There’s a real risk that the inflation cat is out of the bag
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thetimes.co.uk This is an excerpt. Not to be reproduced without permission.

As inflation shocks go, the one unveiled a few days ago was quite a big one. The jump in consumer price inflation from 2 to 3.2 per cent in August was, according to official statisticians, the largest ever recorded increase in the rate, though the data only goes back to January 1997.

For those who still follow the retail prices index, and I know from my mailbag that many do – though the Office for National Statistics would rather they did not – inflation on this measure rose to 4.8 per cent, from 3.8 per cent. The RPI is

After this dog’s dinner. can we sustain record taxes?
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thetimes.co.uk This is an excerpt. Not to be reproduced without permission.

We have had some momentous announcements in the past week, dwarfing most budgets, though without the red box, the choreographed photo opportunities and the usual theatre. There are a couple of big questions I want to try to answer about these announcements, but first let me offer a quick assessment.

The policy package unveiled by the government to “fix” social care, and which included a big 2.5 percentage point in national insurance contributions – 1.25 points from employees, 1.25 from employers – was a dog’s dinner. So much of a

Sunak turned on the spending taps – can he turn them off again?
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thetimes.co.uk This is an excerpt. Not to be reproduced without permission.

One of the encouraging signs that things are returning to some kind of normal is the extent of the jousting ahead of the Treasury’s comprehensive spending review, which is expected at the end of October. Rishi Sunak has asked the Office for Budget Responsibility (OBR) to prepare a forecast for publication on Wednesday October 27, which is significant clue to the timing.

The jousting includes a demand for £10 billion extra for next year for the National Health Service in England to deal with the Covid backlog of

A Brexit headwind the UK recovery could do without
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thetimes.co.uk This is an excerpt. Not to be reproduced without permission.

The script for the economy’s post-pandemic recovery did not include a sequence in which a series of economic indicators started pointing downwards, and yet that is what we have been seeing. Why is it happening, and how serious is the threat to the upturn?

To rehearse some of the evidence, official figures a few days ago showed a surprise 2.5 per cent fall in retail sales last month. Though some diversion of spending from shops to hospitality had been expected, this was not the opening-up spending boost retailers had expected. The

As earnings soar, the only way for wage growth is down
Posted by David Smith at 09:00 AMCategory:

My regular column is available to subscribers on www.thetimes.co.uk This is an excerpt. Not to be reproduced without permission.

What I am about to say today should reassure many people but disappoint others, which is perhaps inevitable when the theme is pay. It should reassure the many who saw the latest official figures showing an increase in average earnings of 8.8 per cent over the latest 12 months and who are wondering why they have not seen a pay rise of anything like that.

It should also reassure the Bank of England and the Treasury, concerned about rising inflation and the echoes of wage-price spirals of the past, in the days when the UK really had a serious inflation

A V-shaped recovery – but not yet a Heineken one
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thetimes.co.uk This is an excerpt. Not to be reproduced without permission.

It is not every Sunday that I get to comment on figures which show that the economy grew by 4.8 per cent in a single quarter and was more than 22 per cent bigger than a year earlier. In fact, I can confidently predict that I will never do so again.

Yet, as you may know, that is what the Office for National Statistics has just told us happened in the second quarter in the latest gross domestic product (GDP) figures. This was good news, and we should not look a gift horse in the mouth. Remember the debate about the shape of the

Northern productivity powers up – but can it last?
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thetimes.co.uk This is an excerpt. Not to be reproduced without permission.

I am going to start today with a prediction. It is that when we get the next official estimate of productivity growth, it will be a strong one. Let me explain. The main measure of productivity is output, or gross domestic product (GDP), per hour worked. The next GDP figure we will get is for the second quarter and, in line with the opening up of the economy, expectations are for a rise of 5 per cent or so compared with the depressed first quarter.

The question then becomes what has happened to hours worked. On this, we know roughly

Low rates seem here to stay – thanks to older savers
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thetimes.co.uk This is an excerpt. Not to be reproduced without permission.

The Bank of England’s monetary policy committee (MPC) will on Thursday announce its latest decision on interest rates and it is fair to say that it would be regarded as an economic and financial earthquake if it was to vote for an increase from the current record low Bank rate of 0.1 per cent.

