Michael Simmons

The economy is slowing down. GDP grew 0.3 per cent in the three months to August. As ever, services propped up Britain, growing by 0.4 per cent, while the production sector shrank by 0.3 per cent, according to Office for National Statistics data. We could have news of a stagnating economy confirmed just in time for Rachel Reeves’s Budget That growth over the last three months though was helped by a bumper June with the economy flat over the latest two months. If things don’t improve in the September data, then we could have news of a stagnating economy confirmed just in time for Rachel Reeves’s second Budget.

Rachel Reeves is trapped in an economic ‘doom loop’: high debt, low growth and higher debt again. But, as pessimists’ eyes turn to the Chancellor’s Budget next month, there is a way she can turn that loop into a ‘virtuous circle’. The doom loop theory of Reeves’s economy has so far gone like this: Following a fiscal event, tax receipts come in lower than expected, growth forecasts are downgraded, inflation forecasts rise – and a fiscal ‘black hole’ emerges. To fill in the hole, the Chancellor hikes taxes because her backbenchers won’t let her make cuts. The tax hikes further hamper growth, weighing down employment as companies struggle under the burden. The Chancellor calls another fiscal event – and we return to step one.

When Linden Kemkaran (formerly of The Spectator) was elected leader of Kent County Council, she presented herself as the poster-child for Reform in power. ‘The electorate,’ she said in June, ‘are looking to judge whether they can put their trust in a Reform government at the next election.’ Her administration set up ‘Dolge’, a ‘department of local government efficiency’, modelled on Elon Musk’s original, and instructed it to cut wasteful spending and find cash-saving efficiencies. After just five months, however, its efforts appear to have faltered. The council is already ‘down to the bare bones’, Diane Morton, Reform’s cabinet member for adult social care in Kent, told the Financial Times yesterday.

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.