Hunt's spending plans worse than fiction, budget watchdog suggests
Jeremy Hunt's budget forecasts have been savaged by Richard Hughes, giving evidence before the Treasury Select Committee this month. The chairman of the Office for Budget Responsibility (OBR) has essentially called the government's post 2025 plans, or the conspicuous lack thereof, a flight of fiscal fantasy. In a striking attack on the government Richard Hughes, chairman of the Office for Budget Responsibility, said ministers were not being honest with voters about the probable scale of public sector cuts because they had failed to publish detailed spending plans for the period after April 2025. 'Beyond 2025 we know virtually nothing," Hughes told the Lords economic affairs committee. "It is just two numbers one for total current spending and one for total capital spending. I think some people have referred to that as a work of fiction. I think that's probably generous, given that someone has bothered to write a work of fiction whereas the government hasn't even bothered to write down what its spending plans are." Despite the government's borrowing being lower than the OBR's autumn statement projection, the fiscal future is fraught with challenges, including the need to finance healthcare for an ageing population. Hughes suggests that without a fundamental rethink, the path could lead to unsustainable debt. That budgets are akin to "a work of fiction" is a message rammed home relentlessly by economists. Jeremy Hunt's rule to get debt falling by year five of his forecast, they say, is possible only because spending cuts for public services and spending cuts, few believe are plausible, are penciled in far down the line. It is reminiscent of the magic asterisk by President Reagan's budget director David Stockman. The "magic asterisk" was a method to identify future deficit problems that were to be addressed with additional reductions to be announced at a later date. "Cuts as yet to be identified", the concept. Procrastination and a way for politicians to avoid making difficult decisions, the process. The OBR's Chairman Richard Hughes is waving a red flag, cautioning that the government's fiscal fiction and the use of a magic asterisk, could lead to a non-fictional crisis if not addressed with greater transparency and prudence. Meanwhile ... The Bond Market Vigilantes Are Watching ... Bill Clinton's chief strategist James Carville famously said: "I used to think that if there was reincarnation, I wanted to come back as the President or the Pope. But now I would want to come back as the bond market. You can intimidate everybody." The Conservatives risk reigniting the debt crisis that brought down Liz Truss with reckless tax cuts or spending plans, a top bond investor has warned. Pictet, a Swiss bank that manages almost £600bn of assets, said concerns over British stability have not gone away and the markets will be quick to punish financial recklessness. Cesar Perez Ruiz, the company's chief investment officer, warned Labour not to launch a spending spree if it wins the election. He also cautioned Rishi Sunak against unaffordable tax cuts in his attempt to remain in Number Ten. Pictet said he will avoid buying government debt and sterling amid concerns over the general election later this year. He said he was worried about the run-up to the election, warning that "if Sunak wants to get any chance of reelection, maybe he will overspend ahead of it". Debt Issuance is Huge ... According to the OBR, the level of borrowing is set to exceed £400 billion over the next five years. According to the Debt Management Office, the level of redemption, due to be refinanced, is over £600 billion over the next five years. That's a trillion pound funding task for the Debt Management Office. Fortunately, the Bank of England will be on standby, as the Buyer of Last Resort, should the DMO have trouble at the pump. For Jeremy Hunt the caution prevails ... Beware The Ides of March ... The Bond Market Vigilantes are watching ...
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YouGov Polls ...
