Falling prices are welcome news, but latest reading is still far higher than the Federal Reserve’s annual target rate of 2% inflationUS inflation continued to cool in January, rising at an annual rate of 6.4%, according to figures released by the Bureau of Labor Statistics.The consumer price index (CPI) – which measures a basket of goods and services – has now fallen for seven consecutive months, down from a four-decade high of 9.1% last June, and down from an annual rate of 6.5% in December. Continue reading...
The fact that unemployment has started to rise suggests more painful days lie aheadBritain’s economy is suffering from a textbook case of stagflation, and the symptoms are clear from the latest labour market trends. It looks like a complex picture. The number of people looking for work rose while the number of job vacancies fell. Hours worked in the economy were down while days lost through strikes in 2022 were the highest annually since 1989.In fact, the diagnosis is straightforward. There was zero growth in the final three months of 2022 while the annual inflation stood at above 10%. Attempts by the Bank of England to reduce inflationary pressure through higher interest rates are feeding into lower levels of activity – but only slowly. There has been no sudden collapse of the sort seen during the global financial crisis of 2008. Continue reading...
Investment in the country since the referendum has ‘stopped in its tracks’, according to a study led by Jonathan HaskelThe UK has suffered a loss of business investment since the 2016 Brexit referendum worth £29bn, or £1,000 a household, according to a study by a senior Bank of England official.Jonathan Haskel, an external member of the Bank’s nine-strong monetary policy committee that sets UK interest rates, said private sector investment “stopped in its tracks” in the years following the decision to quit the EU. Continue reading...
Economic growth forecast to be 0.8% in 2023 but households still face cost of living pressuresThe EU is predicted to narrowly avoid recession as a result of a milder-than-expected energy shock, although households face difficult times ahead as cost of living pressures ease only gradually, the European Commission has said.Economic growth for the 27 countries of the EU is forecast to be 0.8% in 2023, compared with a 0.3% projection last autumn, when fears of winter power outages and the rising cost of living ran high. In the 20-country eurozone, the economy will expand by 0.9% in 2023, boosted by a better-than-expected performance in Germany and Italy, as well as relatively stronger growth in Spain. Continue reading...
Britain has a shrinking economy and a worker shortage – so why aren’t part-time workers increasing their hours?Tougher benefit rules have boosted employment in the UK, but have also trapped workers in dead-end jobs and weakened incentives to move from part to full-time work, according to the Institute for Fiscal Studies (IFS).As Britain is expected to be the only major industrialised country to see its economy shrink this year, amid rising interest rates and higher taxes, the government is frantically trying to find ways to boost economic growth. Continue reading...
Survey figure is highest in at least a decade as businesses face pressure to help staff in cost of living crisisUK employers expect to give workers pay rises of 5% this year, the highest in at least a decade, according to a survey of more than 2,000 businesses.Against a backdrop of worker shortages, more than half of employers said they expect to raise base or variable pay further in 2023 to better recruit and retain staff, according to the Chartered Institute of Personnel and Development (CIPD), a body representing employers. However, expectations for public sector pay rises are lower. Continue reading...
Billions in gifts or loans given when children are in early adulthood and buying first home or getting marriedBillions of pounds loaned by the “bank of mum and dad” to help with property purchases and to boost the finances of newly married offspring are helping to fuel rising levels of inequality, according to a thinktank.The Institute for Fiscal Studies said parents would provide £17bn in gifts and informal loans this year. Most transfers come from the over-50s to children in their late 20s and early 30s. Continue reading...
Neil Kinnock and Simon Price respond to an article by Larry Elliott which argued that a benefit of Brexit is that UK firms will have to invest in machinery to boost productivityLarry Elliott has a surprisingly neat view of labour demand and supply, and of British capitalism’s ability and willingness to respond to the “real incentive to invest more in new kit” in order to overcome labour shortages and raise productivity (If you want a benefit of Brexit, here it is: British employers must now innovate again, 9 February).He is, of course, right that labour shortages now are not solely the result of Brexit. Covid, chronic underinvestment in training, the self-harm of “austerity” and a decade of wage stagnation all play a part. Continue reading...
