Ross Clark

The Bank of England has warned that Britain will fall into a recession this year. Its Monetary Policy Report, released today, predicts that the economy will shrink from October, with the downturn lasting until the end of 2023. The Bank of England also hiked interest rates from 1.25 per cent to 1.75 per cent, the biggest rise for 27 years. The Bank of England’s Monetary Policy Committee has never previously raised the base rate by 0.5 per cent in its 25 years of existence. Previously it has only upped rates in quarter-point stages (and there haven’t been many of those, especially in recent years). The rise will, of course, affect mortgages, but perhaps not to the extent that interest rate rises used to.

Is the eurozone heading for another 2010-style sovereign debt crisis? Today comes the news that inflation in the eurozone hit 8.9 per cent in the year to July. Although it is a record high, it is not as quite as towering as inflation in Britain – at 9.4 per cent. However, what it does do is expose the vulnerability of the eurozone – and how Italian public debt threatens to undermine it. This week, the yield on Italian ten-year government bonds rose to 3.5 per cent as investors began to wonder again if the country can honour its debts. Granted, it’s not quite as high at the rates of over 6 per cent which investors were demanding in 2012 – but it’s a sharp rise in recent times.

There's an almighty debate ongoing in the US about what exactly a 'recession' is. Treasury secretary Janet Yellen said the US economy is not shrinking, saying it is in a state of 'transition', not recession. But in a clip from 2000 being circulated on Twitter that is comically apt, Bill Clinton said 'a recession is two quarters in a row of negative growth'. https://twitter.com/DailyCaller/status/1552720121445105666?ref_src=twsrc%5Etfw Regardless of who's right, the US is currently in Bill Clinton's definition of a recession. Figures show that the economy shrank by 0.2 per cent in the second quarter of this year, following a 1.6 per cent fall in the first quarter. Over the year, the US economy is now 0.9 per cent smaller than it was a year ago.

Have we reached the endgame of Vladimir Putin’s energy war against the West, the point at which he turns off the gas for good? This afternoon, Gazprom announced that from Wednesday morning it will cut the quantity of gas flowing through the Nord Stream 1 pipeline to Germany to 33 cubic metres per day. This will halve the current flow of 67 million cubic metres and is just 20 per cent of the 167 million cubic metres which flowed through the pipeline before the Ukraine invasion. Ostensibly, the cut is for reasons of ‘maintenance’. That is unlikely to wash. Nord Stream 1 relies on a compressor station powered by six turbines, but Russia was supplied with two spare turbines to prevent any need for reduction in flows during maintenance periods.

To nobody’s surprise, the Bank of England has hiked its base rate, and, equally unsurprisingly, it has chosen to do so by a relatively modest 0.25 per cent, bringing rates to 1.25 per cent. In 25 years of its existence, the Monetary Policy Committee (MPC) has never raised rates by more than 0.25 per cent at a time. That stands in contrast to the Fed’s decision to raise rates by 0.75 per cent on Wednesday. If the modesty of the rise was supposed to calm markets, however, it doesn’t seem to have worked. The FTSE100, already down nearly 2 per cent on the day, plunged further on the announcement.

Ukraine’s ability to defend itself against the Russian invasion has surprised almost everyone outside the country, none more so, presumably, than Vladimir Putin. As for the West’s efforts to harm Russia through sanctions on its fossil fuel exports, that is a very different matter. Sanctions have not been entirely useless. According to a report by the think tank Centre for Research on Energy and Clean Air (CREA), they have led to Russia losing over €200 million (£173 million) a day relative to what it was earning at the start of the year: €880 million (£692 million) per day in May compared to €1.1 billion (£951 million) per day in January and February.

First the good news: the Office for National Statistics figures released today show that pay is rising at its fastest rate in two decades, with regular pay up by 4.2 per cent in the three months for February to April compared with a year earlier. Now the bad news: such is inflation that, in real terms, regular pay was actually down 2.2 per cent – lower than at any time in the past two decades except for a brief period in the autumn of 2011. So, yes, it isn’t just an illusion: we really are getting poorer. That is a big problem not just for households trying to make ends meet but also for the government, which at some point over the next two years will have to try to persuade voters to trust it with the economy.

Could Rishi Sunak really have saved the taxpayer £11 billion by insuring against higher interest rates last year? That was the extraordinary claim made by the National Institute of Economic and Social Research (NIESR) and in the Financial Times on Friday. The NIESR claims that the government could have saved the money had the Chancellor taken up the institute’s own suggestion last year and forcibly converted £600 billion worth of reserves held by commercial banks at the Bank of England into two year fixed-rate bonds. By failing to foresee rising inflation and interest rates, the FT asserts, the Chancellor has blown even more money than Gordon Brown did by selling half Britain’s gold reserves at the bottom of the market in 1999.

As if Boris Johnson was not in enough political trouble already, the latest surge in oil prices is threatening to overwhelm the government. This week, petrol prices in some filling stations have crossed the symbolic threshold of £2 per litre. This would be a problem for any government, but, for a Conservative administration which owes its last election victory to the votes of relatively low-paid manual workers, it is an existential threat.  People who rely on their cars to get to work face being priced out of the workplace. Decades of sky-high property prices – and high moving costs thanks especially to stamp duty – have changed the pattern of living and working. There are large numbers of voters who must drive long distances to reach their place of work.