The latest poll data suggests the Conservatives are on course for a 1997 style electoral wipe out. A major new YouGov survey commissioned by Tory critics of Rishi Sunak, suggests Labour would win a 120-seat majority, if an election were held today. The northern wall would return to natural hue. Cornwall would turn red. Eleven cabinet ministers would lose their seats. Jeremy Hunt, Grant Shapps and Penny Mordaunt would be out of parliament. Over fifty Tory MPs have already said they're going to stand down before the next election (rather than face the humiliation of a Labour Landslide). The latest YouGov/Times voting intention poll shows the Conservatives on 20% of the vote to Labour's 47%. This represents the highest lead for Labour since Liz Truss was prime minister. The Liberal Democrats have 8% of the vote, the Greens have 7%. Reform UK have 12%. That is the highest vote share ever recorded for the party to date. The headline numbers are pretty dire. But Tory tacticians will have a close eye on Reform poll numbers. In competing for the right wing vote, the Conservatives are on 20%. Reform are on 12%. That gives Richard Tice's party a near 40% share (12/32) of the would be Tory vote with Nigel Farage sitting on the subs bench. For Reform, immigration is the platform this time, not Brexit. "Take back control", just as pertinent a slogan as before the Reform brand revamp. Immigration numbers hit 1.3 million over the last two years. Stopping the boats and flights to Rwanda a mere distraction. Net immigration hit 745,000 in 2022 and 673,000 in the year to June 2023. This compared to 93,000 in the whole of 2020 and Tory commitments to hold levels to less than 100,000. An election in November may give time for the economy to improve but also give more time to Reform to organize and secure the £ millions required to effect a large scale campaign. This may push Sunak to risk a May election, forgetting much can be down with a couple of slogans on the side of a double decker bus. According to the Independent, the mood among Conservatives was pretty bleak when they received a briefing from the party's general election campaign boss Isaac Levido earlier this week. The Tory strategist told them to forget about the YouGov mega-poll that puts them on course for a 1997-style wipe out. Levido attempted to "gee up" the troops by insisting he wouldn't waste his own time on a doomed enterprise. "I wouldn't be here unless I thought we could win," he said. Well that and a generous fee in prospect no doubt ... Good news for the Chancellor this week. The EY Item Club has upgraded growth forecasts for the UK economy.
Thanks to a combination of falling inflation, interest rate cuts and tax reductions, the economy will grow more than expected over the next few years. The latest projections from the EY Item Club suggest that annual growth will increase to 0.9 per cent in 2024 and by 1.8 per cent in 2025. Martin Beck, chief economic adviser to EY Item Club, said: "The mood music around the economy is justifiably improving. High inflation and expensive borrowing costs have been two of the biggest obstacles to growth. With both showing encouraging signs of subsiding, prospects for late 2024 and beyond appear brighter." Falling inflation should lead the Bank to make ""a more significant reduction" in rate cuts this year. EY expects the Bank's rate setting monetary policy committee will cut rates by 125 basis points this year to around 4%. This is 100 basis points lower than previously forecast. The EY forecast are slightly more upbeat than the latest "Forecasts for the UK Economy"* released by HM Treasury last week. Growth is expected to be around 0.7% this year, in line with the OBR forecast of 0.7%. In the following year 2025, the OBR are anticipating growth of 1.4%. No forecasts for 2025 are as yet included in the Treasury survey. Our scenario forecast would anticipate growth of 0.7% in 2024 following growth of 0.6% in 2023. Our provisional forecast for 2025 is 1.3% but much will change with an election in prospect this year. Our outlook on inflation is unchanged despite the slight uptick in CPI inflation in December. In detail, inflation CPI basis eased up to 4.0% in December from 3.9% prior month. CPI(g) goods inflation moved to 1.9% from 2.0% prior month. CPI(s) Service Sector inflation moved to 6.4% from 6.3%. Core inflation was unchanged at 5.1%. Food inflation eased to 8.0%, energy costs were down again by -21.5%. The increase in tobacco duties in the Autumn statement pushed tobacco prices higher, up by 16% year on year. Despite the headlines of alcohol and tobacco pushing the headline rate higher, (Alcohol and tobacco account for just 4% of the shopping basket), the major uptick was in service sector inflation. This will remain sticky over the next six months. Our outlook for the year remains unchanged. Inflation CPI basis averaged 4.2% in the final quarter of 2023. We would expect inflation CPI basis to fall to 3.5% by the end of the year. Service sector inflation will be resistant to a more rapid fall despite the further falls expected in energy prices in the Spring. In the latest data average earnings, (whole economy) were up by 6.5% in November. We expect earnings to trend lower to 4.5% by the end of 2024, as unemployment rises and vacancies fall back towards 800,000. Our forward guidance also remains unchanged, all things being equal, base rates could end the year at around the 4.5% level., with ten year gilts in tandem. This we think could well be the standard rate for life, following the great escape from Planet ZIRP. So what of the election prospects? The forecasts for the economy this year and next are looking better. The Chancellor will find some money for tax cuts in the budget on March 6th. A cut in the headline rate of income tax remains the forecast favourite. Inheritance tax may not poll, quite so well, in the focus groups. Tax relief for fox hunting, may also not make the cut. If it's the economy that sways the votes, the Tories are in with a shout. If it's immigration, the boats and waiting lists, not quite so good. The latest opinion polls suggest Conservative prospects are looking pretty bleak ... It is possible a reduction in income tax and inheritance tax rates could feature in the budget but will it be enough to turn the fortunes of the Tory Party around? In this update we outline our forecasts for 2024. The economy may be flat lining but modest growth is in prospect never the less ...
