Economics | The Guardian

UK's growth will be least in G7 by 2025, OECD expects, as low business investment and multiple pressures bear down

Rolling coverage of the latest economic and financial news, as the OECD cuts UK growth forecasts to back of G7 pack for 2025

As the fortunes of the super-rich soar, a proposed annual levy of 2% could offer a corrective - and they will fight it tooth and nailThe idea is simple. There are about 3,000 billionaires in the world and in recent years they have been getting richer and richer. Demands on hard-up governments from ageing populations and the drive to achieve net zero are growing all the time. Rather than expect voters already struggling to make ends meet to pay more, how about a wealth tax on Jeff Bezos, Elon Musk and their like?This is an idea that has obvious attractions. As Joe Biden has pointed out, US billionaires make their money in ways that are often taxed at lower rates than the ordinary wage income of American workers. Overwhelmingly, their wealth comes from the rising value of their assets, and they use tax loopholes and legal accounting moves to minimise the tax they pay. Wealthy Americans pay an average tax rate on their incomes of just 8%. Biden thinks they should be paying a minimum of 25%.Larry Elliott is the Guardian's economics editor Continue reading...

UK constrained by high interest rates, price rises and staff shortages but thinktank offers optimistic outlook for global economyThe UK will be the worst-performing economy in the G7 next year, according to the Organisation for Economic Cooperation and Development, as high interest rates and the lingering effects of last year's surge in inflation drag on growth.In a downbeat assessment, the Paris-based thinktank also downgraded its forecast for UK growth this year to 0.4% from a November forecast of 0.7%. Continue reading...

Big economies such as the US must change fiscal policy as the realities of debt and inflation biteFor more than a decade, numerous economists - primarily but not exclusively on the left - have argued that the potential benefits of using debt to finance government spending far outweigh any associated costs. The notion that advanced economies could suffer from debt overhang was widely dismissed, and dissenting voices were often ridiculed. Even the International Monetary Fund, traditionally a stalwart advocate of fiscal prudence, began to support high levels of debt-financed stimulus.The tide has turned over the past two years, as this type of magical thinking collided with the harsh realities of high inflation and the return to normal long-term real interest rates. A recent reassessment by three senior IMF economists underscores this remarkable shift. The authors project that the advanced economies' average debt-to-income ratio will rise to 120% of GDP by 2028, owing to their declining long-term growth prospects. They also note that with elevated borrowing costs becoming the new normal", developed countries must gradually and credibly rebuild fiscal buffers and ensure the sustainability of their sovereign debt". Continue reading...

The UK's manufacturing sector suffered a fresh downturn last month as disruption to shipments in the Red Sea hit firms

With hopes for a rate cut gone, there is speculation of another rise before the end of 2024. What factors will sway the Reserve Bank's decision?

Fastest growth in 18 months as GDP expands by better-than-expected 0.3% in Q1 2024, after two quarters of contraction

France, Spain, Germany and Italy helped by lower inflation and prospect of interest rate cuts

Prices in non-food stores are lower in April than a year earlier as stores offload summer stock

The accelerating slide in the value of Japan's currency could ultimately be bad news for people in Japan who are heavily reliant on importsThe value of Japan's currency has tumbled so much, that its value is back to where it was in 1990, shortly after Japan's famous bubble economy" burst. For a moment on Monday it was trading at 160 yen to US$1. A few years ago, it was closer to 100 yen to US$1.The yen's accelerating slide could ultimately be bad news for people in Japan. A weaker yen squeezes households by increasing import costs. Japan is heavily reliant on imports for both energy supplies and food, meaning inflation could rise. Continue reading...

Irish GDP returned to growth at the start of the year, while 19% of Ocado shareholders oppose pay policy that could give boss Tim Steiner a 15m bonusNew inflation data today has shown that prices rose in four German states this month.In Bavaria, the annual inflation rate rose in April to 2.5% from 2.3% in March, in Brandenburg it rose to 3.0% from 2.8%, in Saxony it rose to 2.7% from 2.5%, and in Hesse it rose to 1.9% from 1.6%. Continue reading...

Dublin records near-doubling of tax revenue from duties on imports of clothing, food and other goods from Great BritainIreland has landed a 700m (600m) Brexit bonanza with a steep increase in tax revenues flowing from customs duties now applicable to imports of clothing, food and other goods from Great Britain.Before Brexit, Britain enjoyed customs-free exports to Ireland and the rest of the EU because it was part of the single market and customs union. Continue reading...

