Economy

LONDON (Reuters) – The UK Supreme Court begins two days of hearings on Tuesday to consider whether the Scottish government can pass legislation allowing it to hold a second independence referendum without the approval of the British government.In a referendum in 2014, Scots voted 55%-45% to remain in the United Kingdom, but nationalists argue that the vote for Brexit two year later changed everything.The Scottish government has said it wanted to hold a second vote next year.Below is the history of the push for independence and how another vote could happen:ACT OF UNIONThe nations of Britain have shared the same monarch since 1603, when King James VI of Scotland became James I of England. In 1707, a formal union created the Kingdom of Great Britain.Now, the United Kingdom of Great Britain and Northern Ireland binds England, Scotland, Wales and Northern Ireland and has an overall population of about 68 million, of which Scots make up some 5.5 million.In 1998, the then Labour government passed the Scotland Act which created the Scottish parliament and devolved some powers from Westminster. ONCE-IN-A-GENERATION VOTEBoth sides agreed at the time of the 2014 plebiscite that it should be a once-in-a-generation poll. However, nationalists say Brexit was a game changer. While the United Kingdom as a whole voted in favour of leaving the European Union in 2016, a clear majority in Scotland voted to stay in the bloc. Independence supporters say one of the main arguments put forward in 2014 by opponents of a break-up was that an independent Scotland could not join the EU.The left-wing, nationalist Scottish National Party (SNP), which has run Scotland’s devolved assembly since 2007, also argues that the UK government has pursued policies with which the vast majority of Scots disagree.In the last national election for the UK parliament in 2019, the SNP won 45% of votes cast and 48 of the 59 Scottish seats, while Britain’s ruling right-wing Conservative Party captured just six.ELECTION RESULT OF 2021In elections for the Scottish parliament in May 2021, the SNP said it would seek to hold a referendum if pro-independence parties won a majority.The SNP together with the Scottish Greens, who also support secession, won more than half of 129 seats in the parliament, giving a pro-independence majority to ensure any referendum bill could be passed.In June this year, Scottish First Minister and SNP leader Nicola Sturgeon announced plans to hold an independence referendum on Oct. 19, 2023.Opinion polls since the 2014 vote have mostly continued to show a majority of Scots support remaining in the UK. A YouGov poll conducted between Sept. 30 and Oct. 4 found 45% would back independence, with 55% saying they would vote no. THE LEGAL BARRIERUnder the Scotland Act, all matters relating to the “Union of the Kingdoms of Scotland and England” are reserved to the UK parliament in London.Westminster can grant the Scottish government the authority to hold a referendum using a so-called “Section 30” order, a process that was used to allow the 2014 plebiscite to go ahead.But Prime Minister Liz Truss and her predecessor, Boris Johnson, have repeatedly said the 2014 vote should not be repeated for a generation and refused permission for a referendum. Sturgeon argues this is blocking the democratically expressed will of the Scottish people, and that a referendum should be held regardless. However, she says for any referendum to be effective, it must be lawful and recognised as such by the international community.She has cited the case of Catalonia which unsuccessfully declared independence from Spain in 2017 after a referendum ruled illegal by judges.In order to establish the legal position, the most senior law officer in Scotland has referred the question of whether the Scottish government can pass a referendum bill to the Supreme Court, the United Kingdom’s top judicial body.LIKELY OUTCOMEWhile Britain has an unwritten constitution, meaning much of it can be subject to interpretation, the Scotland Act lays out the relationship between the Scottish assembly and the UK parliament.The British government argues that it is clear, and that all matters do with the union of the nations are reserved to the Westminster parliament.The SNP says the right to self-determination is “fundamental and inalienable”, and there was no practical means to push for a referendum through the UK legislature.Legal experts say it will be difficult for the Scottish government to convince the five Supreme Court judges hearing the case that a referendum bill would be within the legislative competence of Scotland’s parliament.NOT THE ENDSturgeon has promised that defeat in the Supreme Court would mean the SNP would fight the next UK-wide election, due to be held in 2024, solely on a platform of whether Scotland should be independent, making it a “de facto” referendum.However, that stance would also likely provoke further legal challenges.If there were a referendum and Scots voted to leave, it would be the biggest shock to the UK since Irish independence a century ago – just as the UK grapples with the energy crisis, the ongoing impact of the COVID-19 pandemic and the consequences of Brexit.An independent Scotland would also have to address issues such as what currency to use, and how long the Bank of England would determine monetary policy and set Scottish interest rates. More

