Displaying items by tag: Economy

Labour, the Conservatives, and the Liberal Democrats have all pledged not to raise value-added tax (VAT) if they win the general election. Chancellor Jeremy Hunt confirmed that the Tories would maintain the current VAT rate, challenging Labour to do the same. Shadow chancellor Rachel Reeves dismissed claims of a planned VAT hike as 'nonsense,' also ruling out increases in income tax or National Insurance. Lib Dem spokesperson Munira Wilson echoed this. Ahead of the official election campaign, Labour promised economic stability and explicitly ruled out tax hikes for working people. They plan to impose VAT on private school fees to fund state school teachers. Jeremy Hunt criticised Labour's tax stance, suggesting a potential VAT rise if they win. However, Rachel Reeves labelled this claim 'absolute nonsense’, reiterating Labour's commitment not to increase taxes on working people.

The UK housing market currently has £230bn worth of homes for sale, the highest supply in eight years, keeping house prices stable for the rest of 2024. According to Zoopla, the supply of homes for sale is 20% higher than last year, with the average estate agent handling 31 homes - the highest level in eight years. Richard Donnell, Zoopla's executive director, said the increased supply reflects renewed homeowner confidence, leading to a rise in house prices as more sales are agreed upon. Sales have increased by 13% year-on-year, with a third of homes for sale having been marketed in 2023. The surge in supply is due to more three- and four-bedroom homes returning to the market as owners feel confident to move despite rising mortgage rates. The upcoming general election in July is not expected to impact the property market significantly, with 392,000 homes in the sales pipeline. Experts say that serious buyers and sellers should price their homes realistically to achieve sales despite election uncertainties.

Homeowners face rising mortgage rates as a Bank of England interest rate cut is delayed. Several banks have raised some mortgage rates, responding to uncertain economic forecasts. Inflation remained higher than expected at 3.2% in March, influencing market predictions and delaying anticipated rate cuts. Mortgage brokers have advised securing rates swiftly to avoid financial strain. One broker highlighted the volatile nature of current rates, while another noted increasing frustration among homebuyers due to these changes. Currently, the average two-year and five-year fixed mortgage rates stand at 5.82% and 5.40% respectively.

The UK's unemployment rate surged unexpectedly to 4.2% in the three months to February, up from 3.9% in January, the highest level in nearly six months. This increase, alongside a slowdown in earnings growth, reflects economic uncertainty affecting the job market. Real wages rose by 2.1% due to falling inflation. Economists suggest these weaker-than-expected employment figures may prompt the Bank of England to consider interest rate cuts as early as June. HMRC data revealed a significant decline in workers on payrolls by 67,000 in March, the largest drop since November 2020. Vacancies also decreased for the 21st consecutive period. While recent output data suggests potential economic growth in the first quarter, the Office for National Statistics (ONS) advises caution in interpreting unemployment rate data due to low survey response rates. There are also concerns over industrial action and increasing inactivity rates. Acting shadow work and pensions secretary Alison McGovern said:  'Tory failure is laid bare by the reality that we are now the only country in the G7 with an employment rate stuck below pre-pandemic levels’. See also

German chancellor Olaf Scholz has tried to strike a delicate balance on a trip to China. He wanted to promote business ties but also to raise concerns over China's export surge to Europe and its support for Russia’s war in Ukraine. Meeting with top leaders including Xi Jinping, he adopted a conciliatory tone in his discussions, emphasising partnership while acknowledging China as a competitor and systemic rival. This marked his first visit since Germany categorised China as such and called for reduced dependency on Chinese goods. Germany faces economic challenges, exacerbated by rising energy prices due to the Ukraine war. Scholz also urged Jinping to press Russia to end its ‘senseless’ war with Ukraine: see

The British Chambers of Commerce (BCC) have reported that nearly half of UK businesses plan to raise prices soon, despite overall inflation pressures easing. Their survey, covering 4,800 firms, found 46% expecting to increase prices, 51% planning to maintain current prices, and only 3% foreseeing a reduction. This pricing trend is linked to economic challenges affecting business investment, which remains sluggish. A significant factor is the higher labour costs, particularly in the hospitality and manufacturing sectors; 77% and 76% of firms respectively cite it as a major influence on pricing decisions. Additionally, the survey indicates a stagnant landscape for business investment. Most firms reported no change in their investments in new equipment and machinery this quarter: only 24% have increased their investment, while 16% noted a decrease.