There is another interesting decision for the MPC to make, which is whether to proceed with the full amount of quantitative easing (QE) it agreed on last November, or whether to hold back on the final £50 billion.

Following recent comments

Plenty of bumps in the road on the long walk to freedom
Posted by David Smith at 09:00 AMCategory:

My regular column is available to subscribers on www.thetimes.co.uk This is an excerpt. Not to be reproduced without permission.

There was a time when tomorrow was loudly and repeatedly dubbed Freedom Day by ministers, particularly the prime minister, with repeated assurances that the removal of remaining restrictions would be irreversible. Things are a little different now and the idea that policy would be driven by “data not dates” now looks like a meaningless slogan. There have been days recently when the number of new Covid-19 cases in the UK has been the highest of any country in the world.

Yes, restrictions will be lifted, but with a list of caveats as long as your arm,

A hefty bill to achieve net zero – who will pick it up?
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thetimes.co.uk This is an excerpt. Not to be reproduced without permission.

Follow the money, they say, and these days quite a lot of money is going into responding to climate change. Two big recent motor industry announcements, Nissan’s battery gigafactory and Vauxhall’s decision to built electric vans at Ellesmere Port are both responses to the challenge of shifting towards a net zero economy.

People are shifting too. The new car market remains below pre-pandemic levels but in the first half of this year 41.2 per cent of vehicles sold were alternatives to full diesel or petrol, mostly hybrids, up from

The story has changed, but the productivity puzzle remains
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thetimes.co.uk This is an excerpt. Not to be reproduced without permission.

You may not have noticed it, but we have had some important figures on the economy in recent days. They change the economic story of the past 20 years or so, and they have a bearing on the all-important productivity puzzle.

The figures I am referring to were not the revised gross domestic product (GDP) figures for the first three months of the year, the quarterly economic accounts, though they also told us something. The first quarter is quite recent, though the second has just come to an end, and it is easy to forget how

As inflation jumps, the Bank risks falling behind the curve
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thetimes.co.uk This is an excerpt. Not to be reproduced without permission.

It may not have been obvious to everybody but the decision of the Bank of England’s monetary policy committee (MPC) on Thursday lunchtime was actually quite a bold one. When I say decision, I should say non-decision. The committee stuck with its previous policy.

Why bold? Nobody expected the risk-averse MPC to contemplate an increase in official interest rates from the current all-time low of a mere 0.1 per cent, though some would have liked to have seen it, or at least a signal that it could happen before long.

No, the

We inflated away the debt once – but it’s harder to do that now
Posted by David Smith at 09:00 AMCategory:

My regular column is available to subscribers on www.thetimes.co.uk This is an excerpt. Not to be reproduced without permission.

The inflation that we have all been worried about is here. Consumer price inflation, which jumped last month to 2.1 per cent from 1.5 per cent, is now above the official 2 per cent target. More spectacularly, industry’s raw material and fuel costs rose by 10.7 per cent in the 12 months to May, its highest for almost 10 years.

Prices charged by industry have risen in response and were up by a chunk 4.6 per cent over the past year. And, to add to the inflationary cocktail, average earnings in the three months to April were up by 5.6 per cent on a

A red hot housing market adds fuel to the inflation fire
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thetimes.co.uk This is an excerpt. Not to be reproduced without permission.

There was a time, before everything went a bit bonkers, when an article about house prices was guaranteed box office. Maybe it is time to relive those days, at least for a while, because the housing market is showing plenty of signs of exuberance, which some see as dangerous.

Most measures have the rate of house-price inflation close to or above 10 per cent. Halifax has the rate at 9.5 per cent, Nationwide 10.7 per cent, and the official measure from the Office for National Statistics 10.2 per cent. Stay with me and I shall

We mustn’t begin to think yet of scrapping tax hikes and more public spending
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thetimes.co.uk This is an excerpt. Not to be reproduced without permission.

We are past the peak in the pandemic, if that is not too many hostages to fortune, and we are past the hump in public borrowing, the budget deficit. This time last year, we reeled from monthly government borrowing figures that were off the scale in terms of previous experience. Now we are in a run of numbers that are just very large indeed.

