It had to happen. Economic change is upon us. Inflation is back, driven by commodity prices and Brexit fallen in the exchange rate. The long awaited increases in interest rates cannot be far off as a result. That will be the first in ten years, shocking at least forty per cent of mortgage holders who will have never experienced such an event. And although we will supposedly have growth I think we can be entirely confident that wages will lag behind inflation for a while as the idea of the automatic inflation adjustment pay rise has long disappeared.
Put that altogether and my expectation that 2017 is going to be a much more difficult year in the economy than the headline optimists who base their forecasts solely on GDP and stock market indices suggest looks to be wholly justified. All of which can only add to the woes of a prime minister stuck in endless and fruitless Brexit negotiations.
This reminds me of the story told about boat owners. The two best days in boat ownership are apparently the day you buy it and the day you sell it. With Brexit the best days were June 23 and either, I suspect, the Commons vote last week, or maybe the day Article 50 will be triggered. Thereafter most will be days of remorse, just like most of those that boat owner suffers when they wonder why they were persuaded to buy something so inappropriate to own and expensive to run.
To put it another way; there's ample time for anxiety, remorse and blame to come. I wish that were not true but I see no way round it. I just wish the Opposition was even vaguely interested in a credible alternative economic plan, because it's going to be needed.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
I want a bet with you that the Brexit negotiations will not be endless ( maybe 2 years but not endless ), and that the fruitful outcome will be that in May 2019 we no longer are EU members and will not be electing MEPs on turnouts of around 30%, nominating a commissioner and having ‘competencies’ such as farming, fisheries and what you can put in your body decided by EU politicians.
I don’t bet
I have enough sense not to do so
And you are right on certain matters, Mr Betting Man:by 2019, we almost certainly shall be out of the EU, we shall not be sending MEPs to Europe, and farming shall no longer be enjoying the subsidies from the EU. Fishing of course shall still be heavily regulated. Meanwhile, herds of unicorns will contentedely graze upon the verdant pastures of this green and pleasant land, squadrons of merry piggies will glide through the mild summer air, King Arthur will return bearing his magic sword Excalibur, and Theresa will navigate the Argo from Colchis bringing with her the Golden Fleece.
My use of “shall” and “will” above is deliberate.
The impending change requires that two issues should be on everyone’s agenda:-
1) the departure costs of Brexit and 2) the commitement to austerity economics.
Brexiteers will say that departure costs are a matter for negotiation and we cannot know what they are. Now I have tried this line of argument in my professional life and have always been told that the contingent liability must be assessed and reported. How can Hammond set a multi year budget without taking steps to address this issue. It would seem prudent to use the EU contract termination figures currently floated – up to £60 billion just to terminate the agreement.
Over the past seven years we have had a commitment to austerity running in paralell with a QE programme. So through the annual deficits banks have been supported and then supported again through the back door. No explanation as to why QE cannot be utilised for wider purposes.
If we are not clear about the starting position then the spinners will weave the above into the ongoing departure narrative and the absurdities will be reported as fact by what we call “journalists”.
There’s a very interesting related piece by Yves Smith on the comeback of inflation in the US, highlighting that many of the assumptions that accompanied it’s production in the 70’s no longer hold and that, at least over there, increased profits rather than wage-demands appear to be causing the rise.
http://www.nakedcapitalism.com/2017/02/inflations-comeback.html
‘Salient’ is the best word for this insightful truth.
So does this mean that Hayek’s ‘Road to Serfdom’ can now be safely taken out of our libraries and burnt? I hope so. It should.
Another sobering press release from the Joseph Rowntree Foundation which compares the numbers of people living with an inadequate income in 2008/9 and 2014/15. The figures are distressing with a rise of 4 million JAMs to use current terminology:
https://www.jrf.org.uk/press/just-about-managing-four-million-more-living-britain
This should be totally unacceptable. Not only are the figures a disgrace but they are getting worse. I’ve posted this link before https://www.eurofound.europa.eu/publications/report/2015/working-conditions-labour-market/recent-developments-in-the-distribution-of-wages-in-europe but on some measures the UK has the worst inequality in Europe and is similar or worse to the US.
As Richard says even if we do get a modest rise in GDP it is unlikely to transfer into greater equality or to help the people who need a rise in living standards most.
I don’t know what will happen with Brexit negotiations. Its a shame for the Brexiteers that circulation figures for the Mail/Sun/Express/Telegraph are so low on Continental Europe and the Republic of Ireland. The 27 will be far more concerned about their own electorates and will be unlikely to offer Britain a “sweetheart” deal. It is perfectly possible that talks with the EU will break down almost immediately over departure costs which as Keith P says could be around he £60Bn. The EU may very well say this in not negotiable and the UK may simply walk away. Then there are the c 3M EU citizens who contribute far more to the UK economy than they take out. What deal will be negotiated about them.
