Blog: November 2016
The long tussle between rules and discretion in policy-making moved decisively towards rules in the 1980s. A generation of monetary economists have subsequently concerned themselves with the development of a commitment technology for central banks. By which it is meant mechanisms that would lead households and firms to believe that a given objective will tend to be hit.
The OBR yesterday revealed its forecast of the impact of Brexit on UK growth and the public finances. I won’t add to the word count. But one interesting point the extent to which the OBR was happy to highlight the negative impact of the reduction in migration it expects to result from Brexit.
The change of Chancellors has brought change in direction for fiscal policy. Ex-Chancellor Osborne argued that given the level of debt, austerity and a fiscal straight-jacket were necessary to maintain economic and financial confidence. Chancellor Hammond faces even higher debt levels and more uncertainty, but chose to reduce austerity and opt for a non-binding fiscal rule.
The Chancellor of the Exchequer, Philip Hammond, will present his Autumn Statement to Parliament on Wednesday. In the heated debate over austerity, this piece offers three facts about debt and deficits which, I hope, will help shed light on the issues he will face.
This has been a year of miracles. But unlike Larkin's year of 1963 in which the baby boomers broke free jointly into prosperity and security, we may look back on this year as the end of the long process of liberalisation and globalisation that had been set in train by the postwar consensus.
Don’t let the headlines fool you: consumer price inflation is on the rise. Data from the ONS released today shows that in the year to October the consumer price index rose by 0.9 per cent. Quoting the ONS, “Although the rate was slightly lower than in September 2016, it remained higher than the rates otherwise seen since late 2014”. It’s also worth remembering that the ONS figure describe the past, not the future. The impact of the gradual appreciation of sterling that took place between 2013 and 2015 as well as the fall in oil prices witnessed in the first half of 2015 had been weighing down on inflation. As these temporary factors drop out of the calculation, inflation should rebound.
Since Donald Trump’s victory last week, the odds of Marine Le Pen (National Front) winning the French Presidential election in May have shortened to 2:1. That is a 33% chance compared to a 56% chance for the frontrunner and establishment candidate Alain Juppe.
Le Pen is committed to holding a French referendum on EU membership (‘Frexit’) which would have huge and unpredictable consequences for the EU. It is difficult to see how the other 27 EU nations would have the time, inclination or incentive to accommodate the UK while faced with a threat to its very own existence.
Separating monetary from fiscal policy is no simple matter. Both are primarily designed to help smooth economic fluctuations. Budget deficits limit the depths of recessions as do low interest rates.
What sort of Brexit might the Government be able to negotiate? The term hard Brexit is used ubiquitously but defined infrequently. It is generally defined in terms of the relationship the UK will have with the EU’s single market.
Will the election of Donald Trump plunge us into a global recession? Some economists, from analysts at Citgroup to Paul Krugman, think so. But so far markets disagree – after panicking overnight, the immediate impact seems to be surprisingly small.
Immigration and free movement were central to the referendum result – and to what happens next. My paper in November’s National Institute Economic Review examines the short and long-term impacts of the UK referendum on migration flows and migration policy.
In the article I recently co-authored for the NIESR November Review I explored the reasons why negotiating the UK’s future trade arrangements is a massive job. There are the main points I raised.
I start this new series of end-of-the-week blogposts with a small confession. Many years ago I was at the Bank of England working in monetary analysis the day that operational independence was granted by the incoming Labour administration.
More than four months after the referendum result to leave the European Union, there are still big question marks around what the UK’s future outside the European Union will look like.
In the aftermath of June 2016 EU Referendum result the majority of attention has focused on what might be future economic relationship between the UK and the EU and the prospects for the UK’s trade relationships with third countries once outside the EU. None of the proposed models for the future trade policy relationship between the UK and the EU (for example, membership of the European Economic Area or a Free Trade agreement) come with a defined foreign and security policy relationship.