Michael Simmons

The message the Tories want you to leave their conference with is that they are the party of prudence. The party of fiscal responsibility who will make the first ‘serious down payments’ on the size of the state, as shadow chancellor Mel Stride explained at a Spectator drinks reception last night. Today, he will set out his plan to achieve that. Stride will ‘recommit’ his party to ‘fiscal prudence’ by announcing £47 billion in savings for the public purse. Those measures include: Welfare reforms that will include stopping claims from people with ‘low level mental health problems’ and foreigners and reversing any lifting of the two-child benefit cap to bring the welfare bill down by £23 billion. Cutting 132,000 jobs from the civil service to save £8 billion.

The Bank of England has held interest rates at 4 per cent. Threadneedle Street’s Monetary Policy Committee (MPC) voted seven to two to keep rates where they are. The fact inflation now sits at almost double the Bank’s 2 per cent target outweighed concerns about the slackening jobs market and what its impact on Britain’s lacklustre growth. Two members voted to cut rates to 3.75 per cent, but the overall decision is no surprise. There’s a growing sense that the bulk of committee members feel they perhaps made a mistake in cutting rates last month with inflation still climbing. Markets don’t expect another cut this side of Christmas and the implied chance of a cut at the Bank’s November meeting has fallen to 20 per cent.

Prices are continuing to rise. Consumer inflation stayed at 3.8 per cent last month – matching the figure recorded in July and nearly double the Bank of England’s 2 per cent target.  This morning’s figures on CPI, released by the Office for National Statistics (ONS), were in line with the expectations of markets and pundits. Air fares, which spiked in July due to the summer holidays, were significantly down compared with last year, which offset a rise in fuel, meaning the pace of inflation did not pick up.   There is a tendency in economic reporting to say that because a reading has come in line with forecasts, then it is good news. But the truth is anything but. Food inflation has increased for the fifth month in a row.

Over the past year, some 142,000 payrolled jobs have been lost, according to the latest labour market figures from the Office for National Statistics (ONS). Another 8,000 disappeared last month alone. Unemployment remained at 4.7 per cent – higher than a year ago. The bulk of job losses came in accommodation and food services, which shed 90,000 workers. The culprit seems obvious: the anti-business tax raid unleashed by the Chancellor in the last Budget. That £25 billion hike on employer National Insurance, as well as the increase in the minimum wage, is not just discouraging job creation but making employers think twice about keeping people on. And with the government’s employment rights bill sailing through parliament businesses fear things can only get worse.

As the Chancellor Rachel Reeves gets to work on her second Budget – to be delivered on 26 November – red lights flash everywhere. Gilt yields were up again as markets lost faith in her ability to balance the books. Reeves or Darren Jones – whoever is really calling the shots – will spend the next few weeks fixated on those yields. The price they land at when the Office for Budget Responsibility (OBR) settles their Budget forecast could make or break the government. I understand that the initial plan was to have a Budget much earlier, but that the decision was taken to put it off for as long as possible in the hope that yields come down a bit in that time. We may even hear calming words from the Treasury today aimed at achieving just that. It’s not all on Reeves though.

‘UK in the drain’, a trader exclaimed earlier today as 30-year gilt yields punched through to their highest level since 1998. London stocks were down and the pound fell too. The message to trading desks was clear: dump Britain. Things have worsened, at least in part, because yesterday’s Downing Street and Treasury reshuffle included no suggestions that the government has emergency plans to fix Britain’s broken fiscal maths and attempt to balance the books. And as I set out in last week’s cover story, markets are not amused. Wherever you look on the yield curve, Britain’s debt is cementing itself as the most expensive in the developed world. Long-term debt – the 30-year gilt – was sold off en masse and passed 5.73 per cent.