Failure to cut interest rates will take money out of the system, hitting businesses such as hospitality
Graham Watson's insight:
Phillip Inman looks at the latest labour market data and suggests that whereas unemployment is likely to rise in the months ahead, it seems as though we've moved into a new labour market paradigm when the degree to which unemployment fluctuates in line with the business cycle is much less marked.
Unemployment is now 4.3% and may reach 5%, as a result of falling spending, but it's a world away from the double digit unemployment of the 1980s and suggests that UK labour markets have become more flexible as a result of supply-side reforms.
Mental health of young people is deteriorating, and shows up in employment data. More action is needed
Graham Watson's insight:
This Larry Elliott article highlights the external costs of the pandemic, arguing that these weren't factored in to assessments of the costs of the 2020 coronavirus pandemic.
He focuses in particular on the effects of the pandemic on the young, linking it to a rise in mental health problems and having an adverse effect on labour supply, with adverse macroeconomic consequences.
Its comments came as UK interest rates were left unchanged at a 16-year high of 5.25%.
Graham Watson's insight:
It seems as though the Bank of England is inching towards interest rate cuts, even though today's decision sees rates held. However encouraging data saw two members of the MPC vote for rate cuts, and seven to hold them constant.
Either way, it seems as though monetary loosening is on the way.
The Bank of England will decide interest rates later, but is not expected to cut them until the summer.
Graham Watson's insight:
Nothing to see here, with today's interest rate decision unlikely to see a change in the base rate, with many expecting the bank to hold fire until the summer.
However, leaving things unchanged is as much of a decision as changing rates, and will have wider implications for the macroeconomy.
Editorial: Rachel Reeves missed a chance to recast a policy that cuts government spending while shovelling state cash into private banks
Graham Watson's insight:
This Guardian editorial, in looking at the policy options seemingly available to any incoming government notes the intersect between monetary and fiscal policy, arguing that the Bank of England's role in determining the amount of liquidity in the economy via Quantitative Easing and Quantitative Tightening has largely gone under the radar, but will have a significant influence on what a prospective Labour government might be able to afford.
Our inadequate electricity network is stopping the building of thousands of new homes. And the necessary move to low-carbon heating and cars is only increasing demand
Graham Watson's insight:
A supply-side bottleneck has appeared, with the absence of the necessary electricity grid capacity starting to impinge upon the ability of local councils to solve the housing crisis. Certainly in Oxfordshire, in Oxford and Bicester, housebuilding is being delayed by this.
UK’s growth will be least in G7 by 2025, OECD expects, as low business investment and multiple pressures bear down
Graham Watson's insight:
A brief look at the UK economy - with Hazel Sheffield suggesting that yesterday's OECD economic forecast is going to puncture the Prime Minister's narrative that the UK economy is recovering.
Big economies such as the US must change fiscal policy as the realities of debt and inflation bite
Graham Watson's insight:
Kenneth Rogoff writes an interesting piece about the diminishing ability of government debt to help offer macroeconomic stability at a time of higher interest rates.
The latest IMF research asserts that the rising levels of debt in developed economies now represents a drag on growth, as it rises to an average 120% of debt-to-income in advanced economies.
Whilst developed economies rarely default on debt, the opportunity cost of higher debt repayment will limit the ability of fiscal policy to help governments achieve their macroeconomic objectives.
The CEO of what will be the UK's biggest electric car battery plant says he's 'up for the challenge'.
Graham Watson's insight:
The prospect of inward investment to build a gigafactory is good on many levels - the multiplied effect of the investment, the impact on the local supply chain and its implications for the competitiveness of the electric car sector.
However, there are a couple of areas that I think are really worth noting here - the fact that meeting that deadline "in the UK construction environment is quite a challenge" according to the man in charge of the project and the opportunity cost of the subsidies that have been offered by the government.
Prices in non-food stores are lower in April than a year earlier as stores offload summer stock
Graham Watson's insight:
The latest data from the British Retail Consortium shows that prices on the High Street are rising less rapidly than they were last year as clothing retailers look to shift summer stock in the wake of the cold and wet start to the period.
As a result, the cost of non-food goods fell by 0.6%, even though when taken together prices rose by 0.8% the lowest level since December 2021.
Second phase of physical checks could result in price increases in shops, as businesses pass on costs to consumers
Graham Watson's insight:
The second phase of UK-EU customs checks is here; what a boon it is for the UK, with the opportunity cost of the checks increasing the price of goods entering the UK and thus increasing inflation, whilst simultaneously reducing consumer choice.
MP criticises policies on interest rates and bond-selling as Tory rightwingers call for review of Bank’s independence
Graham Watson's insight:
I'm not sure whether I'd be keen to accept the 'expert' opinion of Jacob Rees-Mogg on a need to review the Bank of England's independence, however, it seems as though the right-wing of the Conservative Party want to return to monetary policy being determined by politicians.
