Closing summary
Time for a quick recap.
Chancellor Jeremy Hunt has declared that he will not ‘pump extra money’ to help households this autumn, while a Bank of England policymaker has declared interest rates should move even higher to fight inflation.
Hunt told Bloomberg TV that it was “unlikely” that he will have more fiscal headroom in the autumn statement, scheduled for November, than he had in March.
Hunt declared:
“When you’re trying to bring down inflation, you have to be really careful not to pump extra money into the economy, as much as you would like to…
Not to pump extra money into people’s pockets - because that can push up prices and keep inflation higher for longer.”
This will fuel concerns that the chancellor might hit benefits claimants with real terms cuts, to fund pre-election tax cuts.
Households have been warned to expect even higher borrowing costs too. Catherine Mann, a member of the BoE’s Monetary Policy Committee, will argue today that it is better to raise rates higher than needed, rather than risk not doing enough.
Mann says:
I believe it would be prudent to risk an error that can be more easily rectified. Right now, that is to err on the side of tightening further in order to prevent the risks of further inflation persistence from crystalizing.
There’s been celebration in Oxford today, where BMW announced plans to invest £600m to upgrade its Cowley factory to produce next-generation electric minis.
The government has refused to confirm how much financial support it offered (though £75m is rumoured to be the price tag).
The U-turn, which will secure 4,000 jobs at Oxford and Swindon, where BMW makes body panels, was lauded by government ministers, including the chancellor, Jeremy Hunt, who said BMW’s investment was “a huge vote of confidence in this country as a global leader in electric vehicles”.
But it’s been a grim day for workers at Wilko. All of the stricken retailers 400-plus stores are to close with the loss of more than 12,000 jobs after talks with potential buyers failed to deliver a rescue deal.
Nadine Houghton, GMB National Officer, said:
“Wilko was far more than a brand, a retailer or the products it sold, it was the thousands of loyal team members now facing an uncertain future.
“Wilko may have ceased genuinely being a family brand many years ago, but the staff kept the real family ethos of Wilko alive until the very end. It is the family that Wilko colleagues made for themselves that will be missed the most.
“This isn’t a tragedy without cause. Wilko should have thrived in a bargain retail sector that is otherwise strong, but it was run into the ground by the business owners.
The bad news came as the boss of John Lewis has called for a royal commission review into the UK’s ailing high streets.
Too many towns and cities are shells of their former selves. Boarded-up shops left vacant, dwindling numbers of banks and post offices. And in their place, seemingly endless rows of vaping and charity shops. For too many local residents, the heart has been ripped out of their community.
In the economic world, the European Commission has predicted Germany’s GDP will shrink this year. The EC’s new economic forecasts also showed a slower-than-hoped recovery across the eurozone and the EU.
Growth forecast for the 6 largest EU economies for 2023 (%):
— European Commission (@EU_Commission) September 11, 2023
🇪🇸 2.2
🇫🇷 1.0
🇮🇹 0.9
🇳🇱 0.5
🇵🇱 0.5
🇩🇪 -0.4
🇪🇺 1.4
Summer #ECForecast ↓
The largest solar farm in Europe to be built on a closed landfill site has begun generating renewable electricity from a former rubbish dump in Essex.
Updated
BoE's Mann: Better to raise interest rates too high than not high enough
A Bank of England policymaker will argue today that it would be better to raise interest ratest too high, rather than not high enough.
Catherine Mann will tell the Canadian Association for Business Economics that she believes it would be prudent to risk an error that can be more easily rectified.
She says that it would be better to “err on the side of tightening further in order to prevent the risks of further inflation persistence from crystalizing.”
In a speech just released, Mann argues:
If I am wrong, and there are excess negative effects to the real economy, it is an easier task to rectify as compared to regaining control over inflation.
She then warns that leaving UK interest rates at their current level of 5.25% would risk letting inflation running too high, requiring tougher action to bring price pressures down.
In a clear hint that Mann would push for another rate rise at the Bank’s meeting next month, she says:
In my view, holding rates constant at the current level risks enabling further inflation persistence which will have to be unwound eventually with a worse trade-off.
If we underestimate the rise in the persistent component of inflation and set policy consistent with a world that may no longer exist we will ourselves contribute to the persistent overshoot of the target. And the longer this overshoot is allowed to continue, the more likely a departure from the old ‘low inflation, low volatility’ steady state.
Mann is known at one of the more hawkish members of the Bank’s Monetary Policy Committee.
And today she also pushed back against calls for the Bank to ease off on bringing inflation all the way down to 2%, down from 6.8% in July.
It’s a risky bet that inflation expectations are sufficiently well-anchored and to wait for core inflation to ease down, as this extends the duration way above the target-consistent rate. We need to prepare for a world where inflation is more likely to be volatile in the future, and the neutral nominal rate is likely to be higher than in the past.
While these might support a “3% inflation is close enough”, popular in some circles, it cannot be our guide. We need to communicate and act on our commitment to do what is necessary to achieve the 2% target, sooner rather than later.
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