When I talk about the hump in public borrowing, I am aware that this does not really do justice to a budget deficit that jumped from £57 billion in 2019-20 to more than

Furlough worked. Now it will be hard not to make it a habit.
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thetimes.co.uk This is an excerpt. Not to be reproduced without permission.

It is a mere 14 months ago, but it seems like longer, as have a lot of things over the past year or so. On March 20 2020. Rishi Sunak stood at the Downing Street podium and announced an economic intervention “unprecedented in the history of the British state”. It was a big moment, so much so that I wrote a commentary about it on the front page of this newspaper at the time.

The young chancellor, only five weeks into the job, was announcing the coronavirus job retention scheme, otherwise and more generally known as the

Growth’s back – and so is the great debate over inflation
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thetimes.co.uk This is an excerpt. Not to be reproduced without permission.

In all the great battles of our time, including the culture wars, one thing you might not have expected is for conflict to be fought out over the GDP (gross domestic product) statistics. Last week the official statisticians gave us both monthly and quarterly versions of these important figures.

If you are a glass half full, Britain is bouncing back fast type of person, then you are likely to focus on the monthly figures. According to the Office for National Statistics (ONS), monthly GDP jumped by an impressive 2.1 per cent in

The makers are on the march – but can it last this time?
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thetimes.co.uk This is an excerpt. Not to be reproduced without permission.

It is not often I get a chance to say this, but manufacturing industry is on a roll. Surveys show that manufacturing is bouncing strongly. The numbers for manufacturing are more positive than for a very long time, and this is not just a UK phenomenon.

The purchasing managers’ index (PMI) for manufacturing came in a few days ago. Levels above 50 indicate expansion, and vice versa. At 60.9 in April, it was at a 27-year high, beaten only once in the survey’s history, in July 1994. There was, according to IHS Markit, which produces

There is no economic silver bullet, but every little helps
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thetimes.co.uk This is an excerpt. Not to be reproduced without permission.

Every so often people start to think great thoughts about improving the performance of the British economy. Nearly 60 years ago, there was a flurry of such thinking. We would give our eye teeth for the UK’s absolute performance in those days, but relatively speaking it was weak, particularly compared with the big European economies.

So, in 1962, the National Economic Development Council (NEDC) was established, bringing together the “three sides of industry” – government, business and the unions. Three years later the Labour

The Covid debt isn’t going away. We will have to live with it
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thetimes.co.uk This is an excerpt. Not to be reproduced without permission.

Cast your mind back a couple of years, if you can, to the spring of 2019. At that time, most of the indicators relating to Britain’s public finances were flashing green. The budget deficit, which for the 2018-19 fiscal year came in at less than 2 per cent of gross domestic product, had ceased to be a source of major concern.

It had been a painful process, and some of that pain, such as the freeze on most working-age benefits, was still in place. But the public finances, to all intents and purposes, had been fixed. There

Pluses and minuses of the return to business as usual
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thetimes.co.uk This is an excerpt. Not to be reproduced without permission.

Things are changing, and not so imperceptibly. If you have ventured out to the shops in recent days you will have noticed that there are people around. Not necessarily madding crowds, at least in the ones I have visited, but certainly what retailers would call decent footfall.

There is also another change underway. The talk is of a return to the office, even for people for whom over the past 12 months, a daily commute, sitting at a desk and face-to-face meetings have seemed about as likely as a trip down the Amazon.

Indeed, there

The virus cost trillions, but the world is bouncing back
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thetimes.co.uk This is an excerpt.

Every six months by tradition, to coincide with its spring and autumn meetings, the International Monetary Fund provides an update on the outlook for the global economy. In recent years it has supplemented that with world economic outlook updates in January and late June or July.

Many things have changed as a result of the pandemic. The meetings these economic assessments are intended to inform have moved online, as has a lot else. Time will tell whether such gatherings resume, and in what form.

Nonetheless, these world economic outlooks provide a useful framework

Will Britain’s consumers splash their stash of cash?
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thetimes.co.uk This is an excerpt.

