The long-running series in which readers answer other readers' questions on subjects ranging from trivial flights of fancy to profound scientific and philosophical conceptsAre there any countries that are ultimately neither capitalist nor communist? Becky Jackson, DorsetSend new questions to nq@theguardian.com. Continue reading...
Figures on GDP, wages and inflation this week are set to offer Labour plenty of scope for criticising Tories' economic competenceAll eyes at the Treasury this week will be on estimates of economic growth in the final three months of 2023. A contraction in gross domestic product (GDP) in the fourth quarter would spell embarrassment for the government and disaster for Rishi Sunak.The second of the prime minister's five pledges was to have the economy growing by the end of the year. Instead, it is widely expected that the Office for National Statistics (ONS) assessment of fourth-quarter activity will show that the economy contracted by 0.1%, after also shrinking by 0.1% in the third quarter (revised from an estimate of no growth). That would mean the UK was in a recession during the second half of 2023, albeit a shallow one. An economy is considered to be in recession after two consecutive quarters of contraction. Continue reading...
Keir Starmer will now be appealing to voters on the basis it can run the status quo better than the ToriesUntil last week's U-turn on its pledge to spend 28bn on greening the economy, Labour had a coherent story to tell on the economy. It was not an especially exciting story but it made sense.The narrative went like this. Since coming to power in 2010, the Tories have made a right mess of things. Misguided austerity has resulted in weak growth and flatlining living standards. Public services have been starved of money and too little has been done to safeguard the future of the planet. Failure on such a comprehensive scale requires a different approach. Continue reading...
Starmer desperately wants to win back the trust of a crucial, and famously cautious, demographic. But support for public investment is growingLabour has a demographic mountain to climb when it puts forward plans to spendonly a few billions of pounds, letalone 28bn. The parliamentary constituencies the party must win from the Conservatives to secure an overall majority are overweight with older people who are resistant to change and want their government to watch the pennies.Touting a pledge worth 18bn for green investments on top of 10bn already earmarked was always going to be vulnerable, especially when there was scant debate about how people might be affected, allowing speculation to escalate about its potentially deleterious effects. Continue reading...
EVs heavily subsidised by Beijing are flooding Europe and the globe. If we don't watch out, it could start a major trade warWhenever people learn that I have an electric vehicle (EV) the conversation invariably turns to whether I suffer from range anxiety" - the fear of running out of charge. The answer is that generally I don't, though I might if I were contemplating a drive across the Highlands of Scotland to Aviemore, say. But otherwise, no. Why? Because I am able to charge the car overnight at home, and most of my trips are much much shorter than the vehicle's 300-mile range.In that sense I am statistically normal. Government estimates are that 99% of car journeys in England are of less than 100 miles. So if you can charge at home, then most of your problems are over, which probably explains when the last time the Department for Transport did a survey, 93% of the country's EV owners had home charging. Continue reading...
Billions in tax relief is showered on UK small businesses in the belief that they are transforming the economy. They aren'tEntrepreneurs are a false god. We offer them billions of pounds' worth of tax breaks and subsidies, and a lot of goodwill, when research suggests that most, after pocketing the cash, will do little to help UK plc prosper.Academic studies have found that small business owners, while being a significant slice of the economy and a source of employment, are very rarely the spur for innovation or increases in productivity, let alone the wellbeing of the workers under their employ (health and safety is worse in small businesses). Continue reading...
Authority weighs up legal action against government over new checks on imported meat taking place 22 miles inlandThe Port of Dover could become a target for criminals smuggling illegal and diseased meat into the country under new post-Brexit plans that will involve lorries from the continent being checked 22 miles inland, the port's health authority has warned.The Dover Port Health Authority (DPHA) is now considering legal action against the government over its decision to end physical checks of imported meat at a post within the port. Instead, lorries will be directed to a new checking facility half an hour's drive up the M20 at Sevington, Ashford. Continue reading...