Flirtation with recession, along with new era of austerity and stagnation are consequences of policy response to pandemicThe UK economy is flatlining and has been for the best part of a year. Recovery after the deep slump of 2020 has petered out. Higher inflation, higher interest rates and higher taxes are all exacting a toll.Technically, the strict definition of a recession has not been met because the economy has yet to contract for two successive quarters. But official estimates showing zero growth in the final three months of 2022 meant it was a mighty close thing. With the full impact of higher borrowing costs yet to be felt, neither the chancellor nor the governor of the Bank of England would bet against a recession at some point this year.The Covid Consensus by Toby Green and Thomas Fazi is published by Hurst Continue reading...
Quitting the EU has stalled business investment, making us reliant on workers who are now scarce. Hence rising wages, high inflation and increased interest rates. Result? A looming recessionWhenever Andrew Bailey, the governor of the Bank of England, talks about the economy, he is forced to mention the toll taken by Brexit.Business leaders, initially reluctant to criticise the Tory decision to quit the EU, have begun to find their voice. Most recently, leading City figure Guy Hands called Brexit a “complete disaster” and a “bunch of total lies” that has harmed large parts of the economy. Continue reading...
The fall in petrol and oil prices is helping bring down the inflation rate, but an uncertain jobs market urges cautionAt long last, Britain’s annual inflation rate is on the way down. After hitting the highest level since the 1980s, heaping pressure on millions of households as living costs soared, official figures this week could bring some rare good news.City economists expect UK inflation to have cooled for a third month running in January – the exact number is announced on Wednesday – helped by falling petrol prices and a broader decline in the global price of oil and gas in recent months. The hope now is for a sustained decline in the months ahead, continuing a steady drop from the peak of 11.1% seen in October. Continue reading...
Kept aloft by North Sea oil or privatisations, the economy under the Conservatives never got the long-term vision it neededListening to Bank of England officials in recent days, the message is clear: Britain’s economy is in a dire state.Bombed out by the 2008 banking crash and stunned by the Brexit vote before being poleaxed by Covid-19 and then a war in Ukraine, every industry is suffering, and to a considerable extent. Business tries to drag the economy out of the morass only to find the bog is so deep there is no traction. Continue reading...
The British economy has avoided recession, according to the chancellor, Jeremy Hunt, as he welcomed data that showed the UK was the fastest-growing economy in the G7 last year, but warned that it was still not yet 'out of the woods'. In an interview with Sky News on Friday, he said: 'Inflation is still much too high, and that is causing pain for families up and down the country, which is why we need to stick to our plan to halve inflation if we do that and play to our strengths in science and technology we really can be one of the most prosperous countries in Europe
by Richard Partington Economics correspondent on (#68PG1)
Policymaker highlights split in rate-setting committee, saying inflation is on track to fallUK interest rates may need to be cut this year as the pressure on households and businesses from high borrowing costs ripple through the economy, a senior Bank of England policymaker has said.Silvana Tenreyro, one of the members of the Bank’s rate-setting monetary policy committee, said inflation in the UK was on track to fall rapidly this year despite concerns from others on the nine-strong panel that it could remain at persistently higher levels. Continue reading...
Labour’s bowing to business contrasts with the boldness of the US president’s green industrial policies. There is an opportunity to be graspedThe severe crises humanity faces will not be solved by the outdated rules of the global economy. Keir Starmer came close to recognising this in his new year’s speech, when he spoke of his plans for “mission-driven” government. The phrase – borrowed from Mariana Mazzucato – implies governments setting economic goals (say, 100% renewable energy) and single-mindedly driving that goal forward through investment and regulation.In essence, this is an acceptance that government planning, state intervention and public ownership, so derided over 40 years of neoliberalism, are necessary tools of government today, and it’s what makes Labour’s industrial strategy central to any progressive offer to the country.Nick Dearden is director of Global Justice Now (formerly World Development Movement) Continue reading...