MILAN (Reuters) -Monte dei Paschi di Siena is closing in on a guarantee contract with a group of banks which will enable the state-owned bank to launch its new share issue on Monday, five people with knowledge of the matter said.An afternoon board meeting of MPS is due to set the terms of an up to 2.5 billion euros ($2.4 billion) share sale, the state-owned bank’s seventh in 14 years after it raised 8 billion euros from taxpayers and investors to avoid liquidation in 2017. Speaking on condition of anonymity because discussions are private, the sources said the signing of the contract with the banks would require “a few more hours”.The board meeting could be adjourned to Wednesday if necessary, two of the sources said.MPS needs yet more cash to lay off 3,500 staff through costly early retirements by the end of the year and also to offset a potential capital shortfall of up to 500 million euros.One of the sources said it was “basically a matter of bureaucracy”, meaning that all the documents that were the result of the “enormous work” done so far had to be gathered.However, another person close to the transaction said that the banks would only sign once they had “full visibility” on the deal’s chances of success.Rocky markets and the size of the cash call, equivalent to more than 10 times MPS’ current market value, have complicated talks with the eight banks that had made a preliminary commitment to underwrite the issue.The new shares will value MPS above healthier peers, exposing underwriters to likely losses on any shares left on their books, bankers and analysts say.Further irking lenders, MPS Chief Executive Luigi Lovaglio has stalled on an offer by asset manager Anima Holding to buy into the issue as part of a new commercial agreement.The banks have long seen the share sale as too risky to bring to the market without a pre-committed core of investors. They can walk away thanks to a clause subjecting the underwriting to positive investor feedback.Lovaglio can at least count on the backing of France’s AXA, MPS’ partner in an insurance joint-venture, which sources say has offered to put in at least 100 million euros.Like other shareholders, Italy will see the value of its stake wiped out, entailing a 5.4 billion euro loss.Based on its 64% stake in the lender, Rome can pump up to another 1.6 billion euros into MPS to cover the new issue, but the rest must come from private hands due to European Union rules on state aid to lenders.($1 = 1.0302 euros) More

UK unemployment hit a fresh multi-decade low in the three months to August as long-term sickness kept more older workers out of the labour market, official data showed on Tuesday. The Office for National Statistics said unemployment stood at 3.5 per cent — 0.3 percentage points down on the quarter and the lowest since 1974 — due to a fresh rise in economic inactivity. UK chancellor Kwasi Kwarteng said the 50-year low in the jobless rate showed that “the fundamentals of the UK economy remain resilient” despite the challenges facing countries around the world. But the latest drop in unemployment has an unwelcome cause: the large number of people who are counted as inactive, rather than unemployed, because they are not job-seeking or available to start work. Analysts said the figures would bolster the case for the Bank of England to raise interest rates aggressively next month, and underlined the urgency of government action to ease labour shortages. Monetary policymakers are concerned that wage pressures will remain strong even as the economy slows — making it harder to bring inflation down from August’s 9.9 per cent rate — because so many people have dropped out of the labour market since the start of the pandemic.The latest figures showed no let-up in these trends. The inactivity rate was up 0.6 percentage points on the quarter at 21.7 per cent, driven by long-term sickness among older people and by students choosing not to work. “This presents a headache to the government and Bank of England,” said Thomas Pugh, economist at the audit firm RSM, adding: “The government has no chance of meeting its 2.5 per cent growth target without getting more people back into work.”Tony Wilson, director of the Institute for Employment Studies, noted that “virtually none of those who have left the labour market are on unemployment benefits and most aren’t even on benefit at all”, so that threats by the government to cut benefits would not boost labour supply. Meanwhile, real-terms earnings fell at near-record rates, as rising living costs ate into household incomes, with total weekly pay 2.4 per cent lower than a year earlier after accounting for inflation.But in nominal terms, the ONS said wage growth was the fastest on record, outside the Covid-19 period when the figures were distorted. Growth in average weekly earnings, including bonuses, strengthened to 6 per cent while regular earnings were up 5.4 per cent, a bigger pick-up than expected. Ruth Gregory, at the consultancy Capital Economics, said the figures would “maintain intense pressure on the Bank of England to raise rates aggressively over the coming months”.James Smith, economist at ING, said the central bank would “ultimately view this through the lens of labour shortages, which don’t appear to be improving” — with the latest figures creating no obstacle to policymakers’ taking “forceful action” in November. However, there were some signs in the data that the UK’s labour market is starting to cool as both employers and workers worry about the effects of inflation and rising borrowing costs.The employment rate fell by 0.3 percentage points to 75.5 per cent in the three months to August — the first quarterly drop since Covid disruption eased — leaving it a full percentage point lower than before the pandemic. The ONS noted that this followed a quarter in which the employment rate had been unusually high and inactivity unusually low, suggesting the underlying change in the economy might be less. The number of vacancies also fell for a third consecutive quarter — at its sharpest rate since mid-2020 — although it remains near historic highs, with more job openings than there are unemployed jobseekers. More

