In the face of energy crises and recession fears, house prices and rents remain robust – because the market is rigged that wayAs rising gas and electricity prices take centre stage after Ofgem set the October energy price cap at £3,549, it is interesting to see how little other parts of the economy have reacted.A plentiful supply of cheap energy has underpinned every period of growth in national income over the past 70 years and the prospect of what was once ubiquitous and low cost becoming a major financial burden is one of the main reasons many economists predict that a recession will begin this autumn and run throughout next year. Continue reading...
US stock markets nosedive as Jerome Powell says at top bank summit the ‘overarching focus is to bring inflation back down’US stock markets nosedived on Friday after the Federal Reserve chair, Jerome Powell, warned of “pain” ahead as the central bank struggles to bring down inflation from a 40-year high.Powell’s highly anticipated speech was more hawkish than had been expected, with the Fed chair pledging to do all he could to end rising prices. The Dow Jones Industrial Average lost just over 1,000 points, 3%, the S&P fell 3.3% and the Nasdaq dropped almost 4%. Continue reading...
by Aubrey Allegretti Political correspondent on (#62YH0)
MPs say it is vital tax and spending measures proposed by potential new prime minister are examined by OBRLiz Truss has been challenged to open up her prospective emergency tax cuts and spending plans to scrutiny if she becomes prime minister and makes immediate moves to tackle the cost of living crisis.The Office for Budget Responsibility (OBR), which produces independent forecasts based on major fiscal announcements by the government, revealed preparatory work had been under way for about a month to publish fresh economic forecasts in September. Continue reading...
Retail chain pledges to do more to help consumers hit by cost of living crisisBritish households were on average £160 worse off in July than a year earlier, according to research by the supermarket Asda, as it said it would do more to help shoppers being squeezed by soaring food and energy costs.Asda bosses said they would keep “grocery bills in check” and do all they could to support customers “during these tough times”, as they monitor how much money consumers have to spend through their income tracker. Continue reading...
About 16 million working-age Americans have long-term Covid, according to a Brookings Institution reportAbout 16 million working-age Americans have long-term Covid and 2-4 million are out of work because of its ill effects, according to a new report from the Brookings Institution.Employers have complained of labor shortages throughout the pandemic, and the analysis of data from the US Census Bureau’s Household Pulse Survey, which collects data from Americans through a survey on education, employment, health and housing, suggests one possible reason for the lack of workers. Continue reading...
Pubs and farms concerned about supplies as CF Fertilisers UK prepares to pause ammonia and carbon dioxide production due to high natural gas pricesBritain’s next prime minister must adopt radical ideas - such as discounted power tariffs, energy bill freezes or a “solidarity” tax hike for higher earners - to protect households from the energy price shock, the Resolution Foundation thinktank warns.In a new report this morning, Resolution lays out how tens of billions of pounds in new government support must be targeted at households least able to cope with surging energy costs. Continue reading...
Gaming console maker says inflation rates and supply shortages have led to ‘challenging economic conditions’Sony is increasing the price of the PlayStation 5 by as much as 20%, the company says, in every major market save the US.The UK price of the games console, which has been plagued by supply shortages since its release in November 2020, will increase by 6% (£30), from £449.99 to £479.99. A cheaper, disc-less version of the console will get the same price rise, from £359.99 to £389.99. Continue reading...
Ren Zhengfei writes in leaked memo that ‘chill will be felt by everyone’ and company must focus on survivalThe founder of Huawei has delivered a stark warning for the tech company’s future, sparking alarm with the frankness of his assessment and what it signals for smaller businesses amid China’s economic troubles and a global downturn.In a leaked internal memo, Ren Zhengfei told Huawei staff “the chill will be felt by everyone” and the company must focus on profit over cashflow and expansion if it is to survive the next three years, indicating further job cuts and divestments. Continue reading...
