UK facing ‘grim economic outlook’ as Jeremy Hunt warned against excessive austerity – business live

Read More

Here’s AJ Bell investment director Russ Mould on the situation in the markets this morning:

“If the mini-budget was what made the UK economy and its assets sickly, today is the day on which some painful medicine is delivered in the form of the Autumn Statement.

“By trailing many of the measures Chancellor Jeremy Hunt has gone out of his way to avoid any surprises, with the key aim to placate international investors in gilts and the pound. These are the markets the government will be watching as they look to gauge the reaction.

“The FTSE 100 was a touch lower on Thursday morning after a weak showing on Wall Street following an ultra-gloomy outlook from department store chain Target which sparked fresh concern about the US retail sector.

“Online groceries firm Ocado continues to attract brickbats with hedge fund manager Kintbury Capital pointing to 50% downside potential in the shares, which have already more than halved year-to-date.”

My colleague Andrew Sparrow is live-blogging the autumn statement in his Politics Live blog. I’ll nip over there later to (hopefully) lend a hand.

Andrew points out that this is the second, if not the third, colossal “fiscal event” of the autumn, much bigger than a usual budget.

The first was Kwasi Kwarteng’s mini-budget. Then there was Jeremy Hunt’s announcement in his first full day as chancellor abandoning almost all the measures in the mini-budget – the biggest government U-turn in the modern era.

And today Hunt, now working for a new prime minister, will set out a fiscal strategy that entirely reverses the Kwarteng/Liz Truss one.

He also says that autumn statement is bigger than just be a repudiation of the short-lived and disastrous Truss premiership.

In some respects Hunt will undoing policies that the Conservatives have championed for much of their last 12 years in office. David Cameron and George Osborne kept increasing the personal tax allowance, so they could remove more and more people from having to pay tax in the first place.

Today Hunt is going to extend the period for which allowances are frozen, using this as a stealth tax, and dragging more people into paying tax. Osborne cut corporation tax significantly. Now it is shooting up again.

Rachel Reeves MP, Labour’s Shadow Chancellor, has said 12 years of economic failure under the Conservatives have held the UK back.

Speaking ahead of the autumn statement, she says:

“Britain has so much potential but we are falling behind on the global stage, while mortgages, food and energy costs all go up and up.

“The country is being held back by 12 years of Tory economic failure and wasted opportunities and working people are paying the price.

“What Britain needs in the Autumn Statement today are fairer choices for working people, and a proper plan for growth.

“That’s why Labour has a long-term plan to get our economy growing again – powered by the talent and effort of millions of working people and thousands of businesses.

“It will be fairer, greener, and more dynamic. Labour’s Green Prosperity Plan, our modern Industrial Strategy and our active partnership with business will get our economy firing on all cylinders.”

Jeremy Hunt will deny that he’s returning the UK to austerity, reports Steven Swinford of The Times:

But, David Laws – who was a Liberal Democrat minister in the 2010 coalition government – argues that Hunt faces a very different situation than George Osborne.

Laws told the Today Programme that the government, and the markets, need to realise that the 2010 freeze on public spending followed strong growth in spending under Labour.

That meant it was much easier to limit spending. We couldn’t really be in a different position today, Laws points out, given 12 years of effective public sector austerity, rising inflation, and record NHS waiting lists.

The UK government is set to spend billions of pounds to insulate homes and upgrade boilers in a drive to cut Britain’s overall energy demand by at least 13% this decade.

The energy efficiency push is set to be unveiled on Thursday by Chancellor of the Exchequer Jeremy Hunt as a major spending commitment in his Autumn Statement, according to Bloomberg.

They say:

Ministers are proposing to create a task force to oversee the program, which will include new funding from 2025 through 2028, according to the people. The government is also preparing a public information campaign to encourage individuals and firms to reduce their energy consumption.

Brian Berry CEO of the Federation of Master Builders, says it would be a ‘great start’ to tackling the energy crisis:

London made the fastest recovery from the pandemic last year, according to new data from the Office for National Statistics.

GDP in the capital grew by an annual rate of 14.4% in the first three months of this year, followed by Scotland (+12.8%), the North East (+12.4%) and the South West (+11.3%).

The ONS also reports that all of the nine English regions showed positive growth in Q1 2022, led by the North East and the East Midlands which both grew by 1.2%, followed by London with an increase of 1.1%.

Wales saw no quarterly growth, though.

Eight weeks really is a long time in politics….

