The government might be celebrating falling inflation, but higher prices for goods and services are here to stay
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Scooped by
Graham Watson
onto Macroeconomics: UK economy, IB Economics |
The government might be celebrating falling inflation, but higher prices for goods and services are here to stay
The cost of living crisis laid bare in the Observer: food, energy, broadband, mobile phone, car insurance and mortgage costs all examined.
I'm afraid that Brexit alone can't account for some of these increases: I suspect that the Competition and Markets Authority (CMA) will be pretty busy in the months ahead. The rises in car insurance, in particular, are out of sync with the rest of Europe by a remarkable degree.
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The Conservatives and Labour are embroiled in a fight to woo voters with promises to keep rates of tax low
Graham Watson's insight:
Phillip Inman looks at the current state of public finances and seems to accept that its likely that neither the Conservatives or Labour are going to be in a position to cut taxes post-election. Instead, they're effectively competing to convince voters who will increase taxes the least.
This explainer looks at the options facing the parties with regard to a raft of taxes.
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The British Chambers of Commerce has called on the next government to help firms deal with the EU.
Graham Watson's insight:
The British Chambers of Commerce have argued for a return to a more stable trading environment and closer relations with our trading partners in the EU. It would seem that there are, self-evidently, costs of Brexit. It's fascinating, though, to see that they stop short of calling for a reversal of Brexit.
I won't though. Brexit has been a disaster, but that's what you get when you allow a campaign based on lies to appeal to an audience of idiots.
prameswariursula@gmail.com's comment,
May 30, 9:07 AM
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If high inflation hurts just about everyone, why can’t we have no inflation? Over the past few years, most of the world has experienced some pretty intense inflation, with prices rising as much as 10 percent in a single year. In 2024, even though inflation rates have fallen to more manageable levels, prices are still way up and are very unlikely to come down. Which, understandably, continues to be a source of major stress for people all over the world. So why can’t prices just stay the same?
Graham Watson's insight:
I've only just stumbled on this; it's a good little primer on why a little bit of inflation is a good thing. There's some straightforward explanations here - looking at the importance of real wages keeping pace with inflation - and the benefits of low, stable inflation.
The only downside? The DCU adverts
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In her first major campaign speech, the shadow chancellor said all policies will be "fully costed".
Graham Watson's insight:
The economy is today's election battleground and the Labour Party have received support from a number of prominent business leaders and promised that their manifesto pledges are all fully-funded.
The Prime Minister claims that their pledges will cost £2,000 per family, which sounds a little hollow from the party responsible for Brexit and recent tax increases, and which is only now pledging to lower taxes for pensioners ahead of everyone else.
The choice, ultimately, is that of the electorate. And 2016 says something about turkeys voting for Christmas.
prameswariursula@gmail.com's comment,
May 30, 9:10 AM
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The Conservatives pledge to raise the tax-free pension allowance by at least 2.5% a year if they win the election.
Graham Watson's insight:
Economic policymaking in the national interest or a pre-Election bribe? You decide.
For my part, I'll just suggest it's the most advantaged generation of electors - free healthcare/university education, biggest beneficiaries of EU membership and housing policy - getting even more from the government. Ironically, it seems that a Conservative government is now committed to the extension of socialist protections of a specific group to try and keep themselves in power.
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Hastings has the highest number of young people in England in bad health. But, amid a national epidemic of forced economic inactivity, there is hope
Graham Watson's insight:
This Observer piece looks at the town of Hastings, as a microcosm of the wider issue of economic inactivity, and the number of people who have opted out of the labour market in the post-coronavirus era.
The result of this has been a decline in the size of the working population which, of course, has wider macroeconomic implications.
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A leading think tank warns more tax rises or cuts to public services could lie ahead.
Graham Watson's insight:
The Institute for Fiscal Studies (IFS) are certain that the state of public finances is such that, irrespective of whoever wins the election, there are tough choices to be made in the form of tax increases or spending cuts. As a result, they are calling on both parties to be transparent in their election campaigns, and realistic in the pledges that they make to the electorate.
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Retail sales fell by much more than expected last month as heavy rain kept shoppers at home.
Graham Watson's insight:
April's bad weather has had a marked effect on retail sales, with sales volumes falling by 2.3%, markedly more than most analysts expected. Curiously, even online sales fell by over 1% and fewer trips being taken meant that fuel sales were also down by nearly 5% in April.
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ONS says budget deficit £1.5bn higher than previous year due to increased spending on benefits and weaker tax revenues
Graham Watson's insight:
Almost overlooked in the news that we've got a General Election at the start of July, were the latest public finance figures which rather confirmed the IMF's gloomy view. The budget deficit increased by £1.5bn last year, pushing government borrowing above £20bn last month and keeping government debt at 97.9% of GDP.
And this means that the Chancellor wouldn't have had any realistic chance of offering pre-election sweeteners, and might have been one of the things that precipitated the announcement of the 4 July election.
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Service sector inflation, monitored closely by Bank of England, barely budged in April
Graham Watson's insight:
Larry Elliott drills down into today's inflation figure, noting that although it's fallen to 2.3% - largely driven by falling energy prices - there are still two main pockets of concern.
Core inflation remains high - it's down from 4.2% to 3.9% - and service sector inflation has hardly budged - falling marginally from 6% to 5.9% - both of which might deter immediate interest rate cuts.
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World body’s latest health check of UK economy says ‘unpopular revenue-raising measures’ may be needed
Graham Watson's insight:
After the IMF yesterday warned the government of a £30bn fiscal hole emerging, the government response is predictable: cutting taxes, specifically National Insurance.
It looks like a desperate act by a desperate government, another bit of economic vandalism - Brexit, anyone? - for which they will not be held to account and is self-evidently politically, rather than economically motivated.
