Economics | The Guardian

As the UK government trumpets growth and tax cuts, the monster of inflation lies in wait Continue reading...

Just when we need visions of a better world, the prime minister is proclaiming the toxic gospel of neoliberalismSoon, the focus will return, and the collapse of many people’s economic prospects will dominate once more. As winter approaches, it will become clear that our politics is spectacularly lacking in answers.Why? Because the doctrine destroying our condition of life is the doctrine Liz Truss has promised to extend to new extremes. She is fanatically devoted to an ideology misleadingly called Thatcherism or Reaganism (as if they invented it), but more accurately described as neoliberalism.George Monbiot is a Guardian columnist Continue reading...

On Black Wednesday anniversary, sterling hits 37-year low against dollar and 17-month low against euroFears that the British economy is already in recession after a slump in retail sales last month triggered heavy selling of the pound on international money markets taking it to a 37-year low against the dollar.With average UK wages continuing to fall behind rising prices and the Bank of England expected to push up interest rates next week, sterling fell by more than 1% against the US currency to $1.135, its lowest since 1985. Continue reading...

Falls against the dollar are prompted partly by concern about Liz Truss’s economic and energy policies

Rationing and empty shelves have become commonplace as the government struggles to pay salaries and food subsidiesAssaad sits outside his cafe in central Tunis, heavy metal shutters locked behind him. There is no sugar, he says, and he cannot operate without it. Sugar, like coffee and countless other subsidised staples for Tunisians, is in very short supply.Rationing has become commonplace, while supermarkets and small local shops have yawning gaps on shelves once crowded with everyday products. Government announcements on the food shortages have been confusing, attributing the absence of basic foodstuffs both to speculators and selfish hoarders. Continue reading...

Champagne will be uncorked in Canary Wharf – and along with it, a clear them-and-us narrativeThe timing is, to say the least, curious. Britain is facing its biggest cost of living crisis in decades. Workers are angry about crashing living standards. And yet one of the first things on the new government’s agenda is to scrap the cap on bankers’ bonuses. Kwasi Kwarteng may announce the decision as part of his mini-budget next Friday.Make no mistake, there is an argument for what the chancellor is planning, namely that the cap hasn’t worked. Critics said when the EU brought in its legislation in 2014 that banks would find a way round the cap by simply paying higher salaries, and they have been proved right. Placing limits on one part of a package (the bonus) but imposing no constraints on the other part (basic pay) never made any sense. If the idea was that bankers needed to be paid less, it would have been more logical to go the whole hog and impose a cap on total remuneration.Larry Elliott is the Guardian’s economics editor Continue reading...

Study says global economy is in steepest slowdown after a post-recession recovery since 1970The world may be edging toward a global recession as central banks simultaneously raise interest rates to combat persistent inflation, the World Bank has warned.The three largest economies, – the US, China and the eurozone – have been slowing sharply, and even a “moderate hit to the global economy over the next year could tip it into recession”, the bank said in a study. Continue reading...

Living Wage Foundation finds 78% of those polled say they are shorter of money than everAlmost 80% of the UK’s lowest-paid workers say they are now facing the toughest financial squeeze of their lifetimes, according to new research by the Living Wage Foundation.Liz Truss has averted a further increase in utility bills with her “energy price guarantee” – a radical measure that could cost taxpayers more than £100bn – but many poorer households are already struggling to make ends meet. Continue reading...

Economists accuse bondholders of standing to make huge profits at the expense of the crisis-hit countryMore than 100 economists and academics have urged international lenders to crisis-stricken Zambia to write off a significant slice of their loans during financial restructuring talks this month.Zambia is seeking up to $8.4bn (£7.3bn) in debt relief from major lenders, including private funds run by the world’s largest investment manager, BlackRock, to help put its public finances back in order. Continue reading...

Chancellor may lift EU-era restriction in hope of making UK more attractive to financial sectorThe focus is back on banker pay after it emerged that the chancellor, Kwasi Kwarteng, is considering scrapping the City bonus cap as part of the government’s wider pro-growth agenda.What is the banker bonus cap? Continue reading...

Here are four key areas to watch ahead of the review making its recommendations to the treasurer

Chancellor reportedly plans to lift the EU-imposed banker bonus cap as part of post-Brexit reforms; John Lewis says ‘uniquely uncertain’ outlook puts staff bonuses at riskBritain’s competition watchdog has decided to carry out an in-depth investigation into Microsoft’s $69bn purchase of the Call of Duty maker Activision Blizzard after the US tech giant failed to offer remedies to allay competition concerns.The Competition and Markets Authority (CMA) reiterated its warning that:it is or may be the case that this merger may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom. Continue reading...

