As I, but apaprently no one else expected, inflation fell in December. The Office for National Statistics has reported the following this morning:
- The Consumer Prices Index (CPI) rose by 2.5% in the 12 months to December 2024, down from 2.6% in the 12 months to November.
- On a monthly basis, CPI rose by 0.3% in December 2024, down from 0.4% in December 2023.
- The largest downward contribution to the monthly change in both CPIH and CPI annual rates came from restaurants and hotels; the largest upward contribution to both came from transport.
- Core CPI (excluding energy, food, alcohol, and tobacco) rose by 3.2% in the 12 months to December 2024, down from 3.5% in November; the CPI goods annual rate rose from 0.4% to 0.7%, while the CPI services annual rate fell from 5.0% to 4.4%.
Given the reports of a very quiet Christmas for retailers, the hospitality sectors and other consumer-focussed businesses, how inflation could have moved otherwise was hard to imagine.
The problem with most economists is that they do not walk about. As a result, what is going on in the real world passes them by.
Now, when will the Bank of England cut interest rates, which is the move that the UK economy so desperately needs, and which this rate of inflation more than justifies?
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My view is that we are in a period of austerity and interest rates are known to be used as a blunt instrument alongside austerity – thank you Clara Mattei.
The BoE – like the government – is working for the rich and the project to put back our society to a pre-first world war footing is still on tack.
As cataclysmic those two world wars were, they did result in the idea that life could be better afterwards and heralded changes (homes fit for heroes etc.,). They also enabled the state to become more involved in the economics of the nation. As we know there are a lot of powerful people who resented that.
We are being taken back to the ‘gilded age’ of capitalism it seems.
Given the rise in the maximum bus fare from £2 to £3 and rail fares rising each year in one respect Inflation is being driven by Government not markets.
BUT petrol prices have been on the way down for a while now even if having just MoT’d the car I have discovered I drive surprisingly little
On Monday it was a “gilt crisis”, now inflation data a mere 0.1% better than economists forecast and they are back where they ended last week. If you had been away a few days (in China) you would not have noticed anything amiss.
Now, the gilt market is not in great shape but this is more due to the BoE keeping rates high rather than reckless government economic policy.
Government action to improve public services in not constrained by the bond market but by Rachel Reeves’ lack of imagination or purpose.
Agreed.
Even the FT agrees. “Only one man can save Britain now” is the title of a piece in FT Alphaville from Monday…… accompanied by a close up picture of Andrew Bailey!
If we are reliant on him then we are in trouble.
We are
According to The National, Labour MPs were referring to Reeves as ‘Rachel from Accounts’; they’re now calling her ‘Rachel the Temp’.
Starmer, however, has faith in her and, according to him, she will be in government until 2029.
The continued incumbency of Reeves and Streeting, amongst others, strongly suggests that one of Starmer’s biggest weaknesses is poor judgement of people. Unless these two really are the best Labour can offer, in which case we are in even more trouble than I thought.
Starmer has, within the last week, expressed, on the record,
“full confidence”
in 2 of his ministers, Tulip Siddiq and Rachel Reeves.
One of them is still in office.
The end of many ministerial careers has been signalled by the PM declaring “full confidence” in them. I’m sure ministers live in fear of their PM’s public endorsement!
As long as the City of London and international financial markets dictate our monetary policy, through the priorities in policy making by Government and the BoE (and they do), our interest rates will be determined essentially by the financial markets first.
Mr Barry argues: “Government action to improve public services in not constrained by the bond market but by Rachel Reeves’ lack of imagination or purpose”.
No it isn’t, but Rachel Reeves, Labour (and the Conservatives before them) believe the ability of Government to raise money or invest is determined first by financial markets, and the City’s primacy in the economy, with the Remembrancer ever whispering in their ear (reminding them who is in charge). It isn’t going to change without a radical change of direction – that I suspect id beyond not just our politicians, but political parties, and Parliament.
Why do say this, because i have watched this dog endlessly chasing its tail, all my life.
Golly even the monetarily illiterate Guardian is falling out love with Starmer’s Neoliberal Party:-
https://www.theguardian.com/commentisfree/2025/jan/14/the-guardian-view-on-rachel-reeves-turbulence-caused-by-caution-cuts-and-criticism
That is quite good.
I sense the work of Aditya Chakrabortty.
They’re still not opening comments on economics articles! Chickens..