Rolling coverage of the latest economic and financial news, as hawkish BoE policymaker looks for signs that rates needn't rise furtherProfessor Costas Milas, of University of Liverpool's management school, has analysed how geopolitical risks and oil prices have influenced UK monetary policy over the decades, through higher inflation and lower output.He tells us:MPC member Haskel is (arguably) partly' correct to wait until further evidence shows that inflation risks are waning.My colleague, Mike Ellington and I assess just that. We look at the impact of geopolitical risks on the UK economy. We find that geopolitical risks and higher oil prices depress UK output and that oil prices lift UK inflation. So, there is a subtle' tradeoff between higher inflation and lower output in making interest rate decisions. Continue reading...
by Presented by Michael Safi with Kiran Stacey and Fi on (#6JG7N)
Keir Starmer has abandoned his totemic pledge on green investment amid fears it opens the party to attacks on its economic credibility. Is he being too timid? Kiran Stacey and Fiona Harvey reportIn late 2021, Labour party members were still licking their wounds after a byelection defeat in Hartlepool, and Keir Starmer was at something of a crossroads in his leadership. He needed something big and bold that would excite his party and get the attention of voters. He was under pressure to match the ambition of President Biden's Green New Deal. So Labour made a significant pledge: to spend 28bn a year as part of a major strategic investment package to shift the economy towards its commitment to net zero emissions by 2050.As the Guardian political correspondent Kiran Stacey tells Michael Safi, the plan was always a bit vague. The 28bn figure was not assigned to specific spending pledges, but its symbolic value was welcomed by environmentalists as the first serious step towards matching Britain's green commitments. It did not take long, though, for the attacks to begin. And when Liz Truss as Tory leader sent the cost of borrowing skywards, the debate within Labour about the feasibility of its 28bn plan intensified. Yesterday, Labour formally dropped it. Continue reading...
Rolling coverage of the latest economic and financial news, as China slipped deeper into deflationary territory in JanuaryChina's deflation problem highlights the country's economic malaise, explains Susannah Streeter, head of money and markets at Hargreaves Lansdown:While inflation is still an unruly force central banks are attempting to tame in many nations, China is grappling with its evil twin. Deflation.Prices have fallen at their steepest rate since 2009, with the consumer price index falling 0.8% compared to a year earlier. Although falling food prices, particularly pork, is partly behind the trend. This was exacerbated by sharply lower demand during the month compared to last year due to the lunar new year celebrations landing in February, but underlying weakness remains with non-food inflation falling back.The current market remains one of robust volumes, but while the Red Sea crisis has caused immediate capacity constraints and a temporary increase in rates, eventually the oversupply in shipping capacity will lead to price pressure and impact our results.The ongoing disruptions and market volatility emphasize the need for supply chain resilience, further confirming that Maersk's path toward integrated logistics is the right choice for our customers to effectively manage these challenges. Continue reading...
by Amy Hawkins Senior China correspondent on (#6JFMR)
Plunge in consumer prices has fuelled calls for a stimulus package - yet Beijing may stick to the new normal of lower growth China consumer prices plunge at fastest rate for 15 yearsChina's economy has gone from bad to worse - and it is only February.Figures released on Thursday showed consumer prices fell by 0.8% in January compared with a year earlier, outstripping economists' expectations and marking the biggest contraction in 15 years. Continue reading...
by Richard Partington Economics correspondent on (#6JEN8)
Deputy governor Sarah Breeden also says firms must rein in profits as there is some way to go' to meet 2% inflation targetVictory in the war on inflation will require British workers to accept lower pay deals and companies to rein in their profits, a senior Bank of England policymaker has said.Sarah Breeden, one of the central bank's four deputy governors, said there was still some way to go" before inflation would fall back to the 2% target set by the government for the Bank to achieve on a sustainable basis. Continue reading...
