Economy

Punters and pundits alike reacted to rising mortgage rates in the wake of Truss’s mini-Budget with indignant horror. Leaving aside a market overreaction to fairly modest policy proposals, I wanted to tell aghast homeowners: ‘Well, what did you think was going to happen, people?’ In 2008, the plunging of central bank rates to nearly zero was super-weird. (EU rates eventually going negative, meaning you paid banks to keep your money, was even weirder.) Flatlined interest rates were a response to an emergency. Yet when emergency measures continue long enough, they start to seem totally normal, in this case inducing the bizarre expectation that borrowing money will be basically free, for

In the coming weeks we’re going to learn a lot more about what went so badly wrong inside Liz Truss’s government. Indeed, my colleague James Heale is co-writing the book on it. As Rishi Sunak heads into No. 10 in a bid to undo some of the damage (‘mistakes were made…’ he said on the steps of Downing Street this morning, ‘…and I have been elected as leader of my party, and your Prime Minister, in part, to fix them’) we are bound to learn more about the miscalculations, bad advice, and hubris that ultimately led to the undoing of prime minister Truss in just a matter of weeks. It

Given how inflation has taken off and sent real incomes into steep decline it is remarkable that Britain is not already in recession. It seemed that we were heading that way – until the Office for National Statistics revised upwards economic growth in the second quarter of this year from minus 0.1 per cent to plus 0.2 per cent. The economy then shrank by 0.3 per cent in August. But the definition of a recession is two quarters of negative growth – so Britain cannot be classed as being in one until growth figures for the fourth quarter are published in January. But the S&P Global Purchasing Managers’ Index (PMI)

This morning the BBC hosted a current Tory leadership contender and the leader of the opposition on Sunday with Laura Kuenssberg. Yet the most insightful comments came from one of the panel members: Lord Mervyn King, former governor of the Bank of England between 2003 and 2013. Asked by Kuenssberg about the narrative that’s doing the rounds with some Truss supporters – that markets ‘bullied’ Truss out of her plans and out of office – King offered up a robust response and a clear explanation of what had gone so badly wrong: Markets are not in charge. Governments and central banks are. Markets respond to the announcements made by government

In the brief time Sajid Javid was chancellor to Boris Johnson, he spelled out to The Spectator his ‘low for long’ theory about rates: a theory which would enable the new prime minister’s ambitious spending agenda. Speaking to Fraser Nelson in December 2019, Javid was confident that the era of ultra-low interest rates and extremely favourable borrowing costs was here to stay. ‘It just felt quite ludicrous seeing that a government could borrow at negative real interest rates and not take advantage of that,’ the then-chancellor told the magazine. Convinced these circumstances would remain for ‘at least a decade’ he was willing to borrow tens of billions of pounds for

I’ve chosen to write about corporate tax rates this week not because they’re the sexiest subject available but because – unlike the government’s frontbench, the value of the pound and the scale of winter fuel bills – they’re unlikely to change dramatically during the shelf-life of this column. An increase in corporation tax from 19 per cent to 25 per cent, originally announced by Rishi Sunak, will go ahead in April, despite new Chancellor Jeremy Hunt’s own leadership campaign pledge to cut the rate to 15 per cent, which would have placed the UK between Ireland and Singapore in competitive tax tables. The uplift will, we’re told, tip £19 billion

Is low unemployment causing us more problems than we realise? The suggestion might seem absurd, offensive even. It’s reminiscent of the days of Mrs Thatcher’s supposedly ‘cruel’ monetarism, when we had three million unemployed. Some on the fringes liked to argue that unemployment was good for the economy because it made people work harder, being fearful for their jobs. Mass redundancies would not, of course, help the economy now or at any other time. If a million people were to lose their jobs, as happened in the early 1980s, that would be a million households suffering a collapse in the spending power. As well as a human tragedy, it would

Jeremy Hunt set out at the start of the weekend with one goal in mind: that when the gilt markets reopened on Monday, the cost of government borrowing would not surge further. Ideally, it would start to fall. In this sense, it’s been a successful day for the new Chancellor. The Treasury’s early morning update that a major fiscal announcement was about to be announced saw gilt yields start to drop when markets opened at 8 a.m. After Hunt’s overhaul of the mini-Budget – including the surprising decision to suspend the 1p cut to the basic rate of tax ‘indefinitely’ – they fell even further. After starting the day at