Welcome to the Saturday Economist. Here we explore the fascinating world of money, markets, and everything in between. Our expert analysis is dedicated to bringing you the latest news, insights, and analysis on all things economics.
Whether you're a student, a professional, or interested in economics and financial markets, The Saturday Economist has something for you. Join us as we delve into the complexities of the global economy and uncover the forces that shape our financial world.
Are you curious about the world of money and economics? Look no further than The Saturday Economist. Our expert analysis delves into the latest news, insights, and analysis on all things economics. Whether you're a student, professional, or simply interested in financial markets, we've got something for you. Discover how to navigate the complex world of economics and gain valuable insights that will help you make informed decisions. By reading our articles, you'll come away with a deeper understanding of the fascinating world of money and markets. Join us on this journey of discovery and let's explore together!
Whether you're a student, a professional, or interested in economics and financial markets, The Saturday Economist has something for you. Join us as we delve into the complexities of the global economy and uncover the forces that shape our financial world.
Are you curious about the world of money and economics? Look no further than The Saturday Economist. Our expert analysis delves into the latest news, insights, and analysis on all things economics. Whether you're a student, professional, or simply interested in financial markets, we've got something for you. Discover how to navigate the complex world of economics and gain valuable insights that will help you make informed decisions. By reading our articles, you'll come away with a deeper understanding of the fascinating world of money and markets. Join us on this journey of discovery and let's explore together!
Is This The Face of Pop Con?
Tories Fighting Over The Deckchairs on The Titanic ...
Twenty five points behind Labour, in the polls, over 50 MPs about to jump ship, the Tories continue to fight over the deck chairs on the Titanic, as disaster looms..
Not content with the Balkanization of the Conservative party with five, or is it six families, Liz Truss, who did for Pork exports to China what Rishi Sunak appears to be doing for EV sales in the U.K., is to launch another faction. The Pop Con, faction ...
The Saturday Economist Update ...
Tories Fighting Over The Deckchairs on The Titanic ...
Twenty five points behind Labour, in the polls, over 50 MPs about to jump ship, the Tories continue to fight over the deck chairs on the Titanic, as disaster looms..
Not content with the Balkanization of the Conservative party with five, or is it six families, Liz Truss, who did for Pork exports to China what Rishi Sunak appears to be doing for EV sales in the U.K., is to launch another faction. The Pop Con, faction ...
The Saturday Economist Update ...
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 this update we outline our forecasts for 2024. The economy may be flat lining but modest growth is in prospect never the less ...
https://www.thesaturdayeconomist.com/latest-update/the-saturday-economist-uk-prospects-for-2024
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 this update we outline our forecasts for 2024. The economy may be flat lining but modest growth is in prospect never the less ...
https://www.thesaturdayeconomist.com/latest-update/the-saturday-economist-uk-prospects-for-2024
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. 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.
The Bank has said rates must remain in restrictive territory for an “extended period” to curb persistent inflationary pressures. Chief Economist, Hugh Pill has suggested it could be August before any rate cuts take place.
Sarah Breeden, the Bank’s newly appointed deputy governor for financial stability, said the risks of inflation remaining stubbornly high, were greater, than the chances of a significant fall. Interest rates will have to stay higher for longer, she said.
“The economy is moving in the right direction to return inflation to the 2 per cent target, but our job isn’t done,” “Monetary policy still needs to be restrictive for an extended period of time to keep pushing down on inflation and to return it sustainably to target.”
Leading bond trader Pimco, thinks UK bonds are a one way bet. The prospect of more rate cuts will push yields lower and bond prices up, it is said. Martin Beck, chief economic adviser to the EY Item Club, said today’s inflation data could result in the MPC cutting rates as early as February.
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 Spring. April remains a possibility. It will be a close run thing.
The yield on the benchmark 10-year gilt, trades at 3.545 per cent this morning down from 3.7520 at the end of last week. The pound softened against the dollar and the euro trading $1.2640 and €1.1538 respectively. For the moment it would appear the fall in yields is slightly over played.
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The surprise drop in inflation, larger than expected, is raising expectations of interest rate cuts sooner than the Bank of England has suggested. 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.
The Bank has said rates must remain in restrictive territory for an “extended period” to curb persistent inflationary pressures. Chief Economist, Hugh Pill has suggested it could be August before any rate cuts take place.
Sarah Breeden, the Bank’s newly appointed deputy governor for financial stability, said the risks of inflation remaining stubbornly high, were greater, than the chances of a significant fall. Interest rates will have to stay higher for longer, she said.
“The economy is moving in the right direction to return inflation to the 2 per cent target, but our job isn’t done,” “Monetary policy still needs to be restrictive for an extended period of time to keep pushing down on inflation and to return it sustainably to target.”
Leading bond trader Pimco, thinks UK bonds are a one way bet. The prospect of more rate cuts will push yields lower and bond prices up, it is said. Martin Beck, chief economic adviser to the EY Item Club, said today’s inflation data could result in the MPC cutting rates as early as February.
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 Spring. April remains a possibility. It will be a close run thing.
The yield on the benchmark 10-year gilt, trades at 3.545 per cent this morning down from 3.7520 at the end of last week. The pound softened against the dollar and the euro trading $1.2640 and €1.1538 respectively. For the moment it would appear the fall in yields is slightly over played.
Want to know more? Sign up for our updates, Join The Mailing List. Don't Miss out.
We will send you a copy of of our Inflation Chart Book ... Twenty pages of analysis ...
https://www.thesaturdayeconomist.com/join-the-mailing-list.html
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.
Check out the Full Post here ...
"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.
Check out the Full Post here ...
"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.
“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.
It was Priti Patel who opted for the Rwanda solution apparently. It was a choice between the Falkland Islands and Stockton on Tees. In the end the African nation become the deportation option of choice. There were fewer Tory voters in residence.
OK there were some drawbacks to the Rwandan option. Human rights abuses and political repression featured. Some might feel, a country with a history including the 1994 genocide wasn't exactly a safe option. Issues of "Refoulement" held sway.
Refoulement refers to the act of forcing a refugee or asylum seeker to return to a country where they are likely to face persecution or danger. It is a fundamental principle of international law forbidding a country receiving asylum seekers from returning them to a country where they would be at risk.
Rwanda has a history of refoulement. The UK Supreme Court ruled that it would be unlawful to remove refugees to Rwanda due to the risk of refoulement, concluding Rwanda is not a "safe" option.
Rishi Sunak, was never a great fan ...
Check out the full post here
OK there were some drawbacks to the Rwandan option. Human rights abuses and political repression featured. Some might feel, a country with a history including the 1994 genocide wasn't exactly a safe option. Issues of "Refoulement" held sway.
Refoulement refers to the act of forcing a refugee or asylum seeker to return to a country where they are likely to face persecution or danger. It is a fundamental principle of international law forbidding a country receiving asylum seekers from returning them to a country where they would be at risk.
Rwanda has a history of refoulement. The UK Supreme Court ruled that it would be unlawful to remove refugees to Rwanda due to the risk of refoulement, concluding Rwanda is not a "safe" option.
Rishi Sunak, was never a great fan ...
Check out the full post here
Andrew Bailey, the governor of the Bank of England, has hit back at critics who have claimed he has taken an "ultra pessimistic" view of the UK economy.
This week, Bailey painted an extremely dim picture of the UK economy, claiming that its present potential growth trajectory is the "worst" he has ever seen in his career.
"I have been written up this week as being an ultra-pessimist, but I don't see it that way. I see it as a realist view,' Bailey told Staffordshire's Daily Focus newspaper.
The Bank's latest forecasts indicate the economy will barely grow at all next year, or in 2025. The Governor has said the outlook for the economy is the worst he has ever seen. Britain struggles to boost low levels of growth, as taxes and interest rates rise.
The Bank of England Governor raised concerns over the UK's future prospects just days after the Office for Budget Responsibility (OBR) issued forecasts for the UK economy slightly more optimistic than the Bank of England.
In an interview with The Chronicle in Newcastle, Mr Bailey said: "If you look at what I call the potential growth rates of the economy, there's no doubt it's lower than it has been in much of my working life.
"It does concern me the supply side of the economy has slowed. It does concern me a lot."
Is The Governor Genetically Pessimistic?
When asked at the OBR press conference "Why Are Your Forecasts for GDP Growth So much Stronger Than The Bank of England's November Forecasts?" Professor David Miles said (with a smile) "Because we are genetically more optimistic than the Central Bank". It's a fair point..
He then went one to say "Actually, that's not really true. The variance is best explained by the differences over the underlying trend rate of growth and assessments of total factor productivity. Adding the possibility of a possible varying stance on the future path of interest rates may also come into play. But in general the Bank has a more cautious, more conservative, more pessimistic view."
Predictions of weak supply growth are one reason Mr Bailey and his colleagues on the Monetary Policy Committee (MPC) are keeping interest rates high. The governor added to warnings from Huw Pill, the Bank's chief economist, the supply side of the economy, which includes the availability of labour, could keep inflation stubbornly high over the coming years as a result of the ensuing pressure on wages.
So What About Rates?
The Bank of England will not cut interest rates for the "foreseeable future", Andrew Bailey has said, warning it was "too soon" to discuss the prospect of large-scale monetary easing. He warned the next stage of cutting inflation would be "hard work".