Economic Growth ... The UK economy returned to growth in November, aided by a better month for services manufacturing and construction. Gross domestic product expanded by 0.3 per cent in November, compared to a 0.3 per cent contraction in the previous month, according to the Office for National Statistics. The year on year comparison was growth of 0.2%. For the year as a whole, growth was up by 0.6% in the eleven months to date GDP growth in 2023 is expected to out turn at around 0.6%. Construction output increasing by 3%, manufacturing output increasing by 1%. Service sector growth up by just under 1%, with a mixed performance across sectors and quarters. So what of 2024? The Office for Budget Responsibility forecasts growth of 0.7% for 2024. The OECD forecasts U.K. GDP to grow by 0.7% in 2024. The UK Treasury summary of forecasts for the UK economy averages growth of 0.7% in 2024. The Bank of England assumes zero growth this year. (Why so gloomy?) Our scenario forecast would anticipate growth of 0.5% to 0.7% in 2024. We model growth at 0.6% in 2023 and 0.7% in 2024. Inflation and Interest Rates ... Inflation CPI basis fell to 3.9% in November from 4.6% prior month. The surprise drop in inflation, larger than expected, is raising expectations of interest rate cuts sooner than the Bank of England has suggested, pushing gilt yields lower. Mortgage rates have fallen. Markets now anticipate the Bank will start to cut rates in the first quarter of 2024, with rates falling to 4 per cent by the end of the year. We remain slightly more cautious. The fall in headline inflation is welcome, flattered as it is by very low goods inflation. In detail, inflation CPI basis eased to 3.9% in November from 4.6% in October. CPI(g) goods inflation moved to 2.0% from 2.9% prior month. CPI(s) Service Sector inflation moved to 6.3% from 6.6%. Core inflation eased to 5.1% from 5.7%. The Bank will remain cautious and quite rightly so. Food price inflation remains high at 9.2%. Earnings remain high at 7.2%. Service sector inflation remains high at 6.0%. Core inflation remains high at 5.1%. As governor Bailey has suggested, "There is still some way to go in Britain's inflation fight". Our outlook remains unchanged. Inflation trends are on the right track. Producer prices are in negative territory. Oil prices remain subdued. Further progress must be seen in food, earnings, service sector prices and core inflation before rate cuts will be tabled. The Bank may just be able to offer a rate cut in the late Spring. April or May remains a possibility. It will be a close run thing. Our base line scenario is inflation CPI basis will end the year around the 3.5% level. All things being equal, base rates could end the year at around the 4.5% level. We assume oil prices will remain subdued throughout the year. The Houthi crisis in the Red Sea will be normalized at some stage. Unemployment ... The forecast for the UK unemployment rate in 2024 varies slightly among sources, but there is a consensus that it is expected to rise compared to the current levels. According to the Office for Budget Responsibility (OBR), the unemployment rate is projected to peak at 4.6% of the labour force, up from the current level of about 4.2%. Our scenario forecasts would assume a slight increase in unemployment from current levels but not by much, possibly at around 4.5% in 2024 and 2025. Vacancies ... Latest data 950,000 (November 2023) we expect the level to fall to around 750,000 to 800,000 by end of 2024, with pressures still persisting in healthcare, social care, retail, accommodation and food. Earnings ... Latest date average earnings, (whole economy) up by 7.2% in November. We expect earnings to trend lower to 4.5% by the end of 2024. The increase in minimum wage will have a modest impact on earnings overall at the macro level. Sectors most affected by the increase in National Living Wage are cleaning, social care, health care, retail, accommodation and food. More Time to Finish The Job ... Sunak has pleaded for more time to finish the job. "The economy has turned the corner, we are pointing in the right direction. Give me a chance to finish the job. Stick with our plan. A plan that is working." he said. The ship (and Conservative hopes) may be sinking, not all will think the party is pointing in the right direction. Eleven months is a long time in politics. And a heck of a long time to keep the five families of the Tory party paddling in the same direction and not abandoning ship . This is it. This is the election year. The date of the budget (March 6th) opens up the prospect of a May election. We would model and assume a May election but ...