The chief executive of Marston’s says the fallout from the UK government’s “mini” Budget has been “incredibly unhelpful” for consumer confidence, even as sales at the pub chain surpassed pre-pandemic levels in the latest quarter. Andrew Andrea said on Tuesday that rising interest rates and the market turmoil following chancellor Kwasi Kwarteng’s “mini” budget late last month could have a “knock-on impact” on consumer spending. While Andrea said Marston’s had yet to notice a “discernible change” in customers’ behaviour and that he expected them to continue flocking to pubs in “a natural flight to value”, he cautioned that government policy had added to uncertainty. The spectre of rising mortgage rates sparked by the “government creating such turmoil in markets” had proven “incredibly unhelpful”.“The government’s policies drive headlines that affect consumer behaviour,” said Andrea. “We need stability of news flow because that enables people to work out what is really going on and therefore they make their spending decisions thereafter.”“The government U-turns have also been unhelpful because people are confused,” added Andrea, referring to Prime Minister Liz Truss’s decision to backtrack on axing the 45p tax rate for the highest earners. But he said that “all signs show that people still want to go out” and that spending on “bigger ticket items” was likely to be impacted first before customers cut back on spending at pubs. The first restriction-free Christmas in three years and the winter World Cup would also be a boon for sales over the winter, he added. Like-for-like sales across Marston’s 1,468 pubs were up by 4 per cent in the 10 weeks to October 1, compared with the same period in 2019, driven by a jump in demand during the summer heatwave. Total like-for-like sales in the year to October 1 were down 1 per cent on 2019, a comparison that strips out the lockdowns that forced pubs to close in the pandemic.The chain said electricity costs in the 10 weeks to October 1 had been “higher than originally expected” because of the “volatile market for energy” in recent months. But Marston’s said it had hedged against electricity cost rises for the first half of next year and its gas bill was fixed until March 2025. Andrea welcomed the government’s implementation of an energy price cap for consumers and businesses “to remove the sword of Damocles dangling over the economy”. More

