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Graham Watson
onto Macroeconomics: UK economy, IB Economics June 28, 2024 3:50 AM
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HMRC data shows 26% more people over state pension age paying tax on earnings than in 2021-22
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Chancellor seeks ‘genuine break with the past’ in tackling centralised and ‘geographically unequal’ country
Graham Watson's insight:
The Chancellor delivered the Mais lecture yesterday and whilst it seems as though many focused on the investment in AI, today, after the event, it's something else that has caught the eye.
During the lecture, the Chancellor raised the possibility of devolving spending decisions to local government, and acknowledged the unusual degree of centralisation of these decisions in the UK. If it were to happen, I think it would be a good thing, not least because post-2010, the biggest cuts in government spending occurred at the local government level when it is precisely this group that is best placed to determine what their electorate would like to see money spent on.
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I spent a week at a London jobcentre. Those I met were smart and eager to work – and now they have a government willing to help them, says Guardian columnist Polly Toynbee
Graham Watson's insight:
Polly Toynbee applauds the ambition of the Youth Jobs Guarantee Scheme and the expansion of the apprenticeship levy, arguing that it should create jobs for young people. I'd be more cautious: has any such initiative, irrespective of who introduced it, had a marked effect on youth unemployment. And I'd also want to look at the opportunity cost of this sort of thing, does the marginal cost exceed the marginal benefit.
This would be a complicated thing to calculate because the private and social costs of unemployment extend a long way into the future in the form of wage scarring facing those young people who have been unemployed and the social costs of worth healthcare outcomes.
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Agrichemical group will open a research centre in Berkshire, in a move hailed by UK government as ‘clear’ vote of confidence
Graham Watson's insight:
Inward investment in the UK by Chinese agrichemical group Syngenta to create a £100m bioscience hub in Berkshire. FDI, positive multiplier effects but the downside that it is in the M$ corridor and might exacerbate regional inequality and increase the economies of agglomeration that already accrue to the South East.
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National Audit Office highlights benefits of state rescue for jobs and orders but warns of continuing high cost
Graham Watson's insight:
A lovely example of why intervening to save jobs is tricky. Yes, the National Audit Office concedes that the intervention has saved jobs and maintained orders for the steel manufactured in Scunthorpe. However, it's also pointed out that the opportunity cost of doing so will reach £1.5bn by 2028. That's quite a lot of money per job saved.
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If costs stay high for the next three months, US owner Peter Huntsman says he will close the site on Teesside
Graham Watson's insight:
A high oil price could make one of the UK's remaining chemical plants unprofitable and force it to shut down, according to its owner, Peter Huntsman. He also notes that recent events have seen the UK go from the most competitive source of aniline to the most expensive.
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High-net-worth residents of UAE heading to Ireland and France to wait out missile attacks before tax year ends
Graham Watson's insight:
It's a tough life being a non-dom, with British nationals fleeing the Gulf in the situation of having exhausted their allocation of days in the UK, and having to 'live' in Ireland or Northern France to avoid incurring tax liabilities.
I, for one, feel sorry for them - but hope that they don't get granted the "60 day" exceptional circumstances exemption; they've chosen to live in the UAE, in many cases to lower their tax liability in the first place. So tough!
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Changes to regulation to speed up development could also make it easier to build on sensitive nature sites
Graham Watson's insight:
This could be Microeconomic - deregulation is fundamentally a microeconomic idea - but I've put it here because it's about increasing the UK's energy security by making it easier to build nuclear power stations. Critics have suggested it smacks of carelessness and a lack of regard for the environment, but I suspect that it's a good thing.
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Analysts had been expecting 0.2% growth for the UK economy at the beginning of the year.
Graham Watson's insight:
Below forecast growth in January, with the UK economy not growing at all and the increase in GDP being 0.0%. This comes after 0.1% growth in December.
Recent events in the Middle East are going to do little to change the macroeconomic environment for the better.
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Government’s economic watchdog believes pressure on energy prices could push rate close to 3% by end of 2026
Graham Watson's insight:
Yet another one for the "That's Why They Earn the Big Bucks" file; the OBR believe that the Middle East crisis could see inflation reach 3% by the end of the year. Really? You do surprise me.
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While the set-up in Great Britain looks secure for now, the Iran war shows why more storage seems essential
Graham Watson's insight:
After the furore over the relative lack of strategic natural gas reserves, Nils Pratley makes the case that the original concerns were overblown but that this doesn't invalidate the case for more gas storage facilities to guarantee the UK's energy security.
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With oil prices soaring and stock markets falling, economists warn that a prolonged conflict in the Middle East risks knocking growth worldwide and boosting prices
Graham Watson's insight:
More on the economic implications of the ongoing crisis in the Middle East for the UK economy - obviously in the short-term there's going to be inflation - cost-push inflation as a result of higher oil prices. However, the article wonders whether there's going to be a period of stagflation in the first half of the year.
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Governments are having to wake up to the fact they will have to take a closer interest in supply chains for essentials
Graham Watson's insight:
And the implications of the supply-side shock for the UK economy - higher inflation, a change in the tenor of monetary policy, and the adverse redistributional effects of that inflation for the poor.
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Editorial: Worsening health is only part of the reason for the concerning rise in young people who are neither studying nor working
Graham Watson's insight:
Today's Guardian editorial looks at youth unemployment, and the level of economic activity among those aged 16-24. The so-called NEETs are becoming a serious economic problem and the prospect of a 'lost generation' is being bandied about.
So, read the article and reflect upon those factors that might have resulted in nearly 1m young people not being in employment, education or training, and, then think about - and evaluate - the potential solutions to this problem.
