There wasn’t much dramatic tension as markets waited for the Bank of England’s latest decision on interest rates. The fifth monthly quarter-point hike in a row was largely expected, taking the base rate to 1.25% in June 2022. All the announcement really revealed, in fact, was what a mess UK economic policy is in.
Neither the Bank of England, nor the government, is now helping to deal with Britain’s economic problems. A more rational approach to monetary and fiscal policy is needed.
The Bank’s aim is to curb inflation. But the interest rate rise is unlikely to affect inflation at all. There may be a small impact on import prices, if higher rates prevent a further deterioration in the value of the pound. But raising the rate at which citizens and businesses in the UK can borrow money will not ease the global rise in oil, gas and food prices that is the main source of inflation now.
The Bank of England’s members know this, of course. Their justification for raising rates is that they want to keep inflationary expectations under control, to prevent an uncontrollable “wage-price spiral”. This can happen when expectations of future inflation lead workers to bargain for higher earnings to compensate, which only adds to inflation. The Bank of England’s fear is a return to the 1970s. Such a wage-price spiral pushed inflation to 22.6% in 1975.
But the problem with this argument is that inflation has been more than 4% since October 2021 and real earnings are not rising. Strip out bonuses being paid in a small number of sectors, and wages rose only 4.2% between February and April 2022, which in real terms (once inflation is included) is a fall of 2.2%. And the trend is downwards, not upwards.
In the 1970s, more than half the workforce were members of trade unions, giving them the muscle to bargain for higher wages. Average earnings in 1975 hit almost 30%. Today, fewer than a quarter of employees are union members, and most of these are in the public sector, where wages are currently rising by just 1.5% on average.
So there is little chance of a 1970s-style inflationary wage-price spiral. But these cuts in real wages are already starting to cause a contraction of the UK economy. Consumers have no choice but to spend more on the necessities of energy and food, much of which leaves the UK economy. So they are cutting back on discretionary spending on items such as entertainment and home goods, where more money tends to stay within the UK.
The result is that the UK economy actually shrank in April. The OECD forecasts that the UK economy will not grow at all in 2023, and the Bank of England believes the UK will fall into recession this year. The prospect now is of stagflation, when high inflation occurs at the same time as weak or weak or non-existent growth.
And in this situation, the Bank of England’s rate rise will actually make things worse. As interest rates rise, consumers and businesses will find it more costly to borrow to invest and save, and aggregate demand will fall further.
The government isn’t helping either. The emergency package of support to consumers announced by Chancellor Rishi Sunak in May represents a significant stimulus. But the government’s overall fiscal stance is still contractionary, with significant tax rises acting to withdraw demand from the economy. Sunak is still more intent on limiting public borrowing, in accordance with his self-imposed fiscal rules, than he is on keeping either taxes down or spending up.
So, on the one hand we have the Bank of England raising rates in a way that will not affect inflation, but will curb consumer spending. On the other, the government is simultaneously withdrawing demand from the economy via tax rises. And all while the UK economy is contracting.
It is hard not to see this as anything but an economic policy mess. What the UK needs is much stronger coordination between fiscal and monetary policy. If interest rates are to rise, this should only occur while the government stimulates the economy to ensure output and incomes are sustained.
And underneath all this are much deeper weaknesses in the UK economy, which date from well before COVID-19. The UK has close to the lowest rate of investment, and among the lowest productivity and weakest wage growth of any leading economy. Over the last year, business investment has been falling, deeply affected by Brexit and the overall weak outlook for growth. Productivity fell by 0.7% in the last six months. And the Office for Budget Responsibility forecasts that real wages will still be lower in 2026 than they were in 2008.
The government likes to boast about the UK’s very low unemployment rate, now just 3.8%. The labour market is currently as tight as it has ever been, with more vacancies than there are people officially unemployed. But this disguises the fact that employment has also fallen: half a million people have left the labour market since before the pandemic. Some of these have been EU citizens leaving the country; others have taken early retirement, declared themselves sick, or are unwilling to work on the wages they are being offered.
To return to growth, the UK needs to attract more people into the labour market. This requires higher wages, not lower. It also demands an improvement in labour conditions, particularly in the insecure gig economy of zero hours contracts and precarious self-employment. Making work more attractive would require firms to invest in better equipment and skills training, in turn raising productivity.
In a rational economic policy world, the government would now be brokering sectoral productivity deals with businesses and unions, promising government support in return for higher investment and higher earnings. This could indeed be at the heart of the government’s “levelling up” strategy. But unfortunately, we are not in such a world.