Welcome back to another Energy Source!The fighting in Ukraine escalated again yesterday after Russian president Vladimir Putin unleashed a deadly barrage of missiles across the country. One target was Ukraine’s power grid and heating infrastructure, plunging swaths of the country into darkness just ahead of winter. The attacks will put European energy markets on edge after the recent sabotage on the Nord Stream pipelines.We’re also watching oil prices closely after Opec+ decided last week to start pulling crude supply out of the market despite already high prices. The Brent price rally stalled yesterday with prices closing out the day down a bit at about $96 a barrel; US prices were around $91 a barrel. Tightening crude supplies will collide in the coming months with central bank efforts to slow the economy through rate rises aimed at bringing down inflation, pitting Opec+ against the Federal Reserve. If economic growth barrels ahead alongside tightened crude supplies, oil prices could be poised for a run well past $100 a barrel. But if the global economy falters, and brings energy demand down with it, prices could tumble again.In the newsletter today, Amrita Sen, director of research at consultancy Energy Aspects, argues that the Opec+ cuts are just one of the bullish forces amassing in oil markets, and prices are set to run higher.That would put the White House, already contending with petrol prices that are rising again just before next month’s midterm elections, under immense pressure to retaliate against Opec. One of the measures the administration of Joe Biden is discussing to stem rising fuel costs is a curtailment of fuel exports. The idea has alarmed the American oil industry. That’s the topic of my note today.And in Data Drill, Amanda looks at how the slow rollout of public electric vehicle charging stations is not denting sales yet. Thanks for reading! — JustinOpinion: Oil’s bull run is about to restartOil prices have stayed below $100 a barrel for more than a month now — even after Opec+ announced new, deep cuts to its output quotas last week. But big bullish forces are building.The first is Russia. Looming over the market is the deepening of EU sanctions on Russian oil exports, starting from December 5, and then more restrictions on the country’s petroleum products, starting in February. At the very least, a lot of Russian oil will find itself on ships for much longer. As European ports close to Russian oil, cargoes that once sailed for just three or so days will need 20-60 days to reach markets in Asia. Millions of barrels of oil will be tied up as a result. Some Russian output may even be shut-in. At the same time the world’s biggest petroleum products exporter comes under the cosh, its biggest importer is about to rediscover its thirst for oil. That’s China, and while its slower consumption in recent months has been welcome relief for an oil market already under strain, Beijing is now slowly but surely trying to boost economic growth again. The latest awards of large crude import quotas and product export quotas all suggest months of unusually sluggish Chinese crude buying are about to end.Shale isn’t riding to the rescueUnderlying today’s higher oil price and our bullish view of the coming months are years of under-investment in new supply. To be clear, oil prices are not high due to the Russian invasion of Ukraine. Brent was already trading at $95 a barrel before the war because of this chronic drop in capital spending.The best example is in the US, where shale output growth — so crucial to keeping price jumps in check in the pre-coronavirus pandemic years — has been disappointing. Rampant oilfield service cost inflation and the exhaustion of top-tier drilling acreage had producers looking to cut back the number of operating rigs even before the recent pullback in prices. The break-even prices for shale producers have risen steeply, to well over $70 a barrel, and most likely $80 a barrel. And of course drillers have got the message from investors that growth at any costs will not be rewarded. Don’t expect the American shale patch to bail out the market once again.So why are crude prices not even higher? Fears of a global economic recession are still a headwind for oil prices. But another reason that prices remain below $100 a barrel is that policy has become so unpredictable. Some in the market wonder if Europe, where economies are already struggling with higher energy costs, will truly go ahead with the December embargo on Russian oil that could further elevate crude prices. It’s also not clear how effective the US plan to cap the price at which Russia can sell its oil will be. Even the pace of China’s re-emergence from zero-Covid policies is unclear. And now, following deep oil production cuts by Opec+, the market is trying to understand how the Biden administration will react. Congressional antitrust legislation targeting Opec+ is plausible — but would that tighten or loosen oil markets? The release of more US strategic oil stocks is also on the cards. Traders need some clarity on all of this, because policy confusion has contributed to the liquidity squeeze that has gripped the oil market since March. Hazy policy has left oil-market volatility at its highest since Iraq invaded Kuwait in 1990. The volatility has led to exchanges and derivatives counterparties maintaining stringent margin requirements — sometimes equivalent to 100–150 per cent of the nominal contract value. This has resulted in big margin calls, particularly on gas and electricity trades. And the bigger the margin call, the less capital is available for other trades: a vicious cycle that ends with less liquidity and more volatility. All told, today’s oil market is a picture of dysfunction. But when you couple it with the mounting threats to Russian supply, Opec+’s willingness to take crude off the market, and China’s re-emergence as a buyer, it means one thing: sooner or later, oil prices are heading much higher.Amrita Sen is the head of research at consultancy Energy Aspects.US fuel export ban threatens European supplies, domestic chaosPetrol prices are on the rise again across the US and the timing could not be worse for President Biden and the Democrats, who are fighting to keep control of Congress in November’s midterm elections. Opec’s decision to slash crude supplies has only heaped more pressure on Biden. It has the White House contemplating some big oil market moves, including a potential ban on fuel exports.America’s oil industry is sounding alarms over the prospect. They argue restrictions on petrol and diesel exports would exacerbate the energy crisis for Washington’s European allies and cause chaos in US fuel markets.How likely is such a move? One industry executive I spoke with that has participated in recent discussions with administration officials about fuel markets called it a “50/50” prospect at this point. “We are creating contingency plans,” said the executive, whose company is a top refiner and fuel exporter. The industry has also mobilised its messaging machine in Washington. The American Petroleum Institute, the powerful DC lobby group, publicised a letter it sent to energy secretary Jennifer Granholm last week arguing a ban would mean abandoning “your commitment to our allies abroad”, among other things. The Biden administration has promised to keep Europe well supplied with natural gas and diesel after severe disruptions from Russia have left buyers looking to global markets to plug the gap. Oil companies also argue that a fuel export ban would not achieve the administration’s aim of bringing down pump prices for American consumers.The industry executive argued that there’s no “silver bullet” fix for the north-east’s supply problems after the region lost refining capacity during the pandemic.Pipelines to the region from big American refining hubs in the Gulf Coast and Midwest are full and Jones Act shipping restrictions make it impossible to send fuel on tankers, industry executives say. An export ban would cause inventories to overflow in the refining hubs, forcing plants to cut back fuel production, while doing little to alleviate tight supply in other areas. Potentially worse would be if other countries took retaliatory trading measures and import-dependent areas of the US such as the north-east and California were suddenly unable to acquire fuel on international markets.The industry’s criticism is also, of course, self-serving. Refiners’ bottom lines would take a hit from any export controls. But that doesn’t mean the underlying analysis is wrong. A carefully crafted restriction on exports could potentially bring some short-term relief at the pumps, but it would be a big gamble. Data DrillLack of public charging is not hindering electric vehicle uptake, for now, says a new analysis from Rystad Energy. The consultancy looked at EV adoption and the availability of fast chargers and found no direct correlation between the two. China, for example, has seen rapid growth in electric vehicle sales despite slower growth for public charging. In 2021, EV sales in Beijing grew more than three times faster than charging deployment, according to Rystad. The US and Germany also saw sales outpace the growth in charging availability last year. Rystad argues subsidies for EVs and incentives for private charging may be better alternatives in boosting early adoption. The analysis comes as countries set lofty targets to build a public charging network. China, for example, wants to have enough chargers to support 20mn EVs by 2025. How likely it is that countries will achieve these targets is questionable. Rystad found Germany would need to double its deployment to meet its 2030 target of 1mn chargers, nearly a third of the EU’s end-of-the-decade goal.Power PointsJoe Biden has few good options to keep petrol prices down after historic cuts from Opec. Austria increases the legal challenges against the EU’s green taxonomy that classify nuclear and gas as climate friendly. Extreme weather and high utility bills are pushing more households to adopt rooftop solar and cut ties with utility companies. Food and energy crises have distracted leaders from their climate commitments ahead of COP27. Some carmakers are betting on hybrids in the push to electrify, hoping to tap into consumers in hard-to-reach areas where electricity supply is unreliable or chargers are not available. (WSJ) More

