Rachel Reeves clearly had not been warned that if you keep talking down the economy, persist in a disastrous net zero energy policy that puts up electricity prices and increase taxes on jobs, you are going to drive the economy into a brick wall. And so it came to pass. Job vacancies are dropping like a stone, while the unemployment rate rose only slightly. The number of individuals and businesses going bust are shooting up.
At the same time, wages have been rising again, well above inflation – to meet rising costs – while forecasts for productivity gains are tanking. These latest official figures follow on from the warning earlier this week that employers are getting ready for the biggest redundancy wave in a decade. You couldn’t get much gloomier. The survey of 2,000 employers carried out by the Chartered Institute of Personnel and Development (CIPD) showed that redundancy intentions are at their highest level in ten years, barring the Covid pandemic, because business confidence has collapsed ahead of April’s National Insurance tax rises.
Meeting: The Chancellor (pictured) has called in top dogs from BlackRock, Goldman Sachs and Schroders for a special summit to ask for new ideas. What an unholy mess, and one almost entirely of the Chancellor’s own making through her tax-hiking Budget and big pay awards across the public sector, without demanding reforms in return to improve productivity. It is a mess which will become even messier today when official inflation figures are released and likely to show another rise in prices in January.
Yet the higher inflation rate is not unexpected. It is due to higher fuel, water and energy prices – and, of course, higher schools fees – and other public services. The question, though, is whether these rising prices, in an extremely volatile world, are part of a longer-term trend or a temporary hiccup. Which then begs a second question, whether the combination of higher inflation – and higher wage growth – will allow the Bank of England to go-ahead with its expected interest rate cuts.
Bank governor Andrew Bailey was obviously walking the tightest of tightrope when he tried to answer the $64,000 question during a speech in Brussels yesterday. He said he remained confident that inflation – after a ‘short-run hump’ – would continue to fall this year, despite the latest data showing wages rising at the fastest pace in months. On the other hand, he would not be drawn on when rates will be cut again, adding that monetary policy would have to be careful. As he put it: ‘There are two-sided risks.’.
There certainly are. Yet the biggest risk is that, despite last month’s GDP figures showing an anaemic 0.1pc growth, we are close to recession territory. Which is why Bailey, reading between the lines, left the door open for more cuts – he knows it is the only lever to pull in these uncertain times. Adding to the unease is that the Office for Budget Responsibility’s prediction for productivity growth is starting to look, according to one economist, insane. The current OBR forecast is for productivity gains to reach 1.2 per cent in 2029.
There certainly are. Yet the biggest risk is that, despite last month’s GDP figures showing an anaemic 0.1 per cent growth, we are close to recession territory. Adding to the unease is that the Office for Budget Responsibility’s prediction for productivity growth is starting to look, according to one economist, insane. The current OBR forecast is for productivity gains to reach 1.2 per cent in 2029.
Even slicing 0.1 percentage point off the OBR’s forecasts would leave the Chancellor with a black hole of up to £8bn, one which could only be filled with more tax hikes or slashing public spending. In other words, we are heading for austerity on steroids. So what is Reeves doing to kick-start the economy? Well, apparently she has called in top dogs from BlackRock, Goldman Sachs and Schroders for a special summit today to ask for new ideas. It is part of a series of summits she’s holding with senior industry and finance executives.
Even slicing 0.1 percentage point off the OBR’s forecasts would leave the Chancellor with a black hole of up to £8billion, one which could only be filled with more tax hikes or slashing public spending. Affiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence.