Michael Jacobs is a member of the Labour Party and a former adviser to Prime Minister Gordon Brownrecession unemployment pandemic covid-19 stimulus monetary policy pound recession interest rates consumer spending unemployment oil uk eu
Energy Stocks Are Down, But Remain Top Sector Performer
High-flying energy shares have hit turbulence in recent weeks but remain, by far, the leading performer for US equity sectors so far in 2022, as of yesterday’s…
High-flying energy shares have hit turbulence in recent weeks but remain, by far, the leading performer for US equity sectors so far in 2022, as of yesterday’s close (June 27), based on a set of ETFs. But with global growth slowing, and recession risk rising, analysts are debating if it’s time to cut and run.
The broad-based correction in stocks has weighed on energy shares lately. Energy Sector SPDR (XLE) has fallen sharply after reaching a record high on June 8. Despite the slide, XLE remains the best-performing sector by a wide margin year to date via a near-36% gain in 2022.
By contrast, the overall US stock market is still in the red via SPDR S&P 500 (SPY), which is down nearly 18% year to date. The worst-performing US sector: Consumer Discretionary Sector SPDR (XLY), which is in the hole by almost 29% this year.
The case for, and against, seeing energy’s recent weakness as a buying opportunity can be filtered through two competing narratives. The bullish view is that the Ukraine war continues to disrupt energy exports from Russia, a major source of oil and gas. As a result, pinched supply will continue to exert upward pressure on prices in a world that struggles to quickly find replacements for lost energy sources. The question is whether growing headwinds from inflation, rising interest rates and other factors will take a toll on global economic growth to the point the energy demand tumbles, driving prices down.
The market seems to be entertaining both possibilities at the moment and is still processing the odds that one or the other scenario prevails, or not. Meanwhile, energy bulls predict that the pullback in oil and gas prices is only a temporary run of weakness in an ongoing bull market for energy.
Goldman Sachs, in particular, remains bullish on energy and advises that the potential for more prices gains in crude oil and other products “is tremendously high right now,” according to Jeffrey Currie, the bank’s global head of commodities research. “The bottom line is the situation across the energy space is incredibly bullish right now. The pullback in prices we would view as a buying opportunity,” he says. “At the core of our bullish view of energy is the underinvestment thesis. And that applies more today than it did two weeks, three weeks ago, because we’ve just seen exodus of money from the space… investment continues to run from the space at a time it should be coming to the space.”
Meanwhile, a bit of historical perspective on momentum for all the sector ETFs listed above reminds that the trend direction remains bearish overall. But contrarians take note: the downside bias is close to the lowest levels since the pandemic first took a hefty bite out of market action back in March 2020 (see chart below). This may or may not be a long-term buying opportunity, but the odds for a bounce, however, temporary, look relatively strong at the moment.
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Five things you can do to help you have a more positive birth experience
Becoming a parent can be nerve-wracking – but there are many things you can do to feel more in control.
Whether you’re a first time parent or have had children before, you’re probably willing to try anything to ensure you have the most positive birth experience you can. After all, the kind of birth experience you have can not only affect your own mental health, but can have an affect on parent-child bonding, as well as partner-to-partner relationships for years after giving birth.
It can be confusing to know what to expect or where to turn to for advice, especially as maternity services have changed due to falling staff numbers and the continued impact of COVID-19. But here are a few things you can do yourself as you navigate your maternity care, which may help you have a more positive birth experience:
1. Get educated
Studies have shown that signing up for antenatal classes can help reduce fear, depression and anxiety – both during pregnancy and after birth.
Typically, antenatal classes will help you understand what’s happening to your body during pregnancy and explain the birth process. They may also teach you coping strategies to help relax during labour, alongside guidance on caring for your new baby. Antenatal classes can also be a great way of meeting other parents going through the same thing as you.
Another option is creating a personalised care and support plan, which is offered by most NHS trusts in the UK. This is a tool you can use with your care providers to explore what’s important to you – and discuss what your range of options are, such as your preferred place of birth, or whether you prefer skin-to-skin contact with your baby immediately after birth.
Understanding what your body’s going through, and making a personalised plan for your birth, may help you feel more prepared and less anxious about what to expect.
2. Know your carers
Being cared for by one nominated midwife, or being assigned to a team of familiar midwives, is shown to be associated with better outcomes for you and your baby – including decreased chance of having a premature labour and lower likelihood of needing interventions (such as birth with the help of forceps). You’re also more likely to be satisfied with your overall experience.