Instead of claiming demand factors are the main reason for inflation, the spotlight should be on companies' pricing decisionsDespite a new year and a new way of doing things, the thinking at the Reserve Bank remains the same - inflation is all about people having too much money to spend rather than the actions of companies which are actually the ones raising prices.With the first Reserve Bank board meeting of the year behind us - and the first under the new arrangements where the board only meets every six weeks rather than monthly - the prospect of more rate rises looks unlikely. Continue reading...
by Richard Partington Economics correspondent on (#6JE6T)
Deep-scarring effects': Living standards for hardest hit won't return to pre-pandemic levels until 2027, report predictsBritain's poorest households have suffered a 4,500 hit to their finances since the start of the Covid pandemic, according to a report indicating that those on the lowest incomes have borne the brunt of the cost of living crisis.Highlighting a dramatic fall in living standards since Boris Johnson's election landslide four years ago, the National Institute of Economic and Social Research (NIESR) thinktank said soaring costs for energy, food and other basic essentials had hit those most badly off the hardest. Continue reading...
Rolling coverage of the latest economic and financial news, as BoE dove pushes for early cuts to UK interest rates to support economyBP's shares are now up 6.6%, at the highest since the end of November, as investors welcome its plan to buy back more shares, after beating profits in the last quarter.BP has a ricky balancing act ahead, says John Moore, senior investment manager at RBC Brewin Dolphin:BP has beaten expectations for the final quarter of 2023, but fallen slightly short for the year. The company went through a significant amount of change last year and this, combined with a declining oil price, has had an impact on overall performance.Nevertheless, BP is still in resilient shape - surplus cashflow remains positive, net debt has fallen, and the management team's optimism can be seen in the 10% increase in dividend distributions. Questions have been raised over its future direction and BP will need to strike a tricky balance of continuing to invest in its core energy business to deliver returns in the short term, while maintaining its long-term transformation." Continue reading...
Unions and some employers push back against claims that the pay standard is unaffordable after two years of 10% risesThe outsourcing company Capita has become the second high-profile business to inform employees it would be dropping its commitment to the real living wage.The independently calculated rate, born out of a grassroots campaign to improve the lives of the UK's poorest citizens, is meant to ensure the lowest-paid can afford the basic necessities of a decent life. Continue reading...
We subsidise the purchase of twin-cab utes and charge GST on bikes and public transport. It's absurdParisians just voted to charge large vehicles three times more to park in the city than small vehicles. In Australia we offer the most convenient parking for free to people driving enormous twin-cab utes (we call them loading zones, even though you don't have to load up anything more than your groceries). Policy choices matter.Last year all of Australia's top 10 selling cars were twin-cab utes or large SUVs. And just as most utes aren't really shifting cargo around our cities, sports utility vehicles" are not engaged in sport - and they clearly aren't utilities. But the names used to describe these expensive, inefficient and dangerous forms of transport are by no means the most absurd thing about Australian car culture. Continue reading...
Interviews with people in remote communities challenge widely held perception that money buys happinessPeople living in remote Indigenous communities are as happy as those in wealthy developed countries despite having very little money", according to new scientific research that could challenge the widely held perception that money buys happiness".Researchers who interviewed 2,966 people in 19 Indigenous and local communities across the world found that on average they were as happy - if not happier - as the average person in high-income western countries. Continue reading...
by Kalyeena Makortoff Banking correspondent on (#6JCTZ)
Both banks deny helping Tehran-controlled oil firm PCC to move money in breach of sanctionsTwo of the UK's largest lenders, Santander UK and Lloyds Banking Group, allegedly held bank accounts for front companies that helped Iranian entities evade US sanctions, according to reports.The news has rattled investors, who sold off shares in the two banks on Monday morning, amid fears that the lenders could face penalties if they are found to have in any way assisted Iran's state-controlled Petrochemical Commercial Company (PCC). Continue reading...
There is both hope and hype for what artificial intelligence can do for growth - if politicians can tame its destructive potentialSince returning from this year's World Economic Forum (WEF) meeting in Davos, I have been asked repeatedly for my biggest takeaways. Among the most widely discussed issues this year was artificial intelligence - especially generative AI (GenAI"). With the recent adoption of large language models (like the one powering ChatGPT), there is much hope - and hype - about what AI could do for productivity and economic growth in the future.To address this question, we must bear in mind that our world is dominated far more by human stupidity than by AI. The proliferation of megathreats - each an element in the broader polycrisis" - confirms that our politics are too dysfunctional, and our policies too misguided, to address even the most serious and obvious risks to our future. These include climate change, which will have huge economic costs; failed states, which will make waves of climate refugees even larger; and recurrent, virulent pandemics that could be even more economically damaging than Covid-19.The WEF zeitgeist is, in my experience, a counter-indicator of where the world is really heading. Policymakers and business leaders are there to flog their books and spew platitudes. They represent the conventional wisdom, which is often based on a rear-window view of global and macroeconomic developments. Continue reading...