Millions of vulnerable people will be harmed without radical policies to ease cost of living crisis, say expertsPhysical and financial harm will be caused to millions of vulnerable families unless the government takes action to avert a winter catastrophe by cutting energy bills, leading economists have warned.In the run-up to the announcement of the new energy price cap tomorrow the Resolution Foundation thinktank said radical policies such as price freezes, solidarity taxes or lower social tariffs were needed to prevent the cost of living crisis worsening. Continue reading...
The $1.7tn debt has become a hot political issues as midterm elections approachAmerica’s students have a debt problem. A big one. More than 45 million Americans – more than the population of California – now owe a collective $1.7tn in student debt.The vast majority of the money is owed to the federal government, which has been backing or directly offering student loans for higher education since 1958. While student loans are not new in the United States, the amount of student debt has more than tripled over the last 16 years. Continue reading...
The $1.7tn debt has become a hot political issues as midterm elections approachAmerica’s students have a debt problem. A big one. More than 45 million Americans – more than the population of California – now owe a collective $1.7tn in student debt.The vast majority of the money is owed to the federal government, which has been backing or directly offering student loans for higher education since 1958. While student loans are not new in the United States, the amount of student debt has more than tripled over the last 16 years. Continue reading...
The ex-vaccines minister appears to be the equivalent of a caretaker football manager, with Kwarteng waiting in the wingsGordon Brown used to joke that there were two sorts of chancellors: the ones who failed and the ones who got out in time. Nadhim Zahawi looks like being in the second category.Appointed by Boris Johnson on 5 July as he struggled in vain to remain prime minister, Zahawi is likely to be the shortest-serving chancellor since Iain Macleod died in office in 1970. Macleod was in charge of the Treasury for a month; Zahawi’s tenure will probably last only twice as long. Continue reading...
UK private sector growth hits 18-month low, while the US, Germany and France all suffer falls in activity this month, adding to recession fearsThe downturn in Germany’s private sector economy has deepened too.The Flash Germany PMI Composite Output Index has fallen to just 47.6 this month, from July’s 48.1.Continued weakness in manufacturing is being compounded by a slowdown in the service sector, with surveyed businesses reporting a growing strain on demand from high inflation and increased interest rates.“The slowdown in the economy is increasingly taking a toll on firms’ hiring activity, with employment growth easing to its weakest for almost a year-and-a-half in August. A first fall in backlogs of work for more than two years points to capacity pressures across Germany’s private sector economy starting to ease and represents a downside risk to job creation going forward.Flash Germany PMI Composite Output Index at 47.6 (July: 48.1). 26-month low.Flash Germany Services PMI Activity Index at 48.2 (July: 49.7). 18-month low.Flash Germany Manufacturing Output Index at 46.4 (July: 45.0). 2-month high.Flash Germany Manufacturing PMI at 49.8 (July: 49.3). 2-month high. Continue reading...
by Richard Partington Economics correspondent on (#62T8K)
City traders bet central bank will more than double cost of borrowing to combat soaring inflationThe Bank of England could be forced to raise interest rates to 4% from as early as next year to combat soaring inflation, despite the growing risk of recession amid the cost of living crisis.City traders are betting the central bank will more than double the cost of borrowing from 1.75% in response to inflation at the highest levels for more than 40 years. Continue reading...
by Rowena Mason Deputy political editor on (#62T4Q)
Mel Stride says OBR must provide fiscal forecasts as Liz Truss urged to ‘come clean’ on promised tax cutsThe chair of the Commons Treasury committee has urged the government’s economic watchdog to produce fiscal forecasts alongside any emergency budget this autumn, after Liz Truss signalled she would try to avoid early scrutiny of her fiscal plans.Mel Stride, the chair of the committee, said the chancellor must ensure that the Office for Budget Responsibility (OBR) provides its assessment at the same time as the new prime minister makes any big fiscal decisions. Continue reading...