When an allocated midwife is not an option this makes choosing the right birth partners crucial. They can not only offer you reassurance, encouragement and support but can be your advocate, help you try different positions in labour and help provide you with snacks and drinks. Most typically these would be trusted loved ones. But be aware that research shows birth partners may also feel anxious or overwhelmed at taking on this role, and may struggle with seeing a loved one in pain – so it’s important to be realistic about your expectations, and choose the right person. It may be the best birth partner for you is a close friend or relative.
3. Challenge care recommendations if you aren’t happy
There are likely to be many other options available to you – such as where you might give birth, or how you want to be cared for during labour.
During antenatal appointments be sure to pause, think and ask about benefits, risks and alternatives to the care being proposed. Research shows how important choice and personalised care are for expectant parents who want their voices and preferences to be acknowledged, and to receive consistent advice.
If you have concerns over a suggestion your care providers have made or have questions, don’t be afraid to ask. Take your birth partner with you if you prefer, who can empower you to ensure your voice is heard. After all, care providers are duty bound to ensure you make fully informed choices.
4. Don’t always listen to your friends and family
Once people hear you have a baby on the way it seems everyone feels the need, without asking, to tell you the full (and often graphic) details of their own children’s birth.
But it’s perfectly acceptable to politely change the subject if you don’t want to listen, or if hearing these stories makes you nervous or worry. It’s also worth remembering that each person has a different labour and birth, even with their own children – so what was true for someone else is likely not to be the same for you. While it can be helpful for some people to debrief after the birth, it’s okay to avoid hearing this yourself if it makes your nervous, and maybe suggest they speak with a professional about their experience instead of telling you.
5. Visit your preferred place of birth
Many maternity units are now opening up their doors again to tours and informal visits – and those that aren’t are doing this virtually.
Becoming familiar with where you might give birth – even down to where you might park on the day – can help you feel more confident about giving birth. It may also remove some of the unknown, helping you regain a sense of control – which in itself is linked to a more positive birth experience.
For those planning a homebirth, speak to your midwife about how you can improve your space to facilitate the most safe and positive experience. For one of the most important days of your life, visualising where this will take place ahead of time can help you feel more confident and in control.
Ultimately, it’s important to remember that no one can predict exactly how your labour and birth journey will go. Even after heeding the above steps – there’s always a chance you may need to consider a plan B, C or even D. But no matter what, remember you’ve done your very best, and you’re not likely to repeat this exact experience the next time.
Claire Parker does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.depression covid-19 uk
Is it safe to buy WTI crude oil after bouncing from horizontal support?
A lot has happened in the energy markets in 2022, especially in the oil markets. WTI crude oil price surged to $130 in the second quarter of the year,…
A lot has happened in the energy markets in 2022, especially in the oil markets. WTI crude oil price surged to $130 in the second quarter of the year, after only in 2020 it had traded in negative territory.
Futures contracts settle daily, and back in 2020, during the COVID-19 pandemic, when demand for oil declined sharply, clearinghouses let the futures contracts settle below zero for the first time ever.
Since then, however, the market has bounced dramatically. Few traders have bet on energy prices, especially because in the last years, the rise of the ESG meant many investments fleeing the energy field.
But supply chain issues, monetary and fiscal stimulus during the pandemic, and the Russian invasion of Ukraine are major drivers in the energy space. After reaching $130/barrel, the WTI crude oil price has corrected but found strong support at the $100/barrel area.
The recent bounce in the last few days came from Macron’s comments during the G7 meeting. He said that the United Arab Emirates does not have spare capacity to produce more oil, something confirmed yesterday by the UAE authorities.
UAE is producing at maximum capacity based on its OPEC+ agreements. Therefore, the price of oil should remain bid on every dip.
A triangular pattern forms on the daily chart
The technical picture looks bullish while the price remains above horizontal support seen at the $100/barrel. Moreover, a confluence area given by both horizontal and dynamic support made it difficult for the market to extend its decline.
As such, a triangular pattern suggests more upside in the price of oil. A triangle may act as both a continuation and a reversal pattern, and traders focus on a breakout above or below the upper or the lower trendline.
Furthermore, every attempt to the downside since last March was met with more buying. Therefore, it is hard to argue with the bullish case, especially since the series or higher lows remains intact.
All in all, the WTI crude oil price remains bullish, and the triangular pattern may break either way. However, as long as the $100 level holds, the bias is to the upside.
The post Is it safe to buy WTI crude oil after bouncing from horizontal support? appeared first on Invezz.stimulus pandemic covid-19 stimulus oil ukraine
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