Posts about British economy and social issues

Lower British fiscal deficit gives the central government no more or no less capacity to net spend to reduce unemployment

It’s Wednesday and I am bound for London later today. We will see how that turns out having not travelled there since the beginning of the pandemic. I will take plenty of precautions to avoid Covid. But it will be good to catch up with friends in between several engagements, including my teaching responsibilities at the University of Helsinki, which I have been acquiting for the last few years via Zoom. Today, I reflect on the latest public finance data released by the British Office of National Statistics which shows the fiscal deficit is smaller than expected. Even progressive journalists have written this up as providing more scope for pre-election largesse to be provided. The fact that the fiscal balance is lower provides no more or no less scope for the government to net spend. The relevant questions that should be answered before such an assessment can be made are ignored by the journalists, including the fact that the unemployment rate is rising and the supply-driven inflation is falling fast. After some announcements of events in London and Europe, we have some violin music to end today’s post. There will be no blog post tomorrow as I will be in transit.

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Civil society is in jeopardy in the UK as funding cuts erode local government capacity

I keep hearing from friends who live in Britain that I will be shocked when I get there on Thursday of this week after a nearly four year absence. One friend, who has just returned said that the deterioration in the public infrastructure is now fairly evident. Despite my absence, I have been keeping a regular eye on the data and so these anecdotal reports and reflections come as no surprise. It is obvious that the Tory government has sought a depoliticisation strategy by cutting local government spending capacity as a way of diverting blame for the consequences of their austerity push. The problem now is that after 13 or so years of Tory rule, the cuts are eating into the very essence of civil society in Britain. Like all these neoliberal motivated cuts, the cuts to council grants will prove to be myopic. The dystopia they are creating will come back to haunt the whole nation.

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British Labour Party running scared of the usual shadows

This is an election year in the UK and unless something dramatically changes, the Labour Party will be in power for the next term of Parliament and will have to manage a poly crisis that they will inherit from 40 or more years of neoliberalism. Note, I don’t confine the antecedents to the Tory period of office since 2010 because the decline started with James Callaghan’s Labour government in the 1970s and then just got worse during successive periods of Labour and Tory rule. During that long period, there has been no shortage of economists and public officials predicting that the financial markets would soon reap chaos as a result of the public debt levels being ‘too high’ (whatever that means). The most significant chaos came in 1992 when Britain was forced out of the European exchange rate system, which it should never have joined in the first place. While all these economists are now pressuring the likely next British government to pull back on their promises to ‘assuage’ the financial markets, there is not even a scintilla of evidence to support their predictions of doom. And the Labour party leaders are too stupid to realise that.

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No discernible negative Brexit impact on British tourism so far

If you cast your mind back to 2016 and after in Britain, there were a series of shock horror predictions being made about the impact on the nation of leaving the European Union. The scaremongering didn’t dissaude the voters and the Referendum was determined in favour of leaving. It seems I lost some friends as a result of my support for the Yes vote – although in saying that one has to question the basis of the relationships in the first place. Most of the doomsaying predictions have not materialised although it is very hard to conduct research convincingly on this topic given that the Tory government has been so incompetent and that the World has lived through one of the greatest disruptions in human history (aka Covid). But I was looking at the most recent data released by the British Office of National Statistics on December 19, 2023 covering – Overseas travel and tourism, provisional: September 2023 – and it reminded me of the predictions that tourism from Europe would collapse and British people would find it hard having holidays on the Continent after Brexit. The data says that the prediction was like many – guff.

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Prosperity of Australian households going south, while Keir Starmer praises Margaret Thatcher

I am covering a few topics today, given that I used yesterday’s post space to analyse the national accounts release. There is a further point I wish to make about the latest national accounts data. A focus on real household disposable income shows the full extent of the impacts of monetary policy (rate hikes) and fiscal policy (tax bracket creep) on household prosperity. The Australian government is overseeing one of the largest falls in household prosperity in recent history aided and abetted by the RBA. And the only thing the Treasurer has announced this week is his intention to alter the RBA Act to rescind his power to change monetary policy if it acts against the national interest. Meanwhile, the British Labour Party leader was out there praising Margaret Thatcher and equating her shock therapy to his own purges within the Labour Party of anything that resembles a progressive voice. After all that, I have some spiritual jazz for our listening pleasure.