So far, inflation has fallen from a peak of 11.1pc in October 2022 to 4.6pc last month, when a drop in the energy price cap pulled the headline rate down from September's 6.7pc. The Governor said the job is not done yet, and warned families not to expect any steep falls in interest rates as the Bank battles to get prices back to its 2pc target.
"By the end of the first quarter next year, when a lot of that unwind will have happened, we may be a bit under 4pc (CPI) but we'll still have 2pc to go, maybe. And the rest of it has to be done by policy and monetary policy. And policy is operating in what I call a restrictive way at the moment."
He stressed that this requires rates to stay at their current level of 5.25pc for some time, despite the pain it inflicts on borrowers. He said: "I am very conscious of the position of the less well-off but we do have to get it down to 2pc and that's why I have pushed back of late against assumptions that we're talking about cutting interest rates or we will be cutting interest in anything like the foreseeable future because it's too soon to have that discussion."
Financial markets are currently betting that the first rate cut, from 5.25pc to 5pc, will come in the summer of 2024. Bailey and other Bank rate-setters have recently pushed back against financial market speculation that indicates at least two rates cuts before November next year, taking the base rate to around 4.75 per cent. That ain't go to happen says the governor!
Why So Gloomy? The "Sexy Turtle" will have his sway on rates ... but the OBR will have the day on growth ...
This week, Bailey painted an extremely dim picture of the UK economy, claiming that its present potential growth trajectory is the "worst" he has ever seen in his career.
"I have been written up this week as being an ultra-pessimist, but I don't see it that way. I see it as a realist view,' Bailey told Staffordshire's Daily Focus newspaper.
The Bank's latest forecasts indicate the economy will barely grow at all next year, or in 2025. The Governor has said the outlook for the economy is the worst he has ever seen. Britain struggles to boost low levels of growth, as taxes and interest rates rise.
The Bank of England Governor raised concerns over the UK's future prospects just days after the Office for Budget Responsibility (OBR) issued forecasts for the UK economy slightly more optimistic than the Bank of England.
In an interview with The Chronicle in Newcastle, Mr Bailey said: "If you look at what I call the potential growth rates of the economy, there's no doubt it's lower than it has been in much of my working life.
"It does concern me the supply side of the economy has slowed. It does concern me a lot."
Is The Governor Genetically Pessimistic?
When asked at the OBR press conference "Why Are Your Forecasts for GDP Growth So much Stronger Than The Bank of England's November Forecasts?" Professor David Miles said (with a smile) "Because we are genetically more optimistic than the Central Bank". It's a fair point..
He then went one to say "Actually, that's not really true. The variance is best explained by the differences over the underlying trend rate of growth and assessments of total factor productivity. Adding the possibility of a possible varying stance on the future path of interest rates may also come into play. But in general the Bank has a more cautious, more conservative, more pessimistic view."
Predictions of weak supply growth are one reason Mr Bailey and his colleagues on the Monetary Policy Committee (MPC) are keeping interest rates high. The governor added to warnings from Huw Pill, the Bank's chief economist, the supply side of the economy, which includes the availability of labour, could keep inflation stubbornly high over the coming years as a result of the ensuing pressure on wages.
So What About Rates?
The Bank of England will not cut interest rates for the "foreseeable future", Andrew Bailey has said, warning it was "too soon" to discuss the prospect of large-scale monetary easing. He warned the next stage of cutting inflation would be "hard work".
So far, inflation has fallen from a peak of 11.1pc in October 2022 to 4.6pc last month, when a drop in the energy price cap pulled the headline rate down from September's 6.7pc. The Governor said the job is not done yet, and warned families not to expect any steep falls in interest rates as the Bank battles to get prices back to its 2pc target.
"By the end of the first quarter next year, when a lot of that unwind will have happened, we may be a bit under 4pc (CPI) but we'll still have 2pc to go, maybe. And the rest of it has to be done by policy and monetary policy. And policy is operating in what I call a restrictive way at the moment."
He stressed that this requires rates to stay at their current level of 5.25pc for some time, despite the pain it inflicts on borrowers. He said: "I am very conscious of the position of the less well-off but we do have to get it down to 2pc and that's why I have pushed back of late against assumptions that we're talking about cutting interest rates or we will be cutting interest in anything like the foreseeable future because it's too soon to have that discussion."
Financial markets are currently betting that the first rate cut, from 5.25pc to 5pc, will come in the summer of 2024. Bailey and other Bank rate-setters have recently pushed back against financial market speculation that indicates at least two rates cuts before November next year, taking the base rate to around 4.75 per cent. That ain't go to happen says the governor!
Why So Gloomy? The "Sexy Turtle" will have his sway on rates ... but the OBR will have the day on growth ...
The Autumn statement was finally delivered on Wednesday. It was impeccable timing. Squeezed between the Supreme Court rejection of the Rwanda option and the release of the revised numbers for net migration. It was an "Autumn Statement for a country that has turned a corner", said the Chancellor. It was a statement for an economy that had "'hit a dead end" said the Shadow Chancellor Rachel Reeves.
The Autumn statement was a message of continuity. The next stage in the process. The process of thirteen years in government. A period which encompasses five prime ministers, seven chancellors, nine business secretaries and twelve growth strategies. The economy may have turned the corner but policy at times appears to be going round in circles. The Chancellor announced his economic advisory council, set up last Autumn, has, just one year later, been stood down.
It was a statement with generous gives. Pensions uplifted by 8.5%. Welfare benefits uprated by 6.7%. A near 10% increase in the living wage and a 2% cut in the employee rate of National Insurance. Plus a permanent extension of "Full Expensing". The process in which capital expenditure on plant and machinery can be fully expensed against corporation tax in the accounting year.
So where has the money come from?
Just six weeks ago on the 4th October, The Chancellor warned there is no money, as the OBR advised of a £19 billion deficit. Now just 44 days later, there appeared to be a surplus of around £30 billion. A £50 billion swing in just six weeks.
Increasing tax revenues from Corporation Tax and Incomes Taxes have been upgraded as tax hikes on CT and freezing of allowances on PAYE have boosted revenues. Higher inflation and higher incomes have generated "fiscal drag" forcing more into higher payments on higher rates.
Nominal GDP has also been upgraded with a higher GDP deflator activated. Nominal GDP is forecast to increase by 6.7% in the current year. It could well be higher, rising by 8.5% despite the low rate of real growth in the year of just 0.6%. This is important in reducing debt and debt interest to GDP ratios even as debt continues to rise.
Has the Chancellor been prudent?
Not really. Hunt has taken a modest improvement in the public finance forecasts and spent most of it. The spending targets will be met by unspecified fiscal restraint (spending cuts) at some point in the future.
The OBR have to accept the Treasury spending forecasts as given, despite any detail in year three onwards of the forecast period.
Asterisk budgeting "cuts as yet to be identified" return. Health and Welfare are likely to be the beneficiaries. Local government, further education, justice, courts, prisons, HMRC the likely losers.
On full expensing,
On full expensing, Hunt said, "In the Spring, I introduced full expensing for three years. This means that for every million pounds a company invests, they get £250,000 off their tax bill in the very same year.
'The CBI, Make UK, Energy UK and 200 other business leaders have said making this measure permanent would the "single most transformational thing" I could do for business investment and growth. But because it costs £11 billion a year, I made clear that I would only do so when it was affordable."
"Well, with inflation halved, borrowing down and debt falling, today I deliver on that promise. I will today make full expensing permanent. That is the largest business tax cut in modern British history."
Will the impact be that great?
The OBR say it will increase annual investment by around £3 billion a year and a total of £14 billion over the forecast period. Not much of a pay back on a tax cost of £11 billion a year. Fortunately, the OBR suggest the cost to the exchequer is a more modest £4.5 billion a year. [EFO Table 3.1].
The anticipated uplift to investment is also unrealised in the Economic Outlook. The UK capital stock is expected to increase by just 0.2% by the end of the forecast period. Investment reacts in a payback model, not so much to the cost of capital but the anticipated cash flows from higher rates of growth.
The largest business tax cut in modern British history ?
Hunt said it was "the largest business tax cut in modern British history". Paul Johnson, the Director of the IFS (Institute for Fiscal Studies director) suggested that was a "tiny bit cheeky"when contrasted with the much bigger hike in corporation tax, up from 19 per cent to 25 per cent. Corporation tax revenues will increase by 23% or £40 billion over the two year period this year and next as a result of higher CT rates.
Income tax receipts will increase by £27 billion this year and over £20 billion next as a result of fiscal drag. A significant offset to the £10 billion National Insurance giveaway.
Has the Chancellor has been prudent!
The cuts had to be funded somehow. "I am going to increase duty on hand-rolling tobacco by an additional 10% above the tobacco duty escalator." He said.
The IFS suggests there are adequate risks to the forecast outlook. There is no provision for the freeze on Fuel Duties to continue. (There has been no change since 2010, a cost of £6.2 billion). It assumes business Rate Relief £2.5 billion would stop in April and cuts in public service spending for unprotected departments could be worth £20.0 billion.
So What Next?
