CBI calls on Rishi Sunak to use spring statement to help firms facing high energy bills and other pressuresRecord numbers of UK manufacturers are raising prices as the war in Ukraine gives an added twist to inflation, the latest snapshot of industry has shown.Adding to fears that Britain is set for a prolonged period of cost-of-living pressures, the employers’ lobby group, the CBI, said 82% of firms were expecting to raise prices in the coming months against just 2% predicting a fall. Continue reading...
Exclusive: Britons struggled even before winter rise in energy prices and benefits cut, research showsThe number of UK households struggling with large debts increased by a third in 2021, even before the winter rise in energy prices and the removal of the £20 uplift in universal credit payments, research suggests.Analysis of Bank of England research carried out by the Jubilee Debt Campaign found that in September 2021 almost 10% of households reported that loan and interest repayments were a heavy financial burden, a 35% increase on the previous year’s figures. Continue reading...
by Richard Partington Economics correspondent on (#5XC6C)
Figures improve chances of fuel duty or other tax cuts but inflation drives up cost of government debtRishi Sunak has been handed a boost from figures showing lower government borrowing than official estimates on the eve of the spring statement.The figures come despite a sharp rise in debt interest payments last month amid soaring inflation. Continue reading...
Reluctant to make big fiscal changes, chancellor Rishi Sunak considers tax adjustments and fuel duty cutThe Treasury has drawn up a range of options to help with the cost of living crisis – including a 1p cut to income tax, raising the national insurance threshold and a significant cut to fuel duty.But government sources said Rishi Sunak, the chancellor, was still reluctant to make big fiscal changes. Continue reading...
The government must swiftly implement the Crouch review recommendations and introduce an independent regulator for footballFrom the future of the global economy to energy security and defence spending, the shock of Vladimir Putin’s war in Ukraine is provoking a dizzying rethink of policy priorities and assumptions. The Roman Abramovich-related crisis at Chelsea FC might seem a minor subplot when tectonic plates of such magnitude are shifting. But football’s global reach and modern geopolitical dimensions make it much more than that. The perfectly timed spectacle of last week’s fixture between sanctioned Chelsea and Newcastle United – owned by Riyadh’s sovereign wealth fund – marked a moral nadir for the game, coming one day after Saudi Arabia executed 81 people. It was also shaming for this country. In football, too, a paradigm shift is needed.The tools to effect this – or at least start the job now – are within the government’s grasp. Last April, six leading clubs attempted to join the reviled European Super League project; the horror of their own supporters demonstrated an underlying outrage among fans at the direction the sport has taken. The government set up the fan-led Crouch review on football governance. (As the review panel deliberated on where the game had lost its way, the Premier League waved through the takeover of Newcastle by the fund, chaired by the crown prince, Mohammed bin Salman.) Continue reading...
The chancellor says he sympathises with people struggling to make ends meet. He needs to convert that into actionThe Bank of England’s message to Rishi Sunak was simple. Russia’s invasion of Ukraine is the latest unwelcome shock to the UK economy. It will make people poorer. There is nothing we, the Bank, can do about it. So, over to you, Chancellor.Threadneedle Street is absolutely right. It doesn’t have the tools to respond to rising global commodity prices but the Treasury does. Sunak has all sorts of ways of alleviating the pain: cutting taxes, increasing benefits, reducing excise duties, helping out with energy bills. Continue reading...
Rachel Reeves says millions will suffer if Rishi Sunak does not take drastic action in Wednesday’s spring statementRachel Reeves sees the clearest, tell-tale signs of poverty among schoolchildren in her Leeds West constituency. “You look at the kids and you just think, I know you are poor.“You can see it in the school coats, especially in the winter, and in the school shoes. Kids not wearing the proper school uniform, sort of a bit of mix-and-match, and it is really sad.” Continue reading...
