Ross Clark

Today’s labour market figures ought to bring good news: they show that growth on earnings has moderated to 5.4 per cent, the lowest level in two years. That should ease fears of inflation – it is growth in pay which has most concerned the Bank of England in recent months – and pave the way for further cuts in interest rates. The trouble is, though, that the Chancellor, Rachel Reeves, has undermined this by granting pay rises of 5.5 per cent to several million public sector workers – threatening to reignite wage growth again. The public sector has become an inflationary engine chugging away in one corner of the economy Indeed, there is little in today’s figures to show that public sector workers were getting a raw deal – a narrative spun by public sector unions.

Ed Miliband, along with those who support his ambition to decarbonise the electricity grid by 2030, has long had a favourite argument with which to try to put down people who say it can’t be done: why, if it is going to be so difficult to achieve, is the National Grid ESO – the company which manages the electricity network – not more worried? It is true the company has not been protesting openly about government policy, yet it transpires that in private it is another story. ESO executives, the Telegraph reports this morning, have warned that the South East could be facing blackouts by 2028 as a result of the switch towards intermittent and less predictable wind and solar.

For a while it looked as if Keir Starmer and Rachel Reeves were going to be lucky: they had walked into an economic recovery. The anaemic growth and market turmoil of the past few years – which Labour liked to blame entirely on ‘Tory chaos’ and absolutely nothing to do with the pandemic or energy crisis which followed the invasion of Ukraine – were going to be replaced by a period of stability and prosperity. Some governments are fortunate in their timing: Tony Blair walked into a decade of non-inflationary growth thanks to globalisation and the emergence of China as a major economy. But Starmer, it now looks, will not be so lucky.

Today’s stock market plunge is interesting for two main reasons. First, for those of us who have never traded on the Japanese stock exchange, comes the revelation that the colours used to denote changes in stock prices are the inverse of those used on western markets: red means a share has gone up, green means it has gone down. The same, apparently, is true in China. Fortunately, for the sake of foreign drivers neither country inverts the colour of its traffic lights, although ‘go’ in Japan is denoted by something closer to blue than green… Second, UK markets seem to have been dragged down in sympathy with others even though the economic news here might suggests they should be rising.

As Kate Andrews argues here, the Bank of England were never going to cut interest rates during an election campaign for fear of being accused of favouring one side or the other. That ruled out a rate cut in June, while in July there was no meeting of the Monetary Policy Committee. But are those five members who voted for a quarter-point cut today really confident that they have not opened themselves to charges of bias, by cutting rates at the earliest opportunity after the election of a Labour government? For months, the MPC was telling us that it was too early for a rate cut – in spite of rapidly falling inflation – because wage growth was too high. What has happened since May suddenly to make it safe to cut rates?

Angela Rayner has announced that the government will aim to build 370,000 new homes, up from the 300,000 a year implied in the party’s manifesto. But if the deputy prime minister really thinks that all she needs to do to achieve that target is to take on Nimbys – as Rayner and chancellor Rachel Reeves have suggested in recent weeks – she needs to take a trip to a slice of the ‘grey belt’ in Essex. There, a 206 acre farm at Harold’s Farm near Epping is to be turned over to rewilding. Why is the cost of encouraging rewilding being lumped on new housing? Some locals have announced themselves to be delighted because it means the land will not now be developed, as they feared, for housing. That is a predictable Nimby response, but it is not really the point.

There is one over-arching question hanging over Rachel Reeves’s speech today, in which she claimed that a £21.9 billion hole has opened up in the current political spending for this financial year: why, if there is such a large ‘black hole’ in the public finances, is there suddenly money available for £9.4 billion worth of above-inflation pay rises for public sector workers? Preposterously, those pay rises – which Reeves has chosen to make and which were not committed to by the previous government – are included as one of the unfunded spending items (indeed the single biggest spending item) which has contributed to the ‘black hole’.

Oh, the suspense. It seems that we will have to wait until next week to discover the details of the £20 billion ‘black hole’ which chancellor Rachel Reeves has supposedly discovered in the public finances. Don’t get too excited, though. The revelation will be no greater a surprise than the ending of James Cameron’s blockbuster film Titanic (spoiler alert: a large ship hits an iceberg and sinks). As Paul Johnson of the Institute for Fiscal Studies pointed out before the election and has done so again: the state of the UK government’s finances are not exactly a secret – they are already open to anyone who cares to examine them. You do not need a Treasury pass to access them.

Three weeks into the new Labour government and it is already becoming clear where some of its weaknesses lie – none more so than Ed Miliband’s promise to decarbonise the electricity grid, save consumers money and boost the economy with many thousands of ‘well-paid green jobs’. Today the Royal Academy of Engineering weighs in with its own assessment of Miliband’s chances. Its verdict? That even if the government wants to decarbonise the grid, Britain is going to have to invest in new gas plants – and ‘unabated’ ones (i.e. not fitted with carbon capture and storage CCS technology) at that. Even in an optimistic scenario, the Academy thinks that in 2030 we will still need gas plants to be operating a quarter of the time.

Is the retail sector ever going to recover from Covid-19? The rest of the economy seems to be purring quite nicely at the moment, with GDP up 0.7 per cent in the first quarter (not adjusting for population growth). But the good times have yet to reach the retail sector, where sales volumes fell by 1.2 per cent in June. This followed a surprise 2.9 per cent rise in May, but over the second quarter as a whole sales were down 0.1 per cent. Compared with the second quarter of 2023, sales were down 0.2 per cent. Overall, sales were 1.3 per cent lower last month than they were in February 2020, on the eve of the pandemic. One conclusion from today’s release is that retail sales figures are too volatile to be read month on month – they should really be read quarter on quarter.

'We cannot let the challenges of the recent past define our relationships of the future,' declared the Prime Minister ahead of today’s meeting of the European Political Union at Blenheim Palace. The meeting, he added, 'will fire the starting gun on this government’s new approach to Europe'. The subtext to this is: the grown-ups are back in charge, and from now on we are going to have a far more constructive relationship with the EU. Keir Starmer has even promised a renegotiation of Britain’s trading relationship with the EU, which is supposedly going to make life easier for our exporters. Keir Starmer has even promised a renegotiation of Britain’s trading relationship with the EU He can dream on.

Deputy prime minister Angela Rayner has promised the 'most ambitious programme of devolution this country has ever seen', with new powers for local councils and more directly-elected mayors. But this will not apply, it seems, when it comes to planning. On the contrary, the centrepiece of the King’s speech today will be planning reforms aimed at reducing the powers of local communities to block housing and infrastructure developments. Powers will be centralised, with central government taking it upon itself to rule on more housing and infrastructure projects deemed to be in the national interest – just as Energy Secretary Ed Miliband did last week when he approved three large solar farms in Cambridgeshire, Suffolk and Lincolnshire.