Kate Andrews

The government had been facing two economic challenges this week, ahead of the by-elections in Kingswood and Wellingborough: the publication of the latest inflation figures and the economic growth figures for the last quarter of 2023. It has just about survived the first challenge. This morning’s update from the Office for National Statistics shows the inflation rate sticking at 4 per cent on the year in January, unchanged from December. This is still double the Bank of England’s inflation target, but it is better than expected news, as economists were predicting an uptick to 4.2 per cent.

Has the Labour market cooled down enough for the Bank of England to change its mind on interest rates? Almost certainly not, based on the latest data from the Office for National Statistics, out this morning. The reintroduction of the Labour Force Survey data, which had to be suspended temporarily due to poor and limited feedback, has now been reinstated, showing fewer changes in the labour market than experts were hoping to see. Job vacancies fell for the nineteenth consecutive time – but not by much. Vacancies were down to 932,000 on the quarter – a fall of 26,000, still well above pre-pandemic levels. Despite expectations that the unemployment rate would rise slightly, it fell again in the three months to December, from 3.9 per cent down to 3.8 per cent.

On the face of it, this morning's public sector finance update is good news. The government borrowed £7.8 billion in December last year. This is well below the £11 billion that economists had expected and almost half the £14 billion last forecast by the Office for Budget Responsibility (OBR). These are the lowest borrowing figures for December since the pandemic hit.  Once again, larger tax receipts helped fill in the gaps: up on the year to £61.1 billion – £3.5 billion higher than December 2022 – though on this occasion they notably undershot the OBR’s expectations by £1.8 billion, suggesting a minor slowdown. A large contributor to lower borrowing figures overall was a fall in debt servicing payments, which were £4 billion last month.

More tax cuts are on their way, according to the both the Prime Minister and Chancellor who have written comment pieces in The Sun on Sunday and The Mail on Sunday respectively to indicate their intentions ahead of the upcoming March Budget. This is interesting because their published plans suggest a rise in taxes, to levels not seen in peacetime history. Might they be about to change their mind? The Prime Minister used an outing to Hampshire to give the green light to tax cuts at ‘future events when we can responsibly do so’, while the Chancellor used his trip to Davos to say that a lower tax burden was ‘the direction of travel we would like to go in’.

The Tory party’s plan to further cut taxes in the Spring Budget is not exactly a secret. Still, Jeremy Hunt’s suggestion at Davos that they are indeed coming has sparked imaginations – while his party continues to debate internally where these tax cuts should land. Speaking on a panel at the World Economic Forum’s conference in Davos, Switzerland, the Chancellor gave his biggest indication yet about his priorities for the upcoming fiscal statement. ‘We note that the economies growing faster than us in North America and Asia tend to have lower taxes,’ he said. ‘I believe fundamentally that low-tax economies are more dynamic, more competitive and generate more money for public services like the NHS.

Inflation rose to 4 per cent on the year to December, up slightly from 3.9 per cent the previous month. It’s the first time the inflation rate has increased for almost a year – an unexpected uptick, as the consensus was for the rate to slow once more, down to 3.8 per cent.  This is not the update politicians and central bankers were hoping for, but as far as monthly data goes, it’s not the end of the world either. The inflation rate doesn’t come down in a straight line, as evidenced already in the UK’s battle to get prices under control.

November is proving to have been a lucky month in Britain. Inflation slowed significantly: from 4.6 per cent on the year in October down to 3.9 per cent on the year in November (a bigger fall than anyone predicted). Not only that: this morning we learned from the Office for National Statistics that the economy grew by 0.3 per cent, rebounding from an (unrevised) 0.3 per cent contraction in October.  Unfortunately that headline growth rate was largely thanks to a handful of temporary factors. Growth in overall services, up 0.4 per cent, is mainly attributed to a reduction in strikes that month, particularly within the health and transport sectors. Furthermore, feedback from businesses to the ONS suggest Black Friday sales ‘had a positive impact on monthly turnover'.