With parliament almost ready to return to Westminster after its summer brake, and many things having changed, or not as the case may be over the course of the last few months, now seems like an opportune time to round-up some important economic developments of the summer.
The Bank of England keeps the breaks on
The BoE has continued its cautious attitude over the summer, keeping interest rates on hold with the prediction that it could be another 12 months before the next rate rise. Governor Mark Carney has more than once hinted that he may support a rise sooner than this, but a survey of economists carried out recently by the BBC found that most did not expect a rise until 2019 believing the Monetary Policy Committee would be reluctant to raise rates during the height of Brexit negotiations.
The Pound has been a major consideration in the BoE’s decision making; this summer has seen some important developments. Since the vote to leave the EU in 2016 the pound has fallen about 15% against the euro. Over the summer, it has continued to slide and is predicted to fall an estimated 10% further against the euro by March 2018. Some economists have predicted particularly dire results for the pound next year, suggesting it could fall as low as $1.25 to the pound and just 96 euro cents to the pound by the final quarter of 2018.
Meanwhile, the Confederation of British Industry has continued its rather pessimistic view of the UK economy. It stated in June that it expected growth to be ‘steady but subdued’ falling to 1.4% in 2018, down from 1.6% in 2017. Economists have also remained rather gloomy over inflation. Their predictions range from it peaking at 2.9% in October this year subsequently falling back in 2018 to it peaking at 3.2% in spring 2018.
The Cost of Living, Wages and Unemployment
The basic cost of living has continued to creep ever upwards over the summer. It has increased by roughly 3% since January 2016 and what it will do over the next few months is uncertain, but with the ongoing Brexit negotiations and the growing uncertainty it is almost certain to rise further. Average annual earning for those in full-time employment have however not kept up with the rise in the cost of living. They sit somewhere between £26,000 and £27,000 depending on where you look: compare this to the average annual earnings in December 2015, £27,500 and the problem for many becomes obvious.
Bearing this in mind, unemployment has continued to slowly fall over the summer. Government statistics put it at roughly 4.5%, a low not seen since the record figure of 3.4% in 1973. Of course, such statistics hide the struggles of the so-called ‘working poor’ whose wages are stagnating behind inflation. Use of food-banks and other charitable aid has risen over the summer too, showing that the figures are not all they are cracked up to be. Of course, they are a mirage anyway. In reality, low unemployment and thus high employment should lead to increasing wages driving inflation. Instead, inflation has taken off and wages have stagnated. This is because unemployment is not actually as low as the government would have use believe. It all comes down to the definition of ‘unemployment’, which counts stay-at-home parents, university students, the temporarily ill of disabled etc. as not being part of the ‘workforce’. In essence, the official statistics hide the fact that there is a huge chunk of the population who are ‘inactive’ workers. It fails to account for the fact that every university student over 18 will require employment upon graduation, that many parents with new-borns will look to return to work. As one statistical analyst told me, ‘official unemployment statistics are a lie; a lie which has only survived as long as it has because it suits the political parties’. With this in mind, if we include these ‘inactive’ workers, the unemployment rate becomes more like 21%… shocking isn’t it?
The British Gas Rip-off
British Gas has again, like so many other energy suppliers spat in the face of its loyal customers by declaring over the summer that it would increase electricity prices by 12.5% on the 15th September this year. Considering the issues surrounding wages and the costs of living, this is less than helpful for many thousands of people. Indeed, it has been the increase in electricity and gas prices both over the past few years and again this year which has largely driven the increase in the cost of living along with housing rents.
Former Liberal Democrat Leader Tim Farron attacked British Gas over the summer stating they they were ‘clearly treating these people like cash cows… as things stand, there will be a lot of people in fuel poverty this winter shivering in homes they cannot afford to heat or even light’. For once, he couldn’t be more right.
The actions of British Gas have brought the Conservative Party’s pledge of an energy price cap back into focus, as they desperately try and sweep it under the carpet. It has shown us, as if we didn’t know already that the energy companies have a total disregard for the people they sell what are, in my opinion, basic modern necessities to. Their actions in August are the reason so many will feel the cold this winter and why the nationalisation lobby is becoming louder.
Brexit: The Continuing Saga……
What has happened here then? Very little. We are virtually no closer to knowing what the world will look like after Brexit as the UK government continues to behave like a petulant child demanding all the sweets and refusing to eat its greens. I presume David Davis has used this summer wisely. While he has clearly gotten nowhere in terms of talks with the EU, I hope he has taken the opportunity to have his head examined in the hope of finding an adult brain. He and others seem to enjoy trading childish insults with the EU while the clock on Brexit and indeed the UK’s economic prosperity ticks towards zero-hour.
The position papers were an own-goal. They admitted repeatedly that the EU single market was economically beneficial to the UK as well as admitting that the UK was unlikely to fully ‘escape’ the jurisdiction of the European Court System.
Of all Davis’s and indeed the government’s beliefs about Brexit, the most idiotic which has surfaced over the summer is their continuing claim that Britain will not have to pay a ‘divorce’ settlement and that upon leaving the EU in 2019, the UK could stop paying into the EU’s coffers. They seem to think that they can just walk away from their commitments. This is the adult world for goodness sake! You can’t just walk away from years’ worth of deals and commitments because you want to. That’s not how it works. All I can say is the sooner the negotiators on our side accept this the better; or I really do fear for our economic future…
Overall, this summer has been far from bright. We are no closer to knowing our future destination, people are still struggling and the predictions show this is likely to continue. A sad state of affairs indeed but, and I say this in full knowledge that I will probably be harangued by the Brexit brigade, we as a nation brought this upon ourselves, ‘as you sow, so shall you reap’.