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Scooped by
Graham Watson
onto Macroeconomics: UK economy, IB Economics May 6, 2:06 PM
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India has made concessions in trade negotiations, leaving UK heralding deal as ‘most significant’ since Brexit
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The government says its overhaul of retirement savings will boost growth and pension pots.
Graham Watson's insight:
I suspect that, for most post-16 economists, talking about pensions isn't terribly exciting. However, bear with me. In this case, the creation of so-called 'megafunds' is designed to try and get these funds invested in investment in infrastructure.
The hope is that this is a win-win situation: increasing returns for people with money in those funds and also in boosting the nation's productive capacity and shifting LRAS rightwards.
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As a former chancellor, I know this challenge can only be met in a budget. But Starmer and Reeves must not waste their chance, says former UK prime minister Gordon Brown
Graham Watson's insight:
Gordon Brown writes in today's Guardian applauding the government's decision to delay the publication of its child poverty review. He argues that this will allow for a more comprehensive review, include more stakeholders and establish how best to pay for measures that might help lift some of the 4.5 million children in poverty out of poverty.
He also advocates cutting the two child limit on child poverty, arguing that the government needs to work harder to counter the narrative of previous Conservative governments and establish the facts. 70% of those children in poverty come from working families; one in two children in Birmingham and Manchester live in poverty. Those two statistics alone should serve as a call to action.
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In its annual health-check for the UK economy, the IMF predicted growth of 1.2%, a marginal upgrade to its previous forecast.
Graham Watson's insight:
The IMF have revised the UK's growth forecast upwards, suggesting that the economy is going to grow by 1.2% this year and 1.4% next - only a month ago, it had forecast this year's growth to be 1.1%.
However, the overarching theme is that there's a high degree of uncertainty in all of this, not only in global terms. The IMF's UK mission chief has warned that the government is going to have to balance tax and spending plans, but there is a positive note in that it also acknowledges that well targeted investment has the capacity to further increase growth.
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The government will no longer fund some courses for older learners in order to boost entry level training places.
Graham Watson's insight:
The government is planning a shake-up of vocational training in the hope of increasing the labour supply. The problem is that this is an area of education that has been chronically under-funded for a while, and there's a degree of scepticism about whether the latest changes will work. This time the focus is on creating more places for young people at an opportunity cost of less access to such courses for older learners.
It's an area that the UK lags behind many of its trading partners, not least in Europe.
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There is growing unease over the government’s direction – a way to restore confidence would be to scrap the ‘cruel’ two-child limit
Graham Watson's insight:
Heather Stewart looks at the government's apparent decision to reverse its removal of the Winter Fuel allowance, in the wake of a poor showing in the recent local elections. However, Stewart goes further in wondering if they're also going to scrap the two-child limit to Child Benefit as part of an ideological reset.
She thinks that an inherent part of Labour's ideology is centred upon the promotion of social justice and that doing this would reaffirm its commitment to this. However, it would come at a cost - both an opportunity cost and political cost, in that some would interpret it as an unwillingness to stick with unpopular decisions and that might also affect market perceptions of the government's credibility.
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New trade deal with EU could make 41 border control posts built after Brexit redundant
Graham Watson's insight:
Here's an cost of Brexit: the need for border control posts, with the recent UK-EU trade deal rendering them obsolete. As the article makes clear, one of the biggest such posts, at Portsmouth cost £25m and it's severely underused.
What a waste!
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April figure more than expected and comes despite chancellor’s increase in employment taxes
Graham Watson's insight:
The Guardian take on the public finance figures notes that their worse than expected state comes after a Budget that included tax rises. However, the issue is that government spending has continued to rise, not least because of benefit and pensions increases, meaning that "public sector net debt, the sum of every annual borrowing figure...[has risen to] 95.5% of GDP, one of its highest levels since the 1960s."
What this means in practical terms is likely to be further tax rises - possibly including a wealth tax - and pressure to cut spending.
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Bank torn between calls to cut interest rates to boost growth and need to damp down price rises
Graham Watson's insight:
The Guardian take on higher than expected inflation: it puts the Bank of England in a bit of a spot regarding the prospect of further interest rate cuts, it's raised the spectre of the cost-of-living crisis lingering on and means that UK inflation is higher than that of the US, France and Germany.
