Sterling shows that traders are relaxed about a change of PM
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.

Markets can be very cruel. I always think that it adds insult to injury when, after a boardroom struggle, a long-serving chief executive is forced out and the share price responds by rising, in a “resignation rally”.

There is no national share price but the performance of the pound can be a reasonable proxy, The currency markets have made some big calls in recent years. Sterling fell sharply during the financial crisis, on the argument, which was both logical and largely borne out by events, that the UK was more vulnerable

The big squeeze is on – and Sunak’s tax hikes add to 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.

Inflation is all around us. While this week’s UK figures may only show the annual consumer price inflation rate treading water at around 5 per cent, America has shown where it is heading this spring. Its latest 7 per cent rate the highest since 1982.

Britain has a more chequered inflation history than America, and if the rate gets to 7 per cent as energy and other price increases come through, it will merely be the highest rate since 1992. But that was five years before the Bank of England was given the task of meeting an

How WFH averted a bigger economic catastrophe
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 reached an interesting point in the pandemic, with huge case numbers and a high proportion of infected people in the population, though alongside more reassuring data on the most seriously ill with Covid.

We have also reached the point where one of the most important economic and practical impacts is absenteeism as a result of illness or positive tests. Covid is not flu, but this calls to mind previous flu pandemics, such as the Hong Kong flu which hit the UK in the late 1960s and early 1970s.

That flu pandemic was serious,

The rise and fall of inflation – and other 2022 stories
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.

At this time of year, it is necessary to look forward, but I also find it useful to look back. In the equivalent column to this one 12 months ago, I gave you my version of the 5:2 diet, five reasons to be cheerful, and two to be a little worried.

The 5:2 diet was, as its name suggests, a weight loss programme once favoured by George Osborne, the last Tory chancellor but two, whose political career ended soon after the EU referendum, and who is now becoming something of a historical figure.

The reasons to be cheerful, despite

The figures tell of a boom year – but it never felt like 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.

We will not remember 2021 with great fondness I suspect. A year in which we were supposed to shake off the coronavirus and return to something like normal turned out rather differently. We end the year almost as we began it, amid great uncertainty.

When future historians look back on it, certainly economic historians, there will be a curiosity. Looking at the latest official figures published a few days ago and assuming only very modest growth in the economy in the current quarter, growth this year will be roughly 7 per cent,

Awful timing from the Bank – let’s hope it’s not a futile gesture
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 never rains but it pours. Just as we are trying to get to grips with the Omicron variant of Covid, along comes inflation. We knew we were experiencing an inflation shock, but the latest figures, showing consume pic inflation at 5.1 pe cent, and retail price inflation two percentage points higher at 7.1 per cent, were a shocker. “Not now, inflation,” was a reasonable response when there was already so much bad news around.

I have hesitated to use the word “stagflation” to describe the current situation, not least

As gloom descends, can house prices continue to defy gravity?
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 have moved quite quickly, and the jolt of uncertainty I described last week has increased in intensity. Suddenly, the run-up to this Christmas seems as uncertain as last, if not more, and the country appears rudderless.

New restrictions will have a more discernible impact on the economy and will combine with the changes in behaviour I described last week. It will be surprising if there is not a fall in gross domestic product this month, and a weaker fourth quarter than previously expected.

Rishi Sunak, who spoke out

A rollercoaster year ends with a jolt of uncertainty
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 at this time of year that I feel sorry for economic forecasters. They have to put together a coherent story for 2022 and yet, as 2021 draws to a close, a significant new uncertainty has emerged. I feel a bit sorry for myself, because I will soon be doing “year ahead” pieces, though I have plenty of opportunities from week to week to nudge things in one direction or another as events unfold.

The uncertainty is the Omicron variant of the coronavirus. It may be, as some early evidence suggests, that its effects are mild and that

Fix our cities first, or we’ll never level up this country
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.

People, including the leader of the opposition Sir Keir Starmer, have taken to asking the prime minister whether everything is OK. I can’t answer that, though after a sequence which has included Kermit the frog references in a speech to the United Nations’ General Assembly and the Peppa Pig interlude to a bemused CBI audience, you do have to wonder.

I am more concerned about whether the levelling-up agenda, the government’s one signature policy, is OK. The government’s integrated rail plan for the north and the midlands, which

The Bank may simply be a bystander as inflation rips
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.

