Michael Simmons

In a relief for mortgage holders, anyone with a job and the government, the Bank of England’s Monetary Policy Committee (MPC) has voted 8–1 to hold interest rates at 3.75 per cent. That is despite rising inflation thanks to the Iran war, which is likely to hit Britain worse than almost anywhere else. Had it not been for the war and the disruption to energy supplies through the Strait of Hormuz, April was to be the month when the Bank of England finally met its 2 per cent inflation target. Instead, prices are shooting in the wrong direction as energy costs feed through to the wider economy – most notably in fuel.

The Iran war is being felt in Britain’s economy. Figures just released by the Office for National Statistics (ONS) show inflation rose to 3.3 per cent in March – up from 3 per cent the month before.  The rise was mainly driven by fuel prices, which jumped at their fastest rate in more than three years. Plane tickets and food prices shot up too as rising energy and input costs were felt across the raw materials that drive the economy.  A Consumer Prices Index increase thanks to the oil price spike was expected but the trouble is these higher manufacturing input costs take time to feed through into the economy meaning this new bout of inflation could be a prolonged one.

On the face of it, the Office for National Statistics (ONS) have just released great news on unemployment. The rate – against all expectations – has fallen from 5.2 per cent to 4.9 per cent. Radio 4’s Today programme welcomed the ‘surprising’ news. But this is no good news story. To be classed by statisticians as unemployed you have to be actively seeking work. If you’re not then you’re put in the ‘economically inactive’ category. And that’s the bad news: whilst the unemployment rate has decreased, so too has the employment rate. What’s gone up is the inactivity rate – accounting for almost all of the change in unemployment. So what’s going on?

Rachel Reeves lands in Washington tonight to be greeted with bad news. The International Monetary Fund (IMF) – whose spring meeting the Chancellor is attending – has just handed Britain the largest GDP downgrade of any G7 country.  In the freshly released update to their world economic outlook, the IMF forecast growth for the UK this year of just 0.8 per cent – down from the 1.3 per cent they’d previously projected. Things don’t get much better next year either, with just 1.3 per cent growth forecast, again downgraded from 1.5 per cent.  This downgrade singles out Britain and our European neighbours.

The Organisation for Economic Co-operation and Development (OECD) has just confirmed what we already knew: Britain will be hit harder than almost anywhere else by the economic fallout triggered by the war in Iran. Updated OECD forecasts released today slashed predictions of UK growth for this year to just 0.7 per cent from the 1.2 per cent previously expected. That’s a larger downgrade than any other G20 country. On inflation, the Washington-based organisation expects UK inflation to hit 4 per cent – the second highest in the G7. The causes are clear: an energy price hike, prolonged in nature, that simultaneously makes everything more expensive, reduces supply and destroys consumer demand. The result is even more stark: stagflation.