Government spending watchdog asked to review costs and benefits of then chancellor Rishi Sunak's 2020 own goal' decisionThe Treasury's independent forecaster is to review the axeing of tax-free shopping for tourists, raising the possibility that a decision that leisure companies and retailers have blasted for deterring visitors and losing the UK billions in sales could be reversed.With a change of heart likely to be seen as a shot in the arm for struggling businesses, the Office for Budget Responsibility (OBR) is to examine the costs and benefits associated with Rishi Sunak's 2020 decision to end the retail scheme when he was chancellor of the exchequer. Continue reading...
If the population is to grow on the scale predicted the UK will need the infrastructure to service a much-expanded citizenryTough choices. We must be willing to make tough choices. It is a soundbite heard frequently from politicians, often accompanied by another chestnut: there's no such thing as a free lunch.Both statements are true. Free lunches are few and far between. There are tough choices that need to be made. But, like most other developed countries in similar circumstances, Britain is reluctant to make them. Continue reading...
Four years after leaving, and with more self-harm in prospect, austerity is eating away at Britain. Where is the indignation?So we pass the fourth anniversary of Brexit. The trade barriers mount, with the UK reclaiming sovereignty from Brussels" in order to become poorer, and Chancellor Hunt prefers tax cuts to relief of the squeeze on public spending; this latter when local authorities all over the country are threatened with bankruptcy, having already pared vital services to the bone.Even the International Monetary Fund points to the need for a letup on austerity - a far cry from the 1976 crisis, when James Callaghan's Labour government was besieged by IMF requests for spending cuts. Continue reading...
A year after travel restrictions were lifted, authorities are straining to cope with millions of visitors, especially those who don't respect the environment and local customsAt the height of the Covid pandemic, the restaurateurs and shopkeepers of Tsukiji market in Tokyo must have dreamed of days like these.Columns of smartphone-wielding visitors shuffle along the narrow streets, pausing to inspect hand-forged kitchen knives and tsukemono pickles, and to sip gratis samples of green tea. Restaurants tempt the lunchtime crowd with sticks of grilled wagyu, boiled crab legs and, for dessert, plump strawberries encased in chewy mochi rice. Continue reading...
by Kiran Stacey Political correspondent on (#6JB6M)
Tories watch on delighted as Starmer repeats figure while the shadow Treasury team distance themselvesFor weeks, Labour officials have been locked in meetings as they try to figure out how to present Westminster's worst kept-secret: Keir Starmer's slow U-turn away from his pledge to spend 28bn a year on the green economy.Publicly, senior party figures insist that nothing has changed since last summer, when the shadow chancellor, Rachel Reeves, said the party would spend 28bn only if the party's strict fiscal rules allowed. Continue reading...
US adds 353,000 new jobs over month as growth in hiring gives boost to president, whose polling on economy has remained weakJoe Biden declared the strong jobs figures released on Friday as proof that America's economy is the strongest in the world".The US jobs market defied fears of a downturn again, when figures were released on growth in January, with employers adding 353,000 new jobs over the month, the labor department announced. Continue reading...
Its growth model seems kaput - but optimists point to how the economy confounded critics beforeGermany is struggling. Its economy has shown no growth in the best part of two years. Its infrastructure is badly in need of modernisation. There are strikes on the railways. Protesting farmers have brought Berlin to a standstill. Deutsche Bank is cutting thousands of jobs. School standards are slipping. There is growing support for parties of the hard left and hard right. For the second time in a quarter of a century it is being labelled the sick man of Europe.Germany has a history of economic problems breeding political extremism but talk of a return to the Weimar Republic is wildly overblown. The economy is flatlining, not collapsing. There is nothing to match the hyperinflation of 1923 or the mass unemployment of the early 1930s. Continue reading...