UK inflation has dropped to 3.4%, the lowest in over two and a half years, potentially signalling a Bank of England (BoE) interest rate cut this summer. This decrease, primarily driven by slower food price increases, may lead to cheaper mortgages, providing relief to homeowners. Initially predicted at 3.5%, the February inflation rate was pleasantly surprising, especially as food inflation fell to 5% from 7% in January. The decline supports Rishi Sunak's commitment to reduce inflation, and aligns with the BoE's target of 2%. This news prompted NatWest to lower mortgage rates even before the BoE's decision. Financial markets expect the BoE to maintain the current 5.25% interest rate, but the reduced inflation increases the likelihood of a summer cut, which could significantly lower mortgage payments. However, renters face contrasting challenges, with rental costs rising at record rates due to market constraints. The average UK rent soared by 9% over the past year. As homeowners anticipate potential financial relief, renters continue to struggle with escalating living expenses.

In the 2024 Budget announcement, Chancellor Jeremy Hunt introduced tax cuts to bolster the Conservative Party's prospects. He reduced National Insurance by 2p, following an earlier cut in January. This move was labelled a "con" by Labour, suggesting it would disadvantage many. Significant changes in the Budget included raising child benefit thresholds, introducing a vaping levy, and eliminating non-dom tax status. Despite speculation, income tax was not reduced, but National Insurance for employees was lowered from 10% to 8%, and from 8% to 6% for the self-employed. Child benefit eligibility was expanded, affecting around 170,000 families. The chancellor claimed these NI changes would save an average employee earning £35,000, about £450 annually. Critics, including Labour and the Liberal Democrats, accused the Budget of being a weak attempt to cling to power, failing to effectively address public service issues, high taxes, and zero growth. Some Tories, including former ministers, expressed disappointment over the lack of income tax cuts. The Budget also announced extended support for cost-of-living pressures and a freeze on alcohol and fuel duties, while new taxes on vaping and tobacco were introduced. Public sector efficiency and technology investments, particularly in NHS IT systems, were highlighted as key initiatives.

Bank of England governor Andrew Bailey, addressing MPs, has expressed optimism about the UK economy despite a recent shallow recession. He noted 'distinct signs of an upturn’, foreseeing one of the mildest recessions in modern history. The Bank's measures, including fourteen consecutive interest rate hikes, aimed to bring inflation back to 2% to help allow for sustainable growth. The bank’s reluctance to cut interest rates reflects worries over the outlook for inflation later in the year. Bailey cautioned against complacency, citing uncertainties such as energy costs and shipping disruptions. Asked about the timing of cuts in the interest rate, he refused to say when or by how much this might happen: his deputy said this would be based on ‘data not dates’.

In 2023, the UK officially entered a recession, as confirmed by the Office for National Statistics (ONS). The economy shrank by 0.3% in the last quarter of 2023, marking the second consecutive quarter of decline, a typical indicator of recession. However, there are positive signs, with a robust job market and wage growth surpassing inflation, suggesting a potential short duration for the downturn. The UK's GDP grew by a slight 0.1% compared to the previous year, indicating weak but present growth. Chancellor Jeremy Hunt remains optimistic, believing the economy is improving, despite current low growth rates. In contrast, Shadow chancellor Rachel Reeves criticised Rishi Sunak, claiming his economic growth promises are failing. The global context shows similar trends, with the EU narrowly avoiding a recession and Japan entering one. The latest ONS update confirmed a marginal 0.1% GDP growth for the UK in 2023, the weakest since the 2009 financial crisis, excluding 2020's pandemic impact. The Government's focus is on reducing inflation and supporting economic recovery, amidst political criticism and global economic challenges.