Many conversations about the UK economy involve consumer spending, which is not surprising. In normal circumstances – counting 2018 and 2019 as normal – it accounts for 62 per cent of the country’s gross domestic product. Most of those conversations, over the years, have been about whether consumers are over-exuberant, and are taking on too much debt to fuel their spending habit.

Today, the situation is rather different. The health warning I have to provide at this point is that not everybody had the opportunity during the pandemic to build up savings – some have had a

Europe’s third wave will not derail the recovery
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thetimes.co.uk This is an excerpt.

Boris Johnson is famously said to be an admirer of the mayor in the Jaws, who kept the beach open despite the shark, though that has not been reflected in his lockdown strategy. And, as the promotions for that film said, just when you thought it was safe to go back into the water … something big and scary looms into view.

The third wave of coronavirus in Europe, or more properly the second wave seen in the UK in recent months, with the “English variant” running amok across the Channel, is the new danger. The prime minister, in words reminiscent of previous change of strategy,

The deepest recession, but also easily the weirdest
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thetimes.co.uk This is an excerpt.

This time last year, give or take a few days, I was giving a talk in Birmingham. I had arrived late the night before and had not been out that morning. A couple of members of the audience remarked, however, on how eerily quiet the streets were. A lockdown had not been announced but people had already started to change their behaviour. Little did we know as we exaggeratedly bumped elbows – something I have not done much since – how strange the next 12 months would be.

What was on the way, of course, were more than 125,000 Covid-19 deaths, tens upon tens of thousands of

Now the economy braces for the shock of the new normal
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thetimes.co.uk This is an excerpt.

Normal life is slowly resuming, with the return of schools in England a few days ago and their partial return elsewhere earlier. Schools are not the economy, but they are clearly hugely important to the economy. It is possible to see the light at the end of the lockdown tunnel, with all the usual caveats.

The January gross domestic product figures, released on Friday, which showed a monthly drop of 2.9 per cent, will with luck be the last such fall, though the drop in UK-EU trade that official figures also showed revealed a more enduring brake on the economy.

It cannot

Sunak’s budget judgment was right – but the economy still needs fixing
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thetimes.co.uk This is an excerpt.

Budgets are a bit like Christmas, a huge amount of anticipation followed by the event itself, which can be a bit of a let-down, particularly if you know beforehand most of what you are going to get. Christmas, of course, is not all about presents. Four days on, however, the kids have got bored with or broken their toys, and I have to try to conjure something up from the leftovers.

Fortunately, there is plenty to say. This was a big budget, a big moment, and the first thing to say is that I have to applaud a budget that precisely met the central

Sunak must support the economy now and make us pay for it later
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thetimes.co.uk This is an excerpt.

It is worth remembering, as we await Wednesday’s budget, that it was not supposed to be like this. A few months ago, Rishi Sunak, basking in the warm glow of his Eat Out to Help Out scheme in August, was looking forward to presenting his second budget in November. By then, the Treasury hoped, Covid-19 would be in retreat, and the spring 2020 national lockdown would be a fading memory, and it would be time to embark on the task of paying for the pandemic.

Things have turned out differently. Two more lockdowns have happened and the current one is not over and

Sunak shouldn’t even think of doing a Geoffrey Howe
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thetimes.co.uk This is an excerpt.

This is a time for momentous anniversaries. It is ancient history now, particularly for younger readers, but a few days ago we market the 50th anniversary of decimalisation. It is surprising, unless I have missed it, that we have not had a campaign to bring back pounds, shillings and pence, not that I am suggesting it would be a good idea.

And, while we have embraced metrication – not the same as decimalisation but part of the family – we still measure distances in miles, fuel consumption in miles per gallon, height in feet and inches (well I do) and beer, when we used to

Not Project Fear – but Brexit reality for firms and the economy
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thetimes.co.uk This is an excerpt.

It takes something to break through the blanket coverage of the pandemic, on which the news is not as encouraging as it might be. I don’t think, a year ago, that many people would have been anticipating the introduction this month of the harshest travel restrictions so far, or for there to be a debate about whether even staycations will be possible this summer. I think they will, but I am an optimist on these things.

What is clear, I think, is that even with a successful vaccination programme there is not going to be a “with one bound we are free” moment.