The Home Secretary outlined the new Tory immigration policy this week. In the biggest change to immigration since William stepped off the boat in Hastings, Priti Patel was in no mood to pull punches.
"Today is a historic moment for the whole of the country. We are ending free movement, taking back control of our borders and delivering on the people's priorities by introducing a new UK points-based system which will bring immigration numbers down."
EU and non EU citizens will be treated equally. High skilled workers like scientists, academics and engineers will be prioritized. Skilled workers will be allowed in under a points system with points awarded for language, education and a job offer above a salary floor of £25,600.
Fruit pickers and other seasonal farm workers will be accommodated. Farmers will be allowed to recruit 10,000 low skilled workers from outside the EU to harvest, flowers, fruit and vegetables. Farm workers from Eastern Europe will have to pick their own fruit from now on.
Not everyone was convinced by the change in policy. Fears of recruitment problems in construction and care came to the fore. Carolyn Fairbairn, Director General of the CBI, warned against the ending of low skilled immigration. "In some sectors, firms will be left wondering how they will recruit the people needed to run their business".
Health and health care were immediate cause for concern. "The proposals would negatively impact the sector and will not meet the health and care needs of the population" said Dame Donna Kinnair, the Chief Executive of the Royal College of Nursing.
This week, the ONS announced a further fall in unemployment and a rise in vacancies. With 1.3 million out of work, a rate of 3.8%, unemployment is at a 45 year low. The employment rate has never been higher. The number of vacancies in the economy increased to over 800,000.
8.5 million are inactive and could be put to work given the right encouragement and training by business according to Patel. That sounds an awful lot of resource. Unfortunately for the Home Secretary, 2.3 million are students, 1.9 million are looking after family or home, over 1.1 million are retired and 2.1 million have long term illness.
"Rise, take up thy sick bed and work" is the Patel Patois. The good news, 1.9 million of the economically active want a job allegedly. The just don't like the look of the 800,000 vacancies currently on offer apparently ...
Budget Nears ... Deficits Increase ...
Rushi Sunak is on the case. The budget will take place on the 11th March. An end to austerity and a boost to infrastructure problems will create both a financial challenge and an intellectual challenge.
More doctors, nurses and police on the streets will boost current spending. Big commitments to infrastructure will place greater demands on longer term capital spending.
The intellectual challenge will be to cobble together a set of "fiscal rules" which will present some semblance of order. The financial challenge, there really is not much money to play with and not much appetite for tax hikes at this stage of government.
The latest data on government borrowing was somewhat disappointing. In the ten months to January 2020, borrowing was almost £45 billion compared to £39 billion last year. For the year as a whole, borrowing is expected to increase to £44 billion compared to £38.4 billion last year.
Total debt increased to £2.1 trillion if the Bank of England obligations are taken into account. It would appear the Chancellor is not well placed to meet the £150 billion bill for infrastructure spending. On the other hand, life on Planet ZIRP is incredibly accommodating for profligate spenders. Ten year gilt yields fell to 0.56% this week.
A thirty year Sterling Infrastructure Bond could hit the streets with a 1% coupon. The market has appetite for debt, the Chancellor must have the ambition to exploit. £150 billion should be the ambition, more than enough to finance the refurbishment in the open plan accommodation between Number Ten and Eleven ...
China ... Inflation on the rise ...
Inflation CPI basis increased to a six month high this week. Despite the strength of Sterling and the weakness of oil prices, CPI inflation increased to 1.8% from 1.3% last month.
Service sector inflation increased to 2.3%. Goods inflation increased to 1.3% from 0.6%, providing the major boost to prices.
Producer prices remained subdued. We expect inflation to move to the target rate of 2% through the year. Relatively low inflation and a strong jobs market suggests the new Governor of the Bank of England will not face any tough decisions on rates this year.
The latest retail figures for January were pretty dismal, despite the headlines to the contrary. On the other hand, the latest PMI Markit Composite index suggested a significant boost to manufacturing and service sector activity in January.
With a positive budget outcome next month, we expect growth to average 1.3% to 1.5% compared to 1.4% last year. Many difficult challenges remain to resolve the trade deal with Europe and to determine the strategy for many sectors including fishing and agriculture.
It continues to appear as if Cabinet members are trying to earn their lines in a script that has yet to be written. Let's hope not too many continue the process of ad libbing ...
That's all for this week, have a great weekend. We will be back with more news and updates next week.
The Saturday Economist
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The material is based upon information which we consider to be reliable but we do not represent that it is accurate or complete and it should not be relied upon as such. We accept no liability for errors, or omissions of opinion or fact. In particular, no reliance should be placed on the comments on trends in financial markets. The presentation should not be construed as the giving of investment advice.