However, on the flip side, there's a suggestion that the timing of the data collection could have had some effect on this - the data comes from the Easter holidays when air fares, for example, are significantly increased. As a result, it's hoped that this inflation spike is going to be short-lived.
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Prices have risen faster than expected - raising questions about how many interest rate cuts there will be this year
Graham Watson's insight:
A rise in a number of annual bills accounts for a large spike in inflation with the CPI up to 3.5% in April, up from 2.6% the previous month. Utility bills and Council tax went up, so too did airfares, and the Chief Economist of the Bank of England has already indicated that he doesn't want to see premature interest rate cuts given the stubbornness of inflation.
However, as economists we need to differentiate between temporary and permanent increases in prices - which is why the rise in the core inflation figure stripping out energy and food prices is perhaps of greatest concern.
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Huw Pill says rate cuts could fuel inflation resurgence and urges colleagues to be cautious before making further cuts
Graham Watson's insight:
Another dissenting voice on the MPC, the Bank of England's Chief Economist, Huw Pill, has suggested that the current rate of interest rate cuts is too hasty. He's worried that excessive rate cuts could make inflation stickier or even cause a resurgence of inflation.
In particular, he seems concerned that structural change in the labour market has meant that workers remain better able to secure pay increases - clearly he's not been a teacher - and that this means inflation is going to persist for longer.
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Simon Spurrell was forced to sell his business because of £600,000 loss caused by Brexit red tape
Graham Watson's insight:
A story from my hometown of Macclesfield of how Brexit ruined the fortunes of the Cheshire Cheese Company and forced its owner to sell the business having incurred a £600,000 loss because of Brexit red tape.
He's since sold the business to European cheese wholesaler, Joseph Heler, and in doing so been able to spread the administrative costs of exporting cheese to a much greater number of pallets.
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The chancellor tells the BBC the latest trade agreements with the EU, US and India will boost economic growth.
Graham Watson's insight:
Erm, I mean, yes, in a sense, but no, in that the latest trade deals won't have much of an immediate effect - even a multiplied effect, but it's what they stand for that might be more significant in the long-term.
The cliche "Britain's open for business" will no doubt get an airing, and we were the best performing G7 economy in terms of growth for the last quarter, but is this a significant moment in our economic history.
I think not.
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Equality Trust says billionaires getting ‘ludicrously’ richer, with top two now wealthier than whole of 1990 rich list
Graham Watson's insight:
Guardian and the Equality Trust research indicates that the UK's richest families are getting richer - with 50 families having more wealth than 50% of the population. That's 34 million people. Indeed, the top two families alone are wealthier than the entirety of the 1990 Rich List.
Some see this as implying that there's a need for a wealth tax, with one lecturer at KCL, Dr. Benjamin Tippet suggesting that had it been in place since the mid-1990s, a 2% wealth tax would have raised around £325bn, equivalent to £11,000 per household but that, despite that, the wealth of the top 0.001% would still have increased.
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The number of new vehicles made in the UK was the lowest figure for April - outside the pandemic - since 1952.
Graham Watson's insight:
A decline in car sales is clearly a concern for both the sector and the wider macroeconomic environment, and reflect increased global uncertainty. However, it's also often seen as an important leading indicator of economic growth, so it will be a cause for governmental concern too.
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The organisation, which has been assessing the UK economy, upgrades its growth forecast this year to 1.2%
Graham Watson's insight:
The Guardian focuses on the IMF's latest consideration of the UK economy and notes that as well as looking at the prospects for growth, there's also encouragement to ease its self-imposed fiscal rules, to allow it greater freedom to avoid the need for spending cuts.
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Annual rate of food price increases hits 2.8% driven by rising cost of fresh produce but price inflation for all goods is falling
Graham Watson's insight:
Food price inflation is up, with fresh produce, notably meat now more expensive than it was. Overall, the annual rate of food price inflation was 2.8% in April, although non-food prices mean that price inflation for all goods is marginally down.
Of course, last month inflation leapt to 3.5%, so the overall picture is pretty mixed - and given the overall fall in the cost of a monthly shop, you might argue that the headline of the article is a little bit misleading.
