Displaying items by tag: Economy

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.

Published in British Isles

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.

Published in British Isles
Thursday, 22 February 2024 21:36

SIgns of upturn for UK economy

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’.

Published in British Isles
Thursday, 15 February 2024 23:22

UK fell into recession in 2023

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.

Published in British Isles
Thursday, 15 February 2024 22:47

Body Shop staff fear company will be broken up

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.

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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.

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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.

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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

Published in British Isles
Thursday, 18 January 2024 21:52

Surprise increase in inflation

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.

Published in British Isles

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.

Published in British Isles
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