The Bank of England: it seems, behind this imposing facade, there lurks a circus complete with clowns.
It seems the economists at the Bank of England don’t have much of a clue.
They say they have raised interest rates to make it more expensive for consumers and businesses to borrow, so people start spending less, helping cool demand for goods and services and, in turn, slowing the pace of price rises; it’s a bid to curb inflation.
But people are already reining in their spending, because of inflation!
So the interest rate increase is pointless. Right?
Furthermore, as people are choosing to save (where they can), rather than spend, the growth of the economy is slowing – which is what the interest rate rise aims to do anyway. So it isn’t needed.
In fact, it may throw the economy into reverse, sending us into a recession.
And economists have warned that increases in interest rates may have little effect given rising global oil and gas prices, over which domestic changes can have little effect.
So there seems to be only one possible reason for the Bank’s decision:
Insanity.
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Consumer confidence has fallen off a cliff: will spending do the same – and, if so, will the UK economy go into reverse at the worst possible moment?
Be careful with those savings you racked up during the Covid-19 lockdowns, because you’re going to need them to ride out the cost of living crisis!
That’s the message, as far as This Writer can tell, from economist Simon Wren-Lewis on his Mainly Macro blog – and it’s as close to a prediction that the UK is going into recession as you’re likely to see.
Most economic forecasters aren’t saying it because they’re afraid to, it seems.
We know we’re looking at the biggest fall in living standards since records began in 1956-7, because of Brexit-fuelled increases in the cost of goods (including food), rising energy bills and the largest number of tax rises to be inflicted on a UK population in around 40 years.
You will be expected to use your savings to cushion this blow.
That’s fine – as long as you can be sure that the cost-of-living crisis will be only a short-term shock. But there’s no evidence that this is the case; the effects of Brexit are expected to last for decades, we’re being told to brace for another energy bill shock in October, and the Tories have absolutely no intention of reducing taxes – they want to squeeze you until your pips squeak.
With these expectations in mind, consumer confidence is flatlining:
“The GfK Consumer Confidence Index fell for the fourth month in a row to -31 from -26 in February, its lowest since November 2020, deep in the coronavirus pandemic. Readings of -30 and below have presaged recession on four out of five occasions since the survey started in 1974.” Since then the March data is available, and it’s at -38!
That’s the weakest consumer confidence since the 2008 financial crisis, and weaker than at any time during the height of the Covid-19 pandemic.
So it seems likely that spending will tail off as the year progresses, people see how the cost-of-living shocks affect their savings, and improvements in their financial position fail to appear.
As spending tails off, the economy will falter. And the Tory government has already told us it does not have any plan to stimulate growth with an injection of public cash.
So, even if you have a well-stuffed savings account now, expect those funds to run low by the end of the year, while bills and taxes remain high. What are you going to do then?
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Tweedledum and Tweedledumber: Rishi Sunak wants to cut Covid-19-related spending before the pandemic is over. He’ll cause another huge recession – and more deaths – and Boris Johnson will let it happen because he is too stupid, or too greedy, to care about the harm it will do.
This is worrying from Richard Murphy at Tax Research UK.
He reckons Tory Chancellor Rishi Sunak is either so stupid that he wants to kill off even more of us with Covid-19 for the sake of a few extra coppers in cash…
… or he’s so stupid that he thinks the economy will get a huge boost if he puts it into another disastrous recession – possibly even a depression (which is worse).
All the noises Sunak is making at the moment are about stopping Covid-19-related government spending – indicating that he’s putting the Treasury into “full austerity mode”, as Mr Murphy puts it.
He wasn’t calling for a relaxation of Covid-related travel regulations because he thinks the pandemic is over – it clearly isn’t. But he’s indicating that he thinks he is because he wants to stop spending money on it…
… even though all the money he spent on it was specifically created for that purpose and hasn’t done any harm at all as it has washed through the country.
What a strange man.
