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Thank goodness Rachel Reeves is taking her time before presenting her first budget. The economy is gaining momentum, underscoring the shaky forecasts from the Office for Budget Responsibility (OBR) and the Bank of England.
This week the Chancellor was still in election mode, claiming the Conservatives had left the economy in the worst shape since the Second World War.
In the comments on the latest healthy output data, there was a lengthy note on how much total output or GDP has been lost since 2010.
A quick reminder: successive governments have had to live through a triple shock: the great financial crisis of the Labour Party, Covid-19 and the energy price shock.
All that is now a thing of the past. After a spectacular 0.7% increase in output in the first quarter, the economy looks set for a similar rise in the current three months.
Soft landing: Britain’s new chancellor Rachel Reeves (pictured) moves into 11 Downing Street just as the economy begins to recover
Goldman Sachs has raised its 2024 forecast to 1.2 percent, which, if progress continues and there can be interest rate cuts in the future, seems modest.
Even that puts into the shade the OBR’s forecast of 0.8 per cent growth this year, the market consensus of 0.7 per cent and the Bank of England’s miserable projection of 0.4 per cent.
Unfortunately, the banks’ forecasts are poor, as we know from the report by former US Federal Reserve Chairman Ben Bernanke. The best thing about GDP is that the increase is well distributed.
The service sector is setting the tone. It is not just about cuts and Rioja, but about advanced business and financial services, such as IT, engineering and legal services.
Manufacturing is booming and construction is picking up, even without the planning reforms.
Strong growth is good for public finances, as it means higher revenues from VAT, income tax and capital gains tax.
On the other side of the government’s balance sheet, the healthier the economy, the less pressure there will be on welfare and other Whitehall transfer payments to citizens.
There is another engine of growth that could come if the Bank of England could forget the mistake of being slow to raise rates when consumer prices were rising and not make the same mistake when they were falling.
This week, both foreign policy chief Jonathan Haskel and the Bank’s chief economist Huw Pill put on a sackcloth attitude and suggested that while headline prices remain at 2 percent, it may not be safe to cut rates next month.
Reeves sensibly notes that lower mortgage rates would ease the pressure on households. More importantly, lowering rates would encourage investment by businesses and consumers.
This would mean the ferocious interest rates on the national debt could be reduced. The bank’s governor, Andrew Bailey, is expected to dismiss the dissenters’ stance and push for a vote in favour of lower rates next month.
Unchargable debts
Regulator Ofwat has gone further than anyone would have expected in taking charge of Thames Water’s sins.
It criticises Thames’ vague plans for improvement and places it in a delicate position: a “recovery supervision regime”.
Instead of the more than 40 percent price increase that chief executive Chris Weston wants, the regulator is suggesting a more realistic 21 percent rise.
The suggestion that Thames’ needs are too large and diverse to be manageable and that perhaps a break-up, a common way of unlocking value in the listed sector, could help it deal with its £15bn-plus debt burden is intriguing.
Ofwat’s analysis makes clear that among the best performing water companies are Pennon and Severn Trent, both listed on the stock exchange. Privatising utilities and loading them up with borrowing is a terrible mistake.
Business Secretary Jonathan Reynolds and Mr Reeves must take immediate action to prevent a similar debt catastrophe occurring at Royal Mail.
Luxury tastes
Younger shoppers are fascinated by the increasingly fast-paced online fashion promoted by Shein and Temu.
Amazon is going in the opposite direction. Its acquisition of Whole Foods seven years ago demonstrated an appetite for grocery products with full checkout envelopes.
Now he is turning to the luxury fashion sector by helping to finance Saks Fifth Avenue’s £2.1bn deal to acquire Texas-based high-gloss department store chain Neiman Marcus.
Amazon boss Andy Jassy has his sights set on higher profit margins.