Higher costs, weaker demand and bottlenecks sink manufacturing output to lowest level since start of pandemicBritain’s factories are bearing the brunt of the slowdown in the economy as higher costs, weaker demand and supply bottlenecks combine to send output plunging.Two separate snapshots of industrial activity showed a decline in manufacturing activity – part of a Europe-wide trend exacerbated by the economic fallout from the war in Ukraine. Continue reading...
The sector is dangerously overheated – but unlike the 2008 financial crisis, the global ripple effect is likely to be limitedThe property sector in the Chinese economy has always been something of a puzzle. At its peak, it accounted for a quarter of the nation’s economic output, broadly measured. And it sees people in Beijing and Shanghai paying house prices similar to those in San Francisco and New York, despite having just a quarter the income of American buyers.Now many believe that we are about to see a violent contraction of the property market in China. The government wants to intervene to curb speculation, and rein in what it calls the “three high” problem: high prices, high debt and high financialisation. The approach has been nothing short of dramatic. Financing for property developers has tanked. Earlier this year, property sales declined by as much as 20-30%, in-progress developments are not being completed and people have taken to the streets, banding together to stop mortgage payments on such projects in protest.Keyu Jin is a professor of economics at LSE Continue reading...
Forecasts updated after 25% and 7% rally in gas and electricity prices respectively last weekInflation in the UK will hit 18% early next year as consumers count the cost of the deepening energy crisis, one of the world’s biggest banks has predicted.The US financial services group Citi said it expected the consumer prices index to breach 18% in the first quarter of 2023, while the retail prices index inflation rate would soar to 21%. Continue reading...
Rising cost of living is “entering the stratosphere” says Citi, which forecasts energy price cap could rise to £5,816 per year in April.Barristers have voted to begin striking indefinitely from next month, in the latest industrial action to hit the UK.The Criminal Bar Association, which represents advocates in England and Wales, has announced that 80% of voting members had backed escalating their industrial action in their ongoing dispute over government funding. Continue reading...
Truss cannot deliver £50bn tax cuts and support packages without pushing debt to dangerous levels, says Tory leadership rivalLiz Truss will plunge the economy into an “inflation spiral” if she does not choose between her unfunded £50bn tax cuts and providing cost of living support, her Conservative party leadership opponent, Rishi Sunak, has claimed.Sunak’s leadership campaign said Truss would increase borrowing to “historic and dangerous levels” and place public finances into “serious jeopardy” if she attempted to do both. Continue reading...
by Rowena Mason Deputy political editor on (#62R4W)
Brexit opportunities minister says Tory leadership hopeful’s comments reflect Britain’s ‘poor productivity’Jacob Rees-Mogg, a key ally of Liz Truss, has defended the Tory leadership frontrunner’s suggestion that British workers need “more graft” as “sensible”.Rees-Mogg, the Brexit opportunities minister, told the Mail on Sunday that her comments reflected “poor productivity in the British economy”. Continue reading...
by Jessica Elgot and Richard Partington on (#62R1N)
Our writers assess and cost the key ideas floated so far, from targeted help to the most vulnerable to a new windfall taxBoris Johnson has said he will not introduce any new measures to deal with the cost of living crisis. Big spending decisions are being delayed until his successor as prime minister is in post. However, the result of the Conservative leadership election will not be announced until 5 September.In the meantime, a major increase in the regulated energy price cap, which puts a ceiling on gas and electricity bills, is due to be announced this Friday. It is forecast to rise from just under £2,000, to £3,600 a year for the average household. Continue reading...
Consumers are in either denial about the economy or think they are managing … for nowThe UK economy is a puzzle. Inflation has burst above 10% for the first time since Argentina was gearing up to invade the Falklands in early 1982. Prices are rising far more quickly than wages. Consumer confidence has plumbed depths not seen during any of the many misfortunes of the past half century.And yet, the official data shows the British public is carrying on shopping regardless. Retail sales were higher in July than they were in June despite the progressively tighter squeeze on living standards. Airports are busy with holidaymakers, house prices keep on rising. Odd sort of crisis, you might think. Continue reading...
