Kate Andrews

Who, or what, is responsible for the UK’s sky-high inflation rate? Not me, says the Bank of England's governor. Andrew Bailey has pointed the finger at a number of causes: pandemic and lockdowns, Russia’s war against Ukraine and Britain’s tight labour market. But he singled out one group in particular – early retirees – as a contributing factor for the recent inflation spike: ‘If those workers have accumulated enough savings to sustain a desired level of consumption much like the one they had before their early retirement, at least for a while, aggregate demand will not have fallen by as much as aggregate supply…we should expect this to put upward pressure on inflation in a way that would call for a higher level of interest rates to dampen demand.

For the past few months, the debate over inflation in Britain has centred around just how fast the rate might fall. Both the Bank of England and the Office for Budget Responsibility’s most recent forecasts have been very optimistic, showing inflation falling back down to something approaching the Bank’s target of 2 per cent by the end of the year. Despite a slow start to the year, and CPI (core price inflation) remaining in the double digits, virtually everyone has assumed the headline rate was on a one-way track, heading downwards.  This makes this morning’s update a surprise and a blow to the economic consensus, as the Office for National Statistics has reported that CPI rose on the year in February, up from 10.1 per cent to 10.4 percent.

Has a full-scale banking crisis been avoided? UBS has announced a takeover of rival Credit Suisse for just over $3 billion – half of its valuation on Friday and a tenth of its valuation just two years ago. The deal, timed to conclude before the Asian markets opened, is intended to stop any domino effect that might have been created had Credit Suisse folded this week and started to call into question the viability of other banks. Reflecting the announcement, UBS shares fell 14 per cent in early trading. Credit Suisse calls it a 'merger', UBS calls it a 'takeover' but it can also be called a 'bailout'.

A million pounds is very small change in the context of wider government spending – especially compared to the £20 billion of extra giveaways Jeremy Hunt has announced for the next few years. But sometimes that small change tells you more about a government’s priorities, and its sense of direction, than the big announcements. I suspect that was true in this week’s spring Budget. Alongside billions dished out for freezing fuel duty and extending the Energy Price Guarantee for another three months, the Chancellor also announced a government-sponsored prize, to run for the next ten years, ‘to the person or team that does the most ground-breaking British AI research’. What’s so telling about this?

Is the UK’s labour market cooling down? While unemployment remains unchanged at 3.7 per cent, according to today's update from the Office for National Statistics, the number of job vacancies ‘fell on the quarter for the eighth consecutive period’, down 51,000. The overall number of vacancies, however, still remains above a million. But the biggest indicator things are changing is wage growth: the rise in average total pay fell to 5.7 per cent between November last year and January this year, down from 5.9 per cent in the previous three months. Adjusting for inflation, this means real wages fall by 3.2 per cent – the biggest fall since the pandemic hit, not to mention one of the biggest falls since records began in 2001.

A Chancellor’s Sunday media appearance before a Budget often serves as a ‘free pass’ – not because difficult questions aren’t asked, but because they can quite easily get out of answering by saying some polite version of: ‘you’ll have to wait and see.’ So instead of focusing on the upcoming Budget this Wednesday, the BBC’s Laura Kuenssberg decided to ask Jeremy Hunt this morning about his party’s long-term record. Those questions he had to answer. It wasn’t an easy task. Kuenssberg presented Hunt with two tricky metrics: housing prices and average wages. The former, Kuenssberg notes, has skyrocketed, while average wages are failing to keep up with inflation. Many people (especially young people) she noted, will be feeling worse off.

This morning’s release from the Office for National Statistics shows the UK economy grew by 0.3 per cent in January – an improvement on December 2022 figures, which saw the economy contract by 0.5 per cent. There are no revisions to the last update: the UK still avoids the technical definition of recession, and January’s growth was higher than expected (the consensus was that it would be 0.1 per cent). But overall, the economy remains stagnant: the three months to January produced precisely zero growth. What really sticks out in today’s release is just how dependent the UK economy is these days on one-off interruptions.

Shadow chancellor Rachel Reeves has promised to tackle what businesses tend to fear the most: instability. ‘In recent years, corporation tax has gone up and down like a yo-yo, while the government has papered over the cracks with short-term fixes like the super-deduction,’ Reeves told the manufacturing group Make UK's annual conference this morning. Under a Labour government, she pledged, there will be a clear ‘roadmap for tax which lasts over a parliament’. Reeves said this would give business leaders a better sense of what to expect, hopefully creating an atmosphere for investment. Promising a review also puts pressure on Reeves to come up with answers to some of the biggest tax frustrations Reeves is on a mission to lure the business community over to Labour.