Money

The Chancellor’s first ‘fiscal event’ has revealed two major miscalculations – one by most of the political class and the other by the government. The political class broadly didn’t think Liz Truss’s government would actually push forward with its campaign pledges. It did. The government, for its part, appears to have badly underestimated the sceptical reaction of the markets to its economic agenda. Let’s take these in turn. First, anyone who is shocked by discussion of higher interest rates wasn’t paying attention during the leadership campaign. The attacks on ‘Treasury orthodoxy’ were frequent and explicit. Rishi Sunak insisted it was inappropriate to take aim at the Bank, while Truss called

New Chancellor Kwasi Kwarteng’s first ‘fiscal event’ was always going to be quite provocative and exciting. But in the end it went quite a lot further than expected. Far from pulling back when faced with the practicalities of being in office, Truss’s new administration did everything it had signalled, controversial or not, then threw in some even more controversial policies just for good measure. The centrepiece is the huge energy price package. The government estimates that this will cost £60 billion over the first six months. But since the policy involves capping wholesale prices and government subsidies to make up the difference, that £60 billion estimate is entirely subject to

How are markets responding to Kwasi Kwarteng’s mini-Budget? A sharp fall in the pound today has plenty of critics arguing that the tax-slashing announcements have already proved a failure. Sterling fell this afternoon to $1.09, bringing the currency to another 37-year low against the dollar. This is more than a 3 per cent dip in just one day. The euro took a hit too, but a smaller one at 1.5 per cent. It’s difficult to separate this new record low from today’s announcements – but also near impossible to draw direct correlation, as the pound and euro have both been in freefall against the dollar for weeks now. With the

Rising interest rates is a key pillar of Trussonomics. Liz Truss herself has always stopped short of saying this explicitly, pointing fingers instead at the Bank of England for its failure to curb spiralling inflation. But the economists advising her have made clear, in no uncertain terms, that they think interest rates have been too low for too long.  Right from the start of her leadership campaign, Truss was far more vocal about her criticisms of the Bank; a point made even clearer once she entered No. 10 and her Chancellor Kwasi Kwarteng set up bi-weekly meetings with the Bank’s governor Andrew Bailey. With this new pressure being applied on the

Big spending announcements tend to come alongside big press conferences. During the pandemic years, furlough announcements, extensions and business support were delivered in front of a podium, with rough figures usually attached to each policy. It was the same for the energy crisis, at the start. But as the costs of the support schemes rose, we started to lose transparency. The £9 billion announcement in February came with a headline figure and a rough breakdown of where the money would come from. The £15 billion announcement in May came with a headline figure, but much of the funding stream was glossed over, assumed to be borrowed. These multi-billion pound support

Critics say that scrapping the cap on bankers’ bonus will encourage a return to excessive risk taking. It will provoke retaliation from the European Union, they warn. And perhaps, worst of all, it could prove fatal politically, rewarding a few rich Tory friends while the rest of the country struggles with the cost-of-living crisis. Chancellor Kwasi Kwarteng will get lots of criticism if, as predicted, he does decide to bin the cap in his upcoming financial statement. Even so, he should ignore the naysayers. It will certainly be a controversial move. The controls on City bonuses were imposed right across the EU in the wake of the crash of 2008/2009. These

This morning’s surprise update from the Office for National Statistics shows headline inflation at 9.9 per cent on the year to August, down slightly from 10.1 per cent in July. While consumer inflation remains at a 40-year high, the drop from double digits back into single digits has the optimists whispering: might inflation have peaked? This update is no doubt good news, but this is likely to be a brief moment of calm in an ongoing storm. The slight fall in headline inflation has primarily been driven by easing fuel prices, as the cost of oil has been on a downwards trajectory. That at least is an early sign that global markets

One implication of the Russian gas shut-off is that Norway has now become the EU’s largest single supplier of natural gas. According to the country’s energy ministry, they are expected to export 122 billion cubic metres of gas south to the EU over the course of 2022. This compares with the 155 billion cubic metres of gas which the union imported from Russia in 2021. Getting gas from Norway is obviously preferable to Russia: Norway is a friendly country, and Nato ally, and has gone out of its way to facilitate as much exports to the EU as possible. Over the summer, the country’s government effectively put a stop to

One of Liz Truss’s suggestions on the leadership campaign trail was that her economic agenda could avoid recession. But one of the (many) gambles attached to these comments was what had already happened to the economy before she entered No. 10. This morning we got some more insight about how the economy fared over the summer, as the Office for National Statistics revealed that GDP grew by 0.2 per cent in July: a small uptick, following a 0.6 per cent contraction in June. The small, but still positive, growth was mostly a result of a boost to services industries, which fell by 0.5 per cent in June, with the largest

It’s all getting a bit Latin American in Britain and not in a good way. Inflation is stuck stubbornly in the double digits, the current account deficit is at record levels, our new Prime Minister is preparing to spend the annual budget of the NHS on subsidising energy purchases, and regional separatists are tightening their grip on the Scottish economy by introducing price controls. At least the weather’s still good. Nicola Sturgeon’s plan to freeze all rents in Scotland would be a disaster for Scots. Economists almost universally agree that rent control is one of the worst possible ways the government can intervene in a housing market. The short-term consequences