I have already noted this morning that the growth forecast in the Office for Budget Responsibility's predictions, which were published yesterday, was a flat 2% per annum. This is the chart:
Their forecast for inflation was also a flat 2%:
So, they forecast nominal growth of 4%. Nominal growth is just inflation plus real growth to indicate the nominal increase in the monetary value of the economy.
Now note this:
The OBR is forecasting that in the short term, Bank of England base rates will fall to 3.25% (which looks less likely now for obvious reasons) and then return to 4%.
This matters. UK GDP (excluding the absurd measure for notional rents) is around £2,700 billion right now.
UK household financial wealth, excluding property wealth, might be very broadly similar right now (the data is out of date).
So, the economy is going to grow by 4%, and the minimum expected return on financial wealth is 4%.
The denominator in both cases is nearly the same.
Who captures all the gains from growth in that case? I think you can work that out.
And, this is the minimum rate of return, which on gilts will be higher. So, the capture of growth by those with wealth is likely to be complete.
I think that is worth noting. Rachel Reeves's stability will not make most people any better off.
It may be helping the best off the most, quite considerably.
That's the way Labour works now. There was nothing in this forecast for ordinary people. Nothing for those who work. Nothing for anyone but the wealthy. And she said Labour's plan was working.
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The prediction for flat line growth is unlikely to happen if only for the fact that you rarely ever see that on a chart over time. It’s either up or down, good or bad. In reality, things never flat line over several years.
I noted yesterday that Reeves said this.
Strengthening trade relationships, affordable housing, better transport and free childcare are all part of the government’s strategy, Reeves adds.
Affordable housing? Average property prices now £300,000, rents still going up well above CPI inflation, etc. Where exactly is this affordable housing? I don’t see Labour doing anything about “affordability”.
She must be living in cloud-cuckoo-land.
She is
Or neoliberal land…
“I think you can work that out”
Well, to be honest, I couldn’t. Which is a comment on my ignorance. But I’m not alone.
I believe you, and I dont need convincing about trickle-up economics, but my grasp of the basics is not sufficient to follow the logical steps in the argument. Which means I can’t yet transmit it to anyone else.
The omnibus version of yesterdays Spring Drivel that I HAVE grasped, is:
1. In the real world, everything has changed because an illegal aggressive ME war just got started by rogue states, America & Israel. Oil, and especially gas prices are rising and this will hit UK energy prices HARD come the winter.
2. The spring statement is based on OBR forecasts calculated before the war, and therefore totally useless. Reeves knew this.
3. Reeves’s main goal is to do nothing, and boast of stability, with minimum action by government. This is bollocks. The media said she looked really confident. You said she looked nervous. I believe you. I haven’t watched it yet.
4. In response to global economic chaos, Reeves is doing nothing, because she doesn’t know what to do, and she is ignoring the war and its consequences. The boat is taking on water, so the captain is… … … holding a steady course.
5. As a result, the rest of us are going to get very wet, and some will drown, while we suffer external inflation shocks but get no help from GOV.
6. The BoE will do nothing to help and may jettison the engine, the paddles and life-rafts and lifejackets to lighten the ship.
7. The illegal war doesn’t matter because its only Iranians, Gulf or Lebanese Arabs and a few Israelis getting killed, and its good for our arms sales and it gets Epstein off the front pages.
8. We are complicit in war crimes, but what’s new about that?
9. Anyone criticising the Chancellor is unpatriotic and probably a terrorist.
Thanks.
And all I was saying is the rich will win.
The Bank of England continues to suggest that rates are very nearly neutral, suggesting that they think a rate between 3-4% against a target and medium-term expectation for inflation of 2% is ‘neutral.
That’s quite noticeably NOT neutral. That would be a sustained transfer of wealth to the rich through having higher interest rates than inflation. It reduces appetite for investment risk, it constrains growth, it puts pressure on households with debt (especially a mortgage).
Truly ‘neutral’ would be a 2% rate to match inflation, so it is neither a transfer of wealth to wealth-holders from those with debt. But we should also consider the merit of reducing pressure on those who need the support most, and whether a lower-than-neutral rate is actually what’s desirable for a period to help move the needle in the other direction.
Reeves then plays into that narrative and allows the BoE to maintain its singular anti-inflation mandate along with its wealth-favouring interpretations of data. If Reeves genuinely wanted to boost the economy, then the BoE mandate MUST change to have a range of goals, AND it must be corrected on what a ‘neutral’ rate means given its purpose is supposed to be for the good ofc the country, not just a few within it.
I agree.
The rate should be 2%.
I know that it is late (sorry) but will the way in which this duplicitous business with interest rates helps rentiers be explored in John C’s film (The Finance/Financial Curse)?
I hope so – it really needs unpicking and pointing out. It abuse in anything but name.
Not head on, I think.
MP’s pay is to rise to £110,000 p.a. by 2029.
That’s a lot of money to be paid to be ignorant of what we discuss here.
Is this the unacceptable face of ‘democracy’?
‘Hope that you are recovering well from Saturday.
Richard,
I do struggle with the full meaning but here goes:
1. GDP Growth 2% real 4% nominal
2. Inflation 2%
3. Reduction in purchasing power of £ 2% annually for those on a wage plus higher mortgage costs long term.
4. Those with wealth a 4% + return annually.
5. Inflation wipes out economic growth because of the reduction in purchasing power of the £.
6. Productivity growth if = to inflation means real GDP is really zero.
Is this correct?
No
GDP growth is 2% real
And then inflation is 2%
So monetary growth is 4%
Then you make micro extrapolations that cannot follow – they depend on individual circumstances.
At 5 you move back to macro and that is fair
Productivity is not an issue here though.
I would love to see, plotted on the same graph, the OBR predictions for CPI 3 months and 12 months before the actual CPI figure
🙂