Our economic model relied on a bottomless supply of cheap workers. Firms must now invest to boost productivityStrikes by nurses. Strikes by teachers. Strikes by train drivers, civil servants and college lecturers. This might not quite be a rerun of the winter of discontent 44 years ago but it is starting to look rather like it.While it has been the standoff between the government and public sector workers that has attracted most of the media attention, there has also been widespread action in the private sector. Just this week, the Unite union announced that 180 members at the Drax power station would strike after rejecting an 8% pay offer, that tanker drivers employed by JW Suckling were balloting for industrial action, and that grounds maintenance staff on an outsourced Welwyn and Hatfield council contract had ended a lengthy dispute after securing a 13% pay increase.Larry Elliott is the Guardian’s economics editor Continue reading...
by Richard Partington Economics correspondent on (#68P29)
Business group says as much as £9bn of investment is needed to improve systemRishi Sunak should funnel billions of pounds into free childcare to help get more parents into work to tackle acute workforce shortages, according to Britain’s leading business group.The Confederation of British Industry (CBI) said the government urgently needed to announce extra funding and changes to childcare and early years support, arguing that a more accessible and affordable system was an immediate economic priority. Continue reading...
Index rises to 7934.30, pushing it above previous record set on 3 FebruaryThe UK’s blue-chip shares index has hit a fresh all-time high, only days after a previous record was set last Friday.The FTSE 100 index rose by almost 1% on Wednesday morning, eventually peaking at 7934.30 points, surpassing the former high of 7,906.58 points set on 3 February. Continue reading...
by Richard Partington Economics correspondent on (#68MVS)
Country likely to sidestep a protracted recession, but lasting effect of cost-of-living crisis ‘will feel like a recession’Households in Britain will suffer a hit to their finances of up to £4,000 this year, according to a report warning that the economy could avoid recession but that, for millions, it will not feel like it has.Adding to pressure on Rishi Sunak as the government prepares to scale back its support for energy bills this spring, the National Institute for Economic and Social Research (NIESR) said low and middle-income households were facing the biggest financial hit from the cost of living crisis. Continue reading...
Dame Alison Rose, the head of NatWest, tells MPs her bank is preventing customers from investing in crypto assets, as part of a crackdown on fraud.Danny Blanchflower, a former Bank of England policy maker, has predicted that “collapsing” house prices will push the UK central bank into a rapid pivot toward interest rate cuts.Blanchflower, who is now a professor of economics at Dartmouth College, told Bloomberg Radio that economic data will deteriorate as the sharp increase in interest rates hit activity.“We are seeing house prices tumbling.You’re going to start to see really bad stuff appearing as these economies slow fast and the central bank and the markets are then going to respond to that.As I sat at the Bank of England, my job was to think about what inflation was going to be at about 18 months to two years down the road. And you change rates now because it takes time to have an effect.“What people should see is a collapsing housing market, a slowing economy and the reason is that these interest rate hikes that have been going crazily haven’t actually impacted the economy yet.”We need continuing near-term investment into today’s energy system - which depends on oil and gas - to meet today’s demands and to make sure the transition is an orderly one. We have high-quality options throughout our portfolio, allowing us to choose only the best.We will prioritise projects where we can deliver quickly, at low cost, using our existing infrastructure, allowing us to minimise additional emissions and maximise both value and our contribution to energy security and affordability.” Continue reading...
by Richard Partington Economics correspondent on (#68KMR)
British Retail Consortium says sales growth slowed in January amid soaring costs for energy and foodBritish consumers sharply cut their spending in January as the cost of living crisis damaged household finances, retailers have warned, amid growing concern over the impact of high inflation on the economy.The British Retail Consortium (BRC) said sales growth slowed last month despite retailers offering steep discounts in the January sales, with households reining in their spending in the face of soaring costs for energy, food and other basic essentials. Continue reading...
