Anyone expecting economic fireworks in the King’s Speech will be disappointed.
There was reiteration of the determination to beat back inflation and keep the public finances orderly. But no hints of relief from the tax burden, one of the planks of Toryism.
The sober approach to the budget is consigning the surge in bond yields of a year ago to history. That won’t stop Labour from charging that the Tories crashed the economy.
Much attention is being paid at the Covid-19 inquiry to the dysfunction of Downing Street in the pandemic.
The reality is that economic steps taken at the time – the furlough scheme, breaks on VAT and business rates and abused pandemic loan schemes – did prevent long-term scarring to the economy. Instead of unemployment surging, it is vacancies which went up.
Property market: Latest data from the Halifax shows that house prices rose 1.1% in October after six consecutive falls
The UK economy is bigger than it was before Covid-19. Resilience is a strong feature of the UK’s economic performance.
As interest rates surged last year, the Bank of England predicted the longest recession in nation’s history.
It didn’t happen, which is why the Bank’s governing body, the Court, has called in former chairman of the Federal Reserve Ben Bernanke to mark its forecasting homework.
Britain and the world are living through tricky times amid conflagration and the terrible loss of life in Israel and Gaza.
That is why the Government’s intention to re-open the licencing for future offshore oil and gas exploration makes sense. Energy security is paramount as Britain moves towards net zero.
It is impossible to have full confidence in the Bank of England’s forecasting. Among the biggest worries for forecasters is a collapse in the housing market as those with mortgages came off their fixed-rate deals.
Home loan approvals have been weak, but concerns of a housing crash are greatly overdone. Latest data from the Halifax shows that house prices rose 1.1 per cent in October after six consecutive falls.
This is in line with an upbeat number from Nationwide. The commentary from lenders suggests the turnaround is due to a lack of supply, with prospective sellers sitting on the sidelines.
That raises the possibility of a positive feedback loop as would-be sellers are drawn into the market.
Housebuilders have been ultra-cautious, wanting to avoid a repeat of the 2008-09 meltdown. Yet in spite of a ‘highly uncertain’ market for 2024, Persimmon is more optimistic than competitors, reporting improved sales since October.
The Bank’s chief economist Huw Pill offered a shard of light on rates, agreeing with the markets that a cut from the 5.25 per cent base rate looks possible by August 2024.
That helped to trigger a fall in two-year gilt yields. Better deals for the 650,000 or so coming off fixes in the next year or so should become available.
An improved housing market is not going to fix Britain’s longstanding productivity problem.
But it will do wonders for consumer and business confidence and could well mean that grim predictions of a flat-lining, or worse, economy are too pessimistic.
Light touch
Accounting reforms are never going to be sexy. But to stakeholders damaged by failures at Carillion, Patisserie Valerie, Greensill and most recently Wilko it is of critical significance.
The absence of legislating reforms in the King’s Speech, including a new Audit, Reporting and Governance Authority, is no accident.
The Tories are intent on boosting the competitiveness of the City as evidenced by the recent decision to end the cap on bankers’ bonuses.
The audit and governance enforcer, the Financial Reporting Council, has been told to row back from reforms. It wants to make sure the British way is different from the ‘intrusive approach adopted in the US’.
Sub-octane audit firms and corporate hooligans can thank their lucky stars.
Wrong note
The UK’s music industry is a terrific contributor to creative Britain, generating £4billion in exports in 2022, boosted by growth in recorded music, publishing and the return of touring. New markets have opened up in the Middle East, Africa and Latin America.
But competition from South Korea, Australia and Canada among others is eroding market share.
It doesn’t help that the UK no longer has a listed national champion producer or that Universal Music, which acquired a chunk of EMI’s catalogue, chose to list in Amsterdam.
In a global arena, domestic ownership does matter.
