Economy

The ‘rabbit out of the hat’ in Kwasi Kwarteng’s mini budget this Friday is likely to be a cut in stamp duty on property purchases. If so, it will be a popular and wise decision. Not only might it help generate extra activity in a housing market which looks like flagging as interest rates bite – or maybe mitigate a decline in activity – it should help to promote labour mobility by making it easier for job-seekers to move around the country to look for work or further their careers. Moreover, depending on at what level it is set, a stamp duty cut might well generate extra revenue, too.  Never

The government will announce tomorrow that it will cover the costs of more than £1 in every £3 of gas consumed by businesses and households over the next six months. There has been no subsidy of a market price on this scale in British history. Estimates of the final bill for taxpayers range from £100 billion to £200 billion, or more than the annual cost of running the NHS – if the scheme for households lasts for two years, as promised, and the separate one for all businesses runs for six months, to be followed by a less ambitious business scheme for another 18 months. This is a subsidy of more

Should we despair that the pound has slumped again today, falling below $1.14 for the first time since 1985? Or should we rejoice? It was, after all, a collapse in the pound following Black Wednesday in 1992 – along with dramatically lowered interest rates — which precipitated a lasting economic recovery. It is all too easy to see the value of the pound as a national virility symbol, and think that the stronger it is, the better. In reality, a weak pound – or let’s say a pound set at a realistic level, which properly reflects the costs of wages, goods and services in Britain – can help stimulate the

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

When Liz Truss spoke from the steps of Downing Street on Monday, she declared proudly that she ‘campaigned as a conservative’ and would ‘govern as a conservative’. It was a dig at her leadership rival Rishi Sunak, who she beat by 15 percentage points, and who she accused throughout the campaign of having lost his way over tax hikes during his time in the Treasury. He insisted this was the path to fiscal responsibility; she insisted it was the path to recession. Yet Truss’s first policy announcement of her premiership – and quite possibly one of the biggest announcements she’ll make as Prime Minister – is not one you can

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

It is not unusual for promises made during an election campaign to fail to survive a headlong impact with reality, but if, as expected Liz Truss, announces an energy price freeze tomorrow, it will leave many Conservative party members who voted for her feeling somewhat cheated. For most of the leadership campaign Truss denounced the idea of government help with energy bills and insisted she would tackle the problem with tax cuts instead. Taxing people and then giving them some of their money back in handouts, she said, was ‘Gordon Brown economics’. Yet it now seems that not only will she spend large amounts of money to bail out householders’

Look at the chart for interest rate expectations in isolation, and you might come to the conclusion that Rishi Sunak is right about Liz Truss’s fiscal policies. In June, markets were expecting rates to peak at around 3.5 per cent next year; now they are expecting them to reach close to 4.5 per cent. Moreover, as Truss’s victory came to be seen as inevitable, the FTSE 100 plunged from 7,550 on 19 August to 7,230 this morning – a fall of 4.2 per cent. The pound has fallen from $1.22 on 10 August to $1.15 now. Markets could be forgiven some apprehension But hang on a minute. Markets have been