The OBR are forecasting growth of 0.6% this year, 0.7% next and 1.4% in 2023. Inflation is set to average 3.6% in 2024, falling to target in early 2025. Unemployment is set to peak at 1.6 million, a rate of 4.6%.
Public sector net debt is expected to peak at 93% of GDP up from 89% this year. Borrowing is set to fall in each year of the forecast, even as interest payment rises to £120 billion.
Markets reacted well to the Autumn statement. Sterling closed at $1.26 it was $1.21 at the end of October. Ten year gilt yields closed at 4.23%. The Tories jumped four points to close the gap on Labour, only to lose the gain as the immigration figures were released.
Speculation already begins on the election date and content in the Spring budget. There could well be scope for a further income tax giveaway. Further NI or CT cuts would be unlikely. Inheritance Tax is hardly likely to shore up the Red Wall.
On the whole it was a balanced Autumn statement, undermined by the inadequate provisions on spending, diminished by the Chancellor's claims of the "Largest Business Tax Cut in Modern British History" ... Cheeky or what!
The Autumn statement was a message of continuity. The next stage in the process. The process of thirteen years in government. A period which encompasses five prime ministers, seven chancellors, nine business secretaries and twelve growth strategies. The economy may have turned the corner but policy at times appears to be going round in circles. The Chancellor announced his economic advisory council, set up last Autumn, has, just one year later, been stood down.
It was a statement with generous gives. Pensions uplifted by 8.5%. Welfare benefits uprated by 6.7%. A near 10% increase in the living wage and a 2% cut in the employee rate of National Insurance. Plus a permanent extension of "Full Expensing". The process in which capital expenditure on plant and machinery can be fully expensed against corporation tax in the accounting year.
So where has the money come from?
Just six weeks ago on the 4th October, The Chancellor warned there is no money, as the OBR advised of a £19 billion deficit. Now just 44 days later, there appeared to be a surplus of around £30 billion. A £50 billion swing in just six weeks.
Increasing tax revenues from Corporation Tax and Incomes Taxes have been upgraded as tax hikes on CT and freezing of allowances on PAYE have boosted revenues. Higher inflation and higher incomes have generated "fiscal drag" forcing more into higher payments on higher rates.
Nominal GDP has also been upgraded with a higher GDP deflator activated. Nominal GDP is forecast to increase by 6.7% in the current year. It could well be higher, rising by 8.5% despite the low rate of real growth in the year of just 0.6%. This is important in reducing debt and debt interest to GDP ratios even as debt continues to rise.
Has the Chancellor been prudent?
Not really. Hunt has taken a modest improvement in the public finance forecasts and spent most of it. The spending targets will be met by unspecified fiscal restraint (spending cuts) at some point in the future.
The OBR have to accept the Treasury spending forecasts as given, despite any detail in year three onwards of the forecast period.
Asterisk budgeting "cuts as yet to be identified" return. Health and Welfare are likely to be the beneficiaries. Local government, further education, justice, courts, prisons, HMRC the likely losers.
On full expensing,
On full expensing, Hunt said, "In the Spring, I introduced full expensing for three years. This means that for every million pounds a company invests, they get £250,000 off their tax bill in the very same year.
'The CBI, Make UK, Energy UK and 200 other business leaders have said making this measure permanent would the "single most transformational thing" I could do for business investment and growth. But because it costs £11 billion a year, I made clear that I would only do so when it was affordable."
"Well, with inflation halved, borrowing down and debt falling, today I deliver on that promise. I will today make full expensing permanent. That is the largest business tax cut in modern British history."
Will the impact be that great?
The OBR say it will increase annual investment by around £3 billion a year and a total of £14 billion over the forecast period. Not much of a pay back on a tax cost of £11 billion a year. Fortunately, the OBR suggest the cost to the exchequer is a more modest £4.5 billion a year. [EFO Table 3.1].
The anticipated uplift to investment is also unrealised in the Economic Outlook. The UK capital stock is expected to increase by just 0.2% by the end of the forecast period. Investment reacts in a payback model, not so much to the cost of capital but the anticipated cash flows from higher rates of growth.
The largest business tax cut in modern British history ?
Hunt said it was "the largest business tax cut in modern British history". Paul Johnson, the Director of the IFS (Institute for Fiscal Studies director) suggested that was a "tiny bit cheeky"when contrasted with the much bigger hike in corporation tax, up from 19 per cent to 25 per cent. Corporation tax revenues will increase by 23% or £40 billion over the two year period this year and next as a result of higher CT rates.
Income tax receipts will increase by £27 billion this year and over £20 billion next as a result of fiscal drag. A significant offset to the £10 billion National Insurance giveaway.
Has the Chancellor has been prudent!
The cuts had to be funded somehow. "I am going to increase duty on hand-rolling tobacco by an additional 10% above the tobacco duty escalator." He said.
The IFS suggests there are adequate risks to the forecast outlook. There is no provision for the freeze on Fuel Duties to continue. (There has been no change since 2010, a cost of £6.2 billion). It assumes business Rate Relief £2.5 billion would stop in April and cuts in public service spending for unprotected departments could be worth £20.0 billion.
So What Next?
The OBR are forecasting growth of 0.6% this year, 0.7% next and 1.4% in 2023. Inflation is set to average 3.6% in 2024, falling to target in early 2025. Unemployment is set to peak at 1.6 million, a rate of 4.6%.
Public sector net debt is expected to peak at 93% of GDP up from 89% this year. Borrowing is set to fall in each year of the forecast, even as interest payment rises to £120 billion.
Markets reacted well to the Autumn statement. Sterling closed at $1.26 it was $1.21 at the end of October. Ten year gilt yields closed at 4.23%. The Tories jumped four points to close the gap on Labour, only to lose the gain as the immigration figures were released.
Speculation already begins on the election date and content in the Spring budget. There could well be scope for a further income tax giveaway. Further NI or CT cuts would be unlikely. Inheritance Tax is hardly likely to shore up the Red Wall.
On the whole it was a balanced Autumn statement, undermined by the inadequate provisions on spending, diminished by the Chancellor's claims of the "Largest Business Tax Cut in Modern British History" ... Cheeky or what!
Latest inflation figures were released on Wednesday. Inflation CPI basis eased to 4.6% in October from 6.7% prior month. The fall was marginally better than the expected 4.7%, boosted by the adjustment to energy prices and the Ofcom cap, as we explained last week.
The effect was a near 22% drop in energy prices year on year and a 1% plus drop in the headline inflation rate. Without this the government would be unable to claim credit for "halving the inflation rate". Unable to move on to the next objective, later this week, to stimulate "growth".
What exactly Sunak and Hunt have done to achieve the halving objective is largely unclear. "VAT on children's clothing, I've scrapped that. VAT on food, I have scrapped that as well. VAT on protective boots for PMQs, I have scrapped that too. VAT on flights to Rwanda under review." Who could ask for more from Downing Street?
Goods inflation eased to 2.9%. Service sector inflation, remained disturbingly high at 6.6%. Insurance costs continue to rise at over 20%. Food inflation was 10%. The underlying inflation rate was down to 5.7% from 6.1%.
Producer price trends remain in negative territory. Output prices fell by -0.6%. Input prices were down by almost 4%. Oil prices sterling adjusted were down by almost 10% year on year.
Latest earnings Data...
So good news on producer prices and goods inflation. Not quite so good on service sector inflation. The latest earnings data present additional cause for concern. The latest data for September suggest earnings growth was 7.9% year on year from from 8.2% prior month. (based on the 3 month average).
Public sector earnings were 8.6%. Private sector earnings were 7.7%. Service sector pay growth was over 8%.
The jobs market is tightening slowly. Vacancies have fallen from a peak of 1,300,000 in May last year to 957, 000 in the latest three month period to October. The unemployment rate is probably running at 4.5% into the fourth quarter, with an unemployment level of just over 1.5 million.
According to experimental figures released by the Office for National Statistics Office last week, the unemployment rate was 4.2% in Q3 unchanged from the prior quarter.
The jobs market is tightening, but average earnings at 8% is just not compatible with a 4% inflation target, let alone the 2% inflation mandate. The Bank of England will look for a slow down in earnings growth into the early part of next year, if inflation targets are to be met.
So What Happens next?
Inflation is expected to average 4.5% in the final quarter of the year, then slowing to 3% by the end of 2024 according to the latest forecast from the BoE. This assumes a steady glide path through the year ahead. Let's hope so ...
The effect was a near 22% drop in energy prices year on year and a 1% plus drop in the headline inflation rate. Without this the government would be unable to claim credit for "halving the inflation rate". Unable to move on to the next objective, later this week, to stimulate "growth".
What exactly Sunak and Hunt have done to achieve the halving objective is largely unclear. "VAT on children's clothing, I've scrapped that. VAT on food, I have scrapped that as well. VAT on protective boots for PMQs, I have scrapped that too. VAT on flights to Rwanda under review." Who could ask for more from Downing Street?
Goods inflation eased to 2.9%. Service sector inflation, remained disturbingly high at 6.6%. Insurance costs continue to rise at over 20%. Food inflation was 10%. The underlying inflation rate was down to 5.7% from 6.1%.
Producer price trends remain in negative territory. Output prices fell by -0.6%. Input prices were down by almost 4%. Oil prices sterling adjusted were down by almost 10% year on year.
