Aurelia Butler

Liz Truss’s supporters have stepped up their attack on the Bank of England’s handling of inflation, as the foreign secretary blamed the BoE and the Treasury for failing to avert the economic crisis facing Britain.Truss says she will change the mandate of the BoE to toughen its focus on inflation, while she claims that the Treasury — until recently run by her rival Rishi Sunak — made matters worse by raising taxes.If Truss becomes prime minister on September 5 — polls suggest she is the clear frontrunner in the Tory leadership contest — she will inherit one of the bleakest economic situations of any incoming British leader.BoE governor Andrew Bailey set the backdrop for the run-up to the next general election, due by 2024, forecasting inflation of 13 per cent, a recession stretching into 2023, rising interest rates and higher jobless rates.While Bailey pinned the blame squarely on Vladimir Putin for his invasion of Ukraine, Truss and her backers are casting some of the blame closer to home with what they say is outdated thinking at the BoE and Treasury.Suella Braverman, a key Truss ally tipped as a future home secretary, told Sky News: “Interest rates should have been raised a long time ago and the Bank of England has been too slow in this regard.”Braverman said Truss would look at whether the BoE was “fit for purpose in terms of its entire exclusionary independence over interest rates”. Truss’s team later insisted the BoE’s independence was safe.Instead Truss’s campaign said the foreign secretary would be “more directive in setting its mandate”. Truss has said the BoE mandate, set down by Labour chancellor Gordon Brown in 1997, is ripe for review.It is not clear exactly what she has in mind. This week, at a Tory hustings in Cardiff, she said she wanted the BoE’s mandate to match “some of the most effective central banks in the world in controlling inflation”.She has previously mentioned the Bank of Japan, which has spent years battling the spectre of deflation. But she has not specified what precise changes to the UK monetary policy framework she would seek.Bailey noted on Thursday that Brown had set a statutory target of “price stability” but that the precise inflationary value was set by the government of the day.It has been reviewed in the past: in 2003 Brown changed the BoE target to 2 per cent on the consumer price index — it had previously been based on a 2.5 per cent target for the retail price index. Tory chancellor George Osborne in 2013 gave the central bank more discretion on how fast to return inflation to target.BoE deputy governor Dave Ramsden noted that from the moment the bank was given operational independence in 1997 until April 2022 the average CPI inflation rate was exactly 2 per cent: precisely on target.But Truss, who is running an insurgent-style campaign against “stale groupthink” in the establishment, is clearly looking for targets to blame should she become prime minister.By attacking the record of the BoE and Treasury, she is also anticipating likely attacks from the economic “establishment” over her plans to cut taxes in an immediate emergency Budget, if she becomes prime minister.This week at a hustings in Exeter, she declined to rule out breaking up the Treasury, saying: “I do think the Treasury needs to change. And it has been a block on progress.”

The BoE’s forecasts are based on existing government policy, so any tax cuts that served to support consumer spending could make the period of high inflation it is predicting even more prolonged — something policymakers will have had in mind when they voted for the biggest rise in interest rates for 27 years at this week’s meeting. Mel Stride, Tory chair of the Commons Treasury committee and a Sunak backer, said it would be “really quite dangerous” to cut taxes this autumn, warning it could make inflation even worse.Truss’s team countered: “Modest tax cuts aren’t inflationary — how can cancelling a corporation tax rise that hasn’t even gone ahead yet and reversing a national insurance rise that only came into effect in April be inflationary?” More

The number of people applying for unemployment aid in the US reached the highest level in more than six months last week, amid growing signs the historically tight labour market could be cooling.In the week to July 30, there were 260,000 initial jobless claims on a seasonally adjusted basis, according to labour department data released on Thursday. That was the largest weekly tally since mid-January and slightly above economists’ expectations of 259,000 claims. The claims serve as a proxy for lay-offs.The previous week’s claims were revised down from 256,000 to 254,000, while the four-week average, which smooths week-by-week volatility, rose to 254,750, its highest point since November.Economists at Oxford Economics said there was a risk that jobless claims would continue to “drift” higher as labour market conditions cool, but added this should not be a cause for alarm. “We don’t anticipate a sharp rise from current levels any time soon as demand for workers continues to outstrip supply,” said Oxford lead US economist Nancy Vanden Houten.Companies across sectors including technology, digital assets and retail have announced hiring slowdowns and dismissals in recent weeks amid rising inflation and higher input costs.Walmart announced on Wednesday it would cut approximately 200 corporate roles across various departments as part of a restructuring. It comes after the retailer issued its second profit warning in just over two months and has resorted to aggressive price cuts as high inflation hits consumer demand for goods.Brokerage Robinhood cited the “extremely challenging macro environment” when it said earlier this week it would lay off almost a quarter of its staff — roughly 780 employees — as the retail trading boom loses steam amid a decline in customer activity. That follows a 9 per cent cut of full-time staff in April.Streaming platform Netflix, social media company Twitter and electric carmaker Tesla have all also announced lay-offs in recent weeks, while tech groups Meta and Alphabet announced they would slow down their hiring for the rest of the year.Demand for US workers decreased in June with the number of job openings down to 10.7mn from 11.3mn in May, according to the Job Openings and Labor Turnover Survey released earlier this week by the labour department. Despite the decline, the number of workers who were laid off was little-changed at 1.3mn and the number of workers voluntarily quitting their jobs is still at above pre-coronavirus pandemic levels at 4.2mn in June even as the economy slows.

