Michael Simmons

After a record tax take and surplus in January, normal service has resumed. Britain experienced its second-largest February borrowing splurge since records began, according to figures just released by the Office for National Statistics (ONS). Last month we borrowed some £14.3 billion, which was £2.2 billion more than a year before and the second highest figure for a February since records began in 1993. Tom Davies, senior statistician at the ONS, said: ‘While [tax] receipts were up last year, that was outweighed by a rise in spending.’ A large part of that jump in spending was our debt interest payments which, at £13 billion, was the highest ever recorded for February, as this rather striking graph shows: Some £4.

In a surprise to no one, the Bank of England’s Monetary Policy Committee (MPC) has voted nine-zero to hold interest rates at 3.75 per cent. The unanimous decision is the first time the MPC have been in complete agreement since September 2021. Before Trump and Israel’s bombs rained down on Iran, the markets had been overwhelmingly expecting a rate cut. This would have been welcome news for mortgage holders and the government. But with an energy price shock sending inflation expectations in the wrong direction, we are lucky the MPC didn’t hike rates this time. The markets are now expecting a rate hike towards the end of summer after inevitably higher energy prices lead to higher inflation.  Even before today’s announcement the mortgage market was feeling the pressure.

Figures just released by the Office for National Statistics (ONS) show the economy ground to a halt in January, with no growth recorded. That was despite economists and businesses reporting a brighter start to the year. Economists had expected January to see growth of 0.2 per cent. Over the three months to January we did see some growth, though just 0.2 per cent. Within that figure, services expanded 0.2 per cent while production grew 1.3 per cent. The positive numbers end there, however, with the construction sector contracting by 2 per cent. It’s unlikely things are going to get much better as the year goes on.

With Donald Trump signalling that he does not want a long war in Iran, markets have started to settle down. Traders are no longer betting on interest rate hikes, the FTSE is in the green and a barrel of oil is hovering around $90. Nevertheless, the pressure on the Chancellor to set out further financial support to tackle the cost of living is on. The average five-year fixed mortgage passed 5 per cent today for the first time since November, prices at the pumps have jumped at their fastest pace in four years, and Morgan Stanley is the latest bank to warn that inflation could hit 5 per cent later this year.  On petrol and diesel, Rachel Reeves is angry with service stations.

A few weeks ago I thought a March interest rates cut was ‘near certain’. Inflation was coming down and Bank of England rate-setters’ concerns about wage growth were being replaced by fears that higher rates were contributing to rising unemployment. In my defence, markets agreed: they priced the chances of a cut at over 80 per cent. But since then, the world – and markets – have changed. The graph below shows something called the ‘overnight index swaps’ curve. Without getting too deep into the mechanics, it can be understood as a proxy for where traders think interest rates are heading. As you can see, the line had been steadily dropping before Donald Trump’s action in Iran sent it shooting back up – implying that a March rate cut has become much less likely.

The Epstein files lift the curtain on how power is exercised and influence traded by our financial elite. It is not a cheering sight. Business and economic gurus like the former US Treasury Secretary Larry Summers asking for dating advice from a convicted paedophile does not build confidence in the masters of the universe. Distasteful as these details are, the most telling insights into the predatory behaviour of the private-jet classes relate to how they exploit all of us, not just the vulnerable young women who catch their eye. Institutional logic does not explain Reeves’s love-in with the banks. They seem to have made a Faustian pact Peter Mandelson may blush at some of the personal details laid bare in his emails to Jeffrey Epstein.