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Prices rose at 2.3% in the year to April, down from 3.2% the month before, official figures said.
Graham Watson's insight:
UK inflation has tumbled to 2.3% for April, down from 3.2% and fuelling calls for interest rate cuts. However, there are some cautionary noises coming from some who note that service sector inflation has scarcely shifted and this might make the Bank of England reluctant to cut rates in June.
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Grocery price inflation falls to its lowest since October 2021 but shoppers are still buying own-brand goods.
Graham Watson's insight:
It seems as though food prices are returning to normal, with the news that food price inflation has fallen to 2.4% - it's lowest since October 2021, fuelling hopes of interest rate cuts this summer.
However, the composition of shopping baskets has changed since then, with own-brand goods providing a greater proportion of all goods bought and it will be interesting to see if this alters should the economy start picking up. |
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Slow income growth should be tackled with policies to improve productivity, a report suggests.
Graham Watson's insight:
The Institute for Fiscal Studies has called for the next government to focus on boosting growth via increased productivity with a specific focus on boosting living standards. Their research suggests that in the UK, there's been exceptionally slow growth of median and working-age incomes in the UK relative to the US and Germany.
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We look at whether the Conservative pledge for a ‘triple lock plus’ can really be paid for by cracking down on tax avoidance
Graham Watson's insight:
The Guardian looks at yesterday's Conservative pledge to raise the tax-free pension allowance for pensioners. It replays many of the arguments that I advanced yesterday - it's simply the reversal of a policy that the Conservatives themselves brought in, and the idea of funding it via an increased clampdown on tax avoidance is equally risible.
But instead of me, it's people with genuine credentials who make the case.
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Mel Stride says pensioners will pay more income tax under Labour as critics say plan is merely reversal of previous Tory policy
Graham Watson's insight:
Today's Conservative pledge to reduce the tax liability of pensioners is work of a peculiar type of genius. In the first place, its' the reversal of a policy previously put in place by the Conservatives in the 2010s.
Additionally, the notion that it's going to be funded by clamping down on tax avoidance is equally risible. If it's that easy to find an extra £6bn, why hasn't the government done it already. So, aren't the issues more about why the government hasn't clamped down on tax avoidance and evasion before, never mind the equity issues involved in 'bribing' pensioners.
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Household budgets have come under pressure as prices soared in the wake of the pandemic.
Graham Watson's insight:
More evidence that the rate of increase of shop prices has reverted back to normal with the British Retail Consortium suggesting that shop prices only rose by 0.6% in April and food price inflation also fell to 3.2% last month.
Goodish news for inflation.
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Both major parties will try to conduct their campaigns without mentioning Brexit. But we cannot afford not to discuss it
Graham Watson's insight:
No prizes for guessing what William Keegan's written about in today's Observer. Brexit.
However, for all its absence from the General Election campaign, he's not wrong. Britain would gain from rejoining the EU.
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Shadow chancellor Rachel Reeves says she too wants lower taxes for working people as both parties begin to set out economic plans
Graham Watson's insight:
It seems as though the Conservatives are, at some point, looking to lower taxes should they win the next election, especially on higher earners. However, Labour's Shadow Chancellor, Rachel Reeves, has dismissed the move and made her own pitch to be best-placed to run the economy.
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From unemployment to inflation, the key data the Tories and Labour must explain to voters
Graham Watson's insight:
Larry Elliott outlines five key dates for the election diary, with key bits of economic data being released in the next six weeks, including economic growth, inflation and unemployment data and another interest rate decision.
And whilst the consensus is that the economy is going to be picking up, will this come sound enough or have people already made their minds up.
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Economies decide elections but with growth tentative, inflation sticky, and tax cuts unlikely, why would the PM wait
Graham Watson's insight:
Larry Elliott wonders why the government have called a General Election, and thinks that it might be because this is as good as it gets for the government, even though growth remains moribund, and inflation sticky. You'd like to think things will get better; it might not.
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From olive oil to cocoa and carpets to holiday centres, how the cost of everyday things varies
Graham Watson's insight:
A little look at what's up and what's down in price in the last 12 months. The sharpest rise in prices? Olive oil? The sharpest fall? Gas, down by 37.5%.
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Britain’s jet set insist they will flee if they lose their benefits – but Labour should not be daunted, says Guardian columnist Polly Toynbee
Graham Watson's insight:
Polemic, yes, but perhaps the better for that.
Should the super-rich be paying more in tax? And if this becomes a realistic prospect, how many of them will leave the UK or find ever more creative ways to avoid paying tax? And should we care?
I'm not going to comment - I think regular readers of my board know my views on this sort of thing. Is being super-rich the result of hard work or almost entirely to do with serendipity?
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Ministers are discussing who will build the plant, which will join Hinkley Point C and Sizewell C as major future suppliers to the grid
Graham Watson's insight:
Energy security, supply-side improvements and so on. But hang on, how long has the nuclear power plant at Wylfa been on the drawing board?
I first 'scooped' the prospect of government investment in Wylfa on 4 June 2018! So, it's taken 6 years to get to this point. So, rather than celebrating this, surely it's ample demonstration of the failure of current planning and infrastructure thinking.
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The international body upgrades its UK growth forecast and says rates could fall to 4.5% by the end of 2024.
Graham Watson's insight:
The IMF has suggested that the UK economy is going to grow more rapidly than it originally forecast at the start of the year, in part because of the loosening of monetary policy. The growth forecast has been raised to 0.7% this year and 1.5% in 2025, and they also expect the Bank of England to cut interest rates three times before the end of the year.
Of course, the IMF aren't always right - something that notably economists, like Jacob Rees-Mogg are always keen to tells us - but then again, who is? |
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