Economics | The Guardian

From how much households could be paying to what prompted the rethink

In today’s newsletter: Jeremy Hunt’s autumn statement was all about repairing the damage of the Truss government. What will his first budget entail?

Biggest change to welfare system in a decade and extension of energy price guarantee among expected measuresJeremy Hunt is due to set out the government’s plans for tax and spending in his first budget on Wednesday. Meanwhile, the Office for Budget Responsibility (OBR) will publish updated economic forecasts and an assessment of the government’s finances for the next five years – running up to and beyond the next election. Here is what to expect. Continue reading...

From cooling inflation to easing staff shortages, we look at the factors behind the chancellor’s spending choices

Average monthly cost of owning 3-bed home is £500 a year less than renting, but the gap is narrowingHomeowners in the UK are almost £500 better off a year than renters, according to new research from Halifax.The average monthly cost of owning a three-bed home for first-time buyers is now £971, which is £42 lower than the average cost of renting an equivalent property, the mortgage lender said. Renters pay on average £1,013 each month – 4% more. Continue reading...

Probes announced in the UK and US over failure of California lender as financial markets recovered from Monday’s turmoilInquiries into the collapse of Silicon Valley Bank (SVB) and its UK arm have been announced in Britain and America, as financial markets settled and banking shares recovered from Monday’s turmoil.In the US, prosecutors at the Department of Justice (DoJ) as well as the stock market regulator, the Securities and Exchange Commission (SEC), are conducting separate investigations into the collapse of California lender SVB, which was taken over by the government after a run on its deposits. Continue reading...

Failure of America’s 16th biggest bank amid high inflation poses an awkward decision on interest rates for the Federal ReserveThe collapse of Silicon Valley Bank (SVB) has inevitably conjured up memories of September 2008 when the bankruptcy of Lehman Brothers prompted a market meltdown, a global recession and a dramatic easing of policy from the world’s central banks.Fears that SVB is not the only poorly regulated bank to be feeling the effects of steadily rising US interest rates have led to a rethink of what will now happen to official borrowing costs. Ultimately, that depends on whether this really is a “Lehman’s moment”, or a re-run of the stock market crash of 1987 or the failure of the hedge fund Long Term Capital Management in 1998, when the market turmoil was temporary. Continue reading...

Shares in First Republic, Western Allliance, PacWest and Zions are all rallying after Monday’s selloff; US inflation drops to 6%

The Fed’s target of bringing inflation to 2% could see dramatic change in tumultuous aftermath of Silicon Valley Bank collapsePrice rises slowed again in February as the annual rate of inflation eased but the report has been overshadowed by a banking crisis ahead of next week’s meeting of the Federal Reserve.Prices in February were 6% higher than a year ago, down from an annual rate of 6.4% in January and significantly lower than the 9.1% peak of inflation seen in June. Between January and February, prices rose 0.4% as prices increased in sectors including housing and food. Continue reading...

Parents describe plight as pressure builds on Jeremy Hunt to provide help in the budgetJoanna Jayarajan, 41, a self-employed mother of two from London, is one of many thousands of working parents in Britain for whom the current childcare offer simply does not work.She used to work five days a week providing extracurricular activities in schools and nurseries, until she lost her last au pair a year ago, and subsequently a chunk of her income (her wages more than offset the cost of the childcare). Continue reading...

We’re keen to hear from people in the UK whether a bigger allowance for tax-free pension contributions might entice them to put off retirement or work more hoursChancellor Jeremy Hunt is likely to announce a significant increase of the annual tax-free allowance for pension contributions from £40,000 to £60,000, as well as the so-called lifetime allowance (LTA) – the maximum amount workers can pay into their pension pot tax-free – by more than half a million pounds.We’re interested to hear from people in the UK how these new allowances might affect their career and retirement plans. Would you consider working longer hours or retiring later than you had envisaged to make use of the new pension thresholds? Or could you be persuaded to return to work from early retirement? Continue reading...

Employment increased in January as younger employees returned to workplace, says ONS

Chancellor is trying to to increase employment, but redundancies are up and wage growth has slowed

E-bikes, home security cameras and frozen berries added to ONS list in sign of changing shopping habitsTwo ubiquitous consumer items of the 1990s – alcopops and CDs – will no longer count towards the monthly update of Britain’s cost of living after the latest shake-up of the shopping basket used to measure price changes.In a sign it is no longer fashionable to order a fruit drink laced with booze in a pub and that the age of the compact disc is over, the Office for National Statistics said both products had fallen foul of its annual audit of the UK’s spending habits. Continue reading...

