A brush with a black hole and not a voyage into one
James Moore looks at the economic bounce-back evidence
It wasn’t a good day for Jeremy Hunt, already under pressure from Tory MPs who can’t control their tax-cut fetish. New figures show the public finances “doing a Thelma and Louise” over the fiscal cliff. The difference between how much the government spent and how much it raised in December came to
£27.4bn – the most in that month since records began. The corresponding figure for the previous year was £10.7bn.
That the figures were bad shouldn’t come as any surprise. The government spent billions subsiding the energy bills of households and businesses while incurring record interest payments as a result of debt linked to the retail prices index. RPI is a largely-discredited measure that has been consistently higher than the consumer prices Index, the official measure of inflation. Crazy? This is Britain. So a December of doom? There was plenty of talk of “fast-deteriorating” public finances.
Certainly, the chancellor is in a tight spot. But there are grounds for hope: inflation has started to fall and that looks set to continue throughout this year. So have wholesale energy prices. Investment bank Panmure Gordon thinks a combination of the two will cut £21bn from interest bills over the next couple of years
Hunt still has the hangover of his predecessor’s suicidal misdeeds hurting his head. It is staggering to hear Tories repeating “tax cuts, tax cuts, tax cuts” like bovine members of a cult whose leader is awaiting charges. Liz Truss and Kwasi Kwarteng plunged a dagger into the heart of the public finances with their unfunded “pro-growth” giveaway, which sent the markets into a tailspin and left a trail of destruction. But that was really just the insult after the injury caused by Boris Johnson, whose Brexit has cost Britain 4 per cent of its GDP. (His chancellor, let us remember, was Rishi Sunak.)
Public services are bearing the brunt of these catastrophic failures. Fed-up workers are justifiably striking over pay. Yet the party presiding over the mess appears to have learnt nothing. There was more apparent gloom in the latest S&P/Cips global flash UK composite Purchasing Managers’ Index – a widelyfollowed measure of private sector activity.
It fell to 47.8 from 49 in December, with the dominant services sector in a slough of despond. This was the fastest rate of decline since January 2021, when the country was in lockdown. It was the sixth consecutive month that the businesses involved reported a decline (a reading below fifty indicates contraction). It was also lower than City expectations per the regular Reuters poll.
However, these numbers are not as dreadful when set against the outlook; Britain may soon be in recession but, compared to the forecasts last year, it looks as if this downturn will be more of a nasty brush with a black hole than a voyage into one. Hunt may thus find that he has some choices down the line as the next general election looms. A recovery later this year, as predicted, and a limited impact on employment should help him further.
The chancellor may well decide he has room to bribe the electorate with its own money in the form of tax cuts. But the evidence for where the money is really needed confronts voters every time they visit relatives in hospital or attend a function at
The chancellor may decide he has room to bribe the electorate with its own money in the form of tax cuts
their children’s school... or look at the state of their local libraries and leisure centres.
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