The UKs desire for an à la carte sector by sector trade strategy may be refused point blank.
May’s determination to leave the jurisdiction of the European Court could also cause difficulty even for an interim agreement.
I expect things to be worse in 2019/20 in terms of the NHS, Social Care, Housing, Prisons and Inequality (I could produce a much longer list). I would like to see some rational grounds for optimism. I have no faith that the Government’s Austerity strategy is going to get us to “a land of milk and honey” any time soon.
Thanks Sean
We must also realise that many people are in the process of becoming JAMs too – wages are still dropping in the public sector and elsewhere so we can see JAM as a continuous process that will enlarge in numbers as long austerity continues.
My income has certainly dropped since 2010 and after tax I am now below the median wage. And now I am faced with paying an increased council tax to support social care because our nasty government does not want to fund it properly. I am not a JAM yet but I am getting there! And for those already there, how can they afford a hike in Council Tax?
Where is the justice in all this?
As Ken loach recently said this Government ‘has to be removed’.
Don’t forget your council tax will soon have to go up by massive amounts to cover the temporary (in reality, permanent) housing costs for those families rendered homeless by the increase in the overall benefit cap (OBC), which will see many thrown out on the streets. The correct way to address these costs through council tax, IMO, might be to turn it progressive by charging the wealthy similar proportions of their income as the poor are expected to stump up. When are the riots starting, anyone know?
To add to your list, Sean, I notice that recent figures for the number of overseas students applying to study in the UK are down 7%, and that, simultaneously, employer bodies for the leisure, hotel and farming industries are also reporting step falls in the number of people willing to come and work in those sectors this year. Of course, the anti-immigration lobby will be happy, but I hear from a friend whose family farm in Lincolnshire that they are seriously worried they will not have enough pickers to harvest their salad crops and veg this coming summer/autumn. I did find myself wondering that if UKIP win in Stoke perhaps they could persuade some of the many under/unemployed Brexiteers that live in that part of the world to up sticks for the summer and live in the shite accomodation that many eastern european pickers live in when they work here. Just a thought and one that May and co may well be forced to consider before long. Imagine that: agricultural conscription.
Indeed. The drop in overseas students is a big worry, its ludicrous that they are included in immigration figures. Not sure how well the agricultural conscription would work though. One of my friends has a cousin who is a German asparagus farmer and has to employ some German workers as well as Eastern Europeans because of some state rule in Saxony. The locals proved so inept at cutting asparagus that their efforts had to be binned and he has set up a portacabin with coffee and playstations to keep them out of harms way, whilst the eastern Europeans do the actual work. (This is just my fiends word but it rings true).
Regarding Stoke an interesting article by a vicar based there: “What are people in Stoke really thinking about? It’s not Brexit” https://www.theguardian.com/commentisfree/2017/feb/15/stoke-brexit-byelection
“Yet the common thread linking all these concerns, it seems to me, is the opportunity the referendum gave people to speak — and to know in the simplicity of a ‘yes or no’ choice that Westminster would finally hear them”.
I’m not remotely surprised. Referenda are an opportunity to send a “cry for help” by saying no to the establishment. I have ever said 5-10% of the population in Ireland always vote NO (first time around at least) to express general dis-satisfaction with the way the country is being run. I have no reason to think that Britain will be any different. Indeed given the appalling way whole communities in the North have been treated since Thatcher’s neoliberal revolution I wouldn’t be surprised if the percentage was a lot higher in many areas.
Brexit will provide a great smokescreen while the deckchairs are being rearranged on the Titanic. I fervently hope that things will get better for places like Stoke but can see how Brexit is the answer. I’m more angry than depressed today!
Sorry typo in post. I fervently hope that things will get better for places like Stoke but can’t see how Brexit is the answer.
Sean
I continue to contend that the BREXIT leave vote contained a strong element of a vote against our own government to be honest. People also saw Europe in a grip of economic austerity and thought it was Europe making it happen here when in fact the Tories have inflicted it upon us by conscious choice and with no real need to do so either.
Entirely plausible
PSR I’m sure that’s true. I am still very unhappy about Greece but the EU gets blamed for a lot of things. Its interesting that in the Republic of Ireland that people blame the banks first, the politicians second and the EU third for the 2008-1014 depression/recession and EU approval is still very high. The NI Unionists, particularly the DUP put the blame firmly on the EU for political reasons. It has not only been the rabid right wing press but often the UK Government that has blamed the EU for anything bad.
Richard, I bought a boat once, well a dinghy, and I can confirm the story of ‘boat owner’ pain and remorse. Truly redolent of this Brexit fiasco.
I own a boat. I like it! Its expensive but great value and my friends like sailing for free!! Not all boat owners are bregetters!!