The new chancellor is trying to wrongfoot Labour. That’s an easier game than living up to his pledgesEver since he was a boy, Kwasi Kwarteng has shown rare skill in wrongfooting opponents. At an interview for a place at Cambridge University, the Etonian heard the tutor confess that this was his first time interviewing entrance candidates. “Don’t worry, sir,” beamed Master Kwarteng. “You did fine.” The cheek paid off. He got in.After only one week as chancellor, he is now trying a similar strategy against the Labour opposition. In his sights is what he dubs “the same old economic managerialism”, as practised by the Treasury and the Bank of England. While praising his new department as an excellent finance ministry, good at keeping a lid on the deficit, he has instructed staff that their entire focus must “be on growth”. Continue reading...

Inflation eases because of a fall in petrol prices while food prices rise at fastest rate since mid-2008, driven by milk, cheese and eggsJames Smith, developed markets economist at ING, has looked at core inflation in more detail.Headline inflation will rise a little further having eased back below 10% in August, and it’s likely to stay around 11% into early next year before falling back more dramatically. However, the Bank of England is watching wage growth more closely, as the hawks worry that worker shortages could lead to core inflation staying more persistently above target.With the government due to cap the average household energy bill at £2,500, up from around £2,000 now, we expect a peak in the region of 11% in October. That’s compared to 16% in January which is what we’d forecasted before the support was announced. Continue reading...

Businesses may have to wait until November, although package could still be activated next monthBritish businesses have been warned by government officials that they will have to wait longer than households for financial support with their energy bills amid delays in launching the £150bn scheme, according to reports.Company bosses are increasingly worried about the prospect of delays to the arrival of support because fixed energy contracts come to an end in October for hundreds of thousands of firms. Continue reading...

MPC members will look at other developments in UK and abroad in mission to increase interest rates

Unexpected dip in August is first easing of upward pressure on cost of living in almost a year

Bank holiday for state funeral could send productivity plummeting at a time when country is struggling for growthBritain’s fragile economy was already teetering on the edge of recession even before the death of Queen Elizabeth II last week. That prospect now looms a lot larger, as businesses cancel events amid the period of national mourning culminating in the bank holiday for the late monarch’s funeral.Economists say high street shops closing their doors or operating reduced hours on Monday, alongside the loss of a full working day, will lead to a sharp fall in output at a time when Britain is struggling for growth momentum amid the cost of living crisis. Continue reading...

Inflation slowed for the second consecutive month as energy costs fallPrices in the US remained stubbornly high in August even as the overall pace of inflation slowed for the second consecutive month. The news sent US stock markets into a tailspin, with the Dow Jones index losing nearly 1,300 points.The Consumer Price Index (CPI), the Bureau of Labor Statistics’ monthly cost of living survey, found prices were 8.3% higher last month compared with August last year. The figure was down from an annual rate of 8.5% recorded in July and 9.1% in June, the highest rate in four decades. Continue reading...

The new chancellor is reported to have told Treasury staff there was a need to ‘do things differently under fresh leadership’. This live blog is now closedAt the lobby briefing yesterday Downing Street admitted that Liz Truss had not completed her government reshuffle. New appointments were suspended following the death of the Queen.According to an analysis by Arj Singh for the i, 55 posts remain unfilled. Singh says that, to fill all the posts that Boris Johnson had in his government, Truss will need to appoint 21 junior ministers in the Commons, nine Commons whips and 25 Lords ministers.The removal of Sir Tom Scholar as the lead permanent secretary at the Treasury should be a cause for celebration.Having worked in his department for nearly two years I saw at first hand the malign influence of the Treasury orthodoxy at play. Whether it was foot-dragging and passive resistance to creating a Treasury office in the north (in Darlington), which he fiercely resisted, or the botched arrangements in the construction of the bounceback loans during the pandemic, all roads led back to him.I hope very much that our new prime minister will build on her excellent decision and remove responsibility from the Treasury for driving economic growth. It has no idea how to deliver this. The system obsesses about measuring inputs, counting out the money distributed to departments, but has little clue of how to measure outcomes. Departments are infantilised in their management of money, with savings being automatically clawed back to the centre. This of course removes any incentive to think innovatively, creatively or cost-effectively. Continue reading...

