Displaying items by tag: Economy

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.

The Body Shop, acquired by the German restructuring firm Aurelius, faces uncertainty as employees fear job losses and store closures. Aurelius, known for breaking up companies like Lloyds Pharmacy, also has a history of retaining some businesses, such as Footasylum. While Aurelius's intentions remain unclear, its track record suggests possible restructuring rather than total dissolution. The Body Shop's situation is precarious, with the closure of its home-selling arm and refusal to pay long-term bonuses to employees. The company's loss-making European business was recently separated and sold to Alma24, linked to Aurelius. This move, along with the UK arm's administration, is seen as a cost-cutting strategy, potentially leading to the closure of up to half of its 200 UK stores. Administration allows handling redundancy payments and lease obligations without burdening Aurelius. Despite the potential downsizing, the UK business is considered crucial for supporting the Body Shop's international network, indicating a likely survival in a restructured form.

The upcoming Brexit rule changes, effective from 31 January, are expected to increase food prices in the UK. New regulations will require additional paperwork for EU businesses exporting animal and plant products to the UK, particularly affecting medium and high-risk foods. From April, physical checks will be implemented on these goods. In October, a broader range of items will be reclassified from low to medium risk, necessitating more paperwork. This reclassification will particularly impact fruit and vegetables, with an estimated £200 million added to import costs, likely to be passed on to consumers. Businesses transporting mixed consignments and local wholesalers may face significant impacts. The Government, while acknowledging potential price increases, suggests a negligible impact overall. These changes aim to protect the UK's biosecurity and support efficient trade.

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.