Latest news with #UKEconomy
Bloomberg
16 hours ago
- Business
- Bloomberg
British Factories ‘Turning a Corner' After US-UK Tariffs Deal
British factories showed signs of 'turning a corner' in May following a limited deal between Keir Starmer and Donald Trump's governments to lower some US tariffs, a closely watched survey showed. S&P Global's manufacturing purchasing managers' index rose to 46.4, up from 45.4 in April and a three-month high.
Daily Mail
3 days ago
- Business
- Daily Mail
BORIS JOHNSON: Like an alcoholic reaching for the bottle, Labour are addicted to a greedy gulp of the old tax and spend - and they'll give us a hangover that will last for decades
Watching the Labour Government trying to manage the UK economy is like watching an alcoholic trying to deal with a lifetime of addiction. They know the bottle of whisky is there in the cupboard. It's called the old tax and spend. They know that they love the taste of it – the rush of that first glug – but they also know deep down that just unscrewing the cap of that bottle is going to be a disaster, for them and for their families.
Bloomberg
4 days ago
- Business
- Bloomberg
BOE's Bailey Urges Closer EU Trade to Reverse Brexit Damage
Bank of England Governor Andrew Bailey has urged the government to strike a deeper trade deal with the European Union to improve growth and 'minimize negative effects' of Brexit. In the text of a speech to be delivered at the Irish Association of Investment Managers in Dublin later Thursday, Bailey said 'the evidence on Brexit suggests that the changing trade relationship has weighed' on the UK economy by putting up barriers and hampering productivity.
Telegraph
6 days ago
- Business
- Telegraph
Brexit hasn't hurt productivity. Open borders and costly power have
Life is much simpler if you are willing to blame Brexit for anything that is going wrong in the British economy. This easy road attracts plenty of 'likes' on social media from those who want the UK to rejoin the EU, and column inches in the Europhile press. Unfortunately, it almost always leads you down the wrong path. Take the observation that GDP per head has grown much faster since 2016 in the euro area than it has in the UK – 'nearly three times as fast', according to one cheerful commentator. Does this not 'lay bare the full cost of Brexit'? In reality, no. It is correct to say that the UK has significantly underperformed the euro area on this measure since 2016, after marginally outperforming in the period between 2000 and 2016. However, this raises the question of why the UK has struggled. Here it is much more insightful to compare the performance of the UK with those of individual countries and to cast the net wider to include all the G7 group of major advanced economies. The precise numbers vary according to the source. But using some internationally comparable data from the OECD, UK GDP per head grew by a total of just 4pc in the eight years between 2016 and 2024, compared to 17pc between 2000 and 2016. So far, so bad. None the less, only one G7 economy was able to maintain consistently strong growth in GDP per head across these two periods – and that was the United States. It is surely more useful to ask what has gone right there, rather than focusing exclusively on re-aligning Britain with the European Union. This is especially important when talking about regulatory alignment. IMF research has found that the EU's internal barriers and regulations are equivalent to a tariff of 44pc for manufacturing – compared to just 15pc in the US – and as high as 110pc for services. It is not something we would want to replicate. Admittedly, the exceptional US performance has also been flattered by factors which are not easily replicable elsewhere. Some are not even sustainable in the US – notably the large budget deficits underpinned by previously strong international appetite for dollar assets. But just comparing headline numbers misses these nuances too. Within Europe, the standout performer since 2016 is Italy, which has recorded the second highest growth in GDP per head in the G7 – behind only the US. But this rebound must be viewed in context, as the Italian economy barely grew at all during the first decade after adopting the euro in 1999. Italy's recent impressive performance has also been flattered by a construction and renovation boom, fuelled by tax breaks and other subsidies. That stimulus is fading fast. France serves as a more suitable benchmark for the UK and has also outperformed 'Brexit Britain' since 2016, albeit by much less than Italy. This outperformance can partly be explained by France's adoption of more business-friendly tax and regulatory policies, and the advantage of relatively cheap and reliable supplies of energy. But France's public finances are in an even worse state than those in the UK, so this Gallic exceptionalism may not last long either. Those relying on GDP per head as a measure of the impact of Brexit then have to gloss over Germany's even worse performance. Since 2016, Germany's GDP per head has grown by barely 2pc, compared to 20pc in the period between 2000 and 2016. Was that also due to Brexit? Of course not. Common factors between the UK and Germany include the difficult transition to electric vehicles, relatively high energy costs and policy choices regarding non-EU migration. But perhaps the most interesting comparison is with Canada, where growth in GDP per head since 2016 has been roughly half the pace in the UK, and the weakest in the G7. It cannot be a coincidence that Canada has experienced the highest population growth in the G7 over this period, as successive governments have encouraged immigration to address labour shortages. Does that sound familiar? Indeed, this exposes one limitation of using GDP per head as a measure of underlying economic performance. This assumes that population growth might be expected to translate one for one into growth in output, income and expenditure, so it then makes sense to adjust for that. But this still depends on what is driving the increase in the population. Imagine a scenario where population growth reflects a high birth rate. The population may then increase, but the working population might not. GDP per head could then decrease simply because the same amount of income is shared among more people, but this does not necessarily mean that the economy itself has become less productive. Of course, the recent rapid growth in the UK population has been driven by net migration, not more births. But if a larger proportion of new immigrants are students or dependents, GDP per head could still be lower. And this is in addition to the risk that AN over-reliance on cheap labour from abroad can trap an economy in a low-wage, low-productivity equilibrium. To be clear, the uncertainty and new trade frictions created by leaving the EU has had some negative effects on the UK economy. But there are many other factors that together have had a much greater impact on growth in GDP per head – notably mass immigration and high energy costs.