Analysis: the party’s coalition is built on the ‘red wall’ and younger southern professionals, whose patience for posturing is limitedThe Conservative leadership campaign has seen the party jettison large parts of the platform it was elected on in 2019 – not least Boris Johnson’s pledge to level up the country – tacking rightwards on the economy and issues such as the environment and education. Should Conservatives be concerned that the rightward lurch of their party threatens its appeal at the next election to both new and traditional supporters?Younger, more educated voters have been moving out of London in their droves to the capital’s commuter belt for some time, tilting the demographic makeup of numerous seats. Many marginal constituencies in the south-east – places such as Esher and Walton and Winchester – are home to large numbers of graduates and professionals, groups that once upon a time were reliable Conservative voters. The party can no longer take these voters for granted, especially those of working age. Not only are they more likely to be Remainers but they also tend to hold more socially liberal attitudes on issues such as immigration and the environment, and are less likely to be sympathetic to anti-woke, anti-green posturing. Continue reading...
Sunak and Truss have no grasp of how low personal taxation is now – or how much a battered Britain needs public spendingWhenever I told him things were going from bad to worse, my father used to nod sagely and say: “It was ever thus.” However, I wonder what he would have said now about the state of the country and the “governing” Conservative party.In a leadership race whose inanity almost beggars belief, the two very rightwing contenders seem obsessed with establishing their Thatcherite credentials without, as far as I can see, having a clue what Thatcherism was really about. Continue reading...
by Richard Partington and Larry Elliott on (#62QD4)
War, drought and Covid have blighted prospects not just in Britain but continent-wide. Which countries are most at risk?Almost six months after Vladimir Putin ordered Russian troops into Ukraine, the extent of the damage to the European economy is becoming clear. The red lights of recession are flashing.The eurozone’s big four economies – Germany, France, Italy and Spain – have all had their growth forecasts for 2023 downgraded by the International Monetary Fund, as a combination of the war and higher interest rates put a brake on activity. Continue reading...
Beijing is in a bind over harsh Covid lockdowns, a property crisis and tensions with western trading partnersOn his tour of the southern Chinese city of Shenzhen last week, Li Keqiang, the premier, tried to send some positive energy at a time many citizens have been complaining of economic hardship.“China’s opening will continue. The Yellow river and the Yangtze river will not flow backward,” Li said, striking an upbeat tone while visiting Yantian Port, a gateway to Europe and North America, two of China’s biggest markets. Continue reading...
Those in Europe’s inflation hotspot remain calm about rising prices, but a lack of government intervention could fuel further increases – and discontentLike his cappuccinos, Taniel Vaaderpass, 33, isn’t bitter. His usually profitable company, OA Coffee, one of Estonia’s biggest coffee bean roasting companies, may have posted a loss for the first time last year and is set to do so again this year, but Vaaderpass remains strikingly sanguine as he sits on the terrace of the cafe he also owns on a cobbled street in the old town of Tallinn.The central causes of Vaaderpass’s misfortune is a 240% increase in the price of unroasted green coffee and a 20% surge in the cost of the gas he uses to roast his imported beans. He also felt the need to give his staff a 10% pay rise in January despite the lack of company profits. Continue reading...
Jobs disappear and high streets decimated as growing number of traders are forced to shut due to higher costsThe energy crisis is tearing through Britain’s high streets, with warnings on Friday of a “lost generation” of small businesses, as the impact of soaring gas and electricity prices begins to hit cafes, restaurants, shops and salons.Across the UK, growing numbers of traders are closing their doors for good in the face of unaffordable costs driven by record inflation, with some reporting tenfold increases in utility bills. Continue reading...