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Chancellor hopes investment in homes, transport and energy will stave off pressure from MPs and discontent among public
Graham Watson's insight:
It seems as though the government's fiscal rules are going to be tweaked to allow more investment. The key distinction that's going to be emphasised is between current and capital spending. The former is spending on the day-to-day aspects of government; the latter is effectively investment spending on infrastructure projects that generate returns over time.
The biggest winners are likely to be health and defence, although there's also going to be spending on prisons, nuclear power and housing, in line with Labour's manifesto pledges.
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Editorial: Without bold reform which makes the rich pull their weight, rising inequality risks eroding public trust and fracturing social stability
Graham Watson's insight:
Today's Guardian editorial raises the possibility of a wealth tax, arguing that it's necessary to reset the economy and promote social justice. They argue that the rich don't pay their fair share - although the top 10% of the population already pay 60% of all UK income tax receipts.
However, they also point out that, according to Tax Justice UK a 2% wealth tax on assets over £10m would generate £24bn per year.
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As pressure grows on chancellor to rethink constraints she imposed on herself, No 10 adds to her problems
Graham Watson's insight:
Phillip Inman suggests that one of the main implications of the jump in UK borrowing is that it might force the Chancellor to reconsider her self-imposed fiscal rules. The original hope was that the government would survive with fiscal headroom of around £10bn, but this is no longer the case, and faced with the prospect of further tax rises or spending cuts, it might be the case that, instead, there's thought given to altering the fiscal rules to permit greater borrowing and investment.
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Borrowing - the difference between spending and tax income - was £20.2bn, up £1bn from April last year.
Graham Watson's insight:
The public finances were worse than expected last month, with borrowing up to £20.2bn, up £1bn on last year and just over £2bn higher than analysts had predicted.
Overall, though, the article notes that "borrowing for the financial year that ended in March is now estimated to be £148.3bn, which is £3.7bn less than initially thought." However, at the same time that's £11bn higher than the OBR forecast, and this might have implications for future policymaking.
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Bills, food prices, and service costs are all rising - but there is some good news
Graham Watson's insight:
Dharshini David for the BBC reverts to the notion that higher inflation might be grounds for pessimism, however, surely a post-16 economist might do better. Some of this inflation might derive from marginally higher economic growth, perhaps some of it comes from utility bill increases intended to finance infrastructure spending and so on. You might have a think about whether this is demand-pull or cost-push inflation.
And will President Trump's trade war, or the real war in Ukraine last for ever? If they don't then food and energy prices, among other things are going to decline.
In short, there's a lot of uncertainty about, so we need to be cautious in making predictions about the future direction of the economy.
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EU trawlers to get 12 years’ access to UK waters, but some in Devon are hopeful about lower costs and less paperwork
Graham Watson's insight:
Despite most people being happy with the recent UK-EU trade deal, it seems as though British fishermen aren't happy at the prospect of EU trawlers gaining access to UK waters. However, surely that's the nature of compromise.
It's interesting to note that attitudes seemingly differ, depending upon where in the supply chain you are: fishermen themselves seem unhappy, but wholesalers who export to the EU are more sanguine about this.
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A court will decide whether the firm should be wound up on Wednesday
Graham Watson's insight:
It seems as though another couple of steel plants are on the verge of being wound up, with Liberty Steel's plants in Sheffield and Rotherham under threat of closure.
In the wake of the renationalisation of Scunthorpe's steel plant, there will be those keen to see the government step in again to protect jobs. However, all of these government interventions have a significant opportunity cost and continue to set a dangerous precedent.
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Impact of agreements on food, energy and defence may not be huge but chancellor believes it will draw investors to UK
Graham Watson's insight:
Believe it or not, I hadn't seen this before my previous 'scoop'.
However, Heather Stewart underscores my point and highlights the fact that though the tangible effects will be small, it's more about changing the narrative.
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Keir Starmer has billed the agreement as a hat-trick after his India and US deals – here’s how things are likely to pan out
Graham Watson's insight:
An Explainer looking at the exact terms of the UK-EU 'reset' and those sectors that are likely to benefit from a closer relationship between the two.
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More on the UK-India deal with the general impression being that the deal is as good as could have been expected, and a win-win for both economies.