@ John
Indeed! But economic and monetary system disinformation is sacred!
I note that the article refers to the “trade deficit”. Trade has only ever engaged Government when it serves the priorities of the City. I wish I could take that remark seriously, because there is no Government (or Opposition) track record of serious interest in tackling the trade deficit for over forty (40) years; and that includes the media.
Agreed
That reminds me of M Thomas Piketty & his references to “La Belle Époque” (for a few).
https://en.m.wikipedia.org/wiki/Thomas_Piketty
For those unfamiliar with M Piketty, his area of expertise is Inequality.
And Mr Piketty’s second book ‘Capital and ideology’ is well worth reading. Though much less well-known than his first. I think the MSM ‘did a Corbyn 2017’ on the first one, and realised their mistake by the second.
I felt the need to grasp MMT, so listened again to your September ‘24 YouTubes, on the matter, Richard. Thank you: you are a good teacher.
If I have understood correctly, inflation can be controlled a) by varying central bank-set interest rates, or b) by central government varying taxation. That being so, would not the taxes raised by Reeves in the Budget have had the effect of lowering inflation? Hence your lack of surprise?
(Please correct me if I have misunderstood).
I can’t be a good teacher. You have not grasped this.
We cannot control inflation like that in 2021/2. That comes from external sources. It has to flow through, as it did.
We can control inflation by reason of excess money supply in the ecnomy by taxing it out of existence. There is little evdience that increasing interest rates is a good way to do that. It can, in fact, be very harmful.
Reeves’ rate rises have had no effect as they have not happened yet.
I would also add that at 2.5% infaltion is well and truly under control.
Thank you for your patience. Clearly, I have much to learn about MMT. I shall persevere as I sense that the neoliberal paradigm is tottering and a replacement is urgently needed.
When you say Reeves’ rate rises, do you mean the increases to employers’ national insurance?
Yes
I predict that on the eve, it even the morning of,the next rate setting committee, some indicator will be published that shows that it’s too soon for a cut. That’ll be all they need for another month of inaction.
It’s funny isn’t it. We have a what-amounts-to-a-rounding-error drop in inflation (with the monthly rate of inflation in December 2024 basically being the same it was in December 2023) and suddenly the BBC news website is awash with articles covering “boosts [in] interest rate cut hopes” and “why a small drop in inflation matters to you”. The news is so fickle.
Hi Richard,
As a non-economic expert, I agree with your views on economic politics and fully support you. I am interested though in your opinion on what you think would happen in the UK if we genuinely got a government that was interested in serving the people and aimed for a fair society; opposed to all the mainstream political parties currently (excluding greens maybe) and the rest of the west (?) who clearly seem to only want to serve the wealthy/the city/neoliberals? Also, I don’t think it’s surprising that the BoE would only want to look after the bankers/wealthy so I aim my question at the governments angle, and I think you could reason that the government should have more/utilise power over the BoE (e.g., interest rates) due to this.
I wonder whether there would be a rebellion from the wealthy/the city/neoliberals? And would this (at least in the short term) bring economic hardship to the government and population? I am thinking of the latest gilt market scenario, where it seems the government have no power and are slaves to the market. It seems the market dictates what the government can do economically and currently the market does not agree with the government – which I think is wholly undemocratic though. Is this because we’re in a global financial system? Is the UK now a weak country economically?
Appreciate your insight into this.
Thank you
I will make a video on this.
Not strictly on topic, but I wonder if you can answer please. The Conservatives reduced NI – which I assume was for both employer and employee. As far as I’m aware prices did not come down as a result. Has Reeves’ hike in NI been greater than the Tory cut? and if not is all the wailing about how prices will have to go up absolute rubbish?
I appreciate there is also an increase in the minimum wage as well.
Thanks
The Tories reduced NI for employees but (depending on when you count from) increased it for employers.
Why would prices come down as a result? This was an employee benefit. It was mildly inflationary.
The current increases are inflationary if costs are passed on. We do not know whether they will be.
Surely it’s the Philips Curve, i.e. when unemployment goes up then it is assumed that inflation will be at a palatable rate such that interest rates will adjust down to invigorate the forthcoming recession and get us on a course to greatness once again [sarcasm]
I am pleased to note the sarcasm. The Philips Curve is an economic joke.
Government by the least unpopular, by the most unprepared, for the already wealthy.