The latest poll data released this morning suggest the Conservatives are on course for a 1997-style electoral wipe out. A major new YouGov survey commissioned by Tory critics of Rishi Sunak, suggests Labour would win a 120-seat majority, if an election were held today. The Prime Minister has signaled that Britain's general election will take place in the autumn. His "working assumption" is the UK would go to the polls in the second half of this year. November 14th has emerged as the favorite date. In a recent interview with Laura Kuenssberg, Sunak pleaded for more time to finish the job. "The economy has turned the corner, we are pointing in the right direction. Give me a chance to finish the job. Stick with our plan. A plan that is working." Rishi Sunak kicked off the election year trying to sell to voters that his five pledges were on track. They should vote for him to finish the job rather than "going back to square one". OK, inflation has halved but waiting lists are higher. The boats are still coming. Immigration levels has soared. National debt has risen to 88.3% of GDP. The economy is flat lining. When he made those pledges, Mr Sunak told his audience "people don't want politicians who promise the Earth and fail to deliver". Yet even his own back benchers are having their doubts. Former energy minister Chris Skidmore has said he will resign when parliament returns next week over new legislation "that promotes the production of new oil and gas". Deputy Conservative Party chairman Lee Anderson and other senior Tory figures are voting against the government in favor of amendments to the Rwanda Bill. Kuenssberg has said that 53 Tory MPs have already said they're going to stand down before the next election. Lord Frost, the former Brexit minister, wrote in a piece for The Telegraph that if the Tories do not change course now "there will soon only be smoking rubble left." Grant Shapps, the Defence Secretary, has insisted that the Conservatives can "absolutely" turn around dire polling as the economy improves. Shapps pointed to tax cuts and falling inflation, suggesting that Sunak's government was pinning its hopes on people feeling better off later this year. "The reason I think we can turn it around is because at least people know we've got a plan and we're working to it", he told Times Radio this morning. It is possible a reduction in income tax and inheritance tax rates could feature in the budget but will it be enough to turn the fortunes of the Tory Party around? In the latest update we outline our forecasts for 2024. The economy may be flat lining but modest growth is in prospect never the less ... We track ten markets in our global equities model. The Dow, S&P and NASDAQ in the U.S.A, the FTSE, CAC and Dax in Europe. In Asia, Nikkei, Hang Seng, Shanghai and BSE feature. This is our review of 2023.
Global equity markets experienced their strongest year since 2019, with the MSCI World index, a broad gauge of global developed market equities, surging by 22%. This performance was driven by a strong rally towards the end of the year, as investors anticipated that major central banks had finished raising interest rates and would implement significant rate cuts in 2024. In the United States, the NASDAQ led the way with a 43% increase, followed by the S&P 500 index with a 24% rise, and the Dow Jones Industrial Average with a 14% gain. This growth was largely driven by a shift in interest rate expectations, as recent data showed inflation falling faster than expected in western economies. The Federal Reserve signaled the possibility of substantial rate cuts in 2024, which further fueled this optimism. European stocks also performed well in 2023, with the German DAX and French CAC indices rising by 20% and 16.5% respectively. However, the FTSE lagged behind, closing just above the 7700 level, for a 4% gain in the year. Asian markets had a mixed performance. The Nikkei index in Japan surged by 28%, and the BSE index in India was up by 19%. However, concerns about the investment outlook in China led to a 4% fall in the Shanghai index and a 14% drop in the Hong Kong Hang Seng. A handful of big technology stocks, known as the "Magnificent Seven" (Apple, Microsoft, Alphabet, Amazon, Tesla, Meta, and Nvidia), drove a large part of the gains on Wall Street in the year. Looking ahead to 2024, some investors believe that markets may be pricing in too much optimism that inflation will continue to trend lower without the US economy slipping into recession. Expectations of significant rate cuts in the USA and UK could be overblown, and the 40% gain in NASDAQ stocks may need a period of repricing before further gains are possible. Our premium to value is 5%, with significant stress still evident in Hang Seng and Shanghai. The contrarians would appear to benefit from a move into Hang Seng and Shanghai as Europe and U.S. appear over priced. Nikkei continues to look over played. We would look for a 10% correction in the US and a 5% adjustment in Europe. At loose in the Conservative Party at the moment appear to be 'Five Families" a reference to the Five Mafia Families of New York each with its own unique agenda and objectives. In this article, we will explore the five prominent families within the Conservative Party: the European Research Group (ERG), the New Conservatives, the Northern Research Group (NRG), the Common Sense Group, and the Conservative Growth Group. We'll delve into their origins, key figures, and their impact on the political landscape.