Investors brace for further interest rate rises, as US CPI rose 8.3% in the year to August, dashing hopes of a larger fall, and food inflation is highest since 1979In the City, shares in online grocer Ocado have tumbled almost 10% after it warned customers are cutting back.My colleague Julia Kollewe explains:Ocado has warned that annual sales will drop because customers are trading down to value products and buying less overall amid a worsening cost-of-living crisis.The online grocer, which is owned partly by Marks & Spencer, said sales rose 2.7% from a year ago in the 13 weeks to 28 August, an improvement from the drop in the previous quarter.“At the same time, there remains extreme tightness with vacancies nonetheless remaining near record levels and economic inactivity reversing its recent falls to rise to its highest level since 2016. This was caused by people at opposite ends of the career ladder; largely driven by those aged 16 to 24 years and those aged 50 to 64 years. This participation gap in the labour market means hiring became even more challenging for employers.“While many people’s thoughts may be elsewhere at the moment, the cost-of-living crisis continues to be reflected in a squeeze on real terms pay. Despite historically strong nominal regular pay growth, real wages were down -2.8% on the year - one of the largest falls on record. Continue reading...

Lidl also reports big sales increase as research shows discount stores benefiting as shoppers economiseAldi has overtaken Morrisons to become the UK’s fourth largest supermarket for the first time, as grocery inflation hit a new record of 12.4% last month.Higher supermarket prices in August, adding £571 to the average annual grocery bill, encouraged more shoppers to closely manage their budgets, with the discount grocers benefiting, according to the market research company Kantar. Continue reading...

The sterling crisis of 30 years ago reinforced Britain’s ambivalence towards the European projectThis 16 September will mark 30 years since “Black Wednesday”, when the British pound was ignominiously ejected from the exchange rate mechanism (ERM) of the European monetary mystem. Not all anniversaries are occasions for celebration. This one certainly is not.Black Wednesday was “a day of disaster” from which John Major’s government never recovered. It had been Major, as chancellor of the exchequer in Margaret Thatcher’s government, who led Britain into the ERM in 1990, overriding the objections of his balky prime minister. Continue reading...

Winter likely to be among the toughest in living memory as inflation fuels cost of living crisis

Almost 400,000 have exited jobs market with long-term health problems since early 2020, ONS says

Grocery costs rose 8.3% in August, figures show, thanks to a 6.7% rise in eggs last month and a 15% surge in fruit and vegetablesShoppers may be forced to skip tomatoes, eggs and dairy products in New Zealand, as the country experiences the largest annual spike in food prices in 13 years.Stats NZ released new figures showing food prices had grown by 8.3% to August – the largest annual increase since the global financial crisis in July 2009 when food prices jumped up by 8.4%. Continue reading...

UK economy expanded by 0.2% in July, less than hoped, with growth driven by customer-facing services such as the sports and recreation sector

PM expected to attend UN meeting after Queen’s funeral, with ‘fiscal event’ likely to follow before end of next week

It would be irresponsible to create much higher unemployment – and the US economy could be pushed into recessionThe US Federal Reserve Board will meet again on 20-21 September, and while most analysts expect another big interest-rate rise, there is a strong argument for the Fed to take a break from its aggressive monetary-policy tightening. While its rate increases so far have slowed the economy – most obviously the housing sector – their impact on inflation is far less certain.Monetary policy typically affects economic performance with long and variable lags, especially in times of upheaval. Given the depth of geopolitical, financial and economic uncertainty – not least about the future course of inflation – the Fed would be wise to pause its rate rises until a more reliable assessment of the situation is possible. Continue reading...

GDP bounceback is unimpressive after boost from Euro 2022 contest and Commonwealth Games• UK economy grows more slowly than expected amid cost of living crisisThe weather was hot but the economy was lukewarm. As temperatures in the UK rose above 40 degrees centigrade for the first time, growth in July remained tepid.To be sure, the economy expanded, but some boost to activity was expected after the hit to growth in June caused by the double bank holiday to celebrate the late Queen’s platinum jubilee. Continue reading...

