Displaying items by tag: Economy

MPs have issued a stark warning that the Government must address a £4 billion funding shortfall in council budgets to prevent more local authorities from becoming bankrupt. In the past six years, eight councils have been unable to balance their budgets, compared to none in the previous 18 years. The cross-party levelling up committee highlighted the urgent need for action, with increased demands in social care, children's services, and homelessness exacerbating the crisis. The Local Government Association warns that one in five English councils are on the verge of bankruptcy, with many unable to fund essential services. Despite the Government's proposal to increase council funding by 6.5% for 2024-5, MPs argue this is insufficient to close the £4 billion gap. The Local Government Association acknowledges these challenges, foreseeing inevitable council tax hikes and service cuts. Despite the £600m support package for councils announced last week, MPs stress the need for more comprehensive financial solutions.

The Government has announced a £600 million bailout for local councils, primarily to support elderly care, in response to financial challenges faced by town halls. This emergency funding aims to prevent service cuts and potential bankruptcies. Councils are directed to focus the funding on urgent needs and reduce non-essential expenditures such as consultancy fees and diversity projects. The move follows alerts from over 40 Conservative backbenchers about the risk of increased council tax and reduced services. Financial struggles have already led to bankruptcy declarations from councils like Birmingham, Nottingham, Thurrock, and Woking. A survey reveals that nearly 20% of council leaders in England anticipate needing to implement austerity measures within the next two years. The bailout includes £500 million specifically for social care, and councils will also see a 4% increase in their core spending power. Additionally, £3 million is allocated for flood defence in vulnerable areas. See

Inflation in the UK has unexpectedly risen to 4% in the year to December, surpassing economists' predictions of a decrease to 3.8%. This increase from November's 3.9% was primarily driven by higher tobacco and alcohol costs, following a government hike in smoking duties. The latest figures from the Office for National Statistics (ONS) do not yet reflect the full impact of increased shipping costs due to Red Sea diversions, triggered by Houthi attacks on commercial ships and subsequent UK and US airstrikes. These disruptions are expected to significantly raise goods prices into Europe, according to DP World's chief financial officer Yuvraj Narayan.Retail chains have responded by offering more sales.The Bank of England, striving to control inflation, has maintained a base interest rate of 5.25% since August. Core inflation, excluding volatile items like food and energy, remains at 5.1%, with food inflation dropping from 9.2% to 8%.Chancellor Jeremy Hunt acknowledges the uneven path of inflation reduction, emphasising the need for economic stability. Labour's Rachel Reeves and the Liberal Democrats' Sarah Olney highlighted the ongoing strain on families due to rising living costs.

Bank of England governor Andrew Bailey has identified 'global shocks' as a significant threat to the UK economy. During a treasury committee session, he expressed concerns about the situation in the Red Sea, especially regarding oil supplies. Recent attacks by Iran-backed Houthi rebels on cargo ships in the Suez Canal have prompted some vessels to reroute for safety reasons. Oil giant BP even temporarily halted all oil shipments through the Red Sea due to the threat. Bailey said that these disruptions could impact shipping prices and costs, which would have implications in the monetary policy realm. However, he noted that there has not yet been a prolonged spike in oil prices. Deputy governor Sarah Breeden also highlighted the threat of uncertainty, encompassing macroeconomic conditions, geopolitical tensions, credit risks, and unemployment. Regarding the UK housing market and interest rates, Bailey observed that market interest rates have recently decreased, resulting in lower mortgage costs.

The Bank of England's interest rate hikes, aimed at reducing inflation, have led to a slowdown in the UK housing market. Recent data reveals a significant drop in house prices, the largest since October 2011. This decline, most pronounced in London, reflects the impact of pandemic-driven price surges. Despite this decrease, the housing market faces long-term challenges. Interest rates have risen, functioning slowly like drip filter coffee, and have a delayed effect on the market. This delay is due to the time taken for banks to adjust mortgage rates and for these changes to be reflected in official statistics. The latest data from the Office for National Statistics (ONS) show a 1.2% drop in house prices over a year, marking the fastest decline in over a decade. Financial markets anticipate rate cuts next year, which could revive the market. However, the overall cost of living remains high, with increased expenses from food to household bills. Over a million people will face higher mortgage costs next year.