Mr Murphy continues:
Sunak wants furlough to end, even though he knows this will significantly increase unemployment.
He goes on to say that this is about maintaining ‘The Treasury View’ as put forward by Winston Churchill in 1929 – a false argument that there is only a limited amount of money and if the state uses any of it, then investment – and growth – by the private sector cannot take place.
It is a completely false view to take:
Churchill spoke when we were on the gold standard. But now we have a fiat currency, and the only constraint on the money supply is full employment at a living wage, which we are very far from achieving.
What is more, there is not a shred of evidence that there is any shortage of capital available to business right now. All business is absent of is ideas.
And to suggest the state does not add value in this era is an insult.
Churchill was economically incompetent.
His decision to follow ‘The Treasury View’ drove the UK into the Great Depression of the early 1930s.
Now Sunak wants his own great recession, whether working for Johnson or in his own account, given that his ambitions are so obvious.
And it seems clear that Boris Johnson is going to do everything he can to help. Already travel restrictions are being lifted.
Not only will the economy bomb, but Tweedledum and Tweedledumber are literally inviting more Covid-19 variants through the UK’s front door, and thousands upon thousands of us may suffer and die as a result.
Johnson’s blunders: he made promise after promise – and mistake after mistake. And the UK’s economy suffered.
Yes he should, although it may have seemed a tricky one to call.
The simple fact is that the UK’s economy was bound to suffer in the year of Covid-19.
Business – and school – closures were inevitable. Even though Johnson didn’t want to do it, eventually he had to.
And that’s part of the reason he should be blamed: he had to be dragged into every correct decision he made – and usually too late to prevent some harm from being done.
His lockdowns were only ever partial (so not really lockdowns at all), and he pulled out of them too early.
We recently learned that he ignored scientific advice to do so.
He diverted commercial contracts connected with tackling the virus away from experts in order to hand billions of pounds to friends of the Conservative Party who knew little or nothing about the work they were being asked to do.
Test and trace work, to quote a much-criticised example, suffered badly because he put an ex-jockey in charge, who didn’t realise that a virus can mutate – something that seven-year-old children read in school textbooks.
As a result of all this, the pandemic affected the UK far more than it might otherwise have, and the economic effect was worse, as we can see:
The UK economy shrank by a record 9.9% last year as coronavirus restrictions hit output, official figures show.
The contraction in 2020 “was more than twice as much as the previous largest annual fall on record”, the Office for National Statistics (ONS) said.
Muddying the issue is the fact that previous governments had dismantled the UK’s ability to cope with a pandemic infection over many years. But Boris Johnson was part of some of those governments, so he still can’t dodge some of the responsibility.
And, because it is a deadly infection, we don’t know how many people were likely to have been infected – or died – if Johnson had acted more responsibly… or indeed if he hadn’t bothered to do anything at all.
So we don’t know what would have happened in either a worst- or best-case scenario.
So we are left with the knowledge that the economy was going to suffer in 2020, no matter what.
But Johnson did not act fast enough to minimise the damage – and his choices were either wrong or, on the rare occasions they were right, delayed.
We don’t know how badly the economy would have been affected in different circumstances.
But it’s a fair bet that it would have fared better if Johnson’s choices had been wiser.
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Homeless: this man was photographed living on the streets in Birmingham before Covid-19. Who knows how many more will be living there – prey to the virus – after August 23?
The government’s moratorium on evictions ends this week, putting tens of thousands of people in danger of eviction – in the middle of the biggest recession the UK has ever experienced.
The Tories have been urged to safeguard the people under threat – but they are strangely silent. One wonders whether they would be so quiet if their fellow Conservatives were being turfed out of their stately homes for any reason.
So when the ban on evictions in England and Wales ends on August 23, it seems likely to signal a wave of homelessness, with people forced onto the streets to face joblessness (as a result of the Tory recession), illness (because of the Tory failure to fight Covid-19) and the cold (because winter is coming).
