Full STEEM ahead

Afternoon all,

Big week for hay fever, strawberry yields and local elections. In celebration of the latter (I hope you’re ready for a five-party system) Chart of the Week has gone regional, considering how to tackle homelessness AND boost growth simultaneously.

In other news, it’s been STEM week in my kids’ school (well actually STEAM, because they add art too). So it’s an excellent time to consider who’s studying economics . Great to see it gaining popularity, now ranked the 8th most popular A-Level, up from 14th in 2012. But sadly, a gender disparity persists with seven male economics students for every three female students at every level of education. Perhaps primary schools should try STEEM week.

Keep reading to learn about rent controls and regional industrial strategies, and the Bank’s interest rate decision next week.

Have a great weekend,

Ruth

Chief Executive
Resolution Foundation

Take back rent controls. Capping costs for renters sounds great, but running an economy by decree has undesirable consequences – just look across the pond. This nifty blog argues rent controls hurt renters more than they help. While immediately limiting costs for some lucky tenants, these measures damage the experience of most renters in three ways. First, artificially low prices reduce housing supply as landlords limit their investments. Second, allocation becomes random rather than according to need or means – people with good luck (or connections) get cheap rent. Third, while *official* rent is capped, fierce competition encourages ‘rent-seeking’: “waiting in queues overnight, hunting for scarce listings, or even offering under-the-table side payments”. These costs deplete the savings made from rent controls – just look what happened in San Fran.

Sentiment, meet spending. American despondency about their economy is baffling to Brits, given how far they’ve pulled away from the rest of the G7 recently. So, this analysis from the Fed on the discrepancy between a healthy economy and consumer sentiment on par with 2008 is worth a look. The authors compared survey data from nearly 10,000 Americans to *actual changes* in households spending between 2019 and 2024. They identified three key trends: people overestimated inflation; even people with rising incomes felt worse about the economy; and people with lower incomes kept spending at similar levels. Despite only one-in-four (26 per cent) experiencing a fall in income, nearly half (43 per cent) said they were worse off. Even among households with a *30 per cent or more* increase in income, nearly one-in-four (23 per cent) thought they were doing worse. There’s no pleasing some people.

Steadying the ship. Economic stability is deeply unfashionable (again, sigh). But it is good for growth, and luckily Oliver Blanchard has published a new paper on the role of fiscal policy in stabilising the economic cycle. That may be seen as a job for monetary policy, but Blanchard argues more can be done on the fiscal side. This comes with risks – primarily excessive debt financing. Blanchard proposes a debt neutral quasi-automatic tool: VAT rates that vary in response to a trigger based on output or unemployment. This isn’t a whacky new approach, VAT was temporarily cut in the UK during the Global Financial Crisis. In the paper’s simulations output fluctuations decline from -0.51 per cent to -0.24 per cent, and debt neutrality is achieved. But in simulations, the VAT rate automatically increases again as the cycle recovers – I can’t help thinking the politics of that might play out differently. In any case, the primary reasons Blanchard gives for favouring fiscal over monetary – zero lower bound and currency unions – feel far off for the UK right now….

Regional realities. It was great having Andy Burnham to speak at RF last week, on the day he published his working paper outlining economic opportunities in the North of England (specifically the corridor from Liverpool and Manchester to Leeds and Sheffield). The analysis estimates that stronger growth here could add £90bn in cumulative GVA by 2040, doubling the region’s economy in less than 30 years. How do we get there? The paper argues that Government backing could unlock private investment in sectoral growth projects, while investment in housing and transport would ensure the benefits of economic growth are shared. Perhaps a place-based approach at the Spending Review would deliver higher growth…?

Something for the weekend? | Bank on it

There were plenty of “first 100 days” takes this week – but the hottest of takes on the impact of Trump will be landing next Thursday when the Bank of England publish its Monetary Policy Report (MPR) and announce the MPC’s interest rate decision. Let’s see if President Trump delivers on reducing mortgage costs for Brits.

The last time the Committee met was before the ‘Liberation Day’ tariffs. The consensus in markets continues to be (as it was pre-tariff) that next week the Bank will cut by 0.25 percentage points. But tariffs are likely to lead to weaker growth and lower inflation here, at least in the short term, leading prominent figures to call for a 0.5 percentage point cut (there’s roughly a one-in-four chance of that, according to markets).

We haven’t had many hints from MPC members themselves about their takes on tariff impact, particularly on inflation. Back in February Megan Greene pointed to the risks of constrained supply and inflation persistence, alongside downside risks to growth. Last time the Bank met there was an 8-1 consensus for a hold. Catherine Mann is a (previously hawkish) swing voter to watch, having surprised the market in February by voting for a double cut.

Don’t ignore the forecast in the MPR either – our first in-depth glimpse at the Bank’s assessment of Trump’s (intermittent) tariffs. Expect the word ‘uncertainty’ to be used A LOT. The IMF shaved 0.5 percentage points off its growth forecast for the UK this year, down to 1.1 per cent, close to the OBR’s recent forecast of 1.0 per cent. In the Bank’s most recent MPR in February (before most of the tariff tit for tat kicked off) it halved the UK’s growth forecast from 1.5 per cent to 0.7 per cent – let’s see how gloomy they go.

Chart of the week

COTW comes c/o major new RF research on how the Chancellor should spend £100 billion – specifically the £100+ billion additional public investment over this Parliament, to be set out at the Spending Review. That is obviously a LOT of money – but with at least half of it going towards maintaining existing departmental budgets, it doesn’t go as far as you’d think. If the Government wants to avoid cuts to existing budgets they’re only left with £20–£50 billion of discretionary capital spending to play with. Given these constraints, COTW highlights one way to get more bang for your buck. If you target social and affordable housing in places with high housing needs (e.g. high levels of temporary accommodation), you’re also boosting housing supply in high productivity areas. This kind of public investment can tackle two problems for the price of one – Britain’s housing crisis and its productivity crisis. And tackling both is especially good for living standards. Bring it on.