The Bank of England has maintained its interest rate at 5.25% for the third consecutive meeting. This decision reflects the Bank's stance that borrowing costs need to remain high for an extended period to combat inflation, which is still well above the target rate. Unlike the US Federal Reserve, which hinted at potential rate cuts next year, the Bank of England, led by Andrew Bailey, suggests that the UK is not yet in a position to consider such reductions. Bailey expressed that it is too early to speculate about cutting rates, emphasising the need for more progress in controlling inflation. The decision was not unanimous, with three members of the Monetary Policy Committee (MPC) arguing for a rate increase, but they were outnumbered by the six others. Despite faster-than-expected inflation drops and signs of economic weakness, the Bank is cautious about reducing rates too soon, fearing a resurgence in inflation. Bailey noted that while significant progress has been made in reducing inflation from over 10% in January to 4.6% in October, there is still a journey ahead to reach the 2% target.

The government has announced that South Africa, battling crippling power blackouts, plans to add 2,500 megawatts of new nuclear generation. The country has Africa's only nuclear power station, but the Koeberg plant near Cape Town is currently only working at half capacity. The first of the new units will probably come on stream in 2032 or 2033. Electricity minister Kgosientsho Ramokgopa said the extra nuclear power would be a significant milestone. He added that it would be part of the government action to ‘ending the existential challenge that is confronting the country’ over power shortages and long-term energy security. Rotating power cuts of up to twelve hours a day over the past fifteen years have badly hit the economy and the government's reputation as it heads into an election next year. National power company Eskom has been tainted by corruption and maintenance problems which have led to the power cuts. In a bid to extend the life of the Koeberg plant by twenty years, one unit was closed for nearly a year and the second unit was shut down for maintenance this week.

A Local Government Association (LGA) survey reveals that about 20% of council leaders and executives in England anticipate possibly issuing Section 114 notices, reflecting an inability to balance budgets due to funding shortfalls. A projected £4 billion funding deficit over the next two years, necessary to maintain service levels, was not addressed in the recent Autumn Statement. Councils, facing the prospect of increasing council tax by up to 3%, are caught in a dilemma of balancing funding needs against the financial pressures on households. The survey found that half of the leaders doubted their ability to meet legal requirements next year, and almost two-thirds saw no Autumn Statement measures aiding their financial woes. The LGA points out a significant 27% decrease in councils' core spending power since 2010/11, worsened by the pandemic, growing service demands, and escalating costs. Immediate government intervention is needed. See

A budget crisis in Germany has struck at the heart of the ambitions of the ruling Green Party within the coalition government led by Chancellor Olaf Scholz. The crisis centres around a significant budget shortfall, partly caused by the Greens' ambitious climate policies and the economic impact of the Covid pandemic. The Greens had planned to invest heavily in green initiatives, but the financial constraints have forced them to reconsider and scale back their plans. The crisis has also highlighted tensions within the coalition, with the Greens pushing for increased borrowing to fund their projects, while others are concerned about the country's fiscal stability. Chancellor Scholz faces the challenge of finding a balance between green policies and economic responsibility.

In his Autumn Statement on 22 November, Chancellor Jeremy Hunt announced a significant cut in National Insurance from January, from 12% to 10%. However, due to previous tax changes, many workers might not see substantial benefits. He also raised the state pension by 8.5% and universal credit by 6.7%. Hunt claimed the Government had stabilised the economy, allowing for tax cuts aimed at boosting growth ahead of the next year's general election. Labour criticised the NI cut as insufficient compared to previous tax increases by the Conservative government. Hunt also made a tax break for business investments in new equipment permanent, touted as the 'biggest business tax cut in modern history.' Despite these cuts, the overall tax burden is set to reach a 70-year high. The Office for Budget Responsibility (OBR) revised growth forecasts downwards and projected a delay in the return to pre-pandemic living standards until 2027/28, citing prolonged inflation and higher interest rates. The NI reduction, seen as a significant move, led to speculation about an early general election.