Former PM insists, however, that it is unfair to blame actions she took in office for rising mortgage ratesLiz Truss has admitted cutting the 45p tax rate was “perhaps a bridge too far” but said it was not fair to blame her mini-budget on rising mortgage rates.The former prime minister said she did not regret her time in No 10, and that she hoped to stay in the political arena making the case for low taxes and growth within the Conservative party. Continue reading...
Inflation could become entrenched as Covid, energy shock and Brexit hit economy, says Catherine MannA senior Bank of England policymaker has warned the central bank could be forced to keep raising interest rates to prevent high levels of inflation from becoming entrenched in the economy.Catherine Mann, an independent economist on the Bank’s rate-setting monetary policy committee (MPC), said there were “material upside risks” to inflation sticking at higher levels than expected as the impact of the Covid pandemic, Russia’s war in Ukraine and Brexit weigh on the economy. Continue reading...
Senior economists and ex-chancellor George Osborne round on former PM after she says Treasury officials raised no concernsSenior economists and the former chancellor George Osborne have cast doubt over Liz Truss’s account that she was not warned about the risks to the UK economy as she prepared her mini-budget.Truss, in her first major intervention since leaving office, wrote that she had “not [been] given a realistic chance to enact my policies by a very powerful economic establishment, coupled with a lack of political support”. Continue reading...
Attlee was a gifted manager, who showed it possible for modest politicians to be successful if they have decent ideasWinston Churchill once described Clement Attlee as a modest man with much to be modest about – and up to a point he was right. Attlee was in many ways the epitome of bourgeois respectability: he was privately educated, had a house in the London suburbs and liked nothing better than to occupy his spare time by cracking the Times crossword or catching up on the cricket scores.Yet in 1945, the British public chose the modest man over the wartime hero, and Attlee showed over the next six years that a politician does not have to be charismatic to be effective. A modest man turned out to be one of the few UK prime ministers of the 20th century who actually changed Britain. Continue reading...
Politicians and the media often present policies as moral duties, when they are nothing of the sort“I can’t live on the never-never and neither can this country… Austerity was a necessary evil… The unemployed will only work if they are forced to.”No, not the sound of the pub bore, but some of the often unstated assumptions that underlie policymaking and the reporting of such policies. Two very different reports published last week, one from the BBC, the other from the Institute for Fiscal Studies (IFS), reveal, the one explicitly, the other implicitly, the significance of these submerged beliefs in shaping our lives and our perceptions. Continue reading...
Having been grossly misled in the referendum, Britons’ anger is mounting as the reality of our plight becomes clearCommentators, politicians and economists tend to think they are quoting John Maynard Keynes with: “When the facts change, I change my mind. What do you do, sir?”I have always been suspicious of the derivation of this putative remark. Even in this modern world of fake news, facts do not change. New information may come to light, but facts are facts. I don’t think there is any evidence that Keynes ever perpetrated such a canard, and nor does Keynes’s distinguished biographer, Robert Skidelsky. Continue reading...
December’s GDP was boosted by us all cranking up the heating. Actual economic growth has not looked so weak in decadesA glance back at 2022 will show that the economy held up better than some forecasters expected. The Bank of England was among many to expect the second half of last year to see the start of a recession that would stretch into 2023.As it is, it now expects that, when they are published on Friday, official figures for gross domestic product (GDP) in the last three months of 2022 will show this was narrowly avoided. Continue reading...
by Richard Partington Economics correspondent on (#68H8K)
Wyre Forest in the West Midlands has seen a huge jump in the ‘economically inactive’, many of them affluent older people, but the dearth of workers is a real problem for employers“I always laughed at people who said they’d never been so busy since they retired,” says David Richards, mopping his brow as he takes a break from the fast-paced game at Wyre Forest Leisure Centre near Kidderminster.At 58, the retired GP from nearby Bewdley is among the younger players in this midweek morning game of pickleball – a cross between tennis and badminton that is growing rapidly in popularity across Britain. Continue reading...