Landlords in England have been able to issue notices of eviction three months in advance of taking possession; in Wales, the Labour government has ordered that they cannot take possession before six months have elapsed.
No reason need be given for them to take possession. Boris Johnson has promised to end “no-fault” evictions in a new “Renter’s Reform Bill” – but he has shown no inclination to bring such legislation to Parliament.
Previous prime minister Theresa May had made the same promise, but she never brought such a Bill to Parliament either.
And there really are a lot of private landlords stuffing the Tory benches in the House of Commons.
Of course, evictions and homelessness will have a knock-on effect on the economy – at a time of recession – as it costs the government and the emergency services more to help homeless people than it does to keep them housed.
The Tories know this because they’ve seen the same evidence I have.
And yet they are silent.
It seems they are more keen to inflict cruelty on others than to do their job – which is to run the country efficiently. Wasn’t that always the way with the toffs?
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Rishi Sunak: the Chancellor would love to be able to claim, just before Christmas, that the UK had bucked naysaying predictions.
We learned last week that the UK has gone into its deepest-ever recession, with Gross Domestic Product plunging by 20 per cent in the last three months alone.
Now an economist is warning that the Johnson government’s dire handling of the Covid-19 crisis means the recession will probably last until 2023, with serious consequences for the well-being of everybody in the UK.
But will it really?
I’ve heard these predictions before, and they are very handy for a struggling government.
Suppose the economy doesn’t stay in recession – or at least, that it doesn’t continue backpedalling for the three years predicted?
What do you think the Tories would do? I’ll tell you.
They’d come trumpeting their huge success in beating back the economic forces of recession, asserting that the recovery proves their Covid-19 policies were right, no matter how many people got killed!
And with more shops and businesses re-opening all the time, it seems clear that there will be a bounce-back straight away – meaning that the recession is likely to be over (in statistical terms) now, although the figures won’t be available until November.
And, of course, anybody hard-hit by that recession is unlikely to feel the benefit of that recovery; it will be for the fatcats, as is usual under a Tory administration.
Still: a good-news package that Johnson can sell to a desperate public right before Christmas – jolly hockey sticks for the Tories, what?
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Boris Johnson’s government has got into the annoying habit of calling everything it does “world-beating”.
We’ve had “world-beating” PPE procurement (with hundreds of millions spent on equipment that can’t be used).
There was a “world-beating” Covid-19 track and trace app (that failed utterly and has been withdrawn).
Its replacement was also a “world-beating” privatised track and trace system (that has been scaled down in ignominious failure).
Now, at long last, it seems Johnson has a couple of statistics that he can genuinely describe as “world-beating”.
Are you ready?
The UK is now in the deepest economic recession it has ever recorded, and the worst of all the G7 countries.
And:
The UK’s Covid-19 death rates is the worst in the world.
The two are linked, of course, by Johnson’s failure to engage with the threat of Covid-19 when he was warned about it in November 2019; if he had taken appropriate steps, bringing in the equipment needed to treat the disease well in advance of the need to use it and locking down the country hard for the few weeks that would have been necessary to control the outbreak in the UK and stop infected people from bringing it in from outside, fewer people would have died and the economy would have recovered by now. Look at New Zealand for evidence of that.
It makes Johnson’s words at the start of the year ring hollow:
Remember: when he tweeted this, he had already been warned about Covid-19 and had ignored those warnings.
Now – well, let’s look at the information:
Johnson has guided the UK into the deepest recession since records began. The Office for National Statistics said gross domestic product (GDP), the broadest measure of economic prosperity, fell in the second quarter by 20.4 per cent compared with the previous three months – the biggest quarterly decline since comparable records began in 1955.
Oh – and GDP had declined by 2.2 per cent in the first quarter, so this represents a decline followed by a plummet.
The economic calamity was more than double the 10.6 per cent fall in the US over the same period and also surpassed declines in France, Germany and Italy among G7 nations that have reported second-quarter figures so far. Canada and Japan have yet to publish second-quarter data but are not expected to record greater falls than Britain. “World-beating”?