Analysts say impact on wheat, barley, oats and oilseed rape harvests means price rises on beer, bread and biscuits and more food importedUK harvests of important crops could be down by nearly a fifth this year due to the unprecedented wet weather farmers have faced, increasing the likelihood that the prices of bread, beer and biscuits will rise.Analysis by the Energy and Climate Intelligence Unit (ECIU) has estimated that the amount of wheat, barley, oats and oilseed rape could drop by 4m tonnes this year, a reduction of 17.5% compared with 2023. Continue reading...

Exclusive: Concerns over effect on UK's finances lead officials to believe utility should be renationalised before general electionSenior Whitehall officials fear Thames Water's financial collapse could trigger a rise in government borrowing costs not seen since the chaos of the Liz Truss mini-budget, the Guardian can reveal.Such is their concern about the impact on wider borrowing costs for the UK, even beyond utilities and infrastructure, that they believe Thames should be renationalised before the general election. Continue reading...

Gordon Brown challenged Conservative ideas to fix the economy. His successors unfortunately will notWhen Labour's Gordon Brown embraced post neo-classical endogenous growth theory" in 1994, he was ridiculed by his opponents. This said more about his critics than Mr Brown. His speech reflected an engagement with academic debates as well as a worldview and diagnosis distinct from Tory narratives. He judged education to be key, as growth depended on human capital. By contrast, today Labour's top team struggles to say exactly what they believe will drive growth and how they will achieve it.Part of the reason is that mainstream economics is proving incapable of giving sensible answers to important questions. Whether it is the financial crash, the pandemic or inflation shocks, the response is that spending cuts are needed as public debt threatens to bankrupt the nation. Many economists are questioning their discipline's worth. Last month, the Nobel laureate Angus Deaton blogged that economics was in disarray" and had largely stopped thinking about ethics". JeremyRudd of the US Federal Reserve writes scornfully in his latest book, A Practical Guide to Macroeconomics, that economists' role today is to justify what elite interests want to do anyway: deregulate, pay fewer taxes, keep wages as low as possible". Continue reading...

Council budgets look a likely target when the Tory government seeks to balance the books and pay for its promisesTalking tough on sicknote culture", stopping the boats and offering billions of pounds extra for defence spending. Ahead of local elections in England and Wales this week, Rishi Sunak has been in campaign overdrive.With the prime minister suffering the joint-lowest satisfaction rating of any Conservative or Labour leader since 1978, experts are predicting a drubbing for the Tories, with the party expected to lose as many as half the seats it is contesting. The prominent Tory mayors in the West Midlands and Tees Valley, Andy Street and Ben Houchen, could be ejected from power. Continue reading...

Starmer wants to make Tory policy on the economy a central theme of its election campaign ... without mentioning BrexitNow, let me get this straight. We have a fissiparous, Brexit-supporting government, many of whose MPs are stepping down, convinced that their party is heading for its wilderness years. Correspondingly, we have a Labour opposition that is riding high in the polls, led by Keir Starmer, who - unlike his predecessor Jeremy Corbyn - played a noble part in the remain campaign and argued passionately for a second referendum.Proponents of a second referendum hoped that the country would acknowledge its historic mistake, and return to the European Union it should never have left. I was one of them. We failed. Continue reading...

Sort of: this week will see inspections of some goods. But the hit to businesses and inflation will be inescapableWhen Michael Gove announced the first delay to post-Brexit checks on plant and animal products coming into the UK from the EU, he was keen to make one thing clear.Although we recognise that many in the border industry and many businesses have been investing time and energy to be ready on time, and indeed we in government were confident of being ready on time," the then minister for the Cabinet Office said, we have listened to businesses who have made a strong case that they need more time to prepare." Continue reading...

Analysts say investor confidence is improving, as shares in London post their best week since last September

For first time since August 2021 people expect position to be better in a year, Paul Thwaite addsConsumer confidence is bouncing back in the UK, with people predicting a brighter financial future for the first time in two years, NatWest has said.Paul Thwaite, the bank's chief executive, said easing price pressures as inflation comes down seemed to be feeding through to the general public. Headline consumer price inflation is still above the Bank of England's 2% target at 3.2% but has fallen sharply from a peak of 11.1% in October 2022. Natwest's own economic forecast suggests inflation will fall to 2.5% by the end of this year. Continue reading...

