The five stages of grief...

1⃣ Denial 2⃣ Anger

I’d rather be optimistic, but here are the five main ways in which Rachel Reeves’ first #Budget is likely to unravel… 🧵

1⃣ the adverse reaction in bond markets, pushing up borrowing costs (we're already seeing signs of this, though talk of 'meltdown' is premature)... 2⃣ the adverse impact on household and business sentiment - aka 'animal spirits' - even before the Budget measures take effect

Consumer confidence was already wobbling in anticipation of a tight Budget, but the tax increases were larger and broader than most had expected...

Five quick points on the adverse market reaction to Rachel Reeves' first #Budget... 🧵

1⃣ it's premature to talk about a 'meltdown', but today's jump in the cost of UK government borrowing is worrying (especially when yields in other advanced economies are flat or down slightly) 2⃣ 2-year yields have risen the most, suggesting that the jump is mainly driven by expectations that the short-term boost to growth and #inflation from the Budget (according to the OBR) will prompt the Bank of England to keep official rates higher for longer...

Over the last few days I've read some terrible takes on the 4-5 year jail sentences handed out to five #JustStopOil protestors (aka 'the #WholeTruthFive').

Here's a short 🧵 on why the sentences were justified and where the critics have gone wrong... First, the facts.

It seems obvious that many of the people questioning the sentences haven't read the judge's explanation 👇

TL;DR the activists were convicted of conspiracy to cause a public nuisance which resulted in major disruption on the M25...

judiciary.uk/wp-content/upl…

By popular demand, here’s a quick thread explaining the OBR’s assumption that #Brexit will reduce UK GDP by 4% over the longer term - and why it shouldn’t be treated as gospel.

First, let’s be clear what the figure actually means… 🧵 The OBR has assumed that the additional frictions to UK-EU trade after #Brexit will damage UK #productivity.

As a result, the *level* of GDP (strictly, GDP per head) will be 4% lower than it would otherwise have been in every year over the longer term...

I was going to ignore this obviously misleading post, but it is now being widely retweeted by the the usual suspects.

It is also a super example of #FBPE #Brexit 'confirmation bias'... 🙄 🧵 (1/7)

#badbrexittakes #tourism Note first that the '23%' figure is unsourced ⚠️

It might be a misreading of data from the Association of Leading Visitor Attractions (ALVA), which reported that total visitor numbers to their sites were still 23% lower in 2022 than in 2019... (2/7)

bbc.co.uk/news/uk-649760…

Just following up on the #Nissan story, here's what's happened to UK #manufacturing output (in volume terms) since the #Brexit vote 👇

The UK's outperformance can be explained by several factors (some temporary, but some longer lasting)...

(1/4)

source: data.oecd.org/industry/indus…
This is partly about being in the right sectors at the time.

UK #manufacturing has a higher weight on pharma and #food, lower on #autos, capital and luxury goods, so was relatively well-positioned during #Covid, the supply chain and energy crises, and #China's slowdown... (2/4)

📢 The Treasury/Tories should be making more of this... 👇

The proportion of low-paid employee jobs in the UK (based on hourly pay) fell to 8.9% in 2023 (from 10.7% in 2022), the lowest since this series began in 1997...

(1/5)

source: ons.gov.uk/employmentandl…
The main driver has been the increase in the National Living Wage (#NLW).

In 2020 the Government set a target for the NLW to reach 2/3 of median earnings by 2024.

23-24 year olds were brought onto the full NLW in 2021, and 21-22 year olds will join them next year...

(2/5)

FYI, Richard Hughes (Chair of the #OBR) did *not* say yesterday that #Brexit has (already) shrunk the UK economy by 4%.

Instead, he repeated the OBR’s estimate that it will reduce long-run productivity by 4%, which is still just an *assumption*.

This needs some explaining… 🧵 The 4% focuses on the negative impact of a fall in trade, assuming both exports and imports are 15% lower in the long run (c.15 years) than if the UK had remained in the EU.

The evidence to date has not been enough to change the OBR’s mind, but it is far too soon to be sure…

FWIW, here are my three takeaways from #JeremyHunt's interview in the Times:

1. Welcome emphasis on encouraging over-50s back to work. This is long overdue, and will need more than just exhortations and gimmicky 'MOT' schemes, but he seems to get this...

thetimes.co.uk/article/jeremy… 2. 'Putting sound money before Tory ideology' is a good line: if badly done, tax cuts could keep #inflation high and add to pressure on interest rates.

But still wrong to rule them out: well-targeted cuts could help with both demand and supply, boosting growth without inflation.

Since #food prices are in the news again, here are three charts comparing the UK and the rest of Europe.

(Spoiler alert: it's no consolation, but food price inflation is even higher in the EU than in #BrexitBritain)

1. What's happened to food prices (in levels) since 2016... 2. Cumulative #food price #inflation since December 2019...

Four quick points on the latest stories about #Brexit's impact on UK #food price #inflation...

