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December 21, 2024 - 8:00am
The Bank of England has this week blamed Labour’s Autumn Budget for the country’s economic stagnation, as the Monetary Policy Committee votes to hold interest rates constant at 4.75%. The BoE is now an outlier among central banks, in that it is not clearly moving toward rate cuts. Indeed, British interest rates are now higher than those in both the United States and Europe.
Context for both the rate freeze and the BoE’s criticism of the Government can be found in Britain’s inflation rate, which rose from 2.3% in October to 2.6% in November. The central bank has claimed that the Budget is to blame for rising inflation, with businesses responding to Labour’s national insurance tax raid by raising prices. What’s more, a harsh austerity programme is lowering living standards both through direct tax increases and by prompting businesses to raise prices.
The Government has tried to defend its policies, with Keir Starmer arguing in front of a Parliamentary committee this week that it will “take some time” to improve living standards. It is not clear whether the Prime Minister believes what he is saying. The Office for Budget Responsibility’s forecasts show clearly that HM Treasury expects years of austerity. Starmer’s government, whether or not it’s aware of it, is the vessel through which the Treasury is managing a rapid decline of the country.
What has brought Britain to this desperate state? The first major hit was the enormous amount of money the Government spent allowing people to stay at home rather than work during the pandemic. At the time, Whitehall appeared to panic, and no one thought through the potentially serious long-term consequences of these decisions. But the reality is that as people stayed at home and cashed in their Government cheques, the country was being pushed into bankruptcy.
The second major hit came after Russia invaded Ukraine in 2022. The British Government backed a series of sanctions that led to counter-sanctions by Russia in response. These counter-sanctions — together with the mysterious bombing of the Nord Stream pipeline — caused energy prices to rise and inflation to soar. In response to this, the Government moved to subsidise energy prices. This was the final nail in the coffin for Britain’s fiscal health: once those subsidies were put in place, it was a foregone conclusion that the country would be set on a track to serious economic decline. The fact that this was not explained to the British people at the time is the true scandal here.
Only one question needs to be asked: it is whether Starmer and Reeves understand that they are being used to manage the rapid decline of Britain’s living standards, or whether they have genuinely convinced themselves of their own skill as reformers and believe the ship will soon turn around. The Prime Minister and Chancellor have bought into their own hype and think they can create investment and productivity. In economics, however, there are no miracles, and if you bet on one it is a fait accompli that you will lose that bet. On the other hand, it seems unlikely that the British people want to be told the reality of the situation. Starmer is merely setting up a punching bag for public anger.
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SubscribeI also have my doubts about whether the British people want to be told the reality of the situation. And then I remember the huge effort made by the likes of Channel 4 (government owned), the BBC (government owned), ITV (run by a Guardian alumni), and the Guardian to deny reality and to portray any other economic approach as far right / populism and simply “dangerous”. We’ll never know if the people want to know the truth because the mainstream channels for telling the truth are the ones misleading everyone.
On the face of it, half the population receiving more income in benefits than wages (and more than three quarters not making a net contribution) is a strong client base for the state. It doesn’t seem like fertile ground for harsh economic truths. Yet there is enormous dissatisfaction with the economic status quo. It is the poorest areas, those with the greatest state dependency, that are voting for reform, literally for Reform.
Those most dependent, those living in areas most dependent, are those most willing in modern Britain to listen to the truth because they can’t hide from it. The unfolding economic calamity is all around them. In contrast, the sinecured public sector graduate middle class can for a while yet pretend their luxury beliefs are rational policies, insulated as they are by tax expropriated from everyone else to give them huge pay rises. (It’s no coincidence they overwhelmingly voted for Starmer.) But for those at the bottom competing for a roof over their heads, an appointment with a doctor, for those who can’t now afford their green electricity bill, those workers in steel / automotive / chemicals seeing their jobs green-taxed out of existence, the cognitive dissonance of their middle class brethren is deafening.
Speaking the truth in today’s UK might be a revolutionary act. But economics doesn’t need speaking for it to trigger revolutionary changes.
Massive pay rises to public sector workers they didn’t need to give, paid by increasing taxation on the productive private sector and ridiculously expensive net Zero policies have sealed their fate. If we had cheap energy, which we can, we’d at least have a chance.
If we think Two Tier is unpopular over his handling of the economy just wait till the Southport trial starts.
I think there is a very good chance that Two Tier doesn’t make it to the end of 2025 as leader of this clown car of a government.
It was a terrible inheritance, and a compoundingly awful budget. Bond rates now worse than Truss/Kwarteng. Just needs a concerted.vigilante effort or a LDI moment and the country will have to confront its situation. Britazuela day approaching – 3 months’ worth of food, cash on hand and some silver/gold advisable. Not the end of the world, but a major psychological shock.
Print money, get inflation…surely nobody thought it wouldn’t happen?
As for energy prices we ain’t seen nothin’ yet…the country hasn’t gone the Full Ed Miliband yet.
So given where we now are, what does Mr Pilkington suggest?
Only 3 ways out that I know of, assuming we have come to the.end of “extend and.pretend”: 1. Debt default, 2. Financial repression (negative interest rates over 10/15 year period, capital controls, state intervention in credit allocation/state capitalism) and 3. Monetary reset. The question is always who’s in trounle (state/private, national/international) and to what extent. Clearly it’s govrnment and it’s international, if not global by size of economy. Financial repression is now overt (Yellen short term bill issuance, Reeves directing.UK pension funds to UK economy, etc). However, whilst this will.contimue to gather a head of steam, given the prevalence of the problem a monetary reset is inevitable. The Bretton Woods of our era – it simply depends whether it comes with or without war. I focus my time on what that settlement might look like, since it will affect every aspect of our lives.
The US cut its base rate earlier this week, which means there is now a 0.5% divergence. The betting markets indicate the next UK interest rate move will be upwards (because of rising wages and rising inflation), while the US will be further downwards (despite rising wages in the US).
A visit by Gates followed by the appointment of another Epstein follower in Mandelson. Starmer is clearly being blackmailed over some matter probably not too far removed from what went on at the Island.
I imagine they have a bit more than that on him. “The unusual shape of his family” after the Lord Ali flat scandal, and his alleged long standing involvement with the Southport killer are a couple that spring to mind. He’s totally compromised, which is probably why he looks like he’s crapping himself every time he’s seen in public.
The Truss budget, effectively destroyed by the BoE about three days after it was presented, was at least a budget for growth, albeit a high risk one clumsily prepared and presented. The Reeves budget was economically illiterate, claiming to be a budget for growth yet loading further taxes on business and chucking yet more billions into the NHS where productivity is at an all-time low. The BoE is now writing that one off too. What next?
Is this the same BoE that increased its balance sheet from 580 billion to 1.1 trillion during the pandemic? After it already increased it from 100 billion to 580 billion since the 2008 crisis. The consolidated balance still stands at 850 billion. Where did that money and cheap credit end up? And are they paying their fair share? Years of loose monetary policy had consequences: pushing up asset prices, producing inequality and arguably more stagnation in the real economy. But that part of the story is rarely told when people are supposed to “live within their means”.
“a harsh austerity programme is lowering living standards both through direct tax increases and by prompting businesses to raise prices.”
This is not an austerity programme, it is an out-of-control government spending programme. I would accept the word austerity if there was any sign of a reduction in the largesse dispensed by the state, but instead of that we have productive people and businesses hit by higher and higher taxation to pay for programmes the state cannot afford.
The only people experiencing austerity are those mythical beasts so beloved of politicians of all hues, “hard-working families”.