Tory leadership frontrunner says new laws will make it harder to strike as London mayor accuses government of picking a fightLondon mayor Sadiq Khan has accused the UK government of “deliberately provoking” tube, overground and bus strikes that he said could harm the capital’s recovery from the worst of the coronavirus pandemic.“I’m concerned that the government is almost deliberately provoking industrial action in London”, Khan said in an interview with Sky News on Friday morning.I am frustrated by the strikes today. It’s ordinary Londoners, commuters and businesses who will be affected today at a time we’re trying to get a recovery.If we were speaking in January, the amount of people using the tube was about 45% versus pre-pandemic [levels].So we’re making that stand on behalf of our members, but many other workers in Britain are suffering some very similar things and you’re going to see a wave of this type of action. We can’t stand by and watch our conditions be chopped up. Otherwise, it’ll just be a race to the bottom for all British workers.We haven’t got a pay issue on London Underground at the minute because we’re still in the long-term deal that’s hanging over from the last pay agreement, but we’ll have a pay agreement going into the new year, where we’ll be looking for negotiations.That’s going to be a really difficult period. So the issues that are involved in London Underground may get more serious and right across TfL, because they haven’t got any funding from the government, it’s going to be difficult. Continue reading...
IMF says it expects region’s oil and gas exporters to benefit from high prices over next four yearsMiddle Eastern states are to land a $1.3tn (£1.09tn) windfall from extra oil revenues over the next four years, according to the International Monetary Fund.The IMF said on Friday it expected oil and gas exporters in the region, notably the Gulf states, to benefit from high prices and opportunities to ramp up their market share. Continue reading...
by Richard Partington Economics correspondent on (#62NXT)
July rise of 0.3% driven by online promotions but clothing sales continue to fallRetail sales in Great Britain unexpectedly rose in July as consumers continued spending, despite concerns over the cost of living crisis.The Office for National Statistics said sales volumes rose by 0.3% on the month, after a revised fall of 0.2% in June, with a range of online sales promotions helping to overcome a broader trend for a decline in spending. Continue reading...
Many middle- and lower-income Americans are left with a dwindling number of options or forced into renting while supply increases for the wealthiest buyersSamantha Hawkins had a clear vision for her first home: the 29-year-old from Austin, Texas, wanted a detached house surrounded by a yard for her dog, a garden and a stable space where she could put down roots.By January, when she bid $230,000 on a tiny, yardless condo converted from a rental studio, she had “bent on a lot of the things I valued”. She found herself beaten by investors willing to pay cash far above the listing price, and buy sight unseen in gameshow-like bidding wars. Continue reading...
Monthly look finds deepening pessimism about personal finances and prospects for the economyConsumer confidence in the UK is weaker than during the four major recessions of the past half century as rapidly rising inflation saps morale.Although the UK is technically yet to enter recession, the latest barometer of sentiment from the data company GfK found the public gloomier than at any time since the survey began in January 1974. Continue reading...
With inflation raging and real wages falling, more and more of us are taking an old-school approach to staying on top of spending. Suddenly coins and notes are back in favourA year ago, buying a Starbucks coffee didn’t feel “real” to Samantha Thomas. “It was just tapping,” the 41-year-old private tutor from Wigan says. “It didn’t feel like real money, it was just my card.” Nowadays, Thomas pulls out a £5 note every time she wants a hot drink. “When you’re physically handing over solid money,” she says, “it just makes you think twice.”For the last 12 months, Thomas has been a cash-only consumer. She leaves her debit card at home when she does her weekly food shop, bringing only the budget she has allocated in notes. As a result, Thomas could “sit here and tell you to the penny” what most items in the supermarket cost. “I know that if I go to Aldi something would cost me 6p less than if I went to Asda and about 5p less than if I went to Tesco,” she says. Thomas’s “solid money” habit hasn’t just changed her attitude to Starbucks; it’s changed the way she spends and saves entirely. Continue reading...
Soaring cost of living is forcing up government spending on benefits, pensions and debt leaving no spare cash to lower taxesBritain’s first double-digit inflation in more than four decades has cast doubts on the plausibility of the tax cuts being promised by Liz Truss and Rishi Sunak during their leadership battle, one of the UK’s leading thinktanks has said.Following news that the government’s preferred measure of the cost of living rose by 10.1% in the year to July, the Institute for Fiscal Studies said higher inflation would mean extra spending on welfare benefits, state pensions and on debt interest. Continue reading...