Telegraph
6 days ago
- Business
- Telegraph
Britain has no more capacity to borrow as Starmer's costly U-turns mount
At first glance, the International Monetary Fund's latest forecast for the UK economy looked remarkably positive. Growth will be higher than projected a month ago. The economy will accelerate despite the trade war. Rachel Reeves's strategy was praised as 'credible and growth-friendly'. But beneath the surface are dire warnings. The population is ageing rapidly, putting pressure on the Government to spend ever more on care. Britain's huge debt pile and high interest rates make borrowing difficult. 'Difficult choices' loom on tax and spending. The IMF repeatedly urged Reeves to 'stay the course' on plans to stabilise the finances and bring down annual borrowing. Instead, the run up to the IMF's update was marked by a series of about-turns on benefits and public sector pay that will force the Chancellor to find billions. The Government has abandoned its cuts to winter fuel eligibility, and is looking at dishing out more benefits to parents by reviewing the two-child limit. The IMF warned that such promises can not be funded by borrowing: 'The authorities will need to offset that with other savings measures somewhere else. Our view is that these other measures could be both on the tax or on the spending side,' said Luc Eyraud, the IMF's mission chief in the UK. That is a very diplomatic way of putting it. Effectively the British state is so broke that it cannot afford even tweaks which are relatively modest – at least compared to total government spending, which is on track to hit £1.5 trillion per year later this decade – without clawing the money back elsewhere. Reeves has already bumped into this problem several times. Despite attempting a reset of the finances last autumn in a Budget that saw taxes raised and spending cut, Chancellor was forced to come back for more just months later in the spring. The immediate cause of her woes is the fact that she is sailing so close to the wind, running the finances with a buffer of less than £10bn against her borrowing targets. It means every hiccup in growth, productivity or the path of interest rates can throw her finances off course. The IMF has suggested Reeves 'refine' her fiscal rules and seek to lessen the public attention on the targets, thus avoiding the storm of speculation over tax cuts that occurs every time borrowing costs shift around in bond markets. It proposed tweaks to the way forecasts from the Office for Budget Responsibility (OBR) are used, including 'de-emphasising point estimates of headroom in OBR assessments of rule compliance; establishing a formal process so that small rule breaches do not trigger corrective fiscal action outside of the single fiscal event; or assessing rules only once per year at the time of the fiscal event.' Unfortunately it is not the precise definition of the fiscal rules, nor how neatly the Government hits them, which really matters. The real problem is that the Government has an enormous mountain of debt, agonisingly high interest payments – more than £100bn per year – and faces the threat of worse to come given ructions in the global economy and tensions in financial markets. The fiscal rules are an acknowledgement that the Treasury needs to keep a tight hold on the public purse to avoid a blow up, and loosening the rules or their enforcement is not a way to sidestep that threat. It is a point made by Mel Stride, the shadow Chancellor, who says: 'The IMF have been clear that the first solution should be to leave greater headroom against the fiscal rules.' 'In a context where the Chancellor's credibility is already in tatters, changing the goalposts a second time would run real risks with market confidence.' Even if Reeves sticks to her fiscal rules this decade, the ground is shifting beneath her feet. Britain's population is getting older, putting greater pressure on healthcare costs and leaving a smaller population of taxpayers to pay for care. The IMF warned: 'In the longer term, difficult fiscal choices will likely be needed to address spending pressures and rebuild fiscal buffers. Under current policies, staff analysis suggests spending to be around 8pc of GDP higher by 2050, mainly due to additional outlays on health and pensions from population ageing.' Government spending amounts to around 45pc of GDP now, which would rise firmly above 50pc on these IMF projections. Given that the national debt is already above 100pc of GDP on the watchdog's measure of gross indebtedness, that rise in spending will require major tax rises or spending cuts elsewhere. 'There is limited space to finance this spending through extra borrowing, given high debt and elevated borrowing costs,' the IMF said. 'Unless revenue is increased, for which there is scope, tough policy decisions on spending priorities and the role of the state in certain areas will be needed to better align the coverage of public services with available resources.' Yet taxes are already heading up to their highest level since the Second World War. That this is a global problem only makes the situation worse. Governments around the world are borrowing too much. Donald Trump's latest round of tax cuts add to America's swelling debt. Emmanuel Macron's series of prime ministers have struggled to bring down French borrowing without sparking street protests. Interest rates charged to Japan's government by investors have hit record highs. Agustin Carstens, head of the Bank for International Settlements, known as the central bank for central banks, warned that governments across the world are borrowing too much and risk destroying trust in money and in the financial system, with potentially devastating ramifications. 'It is essential for fiscal authorities to curb the relentless rise in public debt,' Carstens said in a speech in Japan. 'The low interest rate environment that followed the global financial crisis flattered fiscal accounts. Large deficits and high debt seemed sustainable, allowing fiscal authorities to avoid hard choices. But the days of ultra-low rates are over. 'Fiscal authorities have a narrow window to put their house in order before the public's trust in their commitments starts to fray. Markets are already waking up to the fact that some paths are not sustainable.' That is a warning that interest rates could spiral if debt investors refuse to back a government's borrowing plans. 'Fiscal consolidation in many economies needs to start now. Muddling through is not enough,' he warned. 'In many countries, current policies imply steadily rising public debt in the coming decades. Pressures for more public spending will only increase, not least due to population ageing, climate change and, in many jurisdictions, higher defence spending.' Carstens did not single out any countries by name, but his words echo closely the IMF's fears for Britain's long-term debt. Their warnings show Labour's spending dreams risk a collision course with financial reality.