The European Research Group (ERG)) Once a dominant force, the ERG played a pivotal role in shaping Brexit policy and ousting Theresa May. However, its influence waned after Brexit. The group recently resurfaced, aiming to scrutinize government legislation, particularly the Rwanda policy. Led by Sir Bill Cash and Mark Francois, the ERG remains a voice on the right of the party, cooperating with other backbench groups to maintain relevance. The New Conservatives The New Conservatives, a right-wing group primarily composed of "red wall" MPs, poses a significant challenge to the government, particularly Chancellor Rishi Sunak. Led by Danny Kruger and Miriam Cates, they advocate for policies such as migration curbs and oppose "gender ideology" in schools. Their hardline stance on various issues puts pressure on the party leadership, albeit they are a relatively new caucus. The Northern Research Group (NRG) formed by northern Conservative MPs after the 2019 election, champions increased investment in the north and seeks to amplify the voices of these regions. Led by Jake Berry and Esther McVey, they demand a Cabinet minister for the North and the construction of 500,000 new homes, positioning themselves as potential "kingmakers" in future elections. Conservative Growth Group Emerging after Liz Truss's brief tenure as Prime Minister, the Conservative Growth Group advocates libertarian-style economic policies. Led by figures like Sir Simon Clarke and Dame Priti Patel, they call for cuts in corporation tax and stamp duty, easing planning regulations, and resuming fracking. While not widely publicized, their influence shouldn't be underestimated. The Common Sense Group Founded in 2020, the Common Sense Group aims to combat "woke" culture. Comprising MPs who advocate a broad range of ideals, they've been critical of organizations like the National Trust. This group, inspired by the European Research Group, has around 59 MPs and 7 members of the House of Lords in its ranks. One Nation Tories The One Nation Conservatives promote compassionate and realistic policies. Led by Damian Green, they represent centrist Tories and aim to govern within the One Nation tradition. While historically less influential, they have recently gained ground, particularly on the issue of migration. Some of their members hold positions within the government. They are excluded from the "Family Photo'.. Conclusion These five families within the Conservative Party in the UK illustrate the diversity of thought and priorities within the party. As they continue to shape policy and influence the political landscape, understanding their origins and key figures is crucial in assessing the future direction of the Conservative Party. Good Luck with that! Introduction
In a surprising turn of events, former Prime Minister David Cameron made a remarkable return to British politics, taking up the role of Foreign Secretary in Prime Minister Rishi Sunak's cabinet. Cameron has been elevated to the House of Lords as Baron Cameron of Chipping Norton. This unexpected development has generated significant interest and speculation, as Cameron sets out to tackle pressing issues both on the domestic and international fronts. Brexit and Support for Leaving the EU One of the most remarkable aspects of Cameron's return to government is his stance on Brexit. Despite leading the "Remain" campaign during the 2016 EU referendum, he has now voiced strong support for the decision to leave the European Union. In his own words, "I fully respect the will of the British people”. My objective is to make Britain "secure and prosperous in a difficult and dangerous world.” Critics within the party will still consider him to be a closet remainer. Foreign Aid Policy Another critical area of focus for Cameron is foreign aid. He has been an advocate for maintaining the UK's commitment to spending 0.7% of GDP on foreign aid, emphasising the importance of international development and humanitarian efforts in a global context. HS2 Project Cameron's return has also raised questions about his stance on domestic infrastructure projects, particularly HS2. While in office, he championed the high-speed rail project, and it remains to be seen how supportive he can be on the government stance on infrastructure investment now. . China Relations With China's rising influence on the global stage, Cameron's role as Foreign Secretary places him in a position to shape the UK's relations with the global superpower. His approach to balancing economic interests with human rights concerns will be closely watched. Cameron is considered to be a Sinophile, drinking Beer in the Pub with President Xi Jinping on his visit to the UK in 2015. During his visit, he and then-Prime Minister David Cameron visited The Plough at Cadsden, a pub in Buckinghamshire. The visit to