Commerce department says gross domestic product growth decelerated to 1.6% at start of year as consumers slowed spendingAmerica's leading stock indices came under pressure on Thursday after official data revealed that US economic growth slowed sharply to its weakest rate in almost two years.But as high interest rates take their toll on the world's largest economy, inflation continues to loom large. Continue reading...

Increase in cost of crude could drive inflation up and force central banks to keep interest rates high Business live - latest updatesA serious escalation of tensions in the Middle East would push the price of oil above $100 (80) a barrel and reverse the recent downward trend in global inflation, the World Bank has said.The Washington-based institution said the recent fall in commodity prices had been levelling off even before the recent missile strikes by Iran and Israel - making interest rate decisions for central banks tougher. Continue reading...

Green Finance Institute report said further pollution could cut 12% off GDP by 2030sThe destruction of nature over the rest of the decade could trigger a bigger economic slump in Britain than those caused by the 2008 global financial crisis and the Covid pandemic, experts have warned.Sounding the alarm over the rising financial cost from pollution, damage to water systems, soil erosion, and threats from disease, the report by the Green Finance Institute warned that further breakdown in the UK's natural environment could lead to a 12% loss of gross domestic product (GDP) by the 2030s. Continue reading...

PM has faced scepticism over costing of his commitment to spend 2.5% of Britain's GDP on defence by 2030Rishi Sunak has suggested he will not shy away" from further public spending cuts to boost defence spending as he faced questions over how the policy will be funded.He said the plan would not affect the government's ability to cut taxes and was the right thing to do" in an increasingly dangerous world. Continue reading...

Wealthy nations exploit their position as the world's bankers to siphon off hundreds of billions from the needyDeveloping nations have long complained that globalisation has enthroned western currencies in such a way as to subsidise living standards in the rich world. Last year, Brazil, Russia, India, China and South Africa - the Brics - even talked of an alternative common currency to replace the dollar. Wealthy countries, perhaps, think that their ambitious goals for aid defuse arguments over their exorbitant privilege".As TS Eliot put it, between the idea and the reality ... falls the shadow". A paper out last week calculates that the bottom four-fifths of humanity finance the richest fifth to the tune of $660bn a year. The reason, say Gaston Nievas and Alice Sodano of the Paris School of Economics, is that wealthy countries have become the world's bankers, able to squeeze debtors. Poor nations borrow in rich-world currencies because they run deficits in energy and food, while exporting low-value goods relative to their imports. Markets are liberalised in poor countries and profits flow to the global north.Do you have an opinion on the issues raised in this article? If you would like to submit a response of up to 300 words by email to be considered for publication in our letters section, please click here. Continue reading...

Economists had tipped CPI growth for the March quarter of 0.8%, and an annual inflation rate of 3.5%

ABF, which also owns Dorset Cereals, says it is not yet planning rises but it may need to import quite a lot' of grainOne of the UK's biggest bread makers has warned of potentially higher prices as it expects very small" grain harvests in the UK, making the company more reliant on imports.George Weston, the head of Associated British Foods (ABF), which owns Kingsmill and Ryvita as well as Twinings tea, Dorset Cereals and the cut-price fashion retailer Primark, said the group had not increased its food prices in the past six months after a hefty period of inflation last year. Continue reading...

Huw Pill warns inflation could rebound as UK business survey signals economy strengthened over last monthThe prospects of a summer cut in UK interest rates have receded after the Bank of England's chief economist said inflation must be squeezed out of the economy and cautioned against cutting too soon.After a key survey signalled strong sales across the private sector over the past month and the London stock market rose to a record high, Huw Pill said concerns remained that inflation, which is expected to fall below its 2% target within a few months, could then rebound as the economy strengthens. Continue reading...

Rolling coverage of the latest economic and financial news, as FTSE 100 hits alltime high of 8076 points

UK's blue-chip index reaches 8,076, surpassing previous high of 8,047 in February 2023

Rishi Sunak has announced that UK defence spending would be boosted to 2.5% of GDP by 2030. 'Over the next six years, we'll invest an additional 75bn in our defence. And it will be fully funded with no increase in borrowing or debt,' he said on a visit to Poland, adding that UK spending would be put on a 'war footing'

Borrowers urged not to panic as banks including Barclays, NatWest and HSBC readjust cost of loansAt least five leading lenders increased rates on their fixed mortgage deals on Tuesday in response to market uncertainty", adding to pressure on homebuyers and those looking to remortgage.Barclays, HSBC, NatWest, Accord Mortgages (part of Yorkshire building society) and Leeds building society have all upped the cost of some fixed-rate deals. In some cases these have risen by up to 0.4 percentage points. Continue reading...

