Minister tries to keep growth spirit alive amid bleak outlook
A government minister has moved to keep people’s optimism about the UK economy and spending afloat amid fears that interest rate hikes and a difficult Budget could dampen spirits.
Several analysts, such as those at the research company GfK, have recorded a boost in consumer confidence in the months since Andy Burnham became PM. The UK economy recorded growth of by around one per cent in the first half of the year, defying expectations.
But analysts at AJ Bell have warned that a deterioration in sentiment levels is on the horizon given a less positive outlook on growth for the rest of the year, with energy costs set to spike and mortgages potentially hit by higher interest rates.
Pat McFadden, the work and pensions secretary, attempted to lift spirits as he said the Budget would boost confidence among households and businesses.
He told the Financial Times: “I’ve known John [Healey] for decades. I know he’ll approach this in a really responsible way.
“He will want to say to the country, the business community and the financial world that this is a stable government and Britain is a good place to invest in business and to start and grow a business.”
Consumer confidence jumped to a two-year high in September, it was revealed by GfK on Friday, but analysts fear surging inflation could threaten further gains.
AJ Bell’s Dan Coatsworth said the improvement in survey data could boost Burnham ahead of the Budget.
“The largest gains in September came from improvements to how the public viewed the economy and their personal finances,” Coatsworth said.
“There is a major risk that this positivity disappears in a puff of smoke if the Budget brings tax changes, and if oil prices remain stubbornly high which leads to a higher cost of borrowing, the price of goods and services going up, and everyone feeling the pinch.”
Growth spirits hit by forecast downgrades
One major sign of market pessimism was highlighted by an alteration in economic forecasts by the Wall Street bank Morgan Stanley.
Researchers at the bank edged up interest rate predictions, saying two successive 25 basis point hikes would come in November and February.
The investment bank told clients to expect these hikes to be accompanied by a slowdown in growth at the start of next year.
Bankers Bruna Skarica and Fabio Bassanin said: “While we still think – and with a decent degree of conviction – that any signs of an improvement in the supply in oil and refined products would leave the Bank of England on hold from here, it is challenging to maintain a prolonged hold as a modal call amid the recent Middle East newsflow.”
Professor David Miles, who is one of three top members at the Office for Budget Responsibility, said on Thursday that the public was partly to blame for problems around the size of UK public debt.
He said “one of the great fiscal problems” and an “explanation” for the rise in debt was that the “public have not lowered their expectations about what the state can do for them and the level of public services in line with the reduced resources which come about as a result of productivity having been so bad”.