GDP rises by 0.2% in July as worker shortages and inflation weigh on activity• Analysis: UK economic growth remains tepid despite sizzling temperaturesThe UK economy grew more slowly than expected in July as worker shortages and soaring costs weighed on activity amid the heightened risk of recession.The Office for National Statistics said gross domestic product (GDP) rose by 0.2% in July, after a sharp fall of 0.6% in June when the additional bank holiday for the Queen’s platinum jubilee led to a decline in activity. Continue reading...

India recently overtook UK as the world’s fifth biggest economy – and it could be third by 2030The rise of China has been the biggest story in the global economy in recent decades. But amid concern about its stumbling property market and global fears about inflation, the emergence of its neighbour, India, as a potential new economic superpower may be going under the radar.You won’t find mention of it in Liz Truss’s blueprint for a “modern brilliant Britain”, but the UK has just been overtaken by India as the world’s fifth biggest economy. The nation of 1.4 billion people is on track to move into third place behind the US and China by 2030, according to economists. Continue reading...

GDP, inflation and retail sales figures due to be released over next few daysThe fragile state of Britain’s economy will be underlined this week by official figures showing a renewed slump in consumer spending amid soaring living costs, before a possible slowdown in activity during the national period of mourning after the death of Queen Elizabeth II.City economists are forecasting a further rise in inflation to 10.2% in August when official figures are published on Wednesday, as the rising price of a weekly shop and sky-high energy bills add to the financial pressure on struggling households. This would mark a modest uptick from the July reading of 10.1%, which was the first time the consumer prices index had risen above 10% since the early 1980s. Continue reading...

The cost of living, as now, was the focus for households when the Queen came to the throne in 1952When Queen Elizabeth II came to the throne, Britain was financially exhausted, rationing still in place and inflation high after the second world war. Then – as is now, after her death on Thursday – concerns over living costs were at the forefront.Over the course of the second Elizabethan age, the country has grown more prosperous, healthier and socially liberal. Real gross domestic product per person is almost four times larger than at her accession in February 1952, having been kickstarted in the first two decades of her reign by a golden age of economic growth. Continue reading...

Raising rates has no effect when the things that are rising in price the fastest, such as fuel and food, are essential purchasesCentral bankers appear on stage like army generals these days. They boast about their firepower and claim they will crush inflation, their longtime adversary. No quarter will be given in the war. The collateral damage will be high.A week on Thursday, the Bank of England will raise interest rates for a seventh time since last December, probably to 2.25%, and semaphore the message to financial markets that Threadneedle Street is not finished in its quest to defeat inflation. Continue reading...

Exclusive: Centrica chief tells the Guardian he is keen for it to sign up to new contracts with government on electricity generationBritish Gas owner Centrica plans to voluntarily cap booming profits in an effort to cut household bills and defuse outrage over them, the Guardian can reveal.The chief executive, Chris O’Shea, said he is keen for Centrica to become the “first company” to sign up to new, renegotiated contracts with the government on its electricity generation, amid controversy over windfall gains. Continue reading...

Bank of England delays interest rate decision as firms and unions pay respect, with TUC postponing annual gathering

Interest rate decision delayed, and TUC Congress postponed, as businesses, unions and investors mourns death of Queen Elizabeth

‘Full earnings’ account for wellbeing as well as financial reward – and make income gap look even worseIf you seek happiness, try captaining a ship or tiling walls for a living. But choose to be a judge, a housing officer or a theme park attendant, and prepare for a measure of misery.Groundbreaking research into UK employees’ “full earnings”, which tries to account for wellbeing as well as cash income, has revealed the jobs where the reality of the working day undermines the benefit of salary and those that offer the greatest rewards in addition to salary. Continue reading...

Decision about how to fight inflation follows increase by unprecedented 0.75 percentage pointsInterest rates across the eurozone must continue to ratchet upwards to tackle rapidly rising inflation, European Central Bank policymakers said.The ECB’s call to prioritise the fight against inflation with further increases in the cost of borrowing came after it raised rates by an unprecedented 0.75 percentage points on Thursday to 1.25%. Continue reading...

Anti-corruption measures and progressive taxes among actions recommended by leading academicsUkraine’s government needs to overhaul its tax and spending policies or risk an economic crisis that could “cripple its ability to sustain the war effort”, according to a group of leading economists.With inflation racing to more than 20% and a debt crisis looming, President Volodymyr Zelenskiy must introduce reforms to stabilise the economy’s shaky foundations, they warned. Continue reading...

