The bloody miserable index

Afternoon all,

So, Radiohead fans: did you manage to get an unlock code for the upcoming tour and survive being shunted multiple times to the back of the ticket ordering queue to finally lay your hands on the elusive prize? Well, you and I are feeling much like our Chancellor right now – seemingly unlocking the growth of the British economy in the early part of the year, only to find yourself booted out of the race for jobs and investment a few months later. Let’s hope the Chancellor’s hunt down the back of the sofa for growth works out more successfully than the Curtice household’s hunt for tickets: the only ones left were on the eve of Budget day itself which would not bode well for the cutting-edge reaction and analysis that you have come to expect. Looks like an emergency pre-Budget asset sale is on the cards….

Read on for more on housing, hospitals and household bills.

Have a good weekend

Ruth
Chief Executive
Resolution Foundation

Bubble trouble Elon Musk briefly lost his title of world’s richest person this week (cue world’s smallest violin). Maybe he’ll take some comfort from this article, allying concerns that the skyrocketing valuations of top US tech companies are just a dot-com era-esque AI bubble. Using an equilibrium dividend discount model (try saying that quickly), the authors suggest that current equity valuations are in fact completely rational, given the underlying drivers of recent and expected performance. They note that AI technologies will be a major engine of growth and are already transforming markets and displacing jobs. But as ever with AI – it’s hard to be sure.

Good hospital, bad hospital Wes Streeting’s plan to take the best of the NHS to the rest of the NHS hit a milestone this week with the publishing of NHS England league tables.  This blog weighs up if these rankings are really that helpful. For example, would you be confident that a hospital’s oncology department could give a quick diagnosis because a friend’s broken ankle was seen quickly by the A&E team there? Probably not. And the data supports this – there is no consistent relationship between how well a hospital trust ranks on its four-hour A&E waiting times and how well it ranks on its 18-week elective waiting times, nor 28-day faster cancer diagnosis. So, single rankings hide variation in performance across departments – even DHSC’s own press release notes this. Instead, the blog suggests using the underlying data from trusts, or a ranking system comparing trusts to their individual performance improvement goals. This might be a fairer way to judge trusts in a system where the vast majority are failing.

Long slow march As we search in vain for a productivity boost, the good news is that this paper has finally found one! The bad news is that it’s over 300 years old… The authors dive into the ‘Great Divergence’ – where Western economies accelerated past the rest of the world around the 19^th century. By using archival records to reconstruct GDP per capita in the leading economic regions of Europe and China over almost a millennium(!), the authors pinpoint the key moment of this divergence as around 1700, much later than many have suggested. What enabled Europe to forge ahead at this point? The authors suggest that lessening the frequency and intensity of periods of negative growth in Europe was crucial. So, Britain’s recent record of having three once-in-a-lifetime economic shocks in the past 17 years doesn’t bode well…

Housing headaches. As a child of Newsnight in the 90s  it was fun to meet Kirsty Wark this week as she hosted the Housing Community Summit.  While the problems in the UK housing market are well known, the way out is much less clear. This paper, comprised of six short essays, seeks to unpack the origins, consequences and answers to the housing crisis. Between 1980 and 2010, domestic credit expanded by eight times more than GDP, driving the house-price spiral we see today, where the average home in England costs nearly eight times average earnings. The authors point to the financialisation of housing as a barrier to productivity growth, diverting investment from more productive activities into real estate. What to do? One author, John Muellbauer, believes Britain is ready for fairer property taxation. This could raise at least £14 billion and boost productivity by encouraging more mobility. A win win for the Treasury?

Something for the weekend | Unlucky 13?

Next week is a biggie for economic data and decision-making – with new ONS data on pay, jobs and prices plus an interest rate decision from the Bank. Britain is on track to hit ‘unlucky 13’ in the newly expanded ‘bloody miserable’ index (unemployment + inflation + interest rates). Here’s what to look out for.

On Tuesday we’ll get the labour market data for July from the ONS, and expect to see more jobs market loosening. Unemployment is currently hovering around 4.7 per cent. But if recent trends continue, it could hit 5 per cent for the first time since the pandemic.

On Wednesday we’ll find out whether inflation is still heading in the wrong direction toward the 4 per cent mark, with the UK increasingly looking like a sticky outlier compared to its G7 peers. Our particular worry is what’s driving inflation – food and household bills – as these take up an especially large share of poorer families’ budgets.  No wonder they’re more likely to be behind on a priority bills.

By Thursday, we may be up to 9 on the actual misery index (h/t Arthur Okun). The chance of some respite with an interest rate cut look slim. Expect the Bank of England hold steady at 4 per cent (hence ‘unlucky 13’) and look out for the less headline-grabbing decision on the pace of quantitative tightening (QT). As our latest Macro Outlook discusses, this is having a material impact on Britain’s borrowing costs, so we imagine the Chancellor will be watching closely too.

Chart of the week

Apologies to our non-London-based readers (feel free to smirk…) but we couldn’t finish TOTC without reference to the travel chaos in the capital this week – and the odd juxtaposition of rammed bus lanes, cycle lanes and pavements with empty offices. What this has shown, as highlighted in Chart of the Week, is just how different London’s commuting habits are to other big cities in Britain, let alone the rest of the country. First, tube strikes work because it is by far the biggest mode of transport in Central and Inner London (which extends as far out as Acton, Clapton, Streatham and Woolwich). Other city metros remain niche forms of transport. Second, cycling is only a London thing. Close to one-in-ten people in inner London bike to work, rising to around one-in-three if they work at Resolution, while just 1-in-30 Brummies peddle to work. Third, walking seems to be the only thing that’s roughly uniform across the country. What to make of this? Well, this week has served to underline the economic importance of public transport in London, something which really shouldn’t be confined to the capital if we want stronger growth throughout Britain. Oh, and if tidying up the tax system is on anyone in Westminster’s mind, tax breaks for bikes likely seem much more important to you than the rest of the country…