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Lenders have hiked rates on new deals and withdrawn products as war creates uncertainty in the markets.
Graham Watson's insight:
A rise in fixed rate mortgage rates has resulted from the increased uncertainty of the last fortnight, and this is bad news for economic growth because every extra pound spent on mortgage repayments is a pound less being spent in the wider economy.
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The Chancellor tells the BBC she wants the "pattern to end" while also pledging closer ties with the EU
Graham Watson's insight:
I love this sort of announcement - a major investment in AI from the government, designed to encourage tech firms to locate in the UK, or stay if they're already here.
And yet look at the numbers. £2.5bn, in an economy with a GDP of £3 trillion, and a tiny fraction of the R&D spend of major tech firms, Amazon, Meta, Alphabet and Microsoft.
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Houmous and motorhomes are also added to the basket of goods and services used to chart the rising cost of living.
Graham Watson's insight:
The annual update of the UK's consumption bundle has taken place, with the Office for National Statistics (ONS), including new items, like alcohol-free beer, houmous and motorhomes to the mix and removing other items as they drop out of fashion.
Additionally, in using supermarket scanner data for half of the grocery market, the ONS is reducing the opportunity cost of collating the data.
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Payments of £3,000 for each 18-24 year old given a job are among proposals to tackle youth unemployment being announced later.
Graham Watson's insight:
Given concerns about the level of youth unemployment in the UK, with 1m young people officially NEETs, the government are intervening to subsidy firms who take on those between 18 and 24. Firms will get £3,000 for each young person they employ and small and medium-sized firms will get £2,000 for every apprentice they take on.
It will be interesting to see what effect the Youth Jobs Grant has; my suspicion is, like most of these type of interventions, it will have negligible effect.
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Timely end of two-child limit plus a healthy uptick in universal credit signals ‘life-changing’ boost to Britons most exposed to Trumpflation
Graham Watson's insight:
Heather Stewart celebrates the removal of the two-child limit on benefits and the 6.2% increase in Universal Credit which will increase the income some of the UK's poorest households, reducing poverty and income inequality. Indeed, the Resolution Foundation estimate that it will lift 480,000 people out of poverty in 2026.
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Treasury minister Spencer Livermore trails new strategy as chancellor pins hopes on benefits of AI amid global uncertainty
Graham Watson's insight:
A rarely seen example of protectionism, with the NHS and Ministry of Defence being urged to buy British technology to support economic growth. Such preferential public procurement is technically a form of protectionism, designed to protect domestic production and employment, although it's fairly common and in this case echoes the EU's "buy European" scheme and the Biden administration's Inflation Reduction Act.
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The government's hopes that 2026 would be the year when growth picks up are at risk of being scuppered.
Graham Watson's insight:
Dharshini David reacts to today's disappointing growth figures, suggesting that even prior to the start of the Iran conflict, the UK economy was wavering and seemingly unsure of where it was headed.
Now we now, and Oxford Economics forecast that if the war resulted in oil prices reaching and staying at $140 per barrel for a couple of months, it could trigger a recession.
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Climate change committee finds move to renewable energy would also bring health, economic and security benefits
Graham Watson's insight:
The Climate Change Committee is seizing the moment to make the case for speeding up the green transition, arguing that the pursuit of net zero carbon will come at a lower cost than one energy price shock, such as the one we're currently experiencing.
Their report claims that the benefits of reliable renewable energy represents "about £2bn to £8bn in savings a year to the NHS and individuals...Each pound invested in reaching net zero yielded between £2 and £4 in benefits, the CCC found. The saving on avoiding some of the impacts of climate breakdown would be worth as much as £130bn by 2050". It makes a persuasive case - but you then have to ask what's stopping the transition now - given that fossil fuel prices are so high, surely the market is reallocating resources as we speak.
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Editorial: The war reveals Britain’s exposure to volatile fossil fuel prices. More North Sea drilling will not shield households, building domestic green energy will
Graham Watson's insight:
And today's editorial goes further arguing that in the long-term the best guarantor of energy security is investment in renewable energy sources that isn't dependent upon the price of fossil fuels.
I wonder if the President had considered this perspective, or if it's a good example of the law of unintended consequences.
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Markets predict Bank of England will hold rates in 2026 as bond yields soar on forecasts of prolonged conflict
Graham Watson's insight:
And the first obvious consequence of the war in Iran is a change in the tenor of monetary policy with the markets now of the view that the Bank of England won't cut interest rates at all this year, and that a rise in rates might even be possible, as a result of the new inflationary pressure caused by the Iran conflict.
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National Gas insists storage broadly in line with levels for time of year despite disruption for tankers carrying LNG
Graham Watson's insight:
There's disagreement about the extent to which the UK's energy security is under threat, with this article claiming that the UK only has two days' worth of natural gas stored, and that this could be troubling if the war in the Middle East continues for any length of time. However, the body that oversees the sector, National Gas, doesn't seem overly concerned at the moment.
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Economic consequences are an intrinsic aspect of the Iran conflict, writes BBC economics editor Faisal Islam.
Graham Watson's insight:
A brief piece on the coming inflation wave; you should be able to draw the associated AD-AS diagram.
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Contrary to certain election claims about the Labour Party being the party of higher taxes, it's worth noting this HMRC data the shows that there are now 4.4m more income tax payers in 2024-25 than there were three years earlier when the government froze personal allowances.
It's a classic example of fiscal drag, which acts as a stealth tax, with even an increased number of pensioners paying tax: the last three years have dragged an "extra 1.77 million pensioners into the income tax bracket."