Inflation is heading to 8% and earnings are rising too slowly – but the chancellor will be hard pushed to help out in his spring statementPoor old Rishi Sunak. Covid hit within weeks of him becoming chancellor. He thought he would now be in a position to start implementing the sorts of long-term policies aimed at stimulating growth and enterprise that he set out in his recent Mais lecture. Instead, he has to deal with a whole new crisis.Inflation is heading to 8% and, according to the Bank of England, possibly considerably well beyond that. Combine that with earnings rising less quickly than prices, a big tax hike coming in next month, and benefits going up by only 3.1%, and you have the ingredients for the biggest year-on-year fall in household incomes in a generation. Even after the £9bn package that Sunak announced in February, people on average incomes could well be more than £800 worse-off next year than this. Continue reading...
As memories are revived of the second world war and the 1970s, it is time for a major rethink of economic strategyThe Australian comedian Bill Kerr used to begin his BBC appearances with: “I don’t want to worry you, but …” Funny how those words came back to me last week as I watched the television coverage of the criminal bombing of homes in Ukraine.Some of us are old enough to remember Hitler’s bombing of London, Coventry and elsewhere, not forgetting Britain’s bombing of Dresden. Kurt Vonnegut’s book about it, Slaughterhouse-Five, is a disturbing classic. Continue reading...
Chancellor Rishi Sunak is under pressure to use his spring statement to announce more support as the cost-of-living crisis grows• Six measures Sunak could takeBad news used to arrive in a brown envelope. Now emails and PDFs keep Devon Scott up at night as soaring energy costs and other utilities force the single father of two from Birmingham to cut back.“Everything is going up. The gas bill, phone bill, internet. You think, ‘Wow. I’m not getting enough money to keep paying for these’, so you limit yourself on the other things you’re spending on,” says the 43-year-old. Continue reading...
The Ukraine war is sending the cost of energy and food soaring across the world. Price controls may be the only way to stop a devastating chain reactionThe war in Ukraine has gone global. Spiking commodity prices are on track to see their sharpest rises since 1970, sending a shock wave of suffering across the world as the prices of essential goods every human needs to survive are surging upwards. Wheat prices are up 60% since February. Food prices are now higher than during the global food crisis of 2008, which pushed 155 million people into extreme poverty. Cheap Ukrainian wheat that vulnerable nations including Egypt, Libya, Somalia, Syria, and Lebanon rely on lies stranded. If we aren’t careful, the “Ukraine shock” could fast be approaching the awesome scale of the OPEC and Iran shocks that rocked the 1970s.But the “shock” metaphor is deceptive. This is not a momentary blast; all the warning signs point to the fact that this could turn into an avalanche. If that happens, we are just at the beginning of a decade-long deluge. Continue reading...
Energy watchdog says measures could help cut oil usage by 2.7m barrels a day within four monthsDriving more slowly, turning down the air-conditioning, car free Sundays and working from home should be adopted as emergency measures to reduce the global demand for oil, according to a 10-point plan from the International Energy Agency (IEA).Such measures and changes to consumer behaviour would allow the world to cut its oil usage by 2.7m barrels per day (bpd) within four months – equivalent to more than half of Russia’s exports – the global energy watchdog said.Reduce speed limits on highways by at least 10 km/h
Owner DP World should be able to handle £100m crisis in minor subsidiary without resorting to extreme tactics“We believe that businesses can only be successful if they prioritise their biggest competitive advantage – their people.” So said DP World in its annual report for 2021, demonstrating once again that companies will spout any old rubbish in pursuit of a socially responsible halo.The Dubai-owned company, via its P&O Ferries subsidiary, showed on Thursday what its “duty of care” to members of its “corporate family” really means. It sacked 800 UK employees with immediate effect via pre-recorded video message. Employment lawyers wondered whether the action was legal but, even if it is, it’s a shocking way to behave. Continue reading...
We’ve built an economy where life-or-death decisions on prices and wages are driven by investors’ interestsThe UK’s cost of living crisis seems to escalate almost by the day. According to experts, we are facing the biggest fall in living standards since the 1970s. Announcing a phase-out of Russian oil imports, Boris Johnson spoke of “dark days ahead” – as if the days we live in were not already dark enough.This crisis cannot be blamed solely on Russia’s brutal invasion of Ukraine. The return of high inflation may be traceable to short-term supply shocks. But the things that turn it into a crisis have been decades in the making. Continue reading...
