The drivers of growth risk going into reverse
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 mood has darkened, even as the days are getting longer. The economy is not so much falling off a cliff as entering a kind of deep freeze, which unintentionally rhymes with one of the main causes, the cost-of-living squeeze. Recent surveys showing sharp falls in business and consumer confidence show that the wisdom of crowds works. People and businesses knew instinctively that something was up, and they were right. The pound’s weakness is becoming quite a thing too, so the foreign exchange markets are also on to the story.

At times

£450bn and counting – the cost in debt of the pandemic 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, not so long ago, when it was impossible to get …

A groggy global economy has lost its mojo
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 while since I have done it but there was a time when no year was complete without two pilgrimages to Washington for the annual meetings of the International Monetary Fund and World Bank, the “twins” which owe their existence to the Bretton Woods conference of 1944, the 80th anniversary of which we will soon be marking.

The spring and autumn IMF/World Bank meetings were where the world’s financial movers and shakers gathered, and mainly still do, not just finance ministers and central bankers but also a huge private sector contingent.

Don’t expect a recession, but don’t bank on much growth either
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 got used to very odd things happening in recent years and another would be if, so soon after the biggest recession for nearly a century – 2020 was the worst year since 1921 – another was to come hard on its heels. This would be the classic “you wait ages for a bus and two come along at once” situation.

It would also be highly unusual, certainly in recent times. You may recall that, after the global financial crisis of 2008-9, official figures suggested that the UK was experiencing a “double-dip” recession and was

A very unhappy anniversary for the Bank of England
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.

Timing can be very cruel. In just over three weeks the Bank of England will be celebrating the silver anniversary of independence; 25 years in which it has been responsible for the setting of interest rates and other aspects of monetary policy. I can remember as if it were yesterday, within days of his becoming chancellor, the press conference at which Gordon Brown made his bombshell announcement.

Had this anniversary happened a year ago, it would indeed have been a cause for celebration. Inflation this time last year was a touch

UK exporters are struggling – and it isn’t hard to see why
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 often the poor relation in discussions of the UK economy, though it is one of the most requested topics among readers, some of whom have a memory of the time when the trade figures were the number one economic indicator, often leading the news.

There are a couple of reasons for the Cinderella status of trade statistics. One is that these days they are published on the same day and at the same time as a clutch of other figures, including monthly gross domestic product, a relative newcomer which grabs most of the

Our firefighting chancellor tinkers while inflation burns
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 few days since Rishi Sunak’s Spring Statement and, if it registered, you have probably forgotten most of it by now. That, without being unkind, is probably no bad thing, The crisis chancellor, for that is what he has been since being unexpectedly elevated to the job in February 2020, is still firefighting.

For those of us with long memories, his latest effort was steeped in nostalgia. Alan Greenspan, the former head of America’s Federal Reserve once successfully nominated for an honorary knighthood by Gordon Brown, but

Lessons from the 1970s on when policy goes wrong
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 the chancellor’s spring statement on Wednesday and, according to an authoritative report by my colleague Tim Shipman in this newspaper last week, Rishi Sunak has been preparing for it, in part, by studying the oil shocks of the 1970s, and being briefed by officials on them. That is no bad thing for, while the oil price has come down in recent days – though not much so far at the petrol pumps – it is always good to be prepared.

Neither the chancellor nor I suspect the officials who briefed him had been born at the time of the first

When war is raging, it isn’t the time for big tax hikes
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 10 days times Rishi Sunak will deliver his spring statement or, as the Treasury prefers to describe it, his spring forecast statement. Much has changed since the date for this event was announced just before Christmas last year.

What was intended to be a victory roll for the chancellor – celebrating the economy’s robust emergence from the pandemic, the success of the furlough scheme in holding down unemployment and the fact that the public finances are on the mend – has turned into something rather different.

The Russian

Britain is dire at investing – and now there’s an energy shock
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.

If it was not clear a week ago, we can now see that, in addition to the horrors unfolding in Ukraine, a big price shock is unfolding. The oil price, having risen and then dropped back in the immediate aftermath of the Russian invasion, has nudged $120 a barrel. The gas price, even more in focus at present, has followed a similar pattern and tested last year’s highs.

The immediate impact of this, and of Europe’s efforts to reduce dependence on Russian oil and gas, will be to intensify and prolong the cost-of-living crisis.

War will slow our recovery but shouldn’t finish it off
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.

How many shocks can we take? After the two “once in a lifetime” shocks, the financial crisis and pandemic, Russia’s invasion of Ukraine has led to many warnings of the biggest war in Europe since `1945. You will have seen and read many accounts of this, including in this newspaper. My task today is to try and assess where it leaves the economy, and it is far from straightforward.

When, last month, forecasters published their predictions for the global economy in 2022, their expectation was for relatively strong growth, though

Private sector lags behind in our unbalanced 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. Not to be reproduced without permission.

For as long as I can remember, people have observed that the UK economy is unbalanced. Many chancellors have taken office promising to restore the economy’s balance. None, I would suggest, has yet succeeded.

Usually, the imbalance was described in terms of an economy too reliant on consumer spending, and on too much money going into property rather than productive investment, The pandemic was supposed to be followed by a period of, as they say, “building back better”.

That remains an ambition, and it is a laudable one, but it is

Higher wages won’t save us from the cost-of-living squeeze
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.

Pay is the issue of the moment, and not just for the governor of the Bank of England. Plenty of people would like big increases in their wages or salaries because of the current surge in inflation. But, by the same token, any talk of inflation-busting pay rises sends policymakers all aquiver. We have already had the biggest recession in the UK since 1921, are heading for the highest tax burden since 1951, and the highest inflation rate since 1991. Nobody wants to add to this a wage-price spiral like 1981.

I shall come on in a moment to whether that is

Rampant inflation lets the Bank’s hawks take flight
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

Super Thursday has many meanings. It is used to describe those occasions when several important elections take place simultaneously, or when people like me try to analyse a bunch of official statistics published at the same time on that day, some of which get missed in the rush. In the publishing industry there is a Super Thursday each autumn, when more new books are published than on any other day of the year.

We had a different sort of Super Thursday last week, though most people would say there was nothing very super about it, and

Why economic forecasters missed the surge in 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

The table accompanying this piece, and to be read in conjunction with it, is also available on www.thetimes.co.uk

Looking back can be a useful way to look forward. We learn from our mistakes, or we should do. In a moment or two I shall offer a brief look forward. In the meantime, delayed from its usual appearance around the turn of the year but benefiting from more information, it is time to see how economic forecasters did last year. It provides an opportunity to see for whom the bell tolls, and this time it tolls for the

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,