Sale of SVB’s British subsidiary to HSBC is a satisfactory fix but Fed emerges with less of a worthy halo

The collapse of SVB highlights deep failures in the conduct of regulatory and monetary policy

Financial deregulation led to the crash in 2008 and it could again in 2023. It’s time to make banking boring againOn Friday, bank regulators closed Silicon Valley Bank, based in Santa Clara, California. Its failure was the second largest in US history and the largest since the financial crisis of 2008.Will other banks fail? On Sunday, regulators closed New York-based Signature Bank. Continue reading...

Soaring profits are a bonanza for executives and shareholders, but all that’s on offer for workers are real-terms pay cutsThese days there is a lot of talk about a “cost of living crisis”, but as Unite’s most recent research confirms, we should actually be talking about a cost of profiteering crisis. From rising supermarket prices, to energy bills, to transport costs, we are all paying the price.Take UK Power Networks, the National Grid power distributor. Last financial year, according to Companies House, it made a staggering £1.3bn pre-tax profit. Billions in profit, bonanzas for the executives and shareholders, while there are only real pay cuts on offer for workers. Continue reading...

Higher growth should mean stable employment and wages, with low- and middle-income countries seeing biggest improvementsThe end of extreme poverty may finally be achieved by 2050, spurred by economic growth in low-income countries, according to a new economic forecast.Though the Covid pandemic began to reverse progress in eradicating extreme poverty, and additional challenges will emerge, the damage may have a very limited impact on the overall trajectory of economic growth, according to a Center for Global Development (CGD) report. Continue reading...

Analysis by UK union shows large corporations have improved profits with price rises in cost of living crisisLarge corporations have fuelled inflation with price increases that go beyond rising costs of raw materials and wages, pushing shopping bills to record highs, according to an analysis of hundreds of company accounts.Highlighting a trend dubbed “greedflation”, the research indicates that supermarkets, food manufacturers and shipping companies are among hundreds of major firms who have improved their profits and protected shareholder dividends, giving an extra lift to prices, while the cost of living crisis has meant workers face the biggest fall in living standards in a century. Continue reading...

Wednesday’s announcement will not change big picture for UK economyThe only way was up for Jeremy Hunt when he took over at the Treasury last October. Appointed by Liz Truss in an attempt to save her job, he was the fourth chancellor of 2022 and the Conservatives were at rock bottom.The economic legacy handed to Hunt was dire. Inflation was above 10%, living standards were falling, and house prices were going down while interest rates were going up. In the aftermath of Truss’s departure from Downing Street, the Bank of England said the economy was already in recession and would remain that way for the whole of 2023. Opinion polls were pointing to a landslide victory for Labour at the next election. Continue reading...

Tories can take heart that the over 65s won’t punish poor GDP, research finds. Just don’t hit them in the pocketBritain is a stagnation nation, with next to no productivity growth and zero real wage growth post-financial crisis. And that’s before inflation hit 40-year highs. Can British politics chart a course out of this low-growth mess?The demographics won’t help. That is the takeaway from an interesting recent paper by Oxford’s Tim Vlandas. Britain is getting older (we’ll have around 2.5 million more people aged over 65 in 2030 v 2020). Some of the growth effects are obvious (fewer workers means lower GDP), but the indirect impacts on growth via politics are Vlandas’s focus. He raises two concerns. Continue reading...

The chancellor has room for giveaways in this week’s budget, but business and consumer groups fear he will hold them back for the electionJeremy Hunt is under pressure to be generous when he delivers his first budget speech since he became chancellor last October.The public finances have improved dramatically from the chaotic days that followed Liz Truss’s mini-budget in September, which rocked international money markets and sent interest rates on government debt soaring. The cost of financing Britain’s debt has fallen in recent months and the cost of gas on wholesale markets has tumbled. Continue reading...

Industry leaders expected to call for state intervention to avoid failure of hundreds of UK firmsThe UK government is coordinating an emergency meeting with tech firms, who are expected to call for state intervention to avoid the failure of hundreds of firms following the collapse of Silicon Valley Bank UK (SVB UK).The chancellor, Jeremy Hunt, also spoke with the Bank of England governor, Andrew Bailey, on Saturday morning, just hours after the collapse of SVB UK’s parent company, which marked the largest failure by a bank since the 2008 financial crisis. Continue reading...

Vacancies are high, but pay is not rising. Nor will the Bank of England allow it to. That means something else has to giveSome of Britain’s biggest industries need to shrink and they need to start thinking about how to do it now.Hospitality is one. Manufacturing could be another. These sectors are among many to say they cannot find the workers they need at the price they have traditionally paid. Continue reading...