Fumio Kishida has signalled his support for the Bank of Japan’s ultra-loose monetary policy despite the yen’s plunge to its lowest level in real terms since the 1970s.In an interview with the Financial Times, the Japanese prime minister said the central bank needed to maintain its policy until wages rose and urged companies that did increase prices to raise pay as well.Kishida said he would continue to “work closely” with Haruhiko Kuroda, ruling out speculation he would end the BoJ governor’s term prematurely or apply political pressure to end negative rates. “At the moment, I am not thinking of shortening his term,” Kishida said, referring to Kuroda’s 10-year tenure as BoJ governor which will end next spring. “I will look ahead to the expected economic conditions of April next year in my deliberations on choosing the right person for the job.”In a signal of how starkly the economic challenges in Japan contrast with those in other advanced economies that are wrestling to protect the public from runaway inflation, Kishida said the country needed wage increases rather than wage restraint.The government will prepare measures to help companies raise salaries even as they pass on increasing input costs, Kishida said. His comments came amid rising public concern about cost of living increases and a sharp fall in the prime minister’s popularity.The yen, which was trading flat on Tuesday morning, edged down as much as 0.1 per cent against the dollar to ¥145.83 in the wake of Kishida’s comments, close to the low of ¥145.90 touched last month that prompted Japanese authorities to intervene to strengthen the currency.

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“By passing on rising prices, we hope businesses will have some latitude to raise wages,” Kishida said. “In the past, wage hikes were viewed as a cost factor, but going forward, companies need to invest in people for the economy and for businesses themselves to grow.”The BoJ’s policy stance, which has helped push the yen to a 24-year low against the dollar, will be offset by government measures to combat inflation and take advantage of the weak yen to boost exports and tourism.The prime minister’s comments followed a volatile period for the yen and mounting speculation that after almost a decade of unwavering commitment to its ultra-loose policy, global turmoil might finally force the BoJ to blink. Shortly before Kishida spoke to the FT, the yen fell to ¥145.60 against the dollar and to within ¥0.30 of the level at which the Japanese authorities intervened last month. Such efforts to strengthen the yen, which have cost $20bn, will have little effect as long as the interest rate differential between Japan and the US continues to widen, analysts warned.Japan has faced the same pressures as the US and Europe from the surge in global energy and food prices. But headline inflation remains relatively low at 3 per cent since there has been almost no transfer from price increases to higher wages. The rise in energy prices has also been partially offset by long-term contracts for Japan’s large imports of liquefied natural gas.