The City is in a subdued mood ahead of the autumn statement at 11.30am.

The blue-chip FTSE 100 index has dropped by 0.5%, while the UK-focused FTSE 250 index of smaller companies has lost 0.3%.

The pound is a little weaker against the dollar, at $1.188 (but still much higher than before the mini-budget, let alone afterwards…).

The bond market is calm, and one of Jeremy Hunt’s objectives will be to “make gilts boring again”, says Neil Wilson of Markets.com. He writes:

If the Autumn Statement moves the markets much then there has been a cock-up.

The messaging from the Treasury thus far has been very clear – heapings of fiscal discipline and lashings of austerity, no uncosted borrowing.

It’s about restoring credibility in the financial markets and very little else.

But could there be a surprise or two? Wilson thinks Hunt and Sunak might save then up until nearer the election.

Chancellors love to pull a rabbit or two out of the hat and fiscal credibility goes hand in hand with winning the next the election as far as the Tories go, so it might not be as horrendous as some of the various test balloons floated by the Treasury in recent weeks would suggest.

A credibility premium, though, is worth more right now and the surprises will be saved up for next year ahead of the election…when they can apply some soothing tax cuts and say they could only do that because of the difficult steps taken in 2022.

The German-owned discount grocer Lidl has quadrupled its UK profits as shoppers look for ways to save money.

Lidl reported a 1.5% rise in UK sales to ?7.8bn in the year to the end of February but pretax profits surged 319% to ?41.1m as the group trimmed costs as measures to control the Covid-19 virus eased.

Out in the real economy, pub chain Fuller, Smith & Turner has told shareholders that it faces continued pressure from high inflation, steep energy bills and interest rate hikes.

Fullers also expects a robust Christmas period and an added boost from the upcoming football World Cup. More here.

James Meadway, director of the Progressive Economy Forum, insists Jeremy Hunt should not be making huge spending and tax decisions on the basis of uncertain forecasts.

Writing in the Guardian today, Meadway says the government should focus on hard economic facts, not an arbitary target to get debt falling at a future date.

He says:

This screeching U-turn in government policy – contradicting promises to end austerity and its commitments in the 2019 manifesto – is being driven by nothing more than an insubstantial statistical artefact. The “fiscal black hole” is not a hard economic fact. It’s the result of uncertain forecastsand the government’s own target for the level of debt in five years’ time.

This isn’t the same as looking at (for instance) real wages – currently falling rapidly – or rising unemployment today. It would be a profound error to use this ghostly “fiscal hole” as an excuse to drag the country back into the economic doom-loop of austerity.

These charts show the UK’s poor economic situation, with inflation at a 41-year high and a recession possible underway – and government departments bearing the scars of the last austerity drive.

My colleague Richard Partington’s full analysis is here:

Frances O’Grady, general secretary of the Trades Union Congress (TUC), warned against the dangers of austerity.

Speaking on BBC Radio 4’s Today programme ahead of the Chancellor’s autumn statement, she said that tough spending cuts are “never easy for working people”.

O’Grady said that George Osborne’s austerity plan had “failed”, so it would be a mistake for Jeremy Hunt to make similarly painful cuts.

“We have been suffering weak growth as a country ever since, because it was killing the golden goose.

“If you are starving the NHS, our education and skills system, of funding that has an impact on the economy because we need a healthy workforce, we need educated, skilled and trained workers.

“Now we really need big investment in green infrastructure and our public services, if we’re going to grow.”

Bloomberg’s Phil Aldrick tweets that the cost of paying off the UK’s debts will be in focus today.

Inflation has driven up Britain’s debt servicing costs, because the interest rate on ‘index-linked gilts’ goes up, or down, in line with the Retail Prices Index. RPI surged over 12% last month.

It’s an understatement to say that Jeremy Hunt faces a difficult balancing act today, says Investec economist Phil Shaw.

Politics and economics are pulling in fundamentally different directions: the evident need to assist in light of the cost-of-living crisis, which underpins much of the current wave of industrial action, collides with the hard truth that markets need to see the public finances being kept on a sustainable footing.

As the Truss administration found out, the latter is neither negotiable nor easily kicked into the long grass: credibility must be shored up, to avoid a return of the volatility in markets and surges in yields that can worsen conditions for the whole economy in a short space of time.

Fresh austerity will be a “significant drag on economic activity”, Shaw points out, which will push the UK economy into recession through next year.

But, it would also mean the Bank of England wouldn’t need to raise interest rates as high as expected.