the pub was an informal and friendly gesture to showcase British hospitality and strengthen diplomatic ties. The European Court of Human Rights Cameron's tenure as Foreign Secretary also presents an opportunity to address the UK's relationship with international bodies such as the European Court of Human Rights. His perspective on the court's jurisdiction and its impact on British law will be pivotal. Cameron is considered to be a supporter of the The European Court of Human Rights and the UN commission on Human rights, Confronting UKIP's Legacy David Cameron famously described UKIP members as "closet racists and fruitcakes" during his time as Prime Minister. His return may provide an opportunity to address the legacy of UKIP and its impact on contemporary British politics. Conclusion David Cameron's return to government as Foreign Secretary marks a significant moment in UK politics. His evolving positions on Brexit, foreign aid, HS2, China, and international institutions will shape the nation's foreign policy landscape. With a clear objective of securing Britain's prosperity in a complex world, Cameron's role will undoubtedly be a subject of intense scrutiny and debate in the coming months and hopefully years. " Great Britain: Secure and prosperous in a difficult and dangerous world." On Wednesday the U.S. Federal Reserve held interest rates unchanged. The target range for the Fed Funds Rate was maintained at 5.25% and 5.5%. The formal statement issued by the FOMC was cautious and guarded.
"The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals." Risk sentiment in markets was boosted as the central bank revealed policymakers were penciling in at least three rate cuts next year according to the latest Blue Dot Plot. The average rate projection was 4.5% by the end of the year compared to 5.0% in September. On Thursday, both the Bank of England and the European Central Bank also kept interest rates unchanged. Governor Andrew Bailey pushed back against market expectations of early rate cuts next year. Retaining the hawkish guidance that monetary policy is "likely to need to be restrictive for an extended period of time." Christine Lagarde also waved off hopes of early rate cuts from the ECB. Headline inflation may have fallen and the growth outlook may have weakened but domestic inflation remained high. Wage growth levels (a major drive of domestic inflation) were incompatible with the inflation target of 2%, she said. Fed Offers Sobering Message ... In the news conference on Wednesday, and in written statements following, the Fed did what it could to restrain the Wall Street bulls. "It's far too early to declare victory and there are certainly risks still facing the economy", Jerome H. Powell, the Fed chair, said. The Fed indicated that it was too early to count on a "soft landing" for the economy. A reduction in inflation without a recession is increasingly the Wall Street consensus. Inflation, the glaring economic problem at the start of the year, has dropped sharply thanks, in part, to steep interest rate increases and a drop in energy prices. The Consumer Price Index rose 3.1 percent in the year through November. That was still substantially above the Fed target of 2 percent, but way below the inflation peak of 9.1 percent in June 2022. Producer prices were up just 0.2% in November. An early decline in the federal funds rate, the benchmark short-term rate that the Fed controls directly, isn't a sure thing but stocks shot higher anyway, with the S&P 500 on the verge of a record. Christine Lagarde Struck A Hawkish Tone ... The European Central Bank left interest rates unchanged at a record high of 4 per cent this week. Christine Lagarde, president of the ECB, struck a hawkish tone after Thursday's decision, saying "Should we lower our guard? We asked ourselves that question. No we should absolutely not lower our guard. We did not discuss rate cuts at all. No discussion, no debate." While acknowledging that underlying price pressures were easing, Lagarde said domestic inflation, largely driven by wage costs across the twenty countries that use the euro, was "not budging". Future inflation risks ranged from geopolitical tensions that could push energy prices higher in 2024 through to more extreme weather that could damage next year's harvests, she added. Governing Council member Francois Villeroy said "In mountains there are peaks and descents and there are plateaus. Today we are on a plateau and we need to give ourselves time to enjoy the view, to appreciate the effects of monetary policy." "Barring shocks or surprises, rate hikes are over but that doesn't mean a quick rate cut is coming", Villeroy said Friday. Bailey warns rates may need to rise again ... Governor Andrew Bailey says he can't say definitively "that interest rates have peaked". The Bank of