Mortgage holders, house hunters and savers will be affected by the Bank of England raising rate to 0.75%The Bank of England has increased interest rates to 0.75% in an attempt to tackle rising inflation in the UK. That means the base rate is back to its pre-pandemic level. What does it mean for UK savers and borrowers? Continue reading...
Threadneedle Street reacts to prospect of Ukraine war pushing UK inflation peak to 10%The Bank of England has responded to the likelihood that the war in Ukraine will push inflation to around 10% this year by raising interest rates back to the pre-pandemic level of 0.75%.Threadneedle Street’s monetary policy committee (MPC) voted 8-1 to increase borrowing costs by 0.25 percentage points – the first time the Bank has raised rates at three successive meetings in more than two decades. Continue reading...
Sharon White says Ukraine war will exacerbate cost of living crisis, with CPI already at 30-year highThe boss of John Lewis and the supermarket chain Waitrose has said the UK is facing double-digit inflation as the war in Ukraine exacerbates the soaring cost of living, with prices rising in the supply chain and on shelves.The prediction from Sharon White, chair of the John Lewis Partnership, comes with UK inflation ready at a 30-year high of 5.5%, and expected to rise to almost 8% in April, when household energy bills will soar by hundreds of pounds. Continue reading...
Interest rates will have to rise without jeopardising the green transition. It’s a difficult task, but it can be doneInflation is a disease that disproportionately afflicts the poor. Even before Vladimir Putin unleashed his brutal war on Ukraine, whose byproducts include soaring energy and food prices, inflation was already over 7.5% in the US and above 5% in Europe and the UK. Calls for its taming are, therefore, fully justified – and the interest rate rise in the US, with the same expected in the UK, comes as no surprise. That said, we know from history that the cure for inflation tends to devastate the poor even more. The new wrinkle we face today is that the supposed solutions threaten not only to deal another cruel blow to the disadvantaged but, ominously, to snuff out the desperately needed green transition.Two influential camps dominate public discourse on inflation and what to do about it. One camp demands that the inflationary flames be smothered immediately by the monetary policy version of shock and awe: raise interest rates sharply to choke expenditure. They warn that delaying a little monetary violence now will only necessitate “Volcker shock” levels of brutality later – a reference to Paul Volcker, the Federal Reserve chair who quelled the hyperinflation of the 1970s with sky-high interest rates that scarred the American working class to this day. The second camp protests that this is unnecessary, counter-proposing a steady as she goes stance for as long as wage inflation is kept on a leash.Yanis Varoufakis is the co-founder of DiEM25 (Democracy in Europe Movement), former finance minister of Greece and author of Talking to My Daughter: A Brief History of Capitalism Continue reading...
Fed raises rates by a quarter percentage point from near zero as central bank struggles with inflation, the war in Ukraine and CovidThe Federal Reserve has raised interest rates for the first time since 2018, as the central bank struggles with soaring US inflation, the impact of the war in Ukraine and the coronavirus crisis.The Fed raised rates by a quarter percentage point from near zero, in what is expected to be the first in a series of raises in the coming months. Continue reading...
Analysis: UK faces strong pressure from inflation, but increase could help push economy into recessionThe Federal Reserve has raised US interest rates for the first time since 2018; now all eyes are now on the Bank of England to see whether it increases UK borrowing costs for a third time in succession.Wednesday’s quarter-point increase by the world’s most powerful central bank was never really in doubt. It would have come as a complete shock to Wall Street had the Fed decided to sit on its hands as a result of the war in Ukraine. Continue reading...
Today’s thirty- and fortysomethings are no better off than their parents. The economy is failing its people and the political class has let down votersRemember “Labour isn’t working”? It was the election poster that summed up the tail end of the 1970s and helped to sweep Margaret Thatcher into power. It showed a long dole queue snaking out of an unemployment office, it turned Labour politicians puce (“selling politics like soap powder,” harrumphed the then chancellor Denis Healey) and it made the front pages. There was always less to that photo than met the eye – literally. The supposedly ordinary folk pictured were, in fact, members of the Hendon Young Conservatives group in north London, only 20 of whom had bothered to turn up. They had to be photographed again and again to fill out the space.The jobs market has long shaped our politics, but were that poster to be updated to reflect today’s reality, it would sport a different title. We might call it “Work isn’t working”. Because after four decades of politicians of both main parties promising to “make work pay”, the truth is that it doesn’t – not as much as it once did. A new report from the Institute for Fiscal Studies (IFS) shows that workers born in the 1980s and on the median wage earn no more than those born in the 1960s did at their age. Put bluntly, Thatcher’s children have been diddled. Today’s thirty- and fortysomethings were taught that work was how to get ahead, but they are no better off than their parents. In fact, when you factor in exorbitant house prices, they are far poorer. You could ask for few clearer signs of an economy that has failed its people, and a political class that has let down its voters. Continue reading...