Latest earnings Data...
So good news on producer prices and goods inflation. Not quite so good on service sector inflation. The latest earnings data present additional cause for concern. The latest data for September suggest earnings growth was 7.9% year on year from from 8.2% prior month. (based on the 3 month average).
Public sector earnings were 8.6%. Private sector earnings were 7.7%. Service sector pay growth was over 8%.
The jobs market is tightening slowly. Vacancies have fallen from a peak of 1,300,000 in May last year to 957, 000 in the latest three month period to October. The unemployment rate is probably running at 4.5% into the fourth quarter, with an unemployment level of just over 1.5 million.
According to experimental figures released by the Office for National Statistics Office last week, the unemployment rate was 4.2% in Q3 unchanged from the prior quarter.
The jobs market is tightening, but average earnings at 8% is just not compatible with a 4% inflation target, let alone the 2% inflation mandate. The Bank of England will look for a slow down in earnings growth into the early part of next year, if inflation targets are to be met.
So What Happens next?
Inflation is expected to average 4.5% in the final quarter of the year, then slowing to 3% by the end of 2024 according to the latest forecast from the BoE. This assumes a steady glide path through the year ahead. Let's hope so ...
Sunak Puts The D.C. Back In Washington and the Chinese Like It ...
Chinese media hails David Cameron’s foreign secretary appointment. Chinese state media has heralded the appointment of Lord Cameron as foreign secretary and claimed it will “breathe new life into the China-UK relationship”.
An opinion piece in the Global Times, an English-language Communist Party-run newspaper, said that he had a “unique understanding” of China that critics would use to attack him.
It said: “David Cameron’s appointment as Britain’s new foreign secretary has the potential to breathe new life into the China-UK relationship which has in recent years experienced some serious setbacks.
“As a former British prime minister whose administration focused positively on fostering closer and mutually beneficial ties with Beijing, he is well positioned to engage with a country he came to comprehend well during his time in Downing Street.” The Global Times is part of the same group as the People’s Daily, the party’s flagship mouthpiece.
Cameron takes over the foreign office at a difficult time amid alarm at Beijing’s increased aggression in the South China Sea and the Taiwan Strait and concerns about prolific espionage activities in the UK.
From Fiona Hamilton at the Times Wednesday 15th November 2023
Chinese media hails David Cameron’s foreign secretary appointment. Chinese state media has heralded the appointment of Lord Cameron as foreign secretary and claimed it will “breathe new life into the China-UK relationship”.
An opinion piece in the Global Times, an English-language Communist Party-run newspaper, said that he had a “unique understanding” of China that critics would use to attack him.
It said: “David Cameron’s appointment as Britain’s new foreign secretary has the potential to breathe new life into the China-UK relationship which has in recent years experienced some serious setbacks.
“As a former British prime minister whose administration focused positively on fostering closer and mutually beneficial ties with Beijing, he is well positioned to engage with a country he came to comprehend well during his time in Downing Street.” The Global Times is part of the same group as the People’s Daily, the party’s flagship mouthpiece.
Cameron takes over the foreign office at a difficult time amid alarm at Beijing’s increased aggression in the South China Sea and the Taiwan Strait and concerns about prolific espionage activities in the UK.
From Fiona Hamilton at the Times Wednesday 15th November 2023
September. For some analysts, growth was stalling. For others growth was crawling, with some evidence of modest growth year on year.
We should call this the Schrodinger's cat economy. An economy both simultaneously alive or dead, With a government, objectively standing aside, undertaking a sort of quantum thought experiment to see what happens next.
The data set was flat compared to the previous three months. Compared to the third quarter last year, growth was up by 0.7%. This, after growth year on year, of 0.6% in Q1 and Q2. Assuming no growth in the final quarter, the economy will have expanded by 0.6% for the year as a whole.
This projection (0.6%) is in line with the Bank of England latest Monetary Policy Report for November. It's also in line with the latest National Institute (NIESR) UK Economic Outlook Autumn edition also released last week (0.6%).
The devil, as they say, is in the detail. Manufacturing growth was up by 3% in the third quarter. Construction output was up by 2.5%. Service sector growth was up by just 0.5% as a whole. Strong growth in admin and support (5.2%) was offset by 5.2% decline in transport and storage. Strong growth in accommodation and food (2.3%) plus 3% growth in information and communications, was offset by slowdowns in financial services, professional services, insurance and real estate. (-0.8%.)
It is a story of sectors, not widespread economic malaise. Car sales are up 20% year in year. Interest rates appear to have peaked. The Bank of England is projecting zero growth next year and just 0.4% in 2025. As we said last year, Why So Gloomy? The models ain't that great.
NIESR have plugged in growth of 0.5% in 2024 and 1.0% in 2025. The average of forecasts from the panel of independent forecasts published monthly by Treasury is 0.5% in 2023 and 0.5% in 2024. The OBR (published in March) had a negative 0.2% out turn for the current year and 1.3% growth next year.
So what do we know about growth? Not stalling but crawling. Crawling until the government gets a grip on policy. The King's speech was well articulated in presentation but stuttering in content. The Autumn statement does not offer up much hope of a boost to growth. The NIESR expectations seem reasonable for now.
We should call this the Schrodinger's cat economy. An economy both simultaneously alive or dead, With a government, objectively standing aside, undertaking a sort of quantum thought experiment to see what happens next.
The data set was flat compared to the previous three months. Compared to the third quarter last year, growth was up by 0.7%. This, after growth year on year, of 0.6% in Q1 and Q2. Assuming no growth in the final quarter, the economy will have expanded by 0.6% for the year as a whole.
This projection (0.6%) is in line with the Bank of England latest Monetary Policy Report for November. It's also in line with the latest National Institute (NIESR) UK Economic Outlook Autumn edition also released last week (0.6%).
The devil, as they say, is in the detail. Manufacturing growth was up by 3% in the third quarter. Construction output was up by 2.5%. Service sector growth was up by just 0.5% as a whole. Strong growth in admin and support (5.2%) was offset by 5.2% decline in transport and storage. Strong growth in accommodation and food (2.3%) plus 3% growth in information and communications, was offset by slowdowns in financial services, professional services, insurance and real estate. (-0.8%.)
It is a story of sectors, not widespread economic malaise. Car sales are up 20% year in year. Interest rates appear to have peaked. The Bank of England is projecting zero growth next year and just 0.4% in 2025. As we said last year, Why So Gloomy? The models ain't that great.
NIESR have plugged in growth of 0.5% in 2024 and 1.0% in 2025. The average of forecasts from the panel of independent forecasts published monthly by Treasury is 0.5% in 2023 and 0.5% in 2024. The OBR (published in March) had a negative 0.2% out turn for the current year and 1.3% growth next year.
So what do we know about growth? Not stalling but crawling. Crawling until the government gets a grip on policy. The King's speech was well articulated in presentation but stuttering in content. The Autumn statement does not offer up much hope of a boost to growth. The NIESR expectations seem reasonable for now.
Meeting last week, the MPC voted by six votes to three to leave base rates unchanged at 5.25%. Three members Megan Greene, Jonathan Haskel and Catherine L Mann voted to increase Bank Rate by 0.25 percentage points to 5.5%.
Interest rates will remain high for an “extended” period of time and may even have to rise again if inflation trends off track, Governor Andrew Bailey has warned.
“Let me be clear, there is absolutely no room for complacency. Inflation is still too high. We will keep interest rates high enough for long enough to make sure we get inflation all the way back to the 2% target. We will be watching closely to see if further increases in interest rates are needed. But even if they are not, it is much too early to be thinking about rate cuts.”
The Bank expects inflation to fall (have fallen) significantly in October, thereafter to hold below five per cent by the end of the year.
“We expect inflation to take another, larger, step down in October’s data when it is published in two weeks’ time. From 6.7% in September, we think it will probably fall to just below 5%. We then expect it to remain around that level for the rest of year.” Inflation is unlikely to return to target 2% until the first quarter of 2025.
The Bank published projections showing the economy will grow by 0.6% this year, then flat line next year with zero growth expected in 2024. In 2025 the economy is predicted to grow by 0.4 per cent.
Major concerns include service sector inflation and wage growth. “Despite the softening in the labour market, nominal wage growth remains much higher than would be consistent with the inflation target, if sustained at these rates.” It was said.
The ONS measure of annual growth in regular average weekly earnings in the private sector was 8.0% in August, higher than expected and more consistent with an inflation out turn of 4.5% rather than the 2% target.
“The MPC’s latest projections indicate that monetary policy is likely to need to be restrictive for quite some time yet. How long a restrictive stance will be needed will ultimately depend on what the incoming data tell us about the outlook for inflation over the medium term.”
Financial markets expect the Bank to begin cutting interest rates in the second half of next year, although some analysts think the UK’s sluggish economic performance may prompt the MPC to start loosening policy sooner.
The monetarists in the camp. alarmed by the latest money supply figures. think now is the time to start cutting rates. Friedman claimed “Inflation is always and everywhere a monetary phenomenon”. M4 growth slumped to negative -3.9% in September. The 2% target could be hit much sooner than expected with a more damaging outlook for jobs and growth, if the monetary maxims hold.
