Ross Clark

How is the Prime Minister’s bid to turn Britain into a high-wage economy progressing? It couldn’t be going better just at the moment, to judge by a survey by IHS Markit for KPMG and the Recruitment and Employment Confederation. In September – data was collected between the 13 and 24 September – there was a sharp rise in hiring, while starting salaries were rising at their fastest pace in the 24 years in which the survey has been undertaken. The number of permanent as well as temporary appointments was high, although the latter fell back from a record high in August. The survey suggests that the jobs market turned in February and has been strong ever since then. Is the boon in wages really such good news for the economy?

Until this morning, few people in Britain will have heard of the works of Wilfredo Pareto (1848-1923). Now, thanks to prime ministerial recommendation, his name is suddenly on everyone’s lips. Maybe he was even the inspiration for the name of Boris Johnson’s one-year-old son. Pareto, apparently, is the inspiration behind the whole idea of ‘levelling up’ But was it good idea to raise the memory of the Italian economist and political philosopher? Pareto, apparently, is the inspiration behind the whole idea of ‘levelling up’.

Has the Bank of England’s Monetary Policy Committee quietly excused itself from its duty of keeping inflation down: namely, keeping the Consumer Prices Index (CPI) close to a 2 per cent target? I ask because the minutes of its September meeting, released today, show little inclination to raise rates from their historic low of 0.1 percent, even though it predicts that inflation will rise above 4 per cent and stay there at least into the second quarter of 2022.  The MPC seems to have evolved into a Committee for Leaving Interest Rates Alone or Occasionally Lowering Them You can argue that inflation isn’t everything, that growth matters more and that monetary policy should not obsess about short-term targets.

Why has Britain suddenly been plunged into an energy crisis, with day ahead auction prices for electricity rising to over £400 per MWh, ten times what they were this time last year? The spike in global gas prices caused by economic recovery from Covid has been commented on often enough, as has the failure of Britain to maintain sufficient gas storage reserves – we have closed a large gas storage facility as other countries have been building up theirs’. So, too, we have learned of the failure of many smaller energy companies to hedge the prices of their energy, thus putting them at risk of spikes in wholesale prices.

So, is the post-Covid inflation panic over? That is how it looked last month, when the government’s preferred inflation index, CPIH, fell to 2.1 per cent from 2.4 per cent a month earlier. We will have the latest news on Wednesday morning, but for the moment it appears that consumer prices inflation hasn’t taken off like we feared. It is a similar story in the US, where inflation fell back from 5.6 per cent in July to 5.3 per cent in August. The fact that house prices have risen so strongly throughout the deepest recession in modern times ought to be a warning sign Yet there are good reasons to suspect that the summer slowdown in inflation is a lull and that a rebound is coming. Just look at US producer prices, which ratcheted up to 8.

Are we heading for a 1970s-style inflationary spiral? Not according to Catherine Mann, former chief economist at Citigroup, who argues that we are now less exposed to fluctuations in oil prices than we were then. She also makes the case that businesses are more reluctant to put up prices and that the link between inflation and wages is weaker than it was in the years of high inflation when wages often rose three or four times a year and prices in the shops were jacked up more frequently than now. Her opinion matters because she is the latest recruit to the Bank of England’s Monetary Policy Committee, which is charged with setting interest rates to try to keep inflation within set limits.