank as it increases rates again, although inflation is expected to drop to 5% by end of the year

The Bank of England has announced a quarter-point interest rate rise, taking its base rate to a new 15-year high. The Bank's governor, Andrew Bailey, said the increase, the 14th hike in a row, would support the government's efforts to bring inflation rates down. 'Low and stable inflation is the foundation of a healthy economy. High inflation hurts the least well-off the most,' he said

The reliance on Bank of England rate rises alone can't go on. In other countries, rent caps and excess profit taxes are workingThe government seems to be claiming that it's winning the fight against inflation. But we are not out of the woods yet. Inflation currently is still far too high and the Bank of England has today increased rates again to 5.25% and lowered its growth forecast. But it doesn't have to be like this. The case of Spain is a great counter-example. Its inflation has just fallen to the 2% target. How is it that it has already achieved this important milestone?The reason is more forceful management of the economy - the Spanish government took quicker, more concerted action than ours did. Spain capped energy prices by more than the UK, lowered the cost of public transport, taxed excess profits and put in place limits on how much landlords can raise rents. While also coming with costs, this kept inflation from spreading more widely and more persistently than elsewhere.Carsten Jung is a senior economist at the Institute for Public Policy Research's Centre for Economic Justice Continue reading...

Rise to 5.25% comes as no surprise but Bank of England's language will frighten many

We're interested to hear from people aged 50 and over in the UK about what it's like to work as couriers for delivery companies such as DeliverooOver-50s looking for work in the UK should consider delivering takeaways and other flexible jobs typically occupied by younger people, the work and pensions secretary, Mel Stride, has said.Stride made the comments during a visit to the London headquarters of the food delivery firm Deliveroo, which has recorded a 62% increase in riders aged over 50 since 2021. Continue reading...

How the new base rate may affect mortgage holders and savers

Policymakers vote for quarter-point rise to 5.25%, the 14th increase in a row, as Bank rules out prospect of recession

Fears remain over stubborn inflation but slowing economy likely to fuel more cautious approach from rate-setters, say analysts

As the cost of borrowing rises again, we speak to some of the 1.4m people on variable rates dreading the effects

Trump's efforts to overturn election and political polarization led agency to decision, says senior directorDonald Trump's attempt to overturn the 2020 election and growing political polarization in the US contributed to an erosion of governance" that led a top credit ratings agency to downgrade US debt, a senior director of the company said on Wednesday.Fitch cut its rating on US debt on Tuesday. It was only the second time in history that a leading credit agency has downgraded US debt. The first was in 2011, when Fitch rival Standard & Poor's cut the US's triple-A rating after a nerve-racking fight between the Republicans and the Obama administration over the federal budget. Continue reading...

Builder Taylor Wimpey says Bank of England stance has weakened housing market

Bank will have largest ever number of women on rate-setting monetary policy committee after appointmentThe Bank of England is on course to have the largest ever number of women on its interest rates setting committee after Jeremy Hunt said the Bank of England insider Sarah Breeden would become the deputy governor for financial stability at the central bank in November.Breeden will take up positions on the rate-setting monetary policy committee (MPC) and financial policy committee, which she will chair in the absence of the Bank's governor, Andrew Bailey. Continue reading...

Nationwide reports average house prices fell 3.8% in year to July, biggest annual drop in 14 years, while manufacturers suffer worst month of 2023

Despite claims over taking back control, UK is forced to comply with rules on which it has no sayThe business minister Kevin Hollinrake had exciting news for British businesses on Tuesday. The government was, he said, tackling red tape, cutting burdens for business and creating certainty for firms".It sounded like just the kind of benefit Brexit was meant to bring in its wake. Continue reading...

Nationwide says cost of a typical home is 260,828 after 3.8% year-on-year drop in July

Clothing and footwear among items reduced most in July as retailers try to counter bad weatherThe UK's biggest retailers have reported the first monthly fall in shop prices for two years, as stores tried to tempt in customers with big discounts during July's unseasonably wet weather.The British Retail Consortium (BRC) said shop prices were 0.1% lower in July than in June. Meanwhile its annual shop price inflation rate, compiled with the help of NielsenIQ, declined to its lowest level of the year, sliding to 7.6% last month from 8.4% in June. Continue reading...