So interest rates may have to rise ... or may have to be slashed? The Pound trades at $1.24 this morning up from the October $1.21 low. Ten year bond yields trade down at 4.3% down from the 4.7% high last month. For the moment, the markets have decided, no cuts or hikes in prospect, rates on hold well into the New Year.
Interest rates will remain high for an “extended” period of time and may even have to rise again if inflation trends off track, Governor Andrew Bailey has warned.
“Let me be clear, there is absolutely no room for complacency. Inflation is still too high. We will keep interest rates high enough for long enough to make sure we get inflation all the way back to the 2% target. We will be watching closely to see if further increases in interest rates are needed. But even if they are not, it is much too early to be thinking about rate cuts.”
The Bank expects inflation to fall (have fallen) significantly in October, thereafter to hold below five per cent by the end of the year.
“We expect inflation to take another, larger, step down in October’s data when it is published in two weeks’ time. From 6.7% in September, we think it will probably fall to just below 5%. We then expect it to remain around that level for the rest of year.” Inflation is unlikely to return to target 2% until the first quarter of 2025.
The Bank published projections showing the economy will grow by 0.6% this year, then flat line next year with zero growth expected in 2024. In 2025 the economy is predicted to grow by 0.4 per cent.
Major concerns include service sector inflation and wage growth. “Despite the softening in the labour market, nominal wage growth remains much higher than would be consistent with the inflation target, if sustained at these rates.” It was said.
The ONS measure of annual growth in regular average weekly earnings in the private sector was 8.0% in August, higher than expected and more consistent with an inflation out turn of 4.5% rather than the 2% target.
“The MPC’s latest projections indicate that monetary policy is likely to need to be restrictive for quite some time yet. How long a restrictive stance will be needed will ultimately depend on what the incoming data tell us about the outlook for inflation over the medium term.”
Financial markets expect the Bank to begin cutting interest rates in the second half of next year, although some analysts think the UK’s sluggish economic performance may prompt the MPC to start loosening policy sooner.
The monetarists in the camp. alarmed by the latest money supply figures. think now is the time to start cutting rates. Friedman claimed “Inflation is always and everywhere a monetary phenomenon”. M4 growth slumped to negative -3.9% in September. The 2% target could be hit much sooner than expected with a more damaging outlook for jobs and growth, if the monetary maxims hold.
So interest rates may have to rise ... or may have to be slashed? The Pound trades at $1.24 this morning up from the October $1.21 low. Ten year bond yields trade down at 4.3% down from the 4.7% high last month. For the moment, the markets have decided, no cuts or hikes in prospect, rates on hold well into the New Year.
At the October meeting, the ECB Governing Council decided to keep the three key ECB interest rates unchanged. The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility remained unchanged at 4.50%, 4.75% and 4.00% respectively.
According to the policy statement, "The latest information broadly confirmed the previous assessment of the medium-term inflation outlook. Inflation is still expected to stay too high for too long, and domestic price pressures remain strong. At the same time, inflation dropped markedly in September and most measures of underlying inflation have continued to ease. The Governing Council’s past interest rate increases continue to be transmitted into financing conditions. This is increasingly dampening demand and thereby helps push down inflation.
The Governing Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner. Based on its current assessment, the Governing Council considers the key ECB interest rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution to this goal.
The Governing Council’s interest rate decisions will be based on its assessment of the inflation outlook in light of the incoming economic and financial data."
Official figures showed inflation in the Eurozone eased to 4.3 per cent in September from 5.2 per cent in August. Inflation is expected to average 5.6% in 2023, before dropping to 2.9% in 2024 and 2.2% in 2025 according to projections from ECB staff.
EU annual inflation eased to 4.9% in September, down from 5.9% in August, according to latest data from Eurostat, the statistical office of the European Union. The IMF latest forecasts assume growth of 0.7% in 2023 rising to 1.2% in 2024.
So trick or treat? The hold on rates is in line with our expectations. Rates may be on hold for longer as inflation trends unwind.
Check out the Full Post in Our Latest Updates
According to the policy statement, "The latest information broadly confirmed the previous assessment of the medium-term inflation outlook. Inflation is still expected to stay too high for too long, and domestic price pressures remain strong. At the same time, inflation dropped markedly in September and most measures of underlying inflation have continued to ease. The Governing Council’s past interest rate increases continue to be transmitted into financing conditions. This is increasingly dampening demand and thereby helps push down inflation.
The Governing Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner. Based on its current assessment, the Governing Council considers the key ECB interest rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution to this goal.
The Governing Council’s interest rate decisions will be based on its assessment of the inflation outlook in light of the incoming economic and financial data."
Official figures showed inflation in the Eurozone eased to 4.3 per cent in September from 5.2 per cent in August. Inflation is expected to average 5.6% in 2023, before dropping to 2.9% in 2024 and 2.2% in 2025 according to projections from ECB staff.
EU annual inflation eased to 4.9% in September, down from 5.9% in August, according to latest data from Eurostat, the statistical office of the European Union. The IMF latest forecasts assume growth of 0.7% in 2023 rising to 1.2% in 2024.
So trick or treat? The hold on rates is in line with our expectations. Rates may be on hold for longer as inflation trends unwind.
Check out the Full Post in Our Latest Updates
The Tories received a bit of a shock this week. Bye election results in Tamworth and Mid Bedforshire delivered wins for Labour with significant reversals of Conservative majorities.
Tamworth Labour tweeted that it was an “absolutely sensational result”. The Tories starting the night with a majority of almost 20,000 but Labour won with a majority of 1,316. Election expert Sir Jon Curtice said that “no government has hitherto lost to the principal opposition party in a by-election a seat as safe as Tamworth.”
Tory Party Chairman Greg Hands said he will not resign despite the losses. "The swing to Labour was clearly disappointing but bye elections are not a good indicator of how the general election will turn out."
"People think Rishi is doing a good job, He is the best leader to take the country forward. We are committed to halving inflation, restoring growth, cutting debt, reducing hospital waiting list and stopping the boats. We are making the right decisions on transport infrastructure, smoking and mathematics." OK don't mention prison overcrowding and popup cells in courtyards.
Greg Hands sought to deflect blame away from Rishi Sunak, saying the defeats, which came on the back of two by-election losses in July, were the result of "legacy issues" that pre-dated Mr Sunak's time in office.
The party's defeats have been criticised by its own MPs, with Dame Andrea Jenkyns saying the Tories needed to make "far-reaching major changes now".
David Frost, the UK's former chief Brexit negotiator, said the results were "extremely bad for my party". I don't think it helps to suggest otherwise, as some party figures have done this morning. The current national polls are dreadful for us but these results are even worse. These results show that the national polls are broadly correct and that a strategy of denial is unlikely to work."
George Osborne said Sunak and chancellor, Jeremy Hunt, have restored a rational, serious approach to politics but he and other Cameroons were offended when Sunak tried to present himself as the radical-change candidate after 13 years of a failed Tory government.
I don't think he's really going to be able to pull that off, Osborne said. You can't say, "All that went before me was pointless or useless, because people will say: Well you were part of that party, you are pointless and useless."
It''s a fair point. The bye elections occurred when Chris Pincher resigned for groping, Nadine Dorries resigned for sulking. There was no swing to Labour. Labour picked up 800 votes in Tamworth but lost 150 votes in Mid Bedfordshire.
The Tories lost 16,000 votes in Bedforshire and 20,000 votes in Tamworth. Tory voters stayed at home. Legacy issues, thirteen years in office, pointless and useless. That's a lot of electoral baggage ... and a clear message to Number Ten ...
Tamworth Labour tweeted that it was an “absolutely sensational result”. The Tories starting the night with a majority of almost 20,000 but Labour won with a majority of 1,316. Election expert Sir Jon Curtice said that “no government has hitherto lost to the principal opposition party in a by-election a seat as safe as Tamworth.”
Tory Party Chairman Greg Hands said he will not resign despite the losses. "The swing to Labour was clearly disappointing but bye elections are not a good indicator of how the general election will turn out."
"People think Rishi is doing a good job, He is the best leader to take the country forward. We are committed to halving inflation, restoring growth, cutting debt, reducing hospital waiting list and stopping the boats. We are making the right decisions on transport infrastructure, smoking and mathematics." OK don't mention prison overcrowding and popup cells in courtyards.
Greg Hands sought to deflect blame away from Rishi Sunak, saying the defeats, which came on the back of two by-election losses in July, were the result of "legacy issues" that pre-dated Mr Sunak's time in office.
The party's defeats have been criticised by its own MPs, with Dame Andrea Jenkyns saying the Tories needed to make "far-reaching major changes now".
David Frost, the UK's former chief Brexit negotiator, said the results were "extremely bad for my party". I don't think it helps to suggest otherwise, as some party figures have done this morning. The current national polls are dreadful for us but these results are even worse. These results show that the national polls are broadly correct and that a strategy of denial is unlikely to work."
George Osborne said Sunak and chancellor, Jeremy Hunt, have restored a rational, serious approach to politics but he and other Cameroons were offended when Sunak tried to present himself as the radical-change candidate after 13 years of a failed Tory government.