UN climate chief says torrents, not trickles' of public and private finance needed to meet global challengeGovernments must not try to pick loopholes in the global agreement to transition away" from fossil fuels reached last December, the UN's climate chief has said, as he called for torrents" of cash for poorer countries to tackle the crisis.Some countries have sought to play down the significance of the deal reached at the Cop28 UN climate summit in Dubai, the first time that governments have made such a pledge on oil and gas. Continue reading...
Experts seem optimistic but events in China, Europe and the US suggest risks are still tilted to the downsideA month into 2024, the consensus forecast for the global economy remains cautiously optimistic, with most central banks and analysts projecting either a soft landing or potentially no landing at all. Even my colleague Nouriel Roubini, famous for his bearish tilt, regards the worst-case scenarios as the least likely to materialise.The CEOs and policymakers I spoke to during last month's World Economic Forum (WEF) in Davos echoed this sentiment. The fact that the global economy did not slip into recession in 2023, despite the sharp rise in interest rates, left many experts upbeat about the outlook for 2024. When asked to explain their optimism, they either cited the US economy's better-than-expected performance or predicted that artificial intelligence would catalyse a much-hoped-for productivity surge. As one finance minister remarked, If you are not naturally optimistic, you should not be a finance minister." Continue reading...
Shadow chancellor Rachel Reeves tells business summit of measures to boost investment, productivity and certaintyLabour will not raise corporation tax above its current rate of 25% during the next parliament, the party has pledged, in an attempt to offer businesses greater certainty - but the promise has prompted warnings about a lack of fiscal flexibility.The shadow chancellor, Rachel Reeves, said the tax pledge included maintaining full expensing, which allows businesses that invest in IT equipment and machinery to claim back up to 100% of the cost of the investment by writing it off against tax on their profits. Continue reading...
Labour leader tells conference that reforms may not please everyone in room'The UK needs a government guided by clear purpose, Reeves says.Labour has set out five missions. But they are all tied to the economic mission - to raise growth.These are the symptoms of economic decline. Continue reading...
BoE policymakers were split three ways over interest rate decision, as Andrew Bailey says Bank needs to be more confident that inflation will fall and stay low
Bank of England's rate-setting panel is split three ways - to hike, cut or hold -but analysts are now pencilling in a cut for late springInterest rates have peaked. The next move in borrowing costs will be down. But not yet. Those were the three key messages from the Bank of England in its latest assessment of the state of the economy.Those conclusions may not be immediately apparent from the minutes of the latest meeting on Threadneedle Street of the monetary policy committee (MPC) - the body tasked with setting interest rates to hit the government's 2% inflation target - because the MPC had a three-way split. Continue reading...
Chancellor says less room now for giveaway in March despite being widely thought to be gearing up for cutsThe chancellor, Jeremy Hunt, has said there will be less room for tax cuts in the spring budget next month, just days after the International Monetary Fund warned that the UK needed to focus on repairing its public finances.Hunt, who in November announced he was cutting the main rate of national insurance contributions paid by employees from 12% to 10%, was widely believed to be gearing up for another tax giveaway after dropping a series of hints about what could be the Conservatives' last budget before a general election. Continue reading...
Wage growth fears likely to make Bank policymakers wait before cutting interest rates from 5.25%Bank of England policymakers are expected to hold interest rates at 5.25% when they meet today, but a rapid fall in inflation could mean a cut in the cost of borrowing comes as early as June.Analysts said revised forecasts for inflation were likely to show a steep drop in prices growth over the next six months, prompting bets in financial markets that the Bank's monetary policy committee (MPC) will make several cuts to interest rates in the second half of the year. Continue reading...
Central bank said it was not appropriate to cut rates until it has greater confidence that inflation is moving sustainably toward 2%'The US Federal Reserve held interest rates steady for another month as the US inflation rate continues to fade from its highest level in a generation.Policymakers at the central bank, who have signaled they expect to cut rates three times this year, opted to keep rates steady at a 23-year high after their first two-day meeting of 2024. Continue reading...