Oh dear! What's happened to the notions of credibility, transparency, accountability?
It seems just matter of time before the two MPC members already in favour of a cut are joined off Table Mountain
Graham Watson's insight:
Larry Elliott's take on the future trajectory of interest rates; they're liable to come down in the very near future and they may fall further, although I fear that Table Mountain isn't going to be symmetrical. There were 14 interest rate rises from December 2021 to August 2023.
I doubt there are going to be 14 rate cuts in the months ahead.
Policymakers say they want to see more evidence that price pressures are easing before reducing rates
Graham Watson's insight:
The Guardian take on today's interest rate decision: effectively saying the same thing but perhaps providing a little bit more information about some of the headwinds that have persuaded a few MPC members to stay their hand. In this case, it's the fear of supply chain disruption, linked to the Middle East that some fear will keep inflation higher than would otherwise be the case.
Niesr says current limits on government borrowing fail to stimulate growth and hinder net zero ambitions
Graham Watson's insight:
The National Institute for Economic and Social Research has warned that any future government has little room to engage in expansionary fiscal policy given the current fiscal rules.
They argue that the current rules limit the government's ability to borrow, and this is going to imperil growth, the green transition and any prospect of levelling up. The alternative to relaxing the fiscal rules is tax rises, and neither are going to be an easy sell.
So much for credibility, transparency and accountability.
Tax breaks aren’t the reason I live here. Many wealthy people like me want to pay our fair share, and contribute to investment in the UK, says impact investor Gio Notarbartolo
Graham Watson's insight:
Some argue that closing taxing loopholes and removing non-dom status will be a bad thing for the UK economy, driving away the super-rich and their companies and assets. In return, it is argued that Treasury will generate paltry tax revenues, at a high opportunity cost, and lose other streams of tax revenues too.
Not everyone agrees, however, not least a group of Patriotic Millionaires who want to pay their fair share. Perhaps we should celebrate one of these groups and denigrate the other? Just a thought.
The UK is expected to come out of recession, but it would be wise not to expect a reduction any time soon
Graham Watson's insight:
Another week, another interest rate decision.
Phillip Inman looks at the prospects for a rate cut and concedes that there's little prospect of a reduction in rates soon, not least given signs that the economy's recovering and the decision of the Federal Reserve to keep rates unchanged.
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Firms said food and plant checks and Latin names causing costly delays with lorries waiting hours in first week of post-EU regime
Graham Watson's insight:
Just another day in Brexitland and another story for the costs of Brexit folder: the flower industry is counting the cost of the new customs checks, delaying the shipping of fresh flowers from the Netherlands and increasing costs.
As the fortunes of the super-rich soar, a proposed annual levy of 2% could offer a corrective – and they will fight it tooth and nail, says the Guardian’s economics editor Larry Elliott
Graham Watson's insight:
Larry Elliott looks at the proposal to introduce a global wealth tax of 2%, introduced to a G20 Finance Meeting by Brazil.
He argues that, of course, it will be heavily opposed, but given lower average tax rates being paid by the super-rich, it seems to have more traction than other, similar moves. Apparently, wealthy Americans only pay 8% tax on their incomes, whereas the Biden administration thinks that they should be paying closer to 25%.
However, there's an awful lot of ground to be covered before such a tax becomes reality.
The UK economy will remain “sluggish” due to the impact of interest rate rises, the OECD says.
Graham Watson's insight:
The moribund state of the UK economy is expected to extend into 2025, with the OECD forecasting UK growth of 1.0%, after 0.4% growth this year. It's believed that interest rates are going to stay higher for longer, meaning that of the G7 nations, only Germany is forecast to experience lower growth.
The controls kicked in from midnight and are part of the UK's Brexit trade agreement.
Graham Watson's insight:
To quote the great economist, Phil Tufnell: "What a time to be alive!".
New post-Brexit customs checks have come into force, and represent yet another cost of Brexit. Higher prices and less consumer choice, exactly what Leave voters chose. Proof that turkeys sometimes vote for Christmas.
As the article notes, a the co-owner of a flower company expects the border checks "to cost his business between £200,000 and £225,000 per year."
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Phillip Inman looks at the latest labour market data and suggests that whereas unemployment is likely to rise in the months ahead, it seems as though we've moved into a new labour market paradigm when the degree to which unemployment fluctuates in line with the business cycle is much less marked.
Unemployment is now 4.3% and may reach 5%, as a result of falling spending, but it's a world away from the double digit unemployment of the 1980s and suggests that UK labour markets have become more flexible as a result of supply-side reforms.