Dories

[River Don]

Much ado about nothing really, broadly there's concensus.

Personally I think the mistake was in not subsidising energy more heavily in the initial shock, as the French and Germans did. That would have held down inflation more and reduced the urgent demand for wage rises. The pain would have come later but it would have flattened it out a bit and made it a bit easier to deal with.

The takeaway for me is this whole episode has demonstrated we are far too reliant on gas in our energy mix. If like the Swiss we had more renewable energy then we would be less exposed to tyrants like Putin and those in the middle east.

[Branton Red]

Billy

I don't disagree with you on economic theory. It's more basic than that - I don't agree that the labour market is strong enough to drive your wage-price spiral. (Though it has caused higher inflation in the UK and will make reducing inflation stickier).

Predicting economic performance is notoriously difficult and I may be wrong but there is a fair bit of evidence/logic to back my opinion up.

1) It's the thinking of most economic forecasters e.g. BoE see pg 5 www.bankofengland.co.uk/-/media/boe/files/monetary-policy-report/2023/august/monetary-policy-report-august-2023.pdf

2) Inflation at 6.8% now and currently falling estimated to hit 5% by December - which seems right not least because the Oct 22 energy price increase will fall out off the figures. Inflation sub 5% is not healthy long term but not a major danger/too painful to reduce even if it's maintained by wage inflation

3) No sign pre-inflation of wages massively outstripping prices. The strong labour market is not a brand new phenomenon

4) Wage inflation rises have to date mirrored (not busted) price inflation rises albeit on a time lag as you'd expect.

5) That time lag plus the lag to pass a % of wage cost increases onto prices perfectly explain why both core and service inflation remain high whilst overall inflation falls as energy and food prices normalise. These indicators are not harbingers of doom and are a complete red herring re the risk of a wage-price spiral (though they do indicate as I've already stated that reducing inflation will be stickier than elsewhere in Europe).

The key indicator is what happens to wage inflation after price inflation has fallen - really in early and through 2024.

6) Around 20% of workers are in the public sector. So a lot of wage inflation is under Government control.

7) Both the Minimum Wage and the Living Wage went up c. 10% last year and are guaranteed to rise by significantly less in 2024.

8) There are already signs that the Labour market is weakening as unemployment has ticked up to 4.2%. I have more anecdotal evidence of this from work also.

9) The full impact of the considerable increase in interest rates to date on demand and then on the labour market still need to work through the system. (Given most people have fixed term mortgages interest rate movements take time to have a full effect).

10) Inflation continues to fall in our main trading partners - impacting companies' ability to afford further wage rises

11) Company profit margins have been hammered by increase energy costs, increased Corporate Tax etc - the willingness or ability to continually pay out massive pay rises just to keep hold of staff is restricted.

12) Wage demands and to a lesser degree wage setting by employers are benchmarked against the headline inflation figure which is coming down