Closing post
Time to recap…
Bank of England policymaker Swati Dhingra has warned that there are real economic costs to delaying interest rate cuts until we see more signs that underlying inflation pressures are easing.
Dhingra, the most dovish rate-setter at the BOE, warned that delaying interest-rate cuts comes at a cost for living standards and could trigger a hard landing for the UK economy.
She says today:
“Waiting for lagging indicators of domestic relative price growth to fall sharply before reducing rates comes with a cost of foregone improvements in living standards and a risk of lowering supply capacity for the future.”
Bank of England policymaker Swati Dhingra warned that delaying interest-rate cuts comes at a cost for living standards and could trigger a hard landing for the UK economy https://t.co/PG8oX28Rps
— Bloomberg Markets (@markets) February 21, 2024
Economists have said the chancellor has ‘limited’ room for tax cuts in next month’s budget, after the UK recorded its biggest budget surplus for a January since records began in 1993.
Falling interest costs on the UK national debt helped the UK post a surplus of £16.7bn last month, and means the government has borrowed over £9bn less than expected this financial year.
Economist Dr Roger Gewolb explains:
“Jeremy Hunt has been handed a pre-budget tax boost of £9.2 billion today, which he could - and had certainly better - use for his upcoming Budget next month.
Today’s data sees the UK recording its biggest budget surplus in at least 30 years. Hunt has some room for tax cuts, but perhaps not enough for a significant giveaway. The government is expected to borrow £10 billion less this financial year compared to the £123.9 billion predicted by the OBR during the Autumn Statement.
I predict that Hunt will have enough extra funds to decrease income tax by at least 2p and/or move thresholds and also cancel the planned increase in fuel duty”.
But, the Resolution Foundation has warned that any tax cuts next month will come between £20bn of tax increases already implemented and a further £17bn of hikes pencilled in for after polling day.
Shares in HSBC have tumbled over 8% today after the bank took a $3bn charge on its stake in a Chinese bank amid mounting bad loans in the country, knocking its profits in the last quarter.
BT’s iconic telecommunications tower in London is to become a hotel, in a £275m deal.
Increased military spending prompted by Russia’s war on Ukraine and the Israel-Gaza conflict have helped the British weapons manufacturer BAE Systems to record profits last year.
The cost of filling up a family car in the UK increased by about £2 this month as the jump in the oil price caused by the Red Sea attacks is felt at the pumps.
Food businesses sending products to the EU have had to fork out an extra £170m in export costs because of Brexit red tape, data shared with the Guardian shows:
Banknotes featuring King Charles will be issued for the first time on 5 June, prompting the Bank of England to warn businesses that they need to make sure their machines are ready to accept them.
Swati Dhingra has also pointed out today that UK consumption had still not recovered to levels seen before Covid-19, unlike in other major economies.
She says:
Despite an easing in inflation and some real wage recovery, consumption remains below its pre-pandemic level. This is in striking contrast to the Euro area and the United States where consumption bounced back some time ago.
Dhingra also points out that the impact of the recent run of 14 rate hikes in a row would still continue to be felt for some time.
Yesterday, governor Andrew Bailey estimated that around 70% of that impact has been felt.