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The BoJ has argued that underlying consumer demand in the Japanese economy is weak and has predicted that inflation will fall back below 2 per cent in the next fiscal year.Companies, in particular the small and medium-sized businesses that employ 70 per cent of the workforce, have struggled to transfer higher costs to consumers, resulting in pressures on profits that have made it harder for them to raise wages.

Following decades of on-and-off deflation, economists said Japan could be on the cusp of a historic transition as the global energy crisis forces businesses to raise the prices of their products, creating pressures that will prompt workers to demand a pay rise.“It’s hard to put a figure on what level of inflation is appropriate,” Kishida said. “But I strongly feel that we would not be able to maintain a sustainable economy or protect people’s livelihoods without seeing a hike in wages that is commensurate with price rises.” More

Realtors, mortgage brokers, and appraisers across the US are bracing for widespread job cuts as home sales plummet amid rising interest rates.For those who work in and around the housing market, the effect of aggressive moves by the Federal Reserve to reduce inflation has been swift and severe. “It went from feast to famine, from everybody buying to turtle slow,” said Linda McCoy, board president of the National Association of Mortgage Brokers.Realtors, mortgage brokers, appraisers, and construction groups say they have lost as much as 80 per cent of their revenue since the Fed started raising rates in March. Rates for a 30-year fixed mortgage — at 6.66 per cent — have nearly doubled since and are now at their highest level since 2008. Home sales quickly plunged as higher borrowing costs and recession fears discouraged buyers. Nearly 20 per cent fewer homes were sold this August than during the same month last year, according to the National Association of Realtors. For realtors and mortgage brokers, who mostly work on commission, the changing market has decimated their livelihoods and pushed others out of the field altogether.“There’s going to be a major shakeout,” said Ken Johnson, a real estate economist at Florida Atlantic University who is also a former broker. “There are roughly 1.5mn realtors, but that number will be down 20 per cent within 24 months. And those aren’t the only members of the real estate industry that are very dependent on the volume of transactions. There are these tertiary jobs like the appraisers, the mortgage lenders, all the way down to termite inspectors.”Mortgage lenders were among the first to eliminate staff. In April, Wells Fargo, which originates more mortgages than any other US bank, laid off nearly 200 loan processors and their managers, blaming “cyclical changes in the broader home-lending environment”. USAA, Citigroup and JPMorgan Chase later announced cuts to their own home lending workforces.Other independent lenders, including Sprout Mortgage and First Guaranty Mortgage Corp, have gone out of business.Some brokers did almost a third of their business refinancing existing mortgages as rates hovered near record lows in recent years, but applications for refinancing fell 80 per cent over the past year, according to the Mortgage Bankers Association. New mortgage applications dropped 29 per cent in the same period. “The way these rates have risen so fast is almost catastrophic to the industry,” McCoy said.A record 1.5mn Americans worked as real estate agents during the height of the market last year. Getting a real estate licence is easier than entering other industries with high earning potential, requiring only a high school diploma and three to six months of training leading up to an exam. Thousands of new workers rushed in as home prices accelerated during the Covid pandemic, hoping to take advantage of flexible working hours and sky-high profits. Some 156,000 people joined the National Association of Realtors in 2020 and 2021 alone. That is 60 per cent more than in the two years before.“That growth was much stronger than the home sales opportunities that were available,” said Lawrence Yun, the chief economist for the National Association of Realtors. “The reality is that not everyone’s going to survive.”In June, Redfin and Compass laid off hundreds of employees. Redfin chief executive Glenn Kelman told staff that he feared “years, not months, of fewer home sales”. Compass said its lay-offs were “due to the clear signals of slowing economic growth”, before eliminating more jobs last month.Though lay-off rates tracked by the labour department showed that the number of real estate workers whose jobs were eliminated are little changed at 16,000 in August, Johnson said that most agents work as independent contractors and are not counted in jobs data. Many will pivot their business models or take on second jobs to supplement their income, he predicted.Shane Skelly, a real estate agent and home flipper in San Diego, “froze” his business’s house flipping arm in June as potential buyers disappeared. His company, Left Coast Realtors, is now focusing on facilitating renovations for past clients.