Looking at the details, the services sector, including hotels, restaurants and finance, recorded a 19.9 per cent drop, and production (manufacturing, mining and energy) fell by 16.9 per cent.
Despite having been kept open by Johnson, construction fell by a whopping 35 per cent.
Spending – by households and businesses – declined by a quarter because people simply didn’t have the money. It’s interesting to note that spending fell by five per cent more than income for those who had been furloughed.
The Guardian‘s report seems to lay the blame on Johnson:
After resisting the launch of lockdown controls until later than other countries around the world and relaxing them at a slower pace, the ONS said the UK had plunged into the deepest decline of any G7 nation in the second quarter.
And other commentators aren’t holding back, either:
Here it is in chart form. The UK's 20.4% contraction in GDP (that bar on the far right hand side) compared with every other quarterly GDP growth number back to 1920. We've never seen anything like this. pic.twitter.com/yf4p6jUkUL
The figures show that GDP has fallen to 2003 levels – 17 years lost due to Tory incompetence.
The good news is that the recession is likely to be the shortest in history, as economic activity has picked up since June, when Johnson began to allow businesses to reopen.
The bad news is that there are predictions of a new wave of coronavirus infections and deaths – already the numbers are worsening:
UK coronavirus death toll jumps by 102 and cases rise by more than 1,000 again – Mirror Onlinehttps://t.co/4XXbXbTADr
And don’t forget that in four-and-a-half months the full effect of Brexit will hit the UK, when the country will impose on itself the equivalent of enormous economic sanctions because racists like Boris Johnson lied to us that foreigners were interfering in our lives:
The U.K. is now officially in recession. In four and a half months, we become the first country in history to impose economic sanctions on itself. ‘World-beating’ doesn’t come close.
No doubt the collapse that results in 2021 will be “world-beating” too.
Given all of the above, I can only echo the words of Peter Stefanovic:
Is it any wonder Boris Johnson is trying to distract us by pointing his finger at desperate migrants in dinghies?
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Pittance: count your coppers if you live in the North of England or the Midlands – the Tories will starve you of cash and favour the South East as they try to recover from the coronavirus crisis.
Everybody in the former ‘Red Wall’ constituencies must be feeling properly humiliated now.
What a bunch of chumps. They voted Tory because they wanted to “Get Brexit Done” and now they find that the only things being “done” are they themselves.
Perhaps they’ll console themselves by thinking that even a Labour government would not have been able to stop Covid-19 ravaging the UK – but that’s only because the Tories, who they helped vote back into government, had failed to make the proper preparations in good time.
Whichever way you look at it, it seems everyone in those constituencies who switched their vote to Tory is about to get their just desserts. Let’s hope they learn their lesson, which is: never ever vote Conservative.
My sympathy goes out to everybody in the North who didn’t vote for the Tories but will suffer just as much as those who did.
Communities in the North will be hit more than twice as hard by the economic impacts of coronavirus than parts of the South, a new report has found.
The recession caused by the crisis, which Chancellor Rishi Sunak this week acknowledged would be “the likes of which we have never seen” will see an average fall of 12 per cent in permanent losses in economic output over the next five years across the so-called Red Wall, the Centre for Progressive Policy found.
It means areas in the North and the Midlands would be hit harder than communities in the South East, which would see average losses of five per cent.
The Red Wall crumbled at the 2019 general election in the face of the Conservatives’ advance, and the party has pledged to “level up” prosperity across the UK.
We can see very clearly that the Tory pledge to “level up” prosperity across the UK was never serious.
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Big Mouth strikes: Stewart Hosie was desperate to wrongly lay blame for the economic crisis on Labour. Now he’s being told that every vote for the SNP could help enable a Conservative-Liberal Democrat second term.
SNP mouthpiece Stewart Hosie should have known better than to try to score political points with information from Oxford’s Professor of Macroeconomics.