I don't think he's really going to be able to pull that off, Osborne said. You can't say, "All that went before me was pointless or useless, because people will say: Well you were part of that party, you are pointless and useless."
It''s a fair point. The bye elections occurred when Chris Pincher resigned for groping, Nadine Dorries resigned for sulking. There was no swing to Labour. Labour picked up 800 votes in Tamworth but lost 150 votes in Mid Bedfordshire.
The Tories lost 16,000 votes in Bedforshire and 20,000 votes in Tamworth. Tory voters stayed at home. Legacy issues, thirteen years in office, pointless and useless. That's a lot of electoral baggage ... and a clear message to Number Ten ...
It was Liam Byrne Chief Secretary for the outgoing Labour government in 2019, who penned the note for his successor to say "I'm afraid there is no money". Byrne came to regret the comment, which he described as stupid and offensive. Offensive to the millions of people who had made sacrifices to achieve the budget cuts. Stupid because it became easy for Labour opponents to bash the economic mess inherited.
Perhaps the comment was not quite as offensive as that made by the Tory Chancellor Reggie Maudling, who bounced down the steps of the Treasury in 1964 to tell Jim Callaghan, "Sorry to leave it in such a mess, old cock."
Jeremy Hunt has wasted no time in advising there is no money for tax cuts in the forthcoming Autumn statement. Perhaps little chance of tax cuts in the Spring either, which will be the last budget before the 2024 election.
The IFS has made it quite clear, the economy is in a bit of a mess "Old Cock". "We are in a horrible fiscal bind as low growth and high debt interest payments mean there is no room for manoeuvre."
"The UK economy remains stuck between weak growth on the one hand and the risk of persistently high inflation on the other. An ill-timed fiscal loosening, such as an unfunded package of pre-election tax cuts might give a short-term economic sugar rush, but could prove unsustainable. This could lead to a protracted recession as interest rates rise even further to bring inflation back under control.
The state of the public finances also undermines the case for net tax cuts any time soon. The Chancellor is in a terrible bind, as will be whoever is Chancellor after the general election. Poor growth and very high spending on debt interest over the next few years mean that the national debt is stuck at close to 100% of national income.
In the first six months of the year, Public Sector Borrowing was £81.7 billion. That's £15.3 billion up on prior year, an increase of 23%. In the full year, 2022/23, borrowing was £128.3 billion. Pro rata the government is set to borrow over £150 billion this year [in line with OBR forecasts]. Total debt has risen to £2.6 trillion, 97.8% of GDP.
Political pressure are rising, especially following the bye election results this month. Jeremy Hunt may well caution, "I'm afraid there is no money." The response may well be, "Well just print some more then anyway. We can sort the mess out later ...
Perhaps the comment was not quite as offensive as that made by the Tory Chancellor Reggie Maudling, who bounced down the steps of the Treasury in 1964 to tell Jim Callaghan, "Sorry to leave it in such a mess, old cock."
Jeremy Hunt has wasted no time in advising there is no money for tax cuts in the forthcoming Autumn statement. Perhaps little chance of tax cuts in the Spring either, which will be the last budget before the 2024 election.
The IFS has made it quite clear, the economy is in a bit of a mess "Old Cock". "We are in a horrible fiscal bind as low growth and high debt interest payments mean there is no room for manoeuvre."
"The UK economy remains stuck between weak growth on the one hand and the risk of persistently high inflation on the other. An ill-timed fiscal loosening, such as an unfunded package of pre-election tax cuts might give a short-term economic sugar rush, but could prove unsustainable. This could lead to a protracted recession as interest rates rise even further to bring inflation back under control.
The state of the public finances also undermines the case for net tax cuts any time soon. The Chancellor is in a terrible bind, as will be whoever is Chancellor after the general election. Poor growth and very high spending on debt interest over the next few years mean that the national debt is stuck at close to 100% of national income.
In the first six months of the year, Public Sector Borrowing was £81.7 billion. That's £15.3 billion up on prior year, an increase of 23%. In the full year, 2022/23, borrowing was £128.3 billion. Pro rata the government is set to borrow over £150 billion this year [in line with OBR forecasts]. Total debt has risen to £2.6 trillion, 97.8% of GDP.
Political pressure are rising, especially following the bye election results this month. Jeremy Hunt may well caution, "I'm afraid there is no money." The response may well be, "Well just print some more then anyway. We can sort the mess out later ...
The Labour Party was in Liverpool this week. "Let's Get Britain's Future Back" the slogan. The Conservative Party was in Manchester last week, "Let's Get Britain's History Behind Us" the objective. For the Labour Party, it was the best of times. For the Tories, it was the worst of times.
News that NHS waiting lists had topped 8 million was bad, but then came news waiting lists would have to be added to prison occupation. Judges were warned sentencing should be delayed, the prison cells were full. But where to put them. Criminals could be handcuffed to trolleys outside A&E or held over in prison delivery vehicles, or put on a flight to Rwanda, the home office favourite option, perhaps.
Rishi Sunak was forced to admit the list of project for infrastructure in the North was "illusory". Although the word used was "illustrative", I guess we knew what he meant. OK, the metro link to Manchester airport was on the list, even though it was completed over seven years ago. A simple mistake by a few SPADs, late at night, over drinks and pizza in the Midland hotel.
Chancellor Jeremy Hunt was in cautious mode. Tens of billions of pounds of higher debt interest payments and a slowing economy suggest the UK's fiscal picture is far worse than it was in the spring. The growth outlook has worsened, ruling out the possibility of tax cuts this Autumn. No excitement ahead of the Autumn statement. So what is the point of an Autumn statement at all?
"Make UK" has urged the Chancellor to drop the concept of an Autumn statement altogether, there really is nothing to add. If the best policy offer from the Prime Minister is a ban on smoking and maths to eighteen, then what can a beleaguered Chancellor offer, in a week in which the IMF downgrades forecasts for growth.
So it was left to Prime Minister in waiting, Sir Kier Starmer to fill the void. Starmer's conference speech was considered to be one of his best yet. It didn't get off to a great start. When he walked on stage, a protester sprang upon him with a handful of glitter before being tackled to the ground by security. "If he thinks that bothers me, he doesn't know me," Starmer quipped. John Prescott would have thumped the intruder. Starmer didn't look bothered. He just took off his sparkly jacket, rolled up his sleeves and carried on. His audience loved him for it.
According to Freddie Hayward in the New Statesman, his main theme was rebuilding the future through infrastructure investment, planning reform and 1.5 million new homes. Starmer wants to build another generation of new towns, like Clement Attlee before him. He spoke of investment not as a burden on the national debt but as an opportunity to save money, crowd in private finance, create jobs and growth.
"Government must steer the ship on industrial policy. That's a crucial part of any plan for growth," Starmer insisted, he wanted "not state control, not pure free markets, but a genuine partnership between business and government."
It was a speech devoid of detail but offered direction. ‘Never interfere with an enemy while he’s in the process of destroying himself.’ the guideline. Starmer was keen to avoid giving the Tories too much ammunition. Tony Blair had carefully avoided detail in the run-up to the election of 1997. So careful was he, not to go into any detail in that campaign, that Roy Jenkins famously described Tony Blair as being "like a man carrying a Ming vase across a highly polished floor".
"Sir Kier Starmer", according to Philip Johnston in The Telegraph, "is the latest Labour leader tip-toeing towards an election, terrified he will drop the priceless piece of porcelain". "His windy speech at the party conference, was replete with hackneyed generalizations and low on specifics."
The Labour leader said "he wanted the nation to "walk towards a decade of national renewal and face down the age of insecurity". "Contrasting 13 years of things can only get better, with 13 years of things have only got worse".
So what to make of it all? Rishi Sunak's rating has fallen to a record low since the Conservative Party conference, according to polling for The Times. The YouGuv survey found that only 20 per cent of voters believed Sunak would make the best Prime Minister.
Sir Keir Starmer's rating fell by two points, to 32 per cent. Highlighting the uncertainty among voters a year before the possible date of the next election. 43 per cent of voters said they were not sure who would make the best leader.
Matt Hancock in The Times today reports "In our monthly Times Radio focus group we asked a group of undecided voters what they made of it all. Sunak was seen as "quietly confident" "wealthy", "unbelievable", "untrustworthy" and "very, very, very rich". Starmer, by contrast, was "boring", "hopeless', "drab", "rubbish", "wet", "uninspiring" and "vanilla".
It just goes to show, "not all that glitters can be sold." Even so, the latest YouGov/Times voting intention poll, post conference, shows the Conservatives on 24% to Labour's 47% up two points. It promises to be an interesting year ahead.
News that NHS waiting lists had topped 8 million was bad, but then came news waiting lists would have to be added to prison occupation. Judges were warned sentencing should be delayed, the prison cells were full. But where to put them. Criminals could be handcuffed to trolleys outside A&E or held over in prison delivery vehicles, or put on a flight to Rwanda, the home office favourite option, perhaps.
Rishi Sunak was forced to admit the list of project for infrastructure in the North was "illusory". Although the word used was "illustrative", I guess we knew what he meant. OK, the metro link to Manchester airport was on the list, even though it was completed over seven years ago. A simple mistake by a few SPADs, late at night, over drinks and pizza in the Midland hotel.