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British House of Lords inquiry into the Bank of England’s performance is a confusing array of contrary notions

On November 27, 2023, the Economic Affairs Committee of the British House of Lords completed their inquiry into the question – Bank of England: how is independence working? – by releasing their 1st Report after taking evidence for several months – Making an independent Bank of England work better. The report is interesting because it contains a confusing array of contrary notions. On the one hand, the witnesses to the Inquiry claimed it was “Groupthink” in operation that prevented the Bank from raising rates earlier and that it was obvious the inflationary pressures were traditional excess spending driven by excessive monetary supply growth (classic Monetarism). That assessment is contested by the alternative, which I adhere to, that the inflationary pressures were supply driven and not amenable to interest rate shifts. And the Groupthink arises because these economists consider interest rate changes would solve the inflation irrespective of the contributing factors. While the Report is sympathetic to the mainstream view as above, it then launches into a critique of the mainstream forecasting approaches. A confusing array of notions.

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UK Autumn Statement is appalling and ties the hands of Labour – the voters face a Hobson’s choice

Last Wednesday (November 22, 2023), the Tory government in Britain released their fiscal update known as the – Autumn Statement 2023 – which basically sets the course of fiscal policy in the UK for the period ahead. The Tories continue their appalling record. But they have also locked Labor into an austerity mindset. Meanwhile, neither party resonates with the sentiments expressed by the people if the latest Ipsos survey is representative of that sentiment. The British people face a Hobson’s choice!

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British Shadow Chancellor promising the impossible

The British Labour Party officials and politicians have all been cock-a-hoop over the last week in Liverpool as they participate in their Annual Conference with the latest modelling suggesting they may win a “landslide 190-seat majority” at the next national election leaving the miserable and incompetent Tories with only 149 seats (currently 352) (Source). The contrast between the two national conferences this year could not have been greater. The Tories looked and sounded divided and like losers. The Labour Party looked like winners and united (although that latter condition has only come from the Stalin-like purge that the leadership has conducted on the Left of the Party). The Labour Party is now schmoozing the corporate bosses and each day that it passes it sounds more like what the Tories used to be like, before the rabid Right took over. That assessment is based on the promises that the Labour Party made at its recent Annual Conference. While the details are still relatively general, my assessment of the fiscal promises the Shadow Chancellor made last Monday and elsewhere is that the conditions that would be required to satisfy them will prove impossible to achieve.

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Be careful using first release data – Britain now surges ahead of Europe!

In May 2023, when the British Office of National Statistics (ONS) released the March-quarter national accounts data (first estimate), which showed that real GDP grew by only 0.1 per cent in the first quarter and a rate equal to the December-quarter 2022, the critics were out in force. Brexit this. Brexit that. Graphs were created showing that Britain was recording the worst growth across the G7 nations. Brexit this. Brexit that. The Labour Party was cock-a-hoop as they continued the purge of the progressive elements in the Party. Then the second estimate came out on June 30, 2023 using additional data which the ONS said provides ‘a more precise indication of economic growth than the first estimate’, we learned that GDP “increased by an unrevised 0.1% in Quarter 1”. Brexit this. Brexit that. William Keegan who is like a cracked record stuck in a rut, wrote more UK Guardian articles bemoaning the democratic choice to leave the European Union. The problem is that all this data-centric inference was based on an illusion, which is why one must always be circumspect when dealing with this sort of data. The latest national accounts data released by the ONS on Friday (September 29, 2023) revised the first quarter result – scaling it up by a factor of three – to 0.3 per cent, which is still slow but hardly the disaster the pundits claimed.

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With central banks chasing shadows, many nations are now plunging towards or into recession

Yesterday, the – Flash Germany PMI – was released, which shows that “German business activity” has fallen “at fastest rate since May 2020”. Also released was the – Flash Eurozone PMI – which revealed that “Eurozone business activity contracted at an accelerating pace in August as the region’s downturn spread further from manufacturing to services”, Europe is heading to recession or should I rather say – stagflation – because the unemployment will rise sharply while inflation is still at elevated levels. All because the policy settings are wilfully and unnecessarily driving nations into recession. Over the Channel, Britain is going through a similar experience – inflation is falling rapidly and the economy is plunging towards recession. The common link is the policy folly. The European Central Bank and the Bank of England have been increasing interest rates as a ‘chasing shadows’ exercise – meaning that the drivers of the inflation they claim to be fighting are not sensitive to the interest rate changes. But the interest rate hikes are causing damage to the real economy by increasing borrowing costs. Meanwhile, fiscal policy is in retreat because the government thinks it has to set policy to complement the central bank hikes – meaning two sources of austerity. And for those commentators who pine for re-entry to the EU – they should look East and see what a mess the European economy is in!

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