After Professor Simon Wren-Lewis (author of the Mainly Macroblog) confirmed to The Conversation that Nicola Sturgeon’s claims about austerity* were correct, “with no qualifications” (meaning he would not correct her on any aspect of it), Hosie spouted the following in a press release:
“Professor Wren-Lewis reflects what many other experts and indeed members of the public know all too well – that Tory/Lib Dem austerity has done deep harm to the country’s recovery from the Labour recession.” [Italics mine]
Here’s the response from Prof Wren-Lewis (bolding mine):
“Oh dear – ‘the Labour recession’. That would be the global financial crisis that originated with US subprime mortgages! Calling this the Labour recession is just stupid, and is something I would never say. It is very unfortunate (and I hope it is just a misfortune) that Stewart Hosie appeared to suggest that I had said or implied that. Whatever the intention, it indicates that at least some in the SNP are still in the business of making highly misleading statements to advance their cause.
“While on the subject of the SNP and this election, let me make one final point, just in case any prospective SNP voters read this. In the quite likely event that the Conservatives get more seats than Labour, but less seats than Labour and the SNP combined, in a situation where either side would need LibDem support Nick Clegg has made it clear he will talk to the Conservatives first. That will almost certainly lead to the current coalition government continuing. Clegg’s reasoning for doing this makes little sense, but the SNP cannot influence Clegg’s decision, and I suspect nor can his party even if they were minded to.
“If that comes to pass, then every vote for the SNP rather than Labour that loses Labour seats becomes a vote to continue with the current government. That is not an opinion, but a factual statement. So, to be consistent with his own logic, I think Stewart Hosie would have to call this election result the SNP’s Tory-LibDem second term.”
If we’re honest, this means Nicola Sturgeon really does need to ask England and Wales not to vote Tory, as this blog stated a few days ago.
Any questions (or indeed squeals from the SNP cultists in our readership)?
*She had said: “In the last five years, austerity has undermined our public services, lowered the living standards of working people, pushed more children into poverty and held back economic growth.”
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‘Killing Britain’s interpretation of Mervyn King’s comment on the recession.
… That’s the opinion of Simon Wren-Lewis, writer of the Mainly Macroblog.
It’s his response to the oft-asserted claim that Labour crashed the economy; he can’t deny it altogether because Labour’s failure to regulate the banks does make it partly true, in his eyes (we’ll skate over the fact that the banks had a certain responsibility in that area themselves. Now we know they’ll never behave responsibly it makes the future a little easier to navigate – or at least, it should).
Professor Wren-Lewis writes: “That is I guess why Ed Miliband seemed to respond to this accusation by saying something like: “yes we did get financial regulation wrong, but …”. That may be an honest reply, but it is not very effective, because many will read it as admitting Labour caused the recession.
“A better reply would be: “Everyone knows that the recession was caused by the global financial crisis and insufficient regulation, but the recession would have been worse if the Conservatives had been in power.”
“As Mervyn King says, “the real problem was a shared intellectual view right across the entire political spectrum and shared across the financial markets that things were going pretty well”, a view which he of course shared.
“I think the claim that the recession would have been worse if the Conservatives had been in government can be justified on two grounds. First, the Conservatives did accuse Labour of too much financial regulation, not too little. Second, they were against Labour’s fiscal stimulus in 2009.”
Why is it important that Labour combat this charge effectively? “When it comes to a contest of macroeconomic competence between the last Labour government and the current coalition, Labour wins hands down.”
The reason? “The coalition made such a bad mistake with austerity… Losing the equivalent of at least £4,000 per household is a big deal.
“Even if we were prepared to forgive this as a genuine mistake, to plan to make exactly the same mistake again either suggests a complete inability to learn, complete incompetence, or a duplicitous pursuit of ideology over social welfare.”
Read the full article on Mainly Macro. It is plainly written and even shows how you can measure up the Coalition’s performance against Labour’s for yourself.
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