by Richard Partington Economics correspondent on (#5X611)
Rising inflation means four-year freeze on income tax thresholds will raise more than budgeted for, says IFSRishi Sunak has been accused of using a “stealth tax” on incomes that will bring in more than double the amount he budgeted for, as the cost of living rises at the fastest rate for three decades.Ahead of the chancellor’s spring statement to the House of Commons next week, the Institute for Fiscal Studies said rapidly rising inflation means the Treasury could raise £13bn more than anticipated by freezing the income tax personal allowance and higher rate threshold. Continue reading...
by Richard Partington Economics correspondent on (#5X45H)
Unemployment rate falls below pre-Covid level but rising prices and energy bills hit wagesAverage wages in Britain have fallen at the fastest rate since 2014 as annual pay growth fails to keep pace with rising inflation amid Britain’s cost of living crisis.The Office for National Statistics said that annual growth in regular pay, excluding bonuses, fell by 1% in the three months to January after adjusting for its preferred measure of inflation – the biggest fall since July 2014. Continue reading...
Analysis: Higher prices, taxes and energy costs will bring gloom despite low level of unemploymentDemand for workers is strong as the UK economy emerges from two years of pandemic-induced disruption. The supply of workers has been reduced by an increase in long-term sickness affecting mainly the over 50 age group.As a result, there is enough upward pressure on pay to persuade the Bank of England to continue raising interest rates, but the big squeeze on living standards has begun. Continue reading...
by Richard Partington Economics correspondent on (#5X3X6)
Campaigners say workers face ‘insecurity premium’ due to added costs of childcare and travel when shifts are changed at short noticeHalf of low-paid workers in the UK are given less than a week’s notice of their shifts, according to a study highlighting an “insecurity premium” for employees paid close to the minimum wage.The Living Wage Foundation said 50% of people earning less than £9.90 an hour around the UK or £11.05 in London were told details of their work schedules with less than seven days before they were due to begin. Continue reading...
While in theory a possible default sounds like a major financial event experts remain relaxedA Russian debt default, the first stage of which could arrive as soon as this week, sounds, in theory, like a major financial event. After all, the last time Russia defaulted – indeed, the only other time since the Bolshevik revolution more than a century ago – was 1998 and chaos was a genuine possibility.Long-Term Capital Management, an enormous and already-ailing hedge fund, couldn’t handle the explosion in volatility and the general flight to safety in financial markets. Within a few weeks, the US Federal Reserve had to strong-arm 14 Wall Street banks into agreeing a $3.6bn bailout of LTCM to prevent a wider meltdown. The Fed was probably right to fear contagion: LTCM was absurdly over-extended via leverage, and half of Wall Street was over-extended to it. Continue reading...
Ukraine believes the only way the Russian president will back down is if his economic power base in fossil fuels is seriously threatened. Putin thinks Europe and the US are too weak to do it – but some believe there is a way
Fund says a default from Russia after sanctions over its invasion of Ukraine would not trigger a global financial crisisA Russian default on its debts after western sanctions over its invasion of Ukraine is no longer “improbable”, but would not trigger a global financial crisis, the head of the International Monetary Fund said on Sunday.The Washington-based fund’s managing director, Kristalina Georgieva, said the sanctions imposed by the United States and other nations were already having a “severe” impact on the Russian economy and would trigger a deep recession there this year. The war in Ukraine will also drive up food and energy prices, leading to hunger in Africa, she added. Continue reading...