Chancellor Jeremy Hunt was in cautious mode. Tens of billions of pounds of higher debt interest payments and a slowing economy suggest the UK's fiscal picture is far worse than it was in the spring. The growth outlook has worsened, ruling out the possibility of tax cuts this Autumn. No excitement ahead of the Autumn statement. So what is the point of an Autumn statement at all?
"Make UK" has urged the Chancellor to drop the concept of an Autumn statement altogether, there really is nothing to add. If the best policy offer from the Prime Minister is a ban on smoking and maths to eighteen, then what can a beleaguered Chancellor offer, in a week in which the IMF downgrades forecasts for growth.
So it was left to Prime Minister in waiting, Sir Kier Starmer to fill the void. Starmer's conference speech was considered to be one of his best yet. It didn't get off to a great start. When he walked on stage, a protester sprang upon him with a handful of glitter before being tackled to the ground by security. "If he thinks that bothers me, he doesn't know me," Starmer quipped. John Prescott would have thumped the intruder. Starmer didn't look bothered. He just took off his sparkly jacket, rolled up his sleeves and carried on. His audience loved him for it.
According to Freddie Hayward in the New Statesman, his main theme was rebuilding the future through infrastructure investment, planning reform and 1.5 million new homes. Starmer wants to build another generation of new towns, like Clement Attlee before him. He spoke of investment not as a burden on the national debt but as an opportunity to save money, crowd in private finance, create jobs and growth.
"Government must steer the ship on industrial policy. That's a crucial part of any plan for growth," Starmer insisted, he wanted "not state control, not pure free markets, but a genuine partnership between business and government."
It was a speech devoid of detail but offered direction. ‘Never interfere with an enemy while he’s in the process of destroying himself.’ the guideline. Starmer was keen to avoid giving the Tories too much ammunition. Tony Blair had carefully avoided detail in the run-up to the election of 1997. So careful was he, not to go into any detail in that campaign, that Roy Jenkins famously described Tony Blair as being "like a man carrying a Ming vase across a highly polished floor".
"Sir Kier Starmer", according to Philip Johnston in The Telegraph, "is the latest Labour leader tip-toeing towards an election, terrified he will drop the priceless piece of porcelain". "His windy speech at the party conference, was replete with hackneyed generalizations and low on specifics."
The Labour leader said "he wanted the nation to "walk towards a decade of national renewal and face down the age of insecurity". "Contrasting 13 years of things can only get better, with 13 years of things have only got worse".
So what to make of it all? Rishi Sunak's rating has fallen to a record low since the Conservative Party conference, according to polling for The Times. The YouGuv survey found that only 20 per cent of voters believed Sunak would make the best Prime Minister.
Sir Keir Starmer's rating fell by two points, to 32 per cent. Highlighting the uncertainty among voters a year before the possible date of the next election. 43 per cent of voters said they were not sure who would make the best leader.
Matt Hancock in The Times today reports "In our monthly Times Radio focus group we asked a group of undecided voters what they made of it all. Sunak was seen as "quietly confident" "wealthy", "unbelievable", "untrustworthy" and "very, very, very rich". Starmer, by contrast, was "boring", "hopeless', "drab", "rubbish", "wet", "uninspiring" and "vanilla".
It just goes to show, "not all that glitters can be sold." Even so, the latest YouGov/Times voting intention poll, post conference, shows the Conservatives on 24% to Labour's 47% up two points. It promises to be an interesting year ahead.
Well we didn't see that coming. Rachel Reeves delivered what many consider to be her best speech yet.
According to Freddie Hayward in the New Statesman, "This was the best speech of her career so far. She spoke with seriousness and conviction. OK, there was little new substantive policy. A commitment to crowding-in private investment, a reduction in the government's use of consultants, a new team to claw back the money fraudsters stole during the pandemic. Restrictions on ministers use of private planes.
A few million here or there is not going to change the purpose of the state. But it still matters politically."
Reeves's key objective is reassuring voters that Labour won't crash the economy, but the Tories will. "The biggest risk to Britain's economy, is five more years of the Conservative party."
Check Out The Full Post Here
According to Freddie Hayward in the New Statesman, "This was the best speech of her career so far. She spoke with seriousness and conviction. OK, there was little new substantive policy. A commitment to crowding-in private investment, a reduction in the government's use of consultants, a new team to claw back the money fraudsters stole during the pandemic. Restrictions on ministers use of private planes.
A few million here or there is not going to change the purpose of the state. But it still matters politically."
Reeves's key objective is reassuring voters that Labour won't crash the economy, but the Tories will. "The biggest risk to Britain's economy, is five more years of the Conservative party."
Check Out The Full Post Here
Wall Street had expected 170,000 jobs to be created in September. The U.S. economy added 336,000 jobs, more than double the level economists had expected. The data underscored just how much strength remains in the labor market despite the Fed’s campaign to cool things down. Job growth for both July and August was also revised upward, showing a combined 119,000 more jobs had been created than previously reported. Unemployment remained steady at 3.8%. Earnings eased back in the latest data.
Forecasts for growth in the U.S. have now been upgraded to over 2%. The good news on inflation continues. The bad news, the markets assume the Fed will hike rates further in November. We had always assumed a 25 basis point hike was coming before the end of the year.
Mayhem in the bond markets? Not really. Ten year bond rates increased to 4.8% from 4.6%. Thirty year gilts closed just under 5% at 4.96%. Short rates three months, closed at 5.5%. Markets are conditioned to expect rates to be higher and for longer than expected earlier in the year. We have long warned of this, in the adjustment process to life after Planet ZIRP
In the U.K. ten year gilts closed unchanged at 4.6%. 30 year gilts closed up 13 basis points at 5.05%. Six month rates were at 5.5%. One year rates eased back to 4.9% from 5.15%.
No mayhem involved. The yield curve is normalizing. In the UK, prior to the Great Financial Crash [2000 - 2008] the average inflation rate was 2.0%, the average UK bank rate was 4.50%. Ten year Gilt yields averaged 4.50%. Thirty year gilts averaged 4.6%, real GDP growth averaged 2.5%, earnings averaged 3.5% and the unemployment rate averaged 5%. So what happens next in the U.K.?
We expect a further 25 basis point rise before the end of the year. Base rates rising to 5.5%. Rates then on hold, this could be it for the cycle. The Bank will be keeping a close watch on earnings. Wages increasing at over 6%, is just not compatible with a 2% CPI target.
Forecasts for growth in the U.S. have now been upgraded to over 2%. The good news on inflation continues. The bad news, the markets assume the Fed will hike rates further in November. We had always assumed a 25 basis point hike was coming before the end of the year.
Mayhem in the bond markets? Not really. Ten year bond rates increased to 4.8% from 4.6%. Thirty year gilts closed just under 5% at 4.96%. Short rates three months, closed at 5.5%. Markets are conditioned to expect rates to be higher and for longer than expected earlier in the year. We have long warned of this, in the adjustment process to life after Planet ZIRP
In the U.K. ten year gilts closed unchanged at 4.6%. 30 year gilts closed up 13 basis points at 5.05%. Six month rates were at 5.5%. One year rates eased back to 4.9% from 5.15%.
No mayhem involved. The yield curve is normalizing. In the UK, prior to the Great Financial Crash [2000 - 2008] the average inflation rate was 2.0%, the average UK bank rate was 4.50%. Ten year Gilt yields averaged 4.50%. Thirty year gilts averaged 4.6%, real GDP growth averaged 2.5%, earnings averaged 3.5% and the unemployment rate averaged 5%. So what happens next in the U.K.?
We expect a further 25 basis point rise before the end of the year. Base rates rising to 5.5%. Rates then on hold, this could be it for the cycle. The Bank will be keeping a close watch on earnings. Wages increasing at over 6%, is just not compatible with a 2% CPI target.
In London this week. The trip as part of a series of events, with Praetura. Praetura Group is the Manchester based financial services company specializing in lending and equity solutions for startups and SMEs. Dave Foreman MD, one of the founder members was presenting, a number of invested companies formed part of a fascinating panel. I opened the session with a thirty minute round up of the UK and World Economy. Lot of discussion about inflation and interest rates especially in view of the "Bond Market Mayhem" in the U.S. this week, but more on that later. Our trip did not get off to a great start.
Traveling from Lancaster to London, the scheduled train was cancelled. The next available train was overcrowded. The train eventually arrived in Euston, thirty minutes late. We were held up in Warrington station. Someone pulled the emergency cord. The pressure of the trip from Glasgow, too much perhaps. One guy just couldn't take any more. For him, the remainder of the trip to London was scrapped.
Rishi Sunak's speech in Manchester came to mind. He had done a lot of scrapping this week, including HS2. News of the Sam Bankman-Fried trial filtered through, the FTX boss had stolen over $10 billion in an "Empire Built on Lies", the jury was told. This as nothing.
Rishi Sunak had stolen almost $50 billion dollars from the people of the North in his speech. The promise of a ten billion dollar spend on potholes, evidence of myopia and misdirection, offering little comfort. No high speed rail, a ban on cigarettes, the promise of mathematics into the future the greater vision. For some it gets worse.