US regulators seize SVB’s assets after a run on the bank, as global institutions monitor situation closely

Shutdown and takeover of bank by regulators can be traced to the Fed raising interest rates and risk-averse investors

UK economy has proved ‘more resilient than many expected’ says chancellor Jeremy Hunt, while problems at Silicon Valley Bank knock FTSE 100 down 2%

Chancellor likely to announce increase to £40,000 pension annual limit and lifetime allowanceJeremy Hunt is considering a boost for the pensions of middle-class professionals and more help with childcare for parents in next week’s budget, as he tries to get more people into the workforce.The chancellor is likely to announce significant increases to pensions allowances in a bid to tackle the “pension trap”, which has led many workers to take early retirement. Continue reading...

Political editor Katharine Murphy speaks to economics writers Shane Wright and Greg Jericho about inflation and whether the reserve bank is doing its best to curb it, any prospects of a recession and the upcoming budgetRead more: Continue reading...

January GDP growth of 0.3% bigger than expected, driven by education, health and recreation sectors

From May, loyalty card holders will collect 3p of points for every £1 spent at health and beauty chain, down from 4pBoots is cutting the points per pound shoppers can earn on their loyalty card by a quarter, while offering discounts on its own-brand products.The health and beauty chain told customers via email that from May, holders of the Boots Advantage card would collect 3p worth of points for every £1 spent, instead of 4p. They will keep the number of points they have already collected, which will still be worth the same amount. Continue reading...

GDP is likely to edge sideways in 2023 (if that) but the true impact of rising interest rates has yet to be felt

Rolling coverage of the latest economic and financial news, as crypto turmoil leads to an "‘orderly wind down’ and ‘voluntary liquidation’ of Silvergate bank

Labour knows the UK needs a green recovery plan like Joe Biden’s, but the Tories have neither the courage nor will to follow suitThere was a time when the Institute of Directors was a hotbed of Thatcherism. Its members were gung-ho for the free market, tax cuts, privatisation and economic liberalism in its purest form. But that was in the 1980s and early 1990s and it is a different story now. Earlier this week, the IoD called on the chancellor, Jeremy Hunt, to be more than simply a bean counter in next week’s budget and urged the government to come up with its own version of Joe Biden’s Inflation Reduction Act.This is some change of heart. The IRA is a $370bn (£312bn) package of protectionism, state aid and subsidies designed to galvanise American business in the fight against climate change. Where once the IRA would once have been everything it loathed, here was the IoD warning that “short-term budgetary concerns” should not be allowed to trump the “strategic imperative of establishing market leadership positions in green business”. Continue reading...

A new operating model for the global economy is upon us – its success will depend on how policymakers adaptFor three decades, businesses and governments around the world operated under the assumption that economic and financial globalisation will continue apace. As the international order has come under strain in recent years, however, the concept of deglobalisation – the delinking of trade and investment – has increasingly gained traction with households, companies, and governments. But the available data suggest that globalisation is not ending so much as it is changing.Not too long ago, it seemed that there were no limits to global economic and financial integration. For decades, globalisation’s benefits appeared to be obvious and unassailable. The interconnectedness of production, consumption, and investment flows provided consumers with a wider range of choices at attractive prices, enabled companies to expand their markets, and improved the efficiency of their supply chains. Global capital markets expanded access to credit and lowered its cost for private and public borrowers alike. The world’s governments engaged in what seemed to be a series of win-win partnerships. And technology – including, most recently, the accelerating shift toward remote work – made national borders seem largely irrelevant. Continue reading...

MPC member Swati Dhingra warns against that overtightening monetary policy could harm weak economy

With inflation cooling rate-setter Swati Dhingra says higher borrowing costs pose ‘material risk’ to already-weak economyA senior Bank of England policymaker has said interest rates should be held at 4% amid signs of cooling inflation, rather than adding to pressure on households and businesses with a further rise in borrowing costs.Swati Dhingra, an external member of the Bank’s rate-setting monetary policy committee (MPC), said higher borrowing costs would pose a “material risk” to the UK economy. Continue reading...

The shadow chancellor has read the room on the need for a stable tax regime, but the ‘to-be-decided’ list is longIt was easy to spot the gaps that Labour needs to fill in the review of business taxation announced by the shadow chancellor, Rachel Reeves. On the rate of corporation tax, Labour wants to be “in lockstep with the G7”, which is a terribly vague formulation. On long-term tax breaks to boost investment, Reeves is enthusiastic but has committed to nothing specific. Any role for windfall taxes, where Labour is still calling for a “proper” additional levy on North Sea producers, was not mentioned in her speech to the trade body Make UK.The “to-be-decided” list, then, is long. In the meantime, Reeves said Labour would support “a genuine boost to investment … if it is affordable”, if that’s what the government produces in next week’s budget. There was nothing here to frighten business – but, equally, nothing much to excite. Continue reading...