Financial crash, slow growth, Covid and inflation pressures fuelled by Russia-Ukraine war highlight faults of current systemFirst it was a financial crisis. Then a decade of slow growth that bred political anger. After that came a pandemic. Just as the threat of Covid-19 appeared to be receding, along came a European war. Welcome to the era of incessant crises.Comparisons are often made between today and the 1970s, and in some respects they are appropriate. A global economy already exhibiting plenty of inflationary pressure has been hit by an oil price shock, just as it was in late 1973. Continue reading...
Thinktanks say chancellor must act to cushion impact of inflation on the poorest in spring statementChancellor Rishi Sunak faces demands from economists across the political spectrum to increase benefits and the state pension by about 8% in his spring statement next week, in order to help alleviate the worst cost-of-living crisis for decades.A Resolution Foundation report on the state of the economy on Monday shows that only such drastic action will allow millions of people on low incomes to maintain their living standards at current levels. Continue reading...
War in Ukraine has made the already gloomy economic prospects even more desperate. Sunak needs to act, and big, if we’re to check a freefallThe old adage is that if you’re not leftwing at 20 you have no heart, if you’re not conservative 30 years later you have no head. But from the treatment of refugees to the management of the economy, no one of any age can have a head and be conservative in 2022. For our times, conservatism is just plain wrong.As the country confronts the acute stagflation of the years ahead, it will look for very different economic leadership from the warmed-up Thatcherism that, it’s becoming clear, is chancellor Rishi Sunak’s core philosophy. Economic prospects in 2023 and 2024 were dire enough before the consequences of Putin’s murderous war. Now they are desperate. Continue reading...
Conflict in Ukraine means January’s GDP boost is unlikely to last, but Threadneedle Street still seems obsessed with curbing inflationSoaring gas and electricity prices, high inflation, the worst squeeze for living standards in decades … The economic outlook was challenging even before Russia’s invasion of Ukraine. Now conflict on European soil and economic warfare through sanctions has added to the pressure.This week the Bank of England is expected to raise interest rates in response to inflationary pressures, as the war pushes up already high energy prices. It will be adding to the cost-of-living crisis by increasing the cost of borrowing, but the idea is to stop high rates of inflation becoming more permanent. Continue reading...
Like other world leaders, Ukraine’s president found tackling corruption difficult. Unlike them, he had Moscow watching himUkraine’s president. Volodymyr Zelenskiy, came under pressure to tackle corruption from the moment he was elected in April 2019.His government was on its knees financially after a series of scandals that had seen the country’s biggest bank collapse following allegations of looting. Soon after, it was nationalised. Continue reading...
by Larry Elliott and Richard Partington on (#5X1KS)
The invasion of Ukraine could pitch Moscow, and the world, back into financial crises that had seemed part of historyThe big western brands showed Vladimir Putin how to do it. While the Kremlin’s army was getting bogged down in Ukraine, Coca-Cola and Starbucks lost no time in closing their doors to Russian customers.But the most emblematic move of all came from McDonald’s, which has shut all 850 of its outlets in Russia. The availability of Big Macs in the Soviet Union was seen in 1990 as evidence that the west’s old cold war foe was turning its back on communism, but the past fortnight has rekindled memories of the bad old days. There were queues outside McDonald’s when it first opened in Moscow. Last week, Russians queued for one last burger before the pull-out began. Continue reading...
The exodus of western brands in response to Russia’s invasion of Ukraine contributes to an existing economic shiftThe Golden Arches Theory of Conflict Prevention once proposed that no two nations with McDonald’s franchises would go to war; people in those kinds of economies would rather queue for burgers. The thesis was not only crass, but soon disproven. Yet it nodded to a broader truth: that economic ties were drawing countries closer together, creating a global interdependence which would not quickly be undone.Times have changed. On Tuesday, the American fast-food giant suspended its operations in Russia. It is part of a dramatic exodus by international brands – from Uniqlo, Netflix and Chanel to Apple, PwC and American Express – due to Vladimir Putin’s invasion of Ukraine, the western sanctions imposed in response and the public outcry. Shell and BP are selling their Russian assets. Britain and the US are banning Russian oil, while the EU is slowly phasing out gas imports, on which it is heavily dependent. On Friday, the US announced that, with allies, it was revoking Russia’s “most favoured nation” status. Continue reading...