“It wasn’t extreme to begin with, over the last couple of months it’s really accelerated,” Skelly said. “It’s a little bit more significant of a correction than I thought it was going to be.”Mike Pappas, the chief executive of Florida-based brokerage The Keyes Company, said he is considering scaling back overhead costs on offices and marketing in the hopes of avoiding having to lay off any of his firm’s 3,300 agents.“We have to respond dramatically to adjust to the new normal,” Pappas said.But for many, falling home sales could push them out of business entirely, said Johnson at Florida Atlantic University.“Most that are in business today have never sold in a 7 per cent 30-year mortgage rate environment,” he said. “That mortgage rate got too high and I think a lot of people are looking around saying: ‘you know, what’s next?’” More

We have got the message. Liz Truss, Britain’s new prime minister, is all about growth in gross domestic product. “I have three priorities for our economy: growth, growth and growth,” she said in her conference speech last week. She implied the negative market reaction to her chancellor’s “mini” Budget — which made the pound fall and mortgage rates surge — would be worth it. “As the last few weeks have shown, it will be difficult,” she said. “Whenever there is change, there is disruption. And not everyone will be in favour of change. But everyone will benefit from the result.”There are two problems with this strategy. The first is that most people don’t know what GDP growth is, let alone care about it. Nobody is standing outside Downing Street with a megaphone chanting “What do we want? 2.5 per cent annual GDP growth. When do we want it? Over the medium term.” In a study of the public’s understanding of economics funded by the Office for National Statistics in 2020, GDP was one of the economic concepts people understood the least. Less than half the British public were able to correctly identify the definition of GDP from a list of options. It was common for people to confuse it with the value of exports or the pound. In focus groups, people didn’t know what sort of economic growth rate would be considered normal, good or bad. When told growth had been 1.3 per cent, the most common reaction was silence or indifference. “It means absolutely nothing to me,” one participant said. “It’s not tangible for us, we can’t touch or feel it,” said another. “You’re sort of in your own bubble, aren’t you? Just worrying about what you’ve got . . . your own economy.”Truss isn’t the first self-confessed “economics geek” in politics. Gordon Brown was once ridiculed as shadow chancellor for mentioning “post-neoclassical endogenous growth theory” in a speech. And to be fair to Truss, she does at least realise that people need some help to understand why growth matters. In her speech, she explained that growth would mean higher wages, more jobs, more money to fund public services, and so on. But if you have to spend seven sentences explaining what your slogan means, it might not have been the best choice in the first place.

That is not to say the public is ignorant about the economy or indifferent to it. The study found “pockets of public economic expertise” in which people were very well-informed, often in areas they felt were most relevant to their everyday lives. Interest rates were one measure people understood and followed closely, unsurprisingly given the impact on mortgage rates and consumer credit. “We live by the interest rate. If the interest rate goes up, then your life quality goes down,” one focus group participant said. People understood inflation pretty well too, and often drew the link unprompted to whether or not it had outstripped wage growth. When asked how they judged if the economy was doing well, people tended to mention interest rates, the availability of decent jobs, the high street, the cost of living and the quality of public services. That brings us to the second problem for Truss. While she and her chancellor Kwasi Kwarteng did act to protect households from surging energy bills, the market reaction to their unfunded tax cuts affected things like mortgage rates that really matter to people. The “mini” Budget worsened the parts of the economy that people understand and care about, in pursuit of a target people don’t understand and don’t care about.

This is not just bad politics. It is also bad economics. I am not in the “anti-growth coalition”. Of course faster economic growth would be a good thing. But it is not helpful to kick off an attempt to boost the economy with a shock that makes people feel poorer and more anxious. Many already view the economy as something external, unpredictable and dangerous. In the study, members of the public talked about it as a threat “constantly hanging over us”; others said they had been “hit” or “smacked in the face” by it.The language of “disruption” works fine in the world of start-ups. It doesn’t work in the world of economics, which is really just the world of people’s real lives. There were no easy options facing Truss and Kwarteng, but the fallout from their “mini” Budget has only made their task harder. If the UK economy is to grow faster, people will need to be more willing to invest, to start businesses, to train in something new, to make a move in pursuit of an opportunity. People don’t want to be disrupted. They take risks when they’re not [email protected] More