{"id":95816,"date":"2026-09-19T08:37:20","date_gmt":"2026-09-19T07:37:20","guid":{"rendered":"https:\/\/www.taxresearch.org.uk\/Blog\/?p=95816"},"modified":"2026-09-19T08:37:20","modified_gmt":"2026-09-19T07:37:20","slug":"the-economy-is-going-to-get-really-bad-we-need-a-plan-and-john-healey-is-chancellor","status":"publish","type":"post","link":"https:\/\/www.taxresearch.org.uk\/Blog\/2026\/09\/19\/the-economy-is-going-to-get-really-bad-we-need-a-plan-and-john-healey-is-chancellor\/","title":{"rendered":"The economy is going to get really bad. We need a plan. And John Healey is Chancellor."},"content":{"rendered":"

Heather Cox Richardson, in her Letter from an AMerican on Substack, which I recommend subscribing to, said over night:<\/a><\/p>\n

According to the American Automobile Association, diesel hit its highest recorded average price today at just above $6.44 per gallon. Diesel moves most of the consumer goods in the United States. Iran\u2019s news agency reported today that a political advisor to Iran\u2019s Supreme Leader said Iran would not reopen the Strait of Hormuz until President Donald Trump and Israeli prime minister Benjamin Netanyahu are removed from power.<\/p>\n

As the conflict drags on with no coherent U.S. strategy, J.P. Morgan wrote yesterday, \u201cWe simply don\u2019t know how to model the endgame.\u201d<\/p><\/blockquote>\n

She added:<\/p>\n

Today Bloomberg reported that Saudi Arabia has told European refiners that they will not be receiving crude oil next month because of the shutdown of the East-West pipeline.<\/p><\/blockquote>\n

This is what failure looks like.<\/p>\n

As Heather Cox Richardson also noted, Trump responded to the willingness of US media to discuss these issues, and their consequences, by announcing he is banning CNN, MS NOW, and Politico from the White House.<\/p>\n

Trump\u2019s claim is, of course, that the media is lying about what is happening and everything is going fabulously. This is straightforwardly contradicted by data, evidence on the ground in the USA, and polling information, which shows just how likely it is that he will lose the midterm elections. What will happen then is, however, still unknown. Speculation that there might be an outright refusal to register the result is widespread.<\/p>\n

Let me, however, return to the economics of this. The USA is an economy that has been driven by road fuel for a century, and compared to the rest of the world, that fuel is cheap there, largely because taxes on it are low. Now, people there, as elsewhere, are facing prices they once considered unimaginable. The immediate consequences are financial stress, but what is just as important are the long-term consequences that will arise if, as Iran is threatening, there is no solution to the crisis in the Strait of Hormuz, and the new crisis created by Houthis in Yemen has, as many expect, a major impact on oil flows in and through Saudi Arabia.<\/p>\n

Events are unfolding largely as I expected, but most of the world failed to hear the warnings a few of us promoted, that this crisis was coming and would be much larger than any of our politicians were willing to anticipate.<\/p>\n

In the USA, the impact of this crisis will be seen in poll results in the midterm elections in November. Shortly before that, though, here in the UK, we will have a chance to see how our government is responding to this issue, because John Healey will, in his role as Chancellor of the Exchequer, present his Budget at the end of that month, and with it the associated forecast from the Office for Budget Responsibility.<\/p>\n

Those forecasts must now be in preparation. The OBR should by now have formed its view on where the conflict in the Gulf is heading, when it will be resolved, and what the impact on oil and other prices will be, because those three variables will inevitably shape many aspects of the rest of its forecasts.<\/p>\n

My suggestion is that the disruption will now last for years, that we have by no means seen the limit to oil price increases as yet, and that a major inflationary impact is inevitable as a consequence which, as I keep on saying, the Bank of England could make very much worse if it were to increase interest rates at the same time. I think it would be very hard, given current evidence, for the OBR to reach any other plausible conclusion.<\/p>\n

That reduced oil consumption might be good for the world is a fact. That its arrival in a completely disorganised fashion, as appears likely as a consequence of Trump\u2019s stupidity, is something altogether different, and could create economic chaos on a scale that we have not seen in anyone\u2019s lifetime.<\/p>\n

So how will the OBR manage this risk? Will it, as it did in the March 2020 Budget forecast on Covid, largely pretend this event is not happening? Of all the options available, that is, I think, the most likely, but if it is what happens, we can guarantee that John Healey will have to be back at the Despatch Box delivering an emergency Budget in early 2027 at the latest, and that will leave his position, and that of Andy Burnham, as irrecoverable because all the warning signs will have been present in October.<\/p>\n

The alternative is that they acknowledge the risk and say what they will do about it. That seems much more likely than a \u2018heads in the sand\u2019 approach. Imagining change on the scale required might be beyond the OBR's capacity, because it, like the Treasury, assumes everything returns to what it considers 'normal' within two years at most in all its forecasts. Those forecasts are literally programmed to do that, but that is not going to happen this time, so what will?<\/p>\n

I think I had better think through the answer to that question in greater detail than I have before. I am now persuaded that things are very much worse than I previously thought. The economy is going to get really bad, and we need a plan. Wish me luck. We are all going to need a lot of that.<\/p>\n","protected":false},"excerpt":{"rendered":"

Heather Cox Richardson, in her Letter from an AMerican on Substack, which I recommend subscribing to, said over night: According to the American Automobile Association,
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