Caution is warranted,” said Gertjan Vlieghe last week, as he argued now isn’t the time to raise interest rates. I’d say Vlieghe, a member of the Bank of England’s Monetary Policy Committee, should reconsider.
The UK is heading for a downturn, believes the half-Belgian economist, as the fall in sterling after last summer’s Brexit vote pushes up inflation, so squeezing household finances. “The consumer slowdown, which initially didn’t materialize, now appears to be under way,” said Vlieghe during a speech in London, arguing rates should stay put at an ultra-low 0.25pc.
What should we make of this latest rise in UK inflation? Is it because of Brexit? And are interest rates now set to rise for the first time in almost a decade?
This was a sharp inflation increase. In February, the consumer price index was 2.3pc higher than in the same month in 2016, compared to a 1.8pc annual increase the month before. Less than six months ago, in October 2016, annual CPI inflation was remarkably subdued, at 0.9pc. Now UK inflation has shot above the Bank of England’s 2pc target for the first time since 2013.
“Britain’s example will make everyone realize it’s not worth leaving,” says European Commission President Jean-Claude Juncker. The President of the European Commission, on hearing the UK will trigger Article 50 on Thursday week, demanded a £50bn “divorce payment”.
So what if the UK has made some of the largest financial contributions of any member state? Since 2000 alone, we’ve paid £90bn more to the European Union than we got back.
As one Brexit hurdle is cleared, the doom-mongers erect another. Ahead of last June’s referendum, the Treasury warned ad nauseam that voting to leave the European Union would spark “an immediate and profound economic shock”.
Since that vote, with the economy holding up regardless, we’ve seen endless legal battles and Parliamentary shenanigans stopping the Prime Minister from even getting the Brexit ball rolling.
Philip Hammond’s spring Budget was a disaster. The Chancellor’s decision last week to knock the self-employed, at a time when such flexible, often entrepreneurial workers have helped drive the UK’s employment boom, has badly backfired.
This row over national insurance contributions, though, while serious, shouldn’t detract from other important aspects of this budget. On the plus side, Hammond confirmed corporation tax will fall from 20pc to 19pc next month and 17pc by 2020. I was also pleased by what looks like a genuine commitment to boost vocational training.
This was Philip Hammond’s first Spring Budget but, as he said himself, his last. From now on, there will be just one annual budget statement, every autumn. The Chancellor looked relaxed yesterday and even cracked some pretty good jokes at Jeremy Corbyn’s expense.
Faced with weak opposition, though, Hammond delivered a centrist, somewhat Blairite budget, rather than a package backing wealth-creation and entrepreneurs. Worse than that, he spectacularly failed to get a grip on the UK’s wayward public finances.
We saw plenty Brexit-related headlines last week, after the government suffered its first Parliamentary defeat over the Article 50 bill. Theresa May insisted her plan to trigger Brexit before April “remains unchanged”, despite the House of Lords trying to force the government into guaranteeing the rights of all EU citizens currently living in the UK. The Prime Minister is “confident” the Lords’ amendment will be voted down when the bill returns to the Commons.
Our newspapers and airwaves are dominated not only by Brexit, of course, but also the spoken and tweeted words of Donald Trump. The US President gave his first speech to Congress last week – an address generally seen as more statesmanlike than his previous efforts.
“It’s our expectation that rate increases this year will be appropriate,” said Janet Yellen last week. The Federal Reserve boss was signaling that US interest rates will keep going up.
America’s central bank has increased rates only twice in the past 10 years. The last time, though, was as recently as December 2016. If the Fed does raise rates this year too, that would be hugely significant – suggesting the global interest rate cycle has well and truly turned. It would also pose a danger that financial markets could plunge.
“The biggest barrier to social mobility and social progress is our broken housing market,” said Sajid Javid, while launching his long-awaited housing white paper last week. “Fixing it means taking on tough vested interests”. The Communities Secretary is right on both counts. But if this white paper is a genuine guide to future government action, it isn’t up to the job,
Over the last twenty years, amid soaring demand, we’ve built around two and a half million too few homes across the UK. This yawning supply-demand gap has made ownership evermore unaffordable. The average house today costs almost eight times average earnings – an all-time record, the ratio having doubled since 1997.
Aaron Senessie is a maths teacher at a leading London secondary school. Whitney Joseph is a trainee lawyer in the City. A couple for several years, and now in their late-20s, Aaron and Whitney want to buy a modest home close to Whitney’s parents in Essex.
“It’s an uphill struggle – we’re saving hard, but always battling rising prices,” Aaron tells me, as part of my recent Channel 4 Dispatches investigation into UK house-building. “It’s really upsetting,” Whitney continues. “We’re hard-working people with good jobs – and we haven’t got a chance”.