1. This is not news: the original research by the same authors was first published (by UKICE) back in April, and the Guardian etc even wrote it up at the time!

theguardian.com/politics/2022/… 2. These reports claim that new non-tariff barriers (NTBs) added 6% to UK #food prices in the two years to end 2021. But this number is based on hypothetical costs and modelling, not actual data on NTBs. (Recall that the UK has not imposed full checks on imports from the EU.)

Mixed bag of UK labour market data... (short 🧵)

#Unemployment rate down on the quarter but up on the month, and flattered by rise in number of people no longer actively looking for work (incl. long-term sick)

#Employment rate (first chart 👇) still below pre-Covid levels... Earnings data a little better than expected: average total #pay (incl. bonuses) rose 6.0% in 3m to September and regular pay (excl. bonuses) by 5.7%, although still falling in real terms.

And early PAYE estimates for October point to a 6.0% increase in median pay last month...

A bit of myth busting... the #BoE hasn't spent £65 billion to prop up the economy / bail out pension funds / save #KwasiKwarteng (or any variation)...

Instead, it has said it will buy gilts in 13 daily auctions, with a limit of £5bn each day.

Today it did just £22 *million*...

https://twitter.com/BruceReuters/status/1576933176823656449

The aim of this policy is to cap gilt yields by signalling that the Bank will act as the buyer of last resort to prevent forced sales by pension funds from driving yields even higher.

If this signal is credible, the Bank will not actually have to buy anywhere near £65 billion.,,

A 🧵on #benefits…

#KwasiKwarteng’s reluctance to confirm that benefits will be uprated in line with #inflation has fed speculation that the government is considering a real-terms cut.

I’m going to explore this further, but at first sight it looks like a very bad idea... To recap, benefits are usually uprated in April in line with the CPI measure of inflation recorded in the previous September. This meant that benefits rose by just 3.1% in April this year (the inflation rate in September 2021), well below actual inflation of 9.0% in April itself.

Thoughts on the #BankofEngland intervention… 🧵

The Bank will carry out *temporary* purchases of long-dated UK government bonds from 28 Sep to 14 Oct to stabilise the market.

The purchases ‘will be carried out on whatever scale is necessary’, but are *strictly time-limited*… At the same time, the #MPC is pausing the start of active #QT (i.e. selling bonds bought under #QE) until 31 Oct.

This might be reviewed depending on economic and market conditions, but the annual target of £80bn of sales is unchanged, so this is a delay rather than a U-turn...

Reflections on the morning after - and especially the markets… 🧵

It may well take some time for the dust to settle on #KwasiKwarteng’s first #Budget (yes, 'Budget’: if it looks like a duck, walks like a duck and quacks like a duck, then it’s fair to call it a duck)... The initial reaction from most economic commentators and in the financial markets has been a loud boo! There are some things I would have done differently. But the overall strategy is sound, and sentiment should recover as the economic benefits become clearer...

Some thoughts on the proposed #energy bill freeze... 🧵

Based on media reports, the idea is to cap the unit cost of energy by subsidising suppliers so that they do not have to pass on higher wholesale prices in full, either to households or to businesses… (1/10)

#energycrisis On the plus side, this would lift the huge cloud of uncertainty which is now hanging over the whole economy. The peak in #inflation would also be much lower.

With this plan in place, the new government can score a big 'win' and quickly move on to other priorities... (2/10)

A few features of the #energy market that Gordon Brown (and his many fans here) don't seem to understand... 🙄

1. Energy suppliers are not the ones making big profits. None of his ideas - including #nationalisation - would reduce the prices they have to pay in global markets. 2. The Ofgem price cap is already based on an assessment of the ‘actual costs’ of supplying energy, including a small profit margin. As such, the cap already forces suppliers to ‘keep prices down’...

A quick 🧵 on the potential economic impact of the rail strikes.

In short, not a game-changer, but certainly another blow the UK could do without... 🙄 (1/5)

#RailStrikes Unions must give warning, so there is some time to make alternative plans.

The series of 1-day #strikes (Tue 21, Thur 23, Sat 25) might be less disruptive than a single, prolonged stoppage, because some customers may be able to reschedule their use during the breaks... (2/5)

The UK government borrowed about £5bn more than expected in February, as higher debt interest costs offset a rise in tax revenues.

But favourable revisions to past months mean that borrowing is still on track to undershoot the OBR forecast for FY 2021-22 by about £24bn... (1/4) Looking forward, rising #inflation will keep debt servicing costs high. But OBR analysis (Box 3.2 Oct EFO) has already shown that an inflation shock is likely to reduce borrowing overall, thanks to the boost to revenues, even with much larger hikes in interest rates... (2/4)