Government likely to seek replacement amenable to its plans of economic growth through tax cutsLiz Truss has underlined her apparent intention to rip up recent economic policies by removing Tom Scholar as the most senior civil servant in the Treasury, despite warnings that his experience could prove vital this winter.Before becoming prime minister, Truss railed repeatedly against what she called “Treasury orthodoxy”, notably the predictions that her plan to make large and unfunded cut taxes could raise inflation and increase interest rates. Continue reading...

This live blog is now closed. You can find the full report below:

Christine Lagarde warns that eurozone economic growth is weakening, but EBC plumps for record increase in borrowing costs to curb inflationThe pound is dipping back towards yesterday’s 37-year lows, as concerns that Britain is sliding into recession hit the markets.Sterling is back below $1.15 against the US dollar, as investors fret about the extra borrowing needed to fund the energy rescue package.The pound has shifted up slightly from lows not seen against the dollar since 1985, when Ronald Regan was in power and Freddie Krueger had returned to screens as the monster under the bed.Now the energy shock is the nightmare to deal with on Downing Street, with Liz Truss set to unveil her expensive subsidy plan later today to deal with the bill horror. Continue reading...

European Central Bank sets aside recession fears to increase rates by 0.75 of a percentage point to 1.25%The European Central Bank has raised interest rates across the eurozone by a record margin to combat soaring inflation that has reached double figures in some of the currency bloc’s 19 member countries.Setting aside concerns that higher rates would add to the current squeeze on consumers’ disposable incomes and increase the depth of a looming recession, the central bank’s 25-member governing council raised its key benchmarks by an unprecedented 0.75 of a percentage point to 1.25%. Continue reading...

The UN’s call for windfall taxes must be taken up by governments to help break the power of greedy cartelsAs Winston Churchill reportedly said in the 1940s as he was working to co-form what would become the United Nations: “Never let a good crisis go to waste.” It is advice the giant oil and energy corporations and Opec, enabled by politicians, have taken to heart. This is reflected in the price of petrol and our ballooning heating bills.A new study calculated that the oil and gas industry has made more than $2.8bn (£2.4bn) a day in profits over the past half-century. In the second quarter of 2022, Exxon posted a profit of $17.9bn, the highest any publicly listed oil company has ever reported. Chevron hauled in $11.6bn, while Shell reported $11.47bn and BP $9.3 bn, its biggest windfall in more than 14 years. Continue reading...

It’s true that the UK Treasury thrives under the pressure of a crisis, from the 2007 financial crash to the Covid pandemic – but is its self-hyped reputation as the bedrock of government stability really deserved?There is a flattering story that the Treasury likes to tell about itself. Picture the scene in March 2020, Covid spreading fast around the world and countries implementing shutdowns and border closures. Boris Johnson, the prime minister, underestimating the problem, Matt Hancock, the health secretary, dithering. Government ministers praying for a modest death rate before herd immunity kicked in.Then, from the chaos, emerges someone with a real plan and a crack team: the new chancellor, Rishi Sunak, and behind him, the Treasury, peopled with the top brains of the civil service. “Whatever it takes,” says Sunak, as hundreds of billions of pounds are found and committed to the nation’s safety. The Treasury rolls out an extensive furlough and business support scheme. This ensures that the economy remains afloat while people can stay safe at home. Continue reading...

Efforts to undermine Good Friday agreement would not create conducive environment for US-UK trade talks, says Biden’s press secretary

New chancellor on charm offensive in Square Mile says Bank of England independence ‘is sacrosanct’The government has moved to quash City speculation that Liz Truss is set to interfere with the political independence of the Bank of England, amid a currency depreciation in which the pound hit the lowest level against the dollar since 1985.In a charm offensive in the Square Mile as sterling came under renewed selling pressure on Wednesday, the new chancellor, Kwasi Kwarteng, used his first full day in the job to try to calm jittery financial markets amid growing concerns over the new prime minister’s economic policy. Continue reading...

New chancellor promises City bosses ‘radical’ plan for economic growth and smooths over Truss’s threat to review Bank’s remitThe new chancellor, Kwasi Kwarteng, has used his first meeting with bank bosses to reiterate his support for the Bank of England’s independence, and promise that the new government was poised to unveil a “radical” plan for economic growth.Kwarteng, who previously led the business department, told 14 executives from City firms, including HSBC, NatWest and Barclays, that the government was pursuing “unashamedly pro-growth” policies that would involve slashing taxes and regulations, while creating the right conditions for investment and innovation. Continue reading...