The UK is not the only country in this economic mess, but its position is the most precarious of any in the rich worldThe news this week that inflation has hit a 40-year high even as wages fall at their fastest rate in two decades is sobering, yet sadly unsurprising. You need not be an economist to know how much prices have been going up this year, from the petrol pump to the supermarket checkout to direct debits. And while inflation at 10% is a remarkable figure, it is set to go even higher. Unless the government acts on energy bills, when the cap rises by a predicted 80% on 1 October, inflation will soar again. Analysts expect prices for gas and electricity to keep on increasing well into the new year. And where energy prices go, so go the costs for everything else, from food to clothes to transport.The UK is not the only country in this mess, but its position is the most precarious of any in the rich world. Privatisation means that the British government has little control over the prices set by its utilities (unlike, say, Emmanuel Macron with EDF), while workers in the UK have far less bargaining power than their counterparts in France and Germany. Then there is Brexit, plus the long-held assumption by politicians and economists that the UK need neither own nor manufacture much of what it consumes – it can just buy it all in. The result is that inflation in the UK far outstrips that in the US, Japan, Germany or France – and financial markets expect that to remain so next year. Continue reading...
Austerity, Brexit and the cost of living crisis have been built on nonsensical misinformation and meaningless division“If there is a class war – and there is – it is important that it should be handled with subtlety and skill,” wrote Maurice Cowling, the influential rightwing historian, in the late 1970s. “It is not freedom that Conservatives want; what they want is the sort of freedom that will maintain existing inequalities or restore lost ones.” The nature of Conservatism has altered very little since, but the class on whose behalf the Tory party fights has changed dramatically: where once it was doctors and lawyers, businessmen, “respectable people”, it is now hedge fund managers and property developers, the filthy, the super, the Croesus rich. If you’re less wealthy than Jacob Rees-Mogg, the party has fought a 12-year war against you, and – newsflash – it won.Some statistics need animating, and some animate themselves. We do not need a human-interest case study to understand what a 40-year high of 10.1% inflation feels like. We don’t need a pessimistic temperament to be terrified of what October will look like, when it’s slated to reach 13% and the choice between heating and eating kicks in for so many people. We don’t need an infographic to get to grips with the official figures that show a 4.1% drop in regular pay. But news that the Dogs Trust, for the first time in its history, has a waiting list for taking in people’s pets still takes your breath away. I’m emphatically not saying that dogs are more important than people – I’m merely pointing out that this government has brought us to a point where we can’t afford to feed our best friends. This isn’t a belt-tightening moment; this is a wake-up moment.Zoe Williams is a Guardian columnist Continue reading...
UK productivity does lag the G7, but the idea that shirking is to blame does not stand up to serious scrutinyIt will doubtless come as a surprise to British workers toiling in distribution warehouses, call centres or the NHS that Liz Truss thinks they could do with showing “more graft”.Judging by comments made when she was chief secretary to the Treasury, the frontrunner to be prime minister thinks the UK’s economic problems are down to a working culture quite different from that in communist China. Continue reading...
From low-fat milk to ice-cream and clothing to recreation, how costs have soaredInflation last month bust the double-digit barrier to hit 10.1%, the latest figures show. The Office for National Statistics uses the consumer prices index to measure the rising cost of living and also compiles the increasing prices of individual goods and services.Here is a breakdown showing how everyday items have shot up over the past year. In each case, the figure is the percentage change in the average price over the 12 months to July 2022, and on many occasions the rate has risen to an even higher level than in June. Continue reading...
Rates have gone up six consecutive times, yet very few savers are benefiting, researchers findMillions of people are being short-changed on savings rates, with banks and building societies failing to pass on this month’s 0.5 percentage point interest rate rise, research has claimed. Continue reading...