The IMF is right: Downing Street is taking a foolish risk by putting tax cuts before public spendingThe anti-growth coalition", as it was named by LizTruss during her brief premiership, just keeps on growing. The latest to sign up is the International Monetary Fund (IMF), which has this week warned Rishi Sunak off cutting taxes and suggests instead a boost to public spending. It is atimely intervention. For the past fewmonths, the right of the increasingly rightwing Tory party, including Ms Truss, has clamoured for lower taxes - supposedly in the name of economic growth, but more likely in the desperate hope of electoral survival.Mr Sunak has made it clear that he will indulge them, promising more to come" on tax cuts. January began with a slice taken off national insurancecontributions, and the debate around the March budget is not whether taxes will be cut but which ones are for the chop. Now along comes the IMF to wag an admonishing finger - and every British prime minister from Jim Callaghan onwards knows you don't want one of those.Just because the IMF says something, it ain't necessarily so. In 2011 John Lipsky, then its acting managing director, flew to London to support GeorgeOsborne's austerity plans. Two years later, its boss, Christine Lagarde, pulled a swift U-turn, and warned that spending cuts were tanking the economy. The verynext year, in 2014, she U-turned again, claiming the UK was doing well. The reality is that ever since Britain's bubble economy went pop in 2008's crash, growth has been utterly anaemic. The financial crisis that the IMF did not spot produced a badly ailing economy, which the IMF signed off as being in good health. This in turn bred a crisis of cynical, extractive politics, at which IMF officials are doubtless appalled. Continue reading...
Jennifer Brown, Nicole Robinson, Chris Tapp and Berty Dodd respond to an article by Anoosh Chakelian on skewed perceptions of wealthI found it strangely reassuring to read Anoosh Chakelian's article (Britain's richest 10% don't think they're wealthy - and that's disastrous in the fight against inequality, 24January). If nothing else, the article validated my own frustration at the situation. My partner and I earn about the average salary each and can manage, but certainly not live in luxury. We think about every purchase, and don't waste, while we try to build our savings to the point that we can afford to adopt children. Two recent conversations with friends earning 80,000 and 100,000, in which they discussed struggling and being working class, were painful and have been echoing in mymind ever since.I am a social worker, so I see the cold face of poverty constantly - the types of situations where a family doesn't know whether to heat or eat. I would never describe my family as struggling. But my friends truly think they struggle as they manage their two very large mortgages, and worry about whether their next holiday will need to be a bit cheaper than the Maldives. I have no answers to this problem, other than to show them my take-home pay and watch as they imagine living on that, then break the news that the minimum wage pays half. They immediately thought-block, though, and tell me about the benefits those people get. I feel a bit hopeless, if I'm honest.
Nationwide says housing market looks more positive' as prices rise 0.7%; the Danish maker of Ozempic and Wegovy predicts further strong growth in 2024The Guardian's political correspondent Aletha Adu has sent over some reaction to Labour's announcement that it won't reinstate the cap on bankers' bonuses if it wins the next general election.Momentum, a grassroots organisation of the party's leftwing, said:This is a terrible decision totally out of touch with Labour's values and public opinion. For over forty years our economic model has sucked wealth from the country & enriched a few in the City.It even crashed the economy in 2008. Yet instead of learning the lessons from New Labour's failures, Starmer & Reeves seem determined to repeat them.We're absolutely delighted with the RSV launch, in four months reaching blockbuster status.We're very optimistic about the long term prospects of this asset being at least 3bn. We're only 11% penetration so far in the US. We do expect 24 to be a year of good growth as we continue to drive penetration. We're excited about being able to hopefully add a further cohort of the 50 to 59 year olds.It will take a few years to get there, to get to the kind of the flu rates which are closer to 60%.And in the UK, we do have the vaccine approved privately. What we're looking forward to is to be able to get to national immunisation programmes. Continue reading...
Economics | The Guardian