Workers should not be paying for a recession that they did not causeRishi Sunak marked 100 days in office by claiming the country cannot afford “massive” pay rises for nurses. In a TV interview, the prime minister on Thursday said he’d “love to give the nurses” the money because it would “make my life easier”, but added: “Even if it’s not popular, it’s the right thing for this country to stay the course.” Mr Sunak was so unmoved by the biggest day of industrial action over pay in more than a decade that even the most popular of causes would not be entertained. Earlier that day the Bank of England hiked interest rates, causing more pain for hard-pressed households and businesses.The recession now forecast as a result is the price workers are paying for inflation that is driven by supply costs in food and fuel being wrongly cast as driven by demand. This is no accident, as an insightful report by the Trades Union Congress makes clear this week. Since 1979, economic policies have seen a “doom loop in GDP, and a parallel ‘boom loop’ in wealth”. The doom loop starts with the government claiming that it has to “fix” the public finances, and proceeds by public spending cuts which then lead to lower demand and lower growth – with the cycle restarting. This flies in the face of evidence that infrastructure spending pays for itself through extra economic growth. Such inconvenient facts are dismissed. Continue reading...
Total is far higher than what economists expected even as Federal Reserve continues to raise interest rates to bring down inflationThe US job market added 517,000 jobs in January, a huge gain for the labor market even as the Federal Reserve has pushed up interest rates to bring down inflation and try to temper hiring.Meanwhile, the unemployment rate has held relatively steady at 3.4% – a 0.1% decrease compared with last month. Economists had expected the unemployment rate to rise slightly last month, but the rate still remains on par with what was seen before the pandemic. The rate is a 53-year low, according to Bloomberg. Continue reading...
Inflation should be back within Bank’s 2% target range by middle of 2024, Huw Pill addsThe Bank of England is alive to the risk of pushing interest rates too high, its chief economist has signalled, adding to expectations that it could be nearing the end of a sustained period of rate rises.Speaking a day after the Bank raised interest rates for a 10th successive time, by 0.5 percentage points to 4%, Huw Pill said the full impact of its rate increases had not yet been felt in the UK economy. Continue reading...
I risked prison to stand up against an system that will lead to ecological and societal collapse – we must look for alternative economic models, writes Zoe CohenI have read many Guardian articles on “economic growth”, but on reading this one (Britain the only G7 economy forecast to shrink in 2023, 31 January), I felt I had to write to you. On Friday 27 January, I and six other women received suspended prison sentences for carefully cracking windows at Barclays global HQ in April 2021. We did this to call out Barclays as Europe’s biggest fossil fuel funder, and one of the world’s leading “investors” in ecosystem destruction and plastics pollution. But I also took that action, and risked prison, to call out the whole political economy and the growth-based system that is driving us all off a cliff.I find it deeply distressing that the Guardian does such strong journalism on for example, carbon bombs and the truths behind carbon offsets, and yet seems not to join the dots with economic growth. Surely you understand that GDP has an almost 1:1 relationship with both energy and materials use? And this isn’t going to change any time soon, certainly not in the handful of years we have to body swerve away from Earth system tipping points. Continue reading...
by Kalyeena Makortoff Banking correspondent on (#68EVF)
Bank puts aside more money to protect itself from potential defaults in expected recessionThe impending recession could leave borrowers struggling to repay their debts, the high street bank Santander UK has said as it put aside more cash to protect itself from potential defaults.The UK arm of the Spanish bank said on Thursday that while the outlook for the British economy remained uncertain, a recession in 2023 was likely. Continue reading...
Tories blamed for creating economic ‘doom loop’ that fails to recognise negative impact of spending cutsThe failure of successive Conservative governments to recognise the negative impact of public spending cuts on the wider economy has meant Britain missed out on £400bn of growth since 2010, according to a report by the Trades Union Congress.An extension of austerity measures and wage restraint until 2027 under the government’s latest budget proposals would almost double the amount of lost income to £900bn, the TUC said. Continue reading...