If you've been struggling to find Walkers Worcester Sauce crisps, there is bad news. Walkers confirmed the derivative has been scrapped. Walkers has not confirmed why the decision was made. Rumours are circulating of an intervention by Number ten. Fans have flocked to Twitter to lament the loss. One said: "Walkers sacking off Worcester sauce crisps is absolutely criminal, as if the damage hadn't been done enough by getting rid of beef and onion." The Tories are blaming Labour for that one. Yep that and the tax on meat.
Traveling from Lancaster to London, the scheduled train was cancelled. The next available train was overcrowded. The train eventually arrived in Euston, thirty minutes late. We were held up in Warrington station. Someone pulled the emergency cord. The pressure of the trip from Glasgow, too much perhaps. One guy just couldn't take any more. For him, the remainder of the trip to London was scrapped.
Rishi Sunak's speech in Manchester came to mind. He had done a lot of scrapping this week, including HS2. News of the Sam Bankman-Fried trial filtered through, the FTX boss had stolen over $10 billion in an "Empire Built on Lies", the jury was told. This as nothing.
Rishi Sunak had stolen almost $50 billion dollars from the people of the North in his speech. The promise of a ten billion dollar spend on potholes, evidence of myopia and misdirection, offering little comfort. No high speed rail, a ban on cigarettes, the promise of mathematics into the future the greater vision. For some it gets worse.
If you've been struggling to find Walkers Worcester Sauce crisps, there is bad news. Walkers confirmed the derivative has been scrapped. Walkers has not confirmed why the decision was made. Rumours are circulating of an intervention by Number ten. Fans have flocked to Twitter to lament the loss. One said: "Walkers sacking off Worcester sauce crisps is absolutely criminal, as if the damage hadn't been done enough by getting rid of beef and onion." The Tories are blaming Labour for that one. Yep that and the tax on meat.
The Home Secretary was in Washington this week. The plan to meet with members of the Biden administration and to deliver a headline grabbing speech at the American Enterprise Institute for Public Policy Research.
Known simply as the American Enterprise Institute, the AEI is a right wing libertarian think tank based in Washington, D.C. Research is focused on government, politics, economics and social welfare.
One can only assume Braverman suggested a trip to Washington to distract press focus away from Number Ten. Anything to draw attention from the HS2 debacle and the Rushi Sunak "Scrap It" campaign.
"I will probably talk about the challenges of multi culturalism and reducing the number of small boats coming across the channel" the Home Secretary would have said. "Sounds great" said the Prime Minister. I am involved in a bit of re positioning and self deprecation myself. Have a great trip. Try to stay out of the headlines!"
Check Out The Full Post Here ...
Known simply as the American Enterprise Institute, the AEI is a right wing libertarian think tank based in Washington, D.C. Research is focused on government, politics, economics and social welfare.
One can only assume Braverman suggested a trip to Washington to distract press focus away from Number Ten. Anything to draw attention from the HS2 debacle and the Rushi Sunak "Scrap It" campaign.
"I will probably talk about the challenges of multi culturalism and reducing the number of small boats coming across the channel" the Home Secretary would have said. "Sounds great" said the Prime Minister. I am involved in a bit of re positioning and self deprecation myself. Have a great trip. Try to stay out of the headlines!"
Check Out The Full Post Here ...
According to the Times this week, when Rishi Sunak returned from his holiday he had a list of priorities for the second phase of his premiership. Such was the desire for secrecy that each of them was given a code name.
The code name theme for the policy group was trees. Net zero was cedar, education was elm, HS2 was redwood and health was hawthorn. “It’s been quite surreal,” a Downing Street official said. “People keep saying things like: ‘I’ve just got to go into a meeting on elm.” "Off to a session on Dead Wood". "Health is a thorny subject". That sort of thing.
The first of those plans began to emerge this week as Sunak unveiled the result of Project Cedar, a significant watering down of green policies on the route to net zero.
Click to check out the full post in our latest updates ...
The code name theme for the policy group was trees. Net zero was cedar, education was elm, HS2 was redwood and health was hawthorn. “It’s been quite surreal,” a Downing Street official said. “People keep saying things like: ‘I’ve just got to go into a meeting on elm.” "Off to a session on Dead Wood". "Health is a thorny subject". That sort of thing.
The first of those plans began to emerge this week as Sunak unveiled the result of Project Cedar, a significant watering down of green policies on the route to net zero.
Click to check out the full post in our latest updates ...
In latest central bank moves, the ECB raised rates by 25 basis points this week. In the monetary policy statement accompanying the move the ECB stated ...
"Based on its current assessment, the Governing Council considers that the key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target."
Markets rallied, a clear indication further rate rises were on hold? Perhaps. Inflation is falling, growth is slowing. The interest-rate hike sparked a backlash from Italy and Portugal. Spain’s deputy premier expressed hope that its tightening push is now done.
Where Are Rates Headed? Bet on Higher for Longer but probable not by much. A further 25 point rise is possible in the U.S. and the U.K. The ECB is indicating the high point in the cycle may well have been reached..
The Fed is more agnostic. “It is certainly possible that we would raise funds again at the September meeting if the data warranted,” Fed Chairman Jerome Powell told reporters last month. “And I would also say it’s possible that we would choose to hold steady at that meeting.”
Andrew Bailey, Governor of the Bank of England was equally enigmatic. "I am not going to judge what the path of rates will be, not least because more than one path may deliver inflation back to target. We will judge what is the most appropriate based on the evidence".
Want to read more? Check out our Friday Forward Guidance
"Based on its current assessment, the Governing Council considers that the key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target."
Markets rallied, a clear indication further rate rises were on hold? Perhaps. Inflation is falling, growth is slowing. The interest-rate hike sparked a backlash from Italy and Portugal. Spain’s deputy premier expressed hope that its tightening push is now done.
Where Are Rates Headed? Bet on Higher for Longer but probable not by much. A further 25 point rise is possible in the U.S. and the U.K. The ECB is indicating the high point in the cycle may well have been reached..
The Fed is more agnostic. “It is certainly possible that we would raise funds again at the September meeting if the data warranted,” Fed Chairman Jerome Powell told reporters last month. “And I would also say it’s possible that we would choose to hold steady at that meeting.”
Andrew Bailey, Governor of the Bank of England was equally enigmatic. "I am not going to judge what the path of rates will be, not least because more than one path may deliver inflation back to target. We will judge what is the most appropriate based on the evidence".
Want to read more? Check out our Friday Forward Guidance
Welcome to the Nèijuǎn 内卷 World Economy ... "An economy twisting inward without real progress ...
The world economy is moving toward "Nèijuǎn 内卷 ... a world economy, twisting inward without real progress. World trade growth is slowing. World growth is stagnating. A world which includes the UK post Brexit, European stagnation in the face of energy cost acceleration, China and the U.S. decoupling and a setback for globalization as a cold war mentality returns with an East West axis.
"Guns or Butter" takes in a new meaning as Moscow barters maize for munitions with Pyongyang. China develops BRICS Plus, a new trading block no longer to be Dollar dependent.
Check out the full post here in our latest updates
The world economy is moving toward "Nèijuǎn 内卷 ... a world economy, twisting inward without real progress. World trade growth is slowing. World growth is stagnating. A world which includes the UK post Brexit, European stagnation in the face of energy cost acceleration, China and the U.S. decoupling and a setback for globalization as a cold war mentality returns with an East West axis.
"Guns or Butter" takes in a new meaning as Moscow barters maize for munitions with Pyongyang. China develops BRICS Plus, a new trading block no longer to be Dollar dependent.
Check out the full post here in our latest updates
UK inflation "may have" peaked according to the latest data. We are not so sure. In the U.S. on the other hand, both headline CPI and producer prices suggest inflation may well have been transitory after all.
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Jeremy Hunt, the new UK chancellor, today scrapped the bulk of Kwasi Kwarteng’s tax cuts 17th October 2022 ....
Jeremy Hunt, the new UK chancellor, today scrapped the bulk of Kwasi Kwarteng’s tax cutsin a desperate effort to calm markets. In an emergency move to rebuild the government’s fiscal credibility, Hunt ripped up the government’s tax and spending plans, putting a wrecking ball through the economic policy of prime minister Liz Truss. Markets responded positively to signs the UK government was finally getting a grip on Britain’s public finances. Gilts and sterling extending the rally after the chancellor ’s morning statement. The 30 year gilt yield trades at 4.39%. Ten year gilts trade at 3.962, it looks like an over reaction. We expect ten year gilts to trade between 4.0% and 4.5% in the final quarter of the year. Sterling trades higher testing the $1.13 level … |
Not so much the kindness of strangers, just the generosity of old friends ...
The Treasury will have to sell £234 billion of gilts this year. The Bank will have to step in as the buyer of last resort. Nothing Cute about QT. The Old Lady will have to abandon plans to sell off £80 billion of government debt. The Bank held 33% of the £2.4 trillion of gilts in issue at the start of the year, according to the Debt Management Office. Government debt is set to rise by almost £500 billion over the next three years. Government spending plans by "inky blots and rotten bonds sustained. Johnny Foreigner's holdings have slipped below 30%. The Old Lady of Threadneedle street will have to step up. This is no time for The Bank of England to shirk the task and shrink the balance sheet. |
To understand the markets, you have to understand the economics
To understand the economics, you have to understand the history