Government borrowed 120.7bn in the last financial year, with just under 12bn in MarchJeremy Hunt's scope for a substantial pre-election tax giveaway has been hit after the latest set of official figures showed the UK's public finances in worse shape than thought at last month's budget.Figures from the Office for National Statistics (ONS) showed the government borrowed 120.7bn in the 2023-24 financial year - 6.6bn more than the Office for Budget Responsibility (OBR) had expected. Continue reading...

Rolling coverage of the latest economic and financial news

UK's blue-chip index ended trading at 8,023, its highest close ever, as pound falls against dollarThe UK stock market has hit a record closing high, amid optimism that the Bank of England will cut interest rates twice this year, and easing geopolitical tensions in the Middle East.The FTSE 100 index of blue-chip stocks listed in London ended trading on Monday above its previous closing peak, set in February 2023, helped by rate cut hopes and a weakening pound. Continue reading...

David Redshaw is staggered by Keir Starmer's admiration for her, Brian Hughes says her government created the illusion of an economic miracle, while Charles EL Gilman disputes her total hostility to the EUAndy Beckett's takedown of the Thatcherite myth is timely (Margaret Thatcher set Britain's decline in motion - so why can't politics exorcise her ghost?, 12 April). Most remarkable is Keir Starmer's admiration for the entrepreneurialism" she let loose. Starmer is clearly stuck in his New Romantic era and hasn't done his history.The biggest burst of entrepreneurship came in the pre-Thatcher 1960s. The young Turks who burst into the music industry through the side door. The fashion revolution in Carnaby Street and Kings Road. The new magazines, including the very first glossy women's rights publication. And, sneering rightwingers might note, I don't think there was the proverbial politics of envy. I think we rather admired Terence Conran, whose airy Habitat emporiums offered well-designed homeware at affordable prices. It all made Britain suddenly world famous. Continue reading...

The former PM's whingeing, unintentionally hilarious and scapegoating rant about the economy-crashing disaster of her time in No 10 is best read as a cautionary tale of hubristic zealThree people, none of them the author, emerge from this book looking prophetic. One is her constituency agent in Norfolk. Told she is thinking about running for the Tory leadership, he tells Liz Truss it would be for the best if she lost. Another is her husband, Hugh. He faithfully backs the tilt at No 10, but predicts that her prime ministership will all end in tears". The third prescient person is the late queen, who concludes the formalities appointing Truss as prime minister with the warning: Pace yourself."Maybe I should have listened," muses the author, one of the very few acknowledgments she offers to the reader that she might have got the odd thing wrong. Continue reading...

IMF has revised up growth forecasts but medium-term prospects remain poor as globalisation goes into reverse

Chief economist says common framework has failed to provide any new money to world's poorest countries since it was set up in 2020The mechanism for providing debt relief to the world's poorest countries is failing to produce results and requires a major rethink, a senior official at the World Bank has said.Indermit Gill, the bank's chief economist, said that after four years the G20's common framework - designed to speed up and simplify debt restructuring - had not provided a single dollar of new money. Continue reading...

Retail inflation has lessened, but businesses are still swamped by huge price increases in materials and servicesConsumer prices ticked up again in March, rising to anywhere from 3.2% to 3.8% year-over-year, depending on the rate you're tracking. Of course, that's way down from what it was back in 2022. But don't tell that to any of my clients - or people running businesses in just about every industry across the country. For them, prices are not only rising but are significantly - significantly! - higher than they were when Joe Biden took office.Want some examples?If you're in the manufacturing business, you're paying 11% more for plastics and resins, 24% more for industrial gases, 23% higher prices for machinery and equipment, 35% additional cash for the oil and grease that lubricates those machines, and 18% more for industrial chemicals (which get used in just about everything) since 2021. Overall, your total costs of manufacturing are 26% higher than they were just three years ago.In the construction business the good news is that lumber prices have actually fallen 25% since 2021. But that's been more than offset by a rise in iron and steel (27%), cement and concrete (42%), and staples, nails, spikes and tacks (21%). Overall, construction materials costs have increased about 30% since the last inauguration.My clients in the food manufacturing and service industries are also feeling the pain. Food manufacturing costs have risen 24% since 2021, the cost of fertilizer is up 34% and animal feeds are up 10%. Now do you understand why restaurant owners are struggling to stay in business and have resorted to adding surcharges for credit card and other fees?Once you make any of your products, you'll be paying 8% more for domestic freight and a whopping 49% more to ship or receive stuff overseas. Packaging all your products with paperboard boxes and other components will also cost you 38% more than it did three years ago.Since 2021, hourly wages are up 16% and health and property insurance rates are up 8% to 10%. And interest costs have quadrupled, with most of my clients paying two to three points over the 8.5% prime rate. Continue reading...