England has signaled it may not be finished raising interest rates as Bailey warned there was "still some way to go" in Britain's inflation fight. The Bank said price rises were proving more stubborn in Britain than in other developed economies. CPI inflation had fallen back as expected to 4.6% in October. Service sector inflation remained high at 6.6%. Latest earnings data suggested wages were rising at the rate of 7%. A rate incompatible with the 2% CPI target. Mr Bailey said it was "too early to start speculating about cutting interest rates" as the MPC warned that "further tightening" would be necessary if price pressures persist. Hawks continue to baulk about an easing of monetary policy At the meeting, the Monetary Policy Committee (MPC) voted 6-3 to keep borrowing costs on hold at 5.25pc. Three members (Megan Greene, Jonathan Haskel and Catherine Mann) voted against the proposition, preferring to increase bank rate by a further 0.25% to 5.5%. The hawkish stance on monetary policy is at odds with the Governor's gloomy outlook on the economy. The latest ONS data suggests economic expansion was confined to just 0.2% in October. The MPC missed the opportunity to hike rates at the November meeting. The MPC is now encamped on the plateau enjoying the view. Table Mountain versus the Matterhorn policy perhaps. The hawkish stance is also incompatible with a government up for re-election next year. Calls for the Bank to ease off on interest rates are likely to grow in the months ahead. The Tories are already over twenty points behind in the polls. The Bank may just be able to offer a rate cut in the Spring. But unlike the election, it will be close run thing. Want to know more? Check out our Friday Forward Guidance updated every week. https://www.thesaturdayeconomist.com/friday-forward-guidance.html "I'm not tetchy" barked the Prime Minister. The British PM has been accused by both critics and allies of being bad-tempered in recent weeks. Rishi Sunak has denied being “tetchy”, insisting he just gets “frustrated” when things don’t work out as hoped.
“I don’t understand that term … there’s nothing tetchy, (about me), the prime minister told the Spectator magazine. It was as if Sunak had added a new character to the fairy tale of Snow White and the Seven Dwarfs, not Happy, Grumpy, Sleepy, Dopey, Bashful or Sneezy and certainly not Tetchy. Tracking the number of dwarfs in the original Brothers Grimm fairy tale is easy. Historical reference for the latter (with names) is provided by Walt Disney in the 1937 animation "Snow White and the Seven Dwarfs". Tracking the number of families in the Conservative party is becoming more difficult. There would appear to be five families in the camp. A reference to the five families controlling the mafia in New York in the 1930s, including the Colombo, Gambino, Genovese, and Lucchese families. The mafia families were involved in criminal activities, including racketeering, extortion, drug trafficking and prostitution. They had a long history of organized crime in New York City, Long Island, New Jersey and Florida. The families were organised under the leadership of a "Capo dei Capi" but a series of assassinations, led to the abandonment of the role (it was too high risk) and a more democratic structure was put in place under a mafia "commission". So what of the Tories? The five families of the Conservative party include the European Research Group (ERG), the New Conservatives, the Northern Research Group (NRG), the Common Sense Group and the Conservative Growth Group. On the sideline for the moment appear to be the "One Nation Tories", and the ABR "Anyone But Rishi" Group. Key questions remain. Under the five family structure, is Sunak the high risk capo di capi or is the Tory Back Bench 1922 committee the "Commission?" Some suggest “The ‘five families’ thing is complete bullshit. It is something that Mark Francois (leader of the ERG) and John Hayes, (leader of the Common Sense Group) like, because it makes them feel personally important." So what happened to the great Rwanda debate? According to Iain Martin in The Times, "After all the pompous huffing and puffing, all the ultimatums and dark threats, the Tory Right’s great Rwanda rebellion against Rishi Sunak that was meant to rock the government, or perhaps even bring it down, turned out to be a parliamentary peashooter." The bill was passed with a majority of 44. There appeared to be thirty or so abstentions from the Tory "Cosa Nostra". It was Shakespearean event more comedy than drama. "Much ado about nothing" just about sums it up. They're maybe a second act in the third reading of the bill to follow. By then the Tories will realize the threat of a stay on the Bibby Stockholm, is a greater deterrent than any flight to Rwanda. |
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