MAGGIE PAGANO: More rate hikes would put Britain in danger of recession

An important week lies ahead for the economy, one that is critical for homeowners with mortgages to pay and small businesses planning their future.

Today kicks off with the latest ONS labour market numbers, which are likely to show an unemployment rate of around 4 per cent in the second quarter.

What will be interesting to see is whether the number of those who are classified as ‘economically inactive’ because of long-term sickness has risen again or started to slow down.

Let’s hope it is the latter as the record 2.5m signed off sick – an increase of 400,000 since the Covid pandemic – is a worrying sign to a much deeper malaise in the workforce.

Earnings growth for the period will also be closely watched with most economists pointing to annual growth in total pay of more than 7 per cent. 

The Bank has not given the recent 14 hikes the time to work through the economy, as usually it takes at least a year – or even two – for the full impact of rises to reach the grassroots

Although this would be around record highs, there are signs that wage rises are stabilising.

But the big number comes tomorrow with July’s inflation figures. These are likely to show UK inflation below 7 per cent for the first time since Russia invaded Ukraine in February 2022.

Economists are divided about how big the drop will be. But most importantly, it is on the downward move from June’s 7.9 per cent.

Some predict a sharp drop to 6.5 per cent. Lower production and energy prices are the reasons for inflation cooling. Ofgem dropped its price cap, helping reduce pressure on household energy bills.

What does this tell us about the Bank of England’s next manoeuvrings on rates when the Monetary Policy Committee announces its decision on September 21?

If inflation is down to 7 per cent, and certainly under that level, then this is good news. So too would be signs that wages growth is slowing. That would mean the Old Lady would not need to be in such a hurry to push up rates again.

As we have been arguing for months, the Bank has not given the recent 14 hikes the time to work through the economy, as usually it takes at least a year – or even two – for the full impact of rises to reach the grassroots. 

As we saw from the recent growth figures, the medicine is starting to hurt. Homeowners with mortgages and small businesses with chunky debt levels – and high variable interest rates to pay – are pulling in their horns.

And there is more pain to come, although it will take a few months to show up.

Those who are coming off fixed-rate deals at the end of the year will only feel the full punishment of higher rates – which will cost them hundreds if not thousands of pounds – next year. 

If the inflationary outlook looks brighter, the Bank has a great reason not to put rates up again.

MPC members can justifiably pause them, say they want to wait and see what happens next. If, on the other hand, prices look sticky because of external factors such as the war in Ukraine pushing up energy prices again, the Bank will inevitably press the gas pedal. 

That would be foolish too as there is nothing it can do about rising energy or food costs – rice is bubbling again – because they are geo-political factors beyond its control. 

Putting up rates again would be dangerous, as it risks tipping the country into recession at such a fragile time.

EV charging

There are 35.1m cars on the UK’s roads. At the end of last year, 1.6m new cars were registered, around 13 per cent of which were battery-powered electric vehicles (BEVs). 

And BEVs are increasing, albeit slowly despite the threat of the 2030 ban. So far this year, electric vehicles make up about 16 per cent of all new sales. 

At this rate, next year there will be another 440,000 or so BEV cars on the road – about 22.6 per cent of all new cars.

But here’s the thing. There aren’t enough charging points if the ban on new petrol or diesel cars is to go ahead in 2030. 

The Government’s own figures say that a minimum of 300,000 will be needed for electrification. At present, there are 44,000. 

A Vauxhall survey reveals that three quarters of local councils have zero plans for installing residential on-street charging stations. Yet 40 per cent of households do not have a driveway – rising to 60 per cent in urban areas.

Only 14,000 new charging points are planned for this year. If you are lucky to have a driveway, residential ones cost £1,000 a go. 

Something doesn’t quite add up, does it? If the 2030 deadline is not delayed, time to get the pony and trap back on the road.

This post first appeared on Dailymail.co.uk