UK mortgage approvals rise to eight-month high in June, while eurozone GDP rises after narrowly avoiding winter recession

GDP also rises in 20-member bloc but German growth remains flat and Italy shrinks

West Yorkshire-based firm warns of markedly lower' profits with company hit by falling demand for new-build homes

Surprise jump in demand for home loans as borrowers scramble' to get ahead of interest rate increases

New research reveals that lower growth follows general elections that confound the pollstersThe economy affects election results - it's the economy, stupid". The financial crisis did for Labour in 2010, and Rishi Sunak well knows what the highest inflation in four decades is doing to UK politics today. But can election results affect the economy?Obviously, who gets elected matters - as this column discussed last year, a change of government tends to be followed by more policy change and faster economic growth - but specifically do the results - and how surprising they are - matter? Yes, concludes new Warwick University research examining 13,600 opinion polls before 233 elections in 51 countries. Continue reading...

Fixed deals edge down as the City predicts that interest rates are nearing their peak and the UK economy coolsSeveral of the nation's biggest lenders cut rates on their fixed mortgage deals last week, in a sign of mounting expectations that the Bank of England may be nearing the end of an aggressive cycle of interest rate rises.Next week, the Bank is expected to push up interest rates for a 14th consecutive time from 5% to 5.25%, with financial markets betting that they will peak at 5.75% by the end of the year. Many analysts expect this will mark the end of a cycle of interest rate rises that began in December 2021, giving the major lenders some confidence that previous fears of a 6.5% peak were overdone. Continue reading...

The chancellor's plan to use the UK's providers as a source of much-needed investment has proved underwhelming, to say the leastIf you want to invest in Britain's economy, but you have no idea how to go about it, you are not alone. Business leaders don't know how either. And government officials stare at each other, unable to devise ways to promote investments that they can persuade ministers come at minimal cost and will win votes.After more than a decade of procrastination, and the failure of the levelling up agenda, there is an urgency behind demands for the UK to begin repairing what it has and building new things that allows us all - and not just a wealthy few - to participate in the best the 21st century has to offer, from better healthcare to climate-friendly transport. Continue reading...

Data shows increase from 3.3% to 6.6% since December 2021, which was before interest rate risesPersonal loan rates have doubled in little more than 18 months, spelling far higher" costs for financially squeezed households hoping to borrow money, new data shows.In early December 2021 - just before official interest rates began their seemingly relentless march upwards - someone with a good credit rating who was looking for a new 5,000 personal loan to be paid back over 36 months would have potentially been able to access best-buy rates starting at 3.3% from companies such as Sainsbury's Bank and the AA. Continue reading...

There is not enough time for the Tories to make good on their promise to create a high-skill, high-wage' economyLevelling up" is a political slogan with its own department, recognition for the role it played in winning the Conservatives the 2019 election. Tackling the blight of regional inequality was dubbed as the Tories' defining mission". But data released this week shows successive Conservative prime ministers have failed that task in one key way. The Institute for Fiscal Studies finds a widening geographical wage gap in the last three years - driven by income increases for well-paid workers in London which mask real wage cuts elsewhere.Mean wages for employees living in the capital had increased by 5%, after adjusting for inflation, to 4,400 a month before tax. This is almost double the average national increase of 2.7%. Those living in London's commuter belt saw pay increases of 4.5%. But many workers were now between 1% and 4% worse off than they were before Covid-19 arrived. Ministers have chosen year after year to set the price of labour in education and public administration at levels that ensure workers suffer real pay cuts. The jobs market is not just about demand and supply. Labour shortages have been most acute in low-paid sectors. Health and social care settings are struggling to fill roles. But real pay growth there is just 2.5% - below the UK average rise. Industrial action continues because workers find themselves unable to bargain for better pay. Continue reading...

Peter Flavel says Coutts fell below its high standards' in the handling of Nigel Farage's case, while Rishi Sunak declined to say whether he had confidence in NatWest's chairman

Central bank raised rates by 0.25 percentage points in attempt to bring inflation downThe European Central Bank has been urged to pause further interest rate rises amid growing recession fears after lifting them by 0.25 percentage points to a joint record high.Concerns that European property prices have slumped were cited by analysts among reasons for the central bank to freeze the cost of borrowing on its three key interest rates. Continue reading...