The increase in claims could be an early sign of cooling demand for labour, but it’s not yet a concrete signal, Joshua Shapiro, chief US economist at MFR, said in a note. While companies face cost cuts, they are “recognising how difficult it has been to attract and keep qualified workers”.The number of Americans actively receiving unemployment aid was 1.42mn in the week ending July 23. The previous week’s figure was revised up to 1.37mn from 1.36mn.Economists expect the unemployment rate to hold steady at 3.6 per cent when July’s employment report is released on Friday, according to a Bloomberg survey. More

The writer is a senior fellow at Yale University and author of the upcoming book, ‘Accidental Conflict: America, China, and the Clash of False Narratives’Geostrategic accidents rarely happen out of thin air: look no further than the first world war. Nancy Pelosi’s unfortunate stopover in Taiwan, which follows years of mounting Sino-US tensions, should be viewed in that vein. It remains to be seen whether this will become one of history’s tragic tipping points.That is certainly the risk. There has been an ominous escalation of conflict between the US and China since 2017 — a trade war, a tech war, and the early stages of a new cold war — that bodes ill. But this conflict would not have occurred without a confluence of false narratives that both nations have embraced with respect to the other. Among many examples, two stand out: America blames China for a massive trade deficit, even though it ran trade deficits with 106 nations in 2021 due to a self-inflicted shortfall of domestic saving. China’s fears of US containment are viewed as an existential threat to its aspirations of prosperity, deflecting focus away from an urgent consumer-led transformation of its economy. Two vulnerable nations are blaming the other for their own shortcomings. Amplified by censorship (China) and information distortion (America) and exacerbated by the viral spread of social networks, this blame game has become the high-octane fuel of conflict escalation.With Chinese test missiles now flying, the spark of Taiwan tensions could ignite this fuel quickly. The US denies antagonistic motives, arguing that innocent visits of legislators have long been the norm. This is patently absurd. As second in line to the US presidency and hardly an inconsequential member of Congress, Pelosi was explicit in offering support for a free and independent Taiwan. This is a direct affront to the “One China” principles of reunification stipulated in the 1972 Shanghai Communiqué. China, now faced with innumerable problems of its own making — an unworkable zero-Covid policy, property deleveraging, demographic pressures, as well as Xi Jinping’s bid for reappointment at the upcoming 20th Party Congress — sees any threat to Taiwan reunification as particularly intolerable at this moment.The parallels with Vladimir Putin’s “rationale” for going to war in Ukraine are especially worrisome. Just as Putin has justified unconscionable acts of aggression by his paranoia over Nato enlargement, Xi could well view US support for Taiwan as the tipping point in his own fears of western containment of China. Autocrats are most dangerous when cornered. Are we guilty of squeezing Xi just as many have argued we did Putin? Unfathomable carnage in Ukraine is a warning we should all heed before provoking a great power clash with China over Taiwan.There is a way out. It starts with the recognition that the current approach to managing the US-China relationship — arguably the most important bilateral relationship in the world — has been an abject failure. The best both nations could come up with in recent years was the so-called “Phase I” trade deal, which failed miserably to reduce the overall US trade deficit, and left an inflation-prone America incurring the increased costs of tariffs on its largest importer. The two presidents, Biden and Xi, talk on the phone every once in a while, but the conversations are scripted bluster that accomplish next to nothing. A seriously conflicted Sino-American relationship is in desperate need of an updated architecture of engagement. In my upcoming book I propose a new US-China secretariat as a permanent institution that addresses all aspects of the relationship — from economics and trade to cyber security and health, to climate change and human rights. Staffed equally by professionals from both countries and located in a neutral jurisdiction, this secretariat could nurture a constant exchange of views, encourage the joint development of policy white papers, and provide a mechanism for dispute resolution. There is no guarantee this approach would work, but it certainly beats past efforts. Henry Kissinger recently warned of America’s unfortunate penchant for seeking “endless confrontations” with China, hinting that behind bipartisan China-bashing is the mistaken belief that Beijing’s system will eventually implode or morph into a democracy. America’s failure to accept the permanence of China is at the core of its anxieties over a rising rival. Similarly, China’s fixation on rejuvenation — a legacy of its “century of humiliation” at the hands of foreigners — explains its fears of US containment. Two insecure superpowers are stumbling towards dangerous collision. The spectacle of Pelosi’s mission to Taiwan brings that disastrous possibility into sharper focus. More