The chaos created by Liz Truss’s premiership hammered Britain’s economy – but things are now looking up and here’s why
THINGS are looking up – and it’s not just blue skies and lighter mornings doing wonders for peoples’ moods.
While we’re a long way off from hanging the bunting (Coronation aside), all the usual UK economic indicators are flashing much brighter than we could have imagined a few months ago.
The FTSE 100 has been outperforming other global stock markets, the pound is back up strongly against the dollar, unemployment remains low and gas prices — which were the biggest driver of rocketing prices after Russia’s Vladimir Putin invaded Ukraine — have fallen back dramatically.
Ultimately, it’s a lot better than we thought.
But people aren’t popping Champagne corks just yet, chiefly because most can only afford cava these days.
The cost-of-living crisis is still very much going on — inflation has made the very essentials of food, heating and fuel more expensive, which has eaten away at our hard-earned cash.
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But it remains the case that there has not been the devastating financial armageddon we were being told to brace for.
Last August, I spent a sunny morning in the Bank of England’s underground vaults where we were told that the UK would crumble into a recession by the end of the year.
The skies darkened considerably two months later when the Bank gloomily predicted we would face two years of shrinking economic growth.
But amazingly, so far, the UK has dodged a recession — defying the naysayers at the Bank, the IMF and most economists.
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There are still more companies struggling to find workers than laying them off, we have remained relatively resilient by making savvy switches to cheaper food brands and the Government stepped in with energy bill support.
Falling gas prices have since softened the edges of the energy crisis and fears about the UK economy sliding back have almost faded entirely.
Closely watched forecasters EY Item Club yesterday joined the growing number of voices that now expect the UK’s economy to grow by 0.2 per cent this year, rather than shrinking.
And another influential survey by Deloitte yesterday pronounced the sharpest rise in optimism from company finance chiefs since the start of the vaccine rollout in 2020.
Sign of stability
At the most basic level, it’s a good thing to not be in a recession.
Being in recession makes businesses batten down the hatches which means cutbacks on jobs, hiring freezes and stalling investments in growth projects.
And the UK desperately needs economic growth, after all we might have dodged a dip but in February the economy’s growth was 0.0 per cent.
The relief we should feel is that the economic flatline isn’t a heart monitor.
We still need some CPR to get the economy growing again and to do that there needs to be the “two Cs” — confidence and certainty.
The chaos created by Liz Truss and Kwasi Kwarteng’s mini-budget destroyed both for a short time.
But Rishi Sunak has been in the job six months now, quadruple the length of Truss, and in this new world that has been embraced as a sign of stability.
Still, the wider picture remains fragile.
Only last month, the collapse of US lender Silicon Valley Bank and rescue of Credit Suisse sparked fears the financial system was going to come crashing down again.
However, every day that has passed since without a banking casualty has restored calm to the market.
This has allowed the pound to recover, back from the shock historic low of $1.03 during September’s mini-budget turmoil, to a ten-month high of $1.25 earlier this month.
The FTSE 100 is powering ahead, up 7.60 points to 7,879.51, after touching its record high of 8,000 points in February.
A stronger pound means cheaper foreign exchange for us on holidays, but we also import a lot of goods and having a weak currency means paying a higher price which gets passed on to shoppers.
The FTSE 100 index is largely symbolic of a country’s strength and can be dominated by just a few companies, such as BP, Shell, AstraZeneca and GlaxoSmithKline, which make most of their money outside the UK.
However, our pensions are also heavily invested in funds that track how well London’s top index is doing.
Markets are now also betting that inflation in the UK has peaked, with traders reckoning the Bank will soon stop hiking interest rates above the current 4.25 per cent as a weapon against rising prices.
Arguably, that indicator means the most for people struggling with bills because higher interest rates have piled on extra costs for mortgage holders and borrowers.
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Last year markets reckoned interest rates could soar to six per cent.
It is a sigh of sweet relief that it never got to that.