What a difference a month makes. Four weeks ago, when official figures showed a drop on consumer price inflation from 3.2 to 3.1 per cent, there was quite a lot of scoffing directed at the inflation warriors. That temporary fall was, though, an aberration. The jump in inflation to 4.2 per cent last month, announced a few days ago, was more reflective of the story.

Inflation is going up, and the warriors were spoiled for choice in the latest figures. Retail price inflation rose to 6 per cent, its highest for 30 years. Factory-gate

No boom, this is a recovery – but not as we know 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.

One of the big questions for people like me is whether the economic measures we write about, like gross domestic product (GDP), actually relate to the experience of people and businesses. One of the quotes that has stayed from the Brexit referendum is the one in which an expert is in Newcastle explaining the negative impact of leaving that EU on GDP and a woman in the audience heckles: “That’s your bloody GDP. Not ours.” It would be nice if she were not anonymous, because she deserves to be up there alongside Brenda from Bristol, the

The big squeeze on incomes is not just for Christmas
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 are some questions that are bigger and more important to most people than whether the Bank of England nudges interest rates up a little. As it happens, the dog did not bark on Thursday and the Bank left interest rates unchanged, as I suspected it might. The 0.1 per cent rate lives to fight another day.

The bigger issue is that, as a nation, we have stopped getting better off. Prosperity, which at one time we got used to being on a rising trend, has stalled. The cost of living crisis and subdued or falling real income growth

A scary Halloween story on inflation and interest rates
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.

Amid the avalanche of information we get at times like this, which nobody normal can possibly make sense of, let alone the MPs patiently sitting through Rishi Sunak’s slightly surreal budget speech a few days ago, one thing jumped out at me. As the Bank of England contemplates what to do this week – amid frenzied speculation about an imminent rise in interest rates, either this week or next month – it concerned inflation, the issue of the moment.

It was from the Office for Budget Responsibility (OBR), the official forecaster.

Sunak prays that the pandemic’s economic scars are healing
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 budget, which will be unveiled by Rishi Sunak on Wednesday, alongside the government’s comprehensive spending review, is usually one of the biggest occasions of the year for people like me. Wednesday’s announcements will, it should be said, be important.

We have, however, been rather spoiled this year. There was a big tax-raising budget in March, with the announcement of an increase in corporation tax from 19 to 25 per cent and a freezing of income tax allowances and thresholds. Both are delayed but that does not make them

Global Britain badly needs to improve its export game
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.

Trade is in the news again. Felixstowe has been clogged up with tens of thousands of uncollected containers and big ships have been diverted elsewhere to ports within the EU. There are said to be similar strains at other ports, caused in part by a shortage of HGV drivers. Global Britain’s window on the world has not closed but it is barely ajar.

There have been faint rumblings of a trade war between the EU and the UK over the Northern Ireland protocol, adding to the restrictions put in place by the government’s thin trade deal,

Sunak on tenterhooks over a rise in borrowing costs
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 the elegant Court Room of the Bank of England’s Threadneedle Street headquarters, there ls one of the most famous weathervanes in the world. Installed more than two centuries ago, its function was to tell the Bank which direction the wind was blowing, and thus when cargo ships were likely to arrive at the Port of London. This was information vital to controlling the supply of credit.

I am not aware of such a weathervane at the Treasury, though it sometimes employs a hawk to keep the pigeons at bay. Its electronic equivalent,

As pandemic support ends, get ready for the hard yards
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 some good news on the economy a few days ago, which you may have seen. The economy grew by 5.5 per cent in the second quarter, up from an initial 4.8 per cent estimate of the rise in gross domestic product. It meant that the UK’s inferiority complex in relation to other big European countries is over.

UK GDP in the second quarter was 3.3 per cent below the pre-pandemic level in the final quarter of 2019, which sems like a very long time ago. This was exactly the same as Germany, fractionally worse than France but better

Amid chaos, this recovery is starting to look very messy
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 story so far. Energy suppliers are dropping like flies and millions of households and businesses face higher bills. The government has just paid an American-owned fertiliser manufacturing firm tens of millions of pounds to keep production going and head off a crisis in the availability of carbon dioxide, vital to food supplies.

There are empty shelves in supermarkets and warnings that many products will not be available for Christmas. Fresh produce is rotting in fields because a lack of pickers. Panic buying of petrol is

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