And from the midst of cheerless gloom I passed to bright unclouded day
Higher for longer. That’s what’s happening to interest rates in the UK which, thanks to the actions of the Bank of England last Thursday, are now higher than they have been at any point in the past 15 years.
The aim is to fight inflation, to bring down the level at which prices are rising, and encourage growth back into the UK economy. When you look at the fact that inflation is currently standing at 7.9% against the government’s target of 2%, it’s hard to argue with the reasons why. It makes sense that when an economy is over-heating, when supply and demand ratios are all out-of-whack so that prices are escalating so fast that people are struggling to afford basics, the thing to do is dampen that enthusiasm for spending by making it more expensive to borrow the money to fuel that spending.
Except it really doesn’t feel like the economy is over-heating. At all. It’s pretty grim out there. The initial boost to inflation of course was our old foe the Covid pandemic and lockdowns, when some parts of the population, stuck at home, realised they had more money that they knew what to do with, so they spent it on home improvements and landscaping, and anything really that could be ordered online and delivered in a Covid-safe manner. This led to increased demand in a time when supply was pretty difficult to manage, because of Covid, which led into higher prices.
The Russian invasion of Ukraine piled yet more pressure on, pushing up fuel prices and food prices.
Wage inflation in some – but by no means all – sectors, has also contributed to increasing prices and inflation, which the Bank of England wants to bring down. So far so Economics 101.
However, according to the latest S&P Global/CIPS UK Construction Purchasing Managers’ Index, there is some light at the end of the tunnel. That light being that the latest survey showed a big rise in overall construction output for July. The magic mark in the Index is 50 – below this things are getting worse, and above this they are getting better. June stood at 48.9, by July this was up to 51.7. Hurrah. Boosting this rise was some decent increases in commercial building and civil engineering projects. However, there was still a worrying fall in housebuilding, which could mean that the light is in fact that of another train.
There is still spending going on out there, housing transactions, which fuel so much activity in this sector are still happening, though the new build development market is slow. This affects the larger merchants, and the heavyside manufacturers, rather more than it does the smaller ones. That said, the whole point of a supply chain is that all the elements of it are linked – chained if you like – and that, eventually, what affects one link will affect the others.
I don’t really know anyone who is exactly up-beat about prospects, it’s more a case of “head down, get on with it, and see what happened when we carry on doing what we do best”. I don’t want o talk things down, there’s enough of that in the wider media, but the short-term economic forecast is starting to resemble the view from my window – grey, dull, a bit chilly, and not that inspiring.
On the other hand – Go Lionesses!!