If it’s hurting, it’s working, but it still sucks

At around 10:45 AM today, I approached Jonathan Prynn, the business editor at the Standard, and inquired about his thoughts on the most recent PMI figures. Sadly, his response was not suitable for publication. Admittedly, I chose an inconvenient moment to disturb him, considering we were only fifteen minutes away from the deadline. However, Jonathan's perspective on the UK economy is not unique.

The numbers reveal the story of a private industry that is experiencing its most rapid decline in two and a half years, mirroring the time when the country faced the second significant Covid-19 lockdown. Surprisingly, the flash PMI reading for August dropped to 47.9 (remember that a score above 50 signifies growth, while a score below 50 represents contraction). As a result, the markets are now anticipating that interest rates will reach their highest point at less than 6 percent.

In certain aspects, this symbolizes a triumph for the Bank of England. Its objective is to uphold stable prices and achieve a 2 percent inflation goal, which astute readers would acknowledge it has not entirely accomplished in the recent past.

And it will accomplish this even if it leads to a potential economic downturn. In fact, causing a decrease in growth may be the intention. Earlier this year, the group responsible for determining interest rates, known as the Monetary Policy Committee, stated that their priority is maintaining price stability, as specified by their mandate, even during times of inflation. In simpler terms, controlling inflation is deemed more significant than promoting economic expansion.

This is actually a good thing. The purpose of the 14 consecutive increases in interest rates is finally being realized. The demand has decreased, inflation is going down, and the costs of production are increasing at a slower rate compared to the past two years. If you are searching for more indications of a possible economic decline, take into consideration the disappointing retail sales and sluggish employment growth in July. There are even indications that wage agreements are becoming less favorable.

However, the impact on the overall economy has been severe. Chris Williamson, the main economist for business at S&P Global Markit Intelligence, is straightforward in his assessment: "Except for the months of lockdown due to the pandemic, this represents one of the most significant declines since the global financial crisis. The surveys indicate that GDP is expected to decrease by 0.2% in the second quarter, and further declines are anticipated."

And so it happened. Despite all the talk about tracker mortgages getting less popular and more people becoming outright homeowners, it turns out that the government's money policy still has an effect. It takes time, though. But it always comes with a price. When interest rates rise, it brings new issues, particularly the possibility of a recession that could result in people losing their jobs and even the inflation rate falling below the desired target of 2%.

In Governor Andrew Bailey's perspective, that issue can be addressed tomorrow. However, for you and me, it might seem more pressing.

On the pages where comments are made, Martin Bentham cautions that the clock is ticking for Scotland Yard to demonstrate its ability to transform. Sarah Baxter portrays ‘tech bro’ Vivek Ramaswamy as the newest eccentric to shake up conventional US Republicans. Rachel Johnson asserts that London, with its tendency to coddle us like infants, has earned the moniker of 'nannying city.' Meanwhile, David Ellis concludes the discussion by proposing that we immediately convert Soho into a pedestrian-only zone.

Lastly, it has been verified that Asian hornets have been sighted in London for the very first occasion. As for myself, I wholeheartedly embrace the arrival of these dominant insects and so forth...

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