Social cohesion can only flourish in a society that has an inclusive and equitable economy, where safety and respect are assured and fear is minimisedIf only nation-building could happen by putting a sign on a building and creating a capital A authority.Rob Sitch's stunning embodiment in Utopia of a public servant trapped in a world of risk matrixes, carefully managed announceables, spreadsheets and asphyxiating political caution crystallised a collective sense of faintheartedness. Continue reading...

Keir Starmer must learn from the Tories' failures and ensure green projects are well planned and resourcedIn the energetic pursuit of net zero, billions of pounds could be squandered needlessly. That's the lesson from countries as diverse as Italy, the US and UK, where the rush to subsidise green projects suggests vast sums are at risk. Worse, they could be lining the pockets of multinational businesses and City financiers.In the UK, 14 years of austerity has left the public sector struggling to make coherent, strategic decisions. When a decision is finally made, it is a panic measure that quickly unravels. The fallout could be that voters become disenchanted with green tech, especially if the dash for net zero leads to higher taxes and higher borrowing while early adopters unwittingly pay for costly mistakes. Continue reading...

Behind a veneer of progress, injustice and inequality propped up by corruption and the caste system haunt the subcontinentThis year, more than 80 countries and half the world's population face elections. While many islands in the Caribbean go to the polls, their people are usually more occupied with US and British elections than those in their ancestral homes in Africa and India.This may be excusable, there is an old saying: When America sneezes, the Caribbean catches a cold." It may also seem strange that some identify as Republican or Democrat, and Conservative or Labour, while living in a region that has to endure a rigorous process and heavy expense to obtain a visa to even holiday in those countries. Continue reading...

Annual health check to examine whether tax increases or spending cuts will be needed after electionJeremy Hunt's plans for a fresh tranche of pre-election tax cuts will be put under the microscope when the International Monetary Fund conducts its in-depth look at the UK economy next month.IMF officials said the team sent to London to conduct its annual health check would be looking closely at whether tax increases or spending cuts would be needed after the general election. Continue reading...

Rolling coverage of the latest economic and financial newsAlthough European stock markets certainly aren't in a full-blooded plunge, yet anyway, the main indices are all in the red - following losses across Asia overnight (see 7.21am).The European Stoxx 600 is at a one-month low, as investors fret about events in the Middle East.FTSE 100: -36 points or -0.46% at 7842 pointsGermany's DAX: -152 points or -0.9% at 17,681 pointsFrance's CAC: -45 points or -0.6% at 7,976 pointsItaly's FTSE MIB: -345 points or -1% at 33,533 pointsWall Street is heading for losses when it opens in four hours, too, with the S&P 500 down 0.5% in pre-market trading.Asian markets bore the brunt of the breaking news of a retaliatory attack on Iran by Israel, also sending Dow futures sharply lower and resulting in further spikes in gold and oil prices.US markets will not have the opportunity to react directly to the developments until later, but the escalation will put pressure on the main indices, which were already lining up for a weekly drop. The Dow Jones managed a wafer-thin gain on Thursday, whereas the Nasdaq and S&P500 continued on a downward trend which is eroding the heady gains made over recent months. Continue reading...

Trade bodies say ongoing confusion about when checks will come in is incredibly challenging'

Shoppers cut back in March, with data likely to increase pressure on Bank of England over interest rates

The anti-growth coalition, Bank of England and the OBR are among those under fire from Liz TrussRaw free-market economics is missing in action. Somewhere between its 1980s ascendancy and today, the media, politicians, civil service and even the corporate mainstream abandoned small government and low taxes.At the heart of Liz Truss's new book, Ten Years to Save the West, the former prime minister reckons this is the reason for Britain's economic drift, alongside unelected technocrats" overruling the wishes of the people". Continue reading...

Kristalina Georgieva says Kyiv will need $42bn of financial support this year as G7 considers ways to use seized Russian assetsRussia's war with Ukraine is stoking geopolitical tensions and damaging the recovery prospects of the global economy, the head of the International Monetary Fund has warned.Kristalina Georgieva urged an end to the two-year conflict, saying it was both a human tragedy and a barrier to growth. Continue reading...