And there it was: a small chink of light. Just a little 0.1 per cent fall in inflation, from 2.6 per cent to 2.5 per cent. Barely a rounding error. But in the deranged political world we live in, it’s infinitesimal changes like this that can salvage a political career or restore a government agenda.
The main importance of Wednesday morning’s surprisingly positive inflation announcement is theatrical. That sounds odd – people think of economics as cold, dry and technical. In fact, it is uniquely susceptible to mood swings. It is ultimately just a mad jumble of millions of people making rational and irrational decisions.
The expectation had been that inflation would hold steady. Instead it fell slightly. That sense of surprise – of newsworthiness – raised the salience of the announcement and the emotional impact it had. It made people sit up.
Importantly, the reduction is broadly in line with the Bank of England’s forecasts, which indicates that it’ll soon cut interest rates, which will itself likely boost growth. It offers a tentative hint of hope for the future.
The bond markets, which had been behaving aggressively over the last few days, had a good morning. The 10-year yield went down, the pound strengthened. And then suddenly – poof, just like that – the political pressure on Chancellor Rachel Reeves eased off. For days she has been facing hyperventilating speculation about her position. Now it is likely to dissipate as quickly as it arrived.
This is such a preposterous state of affairs. It’s as if we’re conducting current affairs through the medium of CBeebies: Overexcited, madcap, with no trust in the audience’s attention span. In fact, that does CBeebies a disservice. At least it is committed to educational goals. Our current affairs ecosystem seems intent on leaving the audience less informed than it was before.
This scenario is the product of two things, which are pernicious individually and disastrous in combination. The first is the precarious state of the public finances. And the second is the utterly hysterical state of the British press.
The basic reality is that our economy is in a terrible state. We have low growth and low productivity. This has been the case, to some extent or other, since the financial crash in 2008. Those of us who started our careers around this period have never really known anything else our entire working lives.
During recent years, the Tory government worked with ceaseless, near-Bacchic ideological fury to actively maim the economy. It did this through big-ticket disasters like Brexit and Liz Truss, and more subtle background inadequacies such as reversing HS2 and delaying petrol car bans, which served to deprive businesses of the confidence needed to invest.
When we’re in this kind of economic stasis, fluctuations in the bond market can create political havoc. The Chancellor has an economic rule that current spending must be matched by tax revenues. It’s a perfectly sensible and necessary rule, but it makes her vulnerable to these kinds of bond market movements. When they turn against her, it costs the Government more to borrow, which then takes her closer to her rule, threatening the nightmare scenario where she must either increase taxes or cut spending.
The solution is obvious. Everyone knows what it is. It is growth. It is a strong economy. If we were enjoying better times, these fluctuations would not be so acute. Meeting the fiscal rules would be an easy exercise, not a nerve-shredding one.
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Read MoreIt is patently obvious that the blame for the current situation cannot be laid at the door of Reeves. It’s embarrassingly opportunistic to claim otherwise. Bond yields rose for a short period after the Budget last October, but they soon fell back again and were at pre-Budget levels last month.
What has changed is the incoming Donald Trump administration, which is spooking markets in all sorts of ways, from tariff wars to spiralling US budget deficits. This will have direct and indirect impacts on the UK and indeed the rest of Europe, which is experiencing similar bond market tremors, albeit to a slightly lesser extent.
The truth is that we’re seeing long-term British economic under-performance being exacerbated by volatile international events. Only the most superficial possible assessment could conclude it’s all Reeves’ fault as an individual. And yet that, predictably, is precisely where we’ve ended up. For nearly a week we’ve been subjected to infantile headlines insisting she would soon lose her job. “Two Lame Ducks,” the Mail screamed on Tuesday, placing a picture of her alongside the former economic secretary to the Treasury, Tulip Siddiq. “Should we be popping out for another lettuce?” the Daily Star asked, putting Reeves in the same category as Truss.
It’s just so dreadfully, cringingly silly. The press is addicted to the drama. It cannot wean itself off the day-to-day chaos-nightmare of Tory rule. And now several papers put themselves in the preposterous situation of demanding a chancellor’s head for economic events which are obviously nothing to do with her and wouldn’t be improved if she left.
Needless to say, the Tories obviously couldn’t resist it. They know it’s nonsense, but it is useful nonsense. Mel Stride, who is shaping up to be one of the least impactful shadow chancellors of our age, weighed in yesterday. “To go or not to go,” he told the Commons yesterday, in an attempt to murder the very concept of eloquence, “that is now a question.”
It is all absolutely hysterical. The situation Reeves took charge of was extremely tenuous. It was always going to take longer than six months to fix, as any fair-minded observer would recognise. Her plan is perfectly sound. Indeed, there were hardly any other options available to her. She needs to stay the course, hold firm, and remain calm in the face of a blathering and incontinent right-wing press.
Anyone who really cares about the British economy is asking deep, searching questions about how to improve its core performance. Those who don’t are engaged in the dimwit Punch and Judy blame game. We should pray that Downing Street ignores them.
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