Interest rates ‘likely higher than anticipated’, Jerome Powell says in Fed’s monetary policy report to Senate panelFederal Reserve chair Jerome Powell told Congress on Tuesday that the central bank will likely continue to increase interest rates in coming months as bringing down inflation “has a long way to go and is likely to be bumpy”.“The ultimate level of interest rates is likely to be higher than previously anticipated,” Powell said, delivering the Fed’s semiannual monetary policy report to the Senate’s banking committee. “My colleagues and I are acutely aware that high inflation is causing significant hardship, and we’re strongly committed to returning inflation to our 2% goal.” Continue reading...

Catherine Mann concerned firms could take advantage of people’s willingness to tolerate higher pricesA senior Bank of England policymaker has expressed concern that UK companies could be exploiting the cost of living crisis to push through inflation-busting price increases – a phenomenon widely known as “greedflation”.Catherine Mann, one of the nine members of Threadneedle Street’s monetary policy committee, said she was concerned about the ability of firms to take advantage of consumer willingness to tolerate higher prices. Continue reading...

Pressure builds for childcare help in budget as Britain slips down global league table for women in workWomen in Britain are being priced out of work and suffering from a growing gender pay gap as the result of a lack of affordable child care, a new report has found.With the chancellor thought to be looking at ways of boosting employment in next week’s package, a survey by the consultancy group PwC found the UK slipping down the international league table for women in work. Continue reading...

February figures from BRC highlight impact of cost of living crisis on British economy before budgetUK consumers sharply cut back their spending in February as soaring living costs damaged household finances, retailers have warned, despite strong sales of jewellery and fragrances for Valentine’s Day.Highlighting the impact of the cost of living crisis on the economy before Jeremy Hunt’s budget next week, the British Retail Consortium (BRC) said sky-high energy bills and the rising cost of a weekly shop were forcing shoppers to cut back. Continue reading...

Encouraging economic signs as construction activity rises at fastest rate for nine months in February, and UK car market grows for seventh month running

The chancellor is unlikely to make giveaways next week, but he could offer more help with energy billsIf it’s headlines he’s after, Jeremy Hunt has a tough act to follow when he delivers his budget on 15 March. It would be quite something for the chancellor to make as big a splash as his predecessor Kwasi Kwarteng did with his package of measures last September.Hunt will not mind having a lower profile. If the budget makes a few ripples rather than sending a tsunami through the financial markets – as Kwarteng’s tax cuts did – then so much the better. Anybody expecting a giveaway package next week is certain to be disappointed. Continue reading...

Boosting spending power, increasing public funding for science and tech skills, R&D and infrastructure could workBritain has been struggling to find a solution to its north-south divide since the staple industries of the Industrial Revolution – textiles and coal – started to decline in the early 20th century.It is not a unique problem. Every sizeable country has richer and poorer regions, and from the US rust belt to what was once East Germany, geographical inequality is easy to spot.It would make more sense – if the aim is to get the big regional cities to punch their weight – to invest in better links between them, rather than on improving links to London. An HS3 would be better value for money than HS2. Continue reading...

No 10 says UK is giving firms in Northern Ireland time to prepare with phased introductionThe new Brexit trading arrangements in Rishi Sunak’s revised Northern Ireland protocol could take more than two years to be fully implemented, government sources have confirmed.Businesses in Northern Ireland say they expect a mass educational campaign to be launched across the country by HMRC and other government departments to help them put the deal announced in Windsor last Monday into operation if it is approved by parliament. Continue reading...

The PM’s commendation of the EU’s benefits to Northern Ireland is surely a sign for the party to embrace rejoiningThere is a marvellous moment in one of the great Fast Show sketches when, within seconds, the George Smiley-esque interrogator raises his hand in triumph because the prisoner has given himself away – blown it, as they say. Such a moment came last week, when, in his commendable efforts to settle the Northern Irish question, Rishi Sunak told the province how lucky it was to be in the European single market as well as the UK.I should not wish to push the comparison too far, but it is certainly the case that before the euphoria accompanying the Windsor framework, the prime minister appeared to be a prisoner of the rightwing European Research Group (ERG), who are in cahoots with the Democratic Unionist party (DUP). Continue reading...

Covid has shrunk the nation’s workforce, but new programmes aim to tackle the ill-health that may be holding willing employees and entrepreneurs backChelsea Tierney beams as she talks about her new part-time job as a cleaner at Morrisons supermarket. “It’s really nice, I like it. People are friendly – they’re lovely.”Struggling after the pandemic, 36-year-old Tierney had been out of work for more than five years when she was referred to a programme called Working Well, at its office in Bolton. “Covid hit and it knocked everyone’s confidence,” Tierney says. “It was awful.” Continue reading...

Britain’s energy suppliers have been told by officials to prepare two sets of bills for next month, with Treasury expected to maintain support for longer