Rachel Reeves warned that cutting investment would damage ‘foundations of UK economy’ – business live | Business

The introduction of the new Labour government has yet to result in an immediate boost in manufacturing performance but businesses are expecting greater political stability will drive better performance across the coming year.

Make UK, which represents 20,000 manufacturing firms in the UK, found that output decreased to -2% in the third quarter of the year, down from the 9% growth experienced in the previous quarter.

This was the first time output turned negative in four years. However, it did expect output to increase by 33% in the next quarter.

The survey of more than 300 companies found that six in 10 believed that the new government would lead to better economic growth in the next 12 months and only 6% of firms expected it to drop.

Fhaheen Khan, senior economist at Make UK, says:

“This quarter presents a tale of two halves with output turning negative and recruitment taking a dip, yet investment remains positive and business confidence continues to climb.

“With an autumn budget and spending review fast approaching, now is the time for government to pick up the pace and deliver on pre-election promises, most notably the publication of a long-term robust industrial strategy.”

Asking prices for homes in the UK are rising twice as fast as normal this month, as falling mortgage rates stimulate demand.

Property website Rightmove has reported this morning that the average price of homes coming to the market rose by 0.8% to £370,759 this month.

Prices usually rise in September, but this year’s increase is double the long-term average.

Rightmove reports that the traditionally busier Autumn market appears to have started early, as increased activity in the market encourages sellers to lift prices.

According to Rightmove, the number of sales being agreed is up by 27% year on year, with 14% more sellers in the market than a year ago.

That suggests that both buyers and sellers are seeing a window of opportunity, as mortgage rates have been trending down, and real wages have been rising this year.

Rightmove’s Tim Bannister says:

“The autumn action has started early with a strong rebound in activity from both buyers and sellers compared to the subdued market at this time last year, continuing the momentum from the better-than-expected summer market.

The certainty of a new government followed by the first Bank Rate cut in four years invigorated the market, opening a window of opportunity for movers to act. Some of this will be pent-up demand from those who had to hit the pause button until now. However, windows of opportunity tend to need a momentum of good news to stay open, and there are still uncertainties ahead which could cause some of the current market activity to ease.”

The Bank of England could give the housing market another boost on Thursday, when it sets interest rates. However, the City expect the BoE to leave interest rates on hold; there’s just a 30% chance of a rate cut this week.

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

A group of leading economists are today urging chancellor Rachel Reeves to tear up the UK’s fiscal rules in next month’s budget, to allow the government to borrow more to fix the country’s public infrastructure.

In a letter published this morning, the group warn that under-investment has led to a “vicious circle of stagnation and decline” in Britain, weakening the economy and creating greater social and environmental problems.

Reeves, they fear, risks repeating “the mistakes of the past” by sticking with spending plans set by the previous government that imply substantial real-terms cuts in public investment over the current parliament.

They warn:

We do not see how the planned “decade of national renewal” can take place if these cuts are delivered.

To follow through on these plans would be to repeat the mistakes of the past, where investment cuts made in the name of fiscal prudence have damaged the foundations of the economy and undermined the UK’s long-term fiscal sustainability.

The letter is signed by Lord Gus O’Donnell, former Cabinet Secretary, Lord Jim O’Neill, former Commercial Secretary to the Treasury, professor Mariana Mazzucato of University College London, Mohamed El-Erian, former chief executive of Pimco, Sir Anton Muscatelli, chair of the Royal Economic Society, Professor Simon Wren-Lewis emeritus professor of Economics, University of Oxford, Professor Jonathan Portes, professor of Economics and Public Policy at King’s College London, and Professor Susan Newman, head of economics at The Open University.

The eight put their finger on the problem: The UK government’s current debt rules create an “inbuilt bias” against investment, by forcing ministers to show debt will fall as a share of the economy at a five-year horizon.

In their letter, published in the Financial Times, they say:

A more responsible approach, which better reflects the significant long-term benefits of increased public investment, will require changes to our fiscal rules and to the mandate for the Office for Budget Responsibility.

Reeves’s other fiscal rule is that government can only borrow to invest in capital projects, rather than to fund day-to-day spending, as she laid out in her Mais Lecture in March. That approach, the chancellor argues, will mark a break from a “short-termist approach that disregards the importance of public investment”.

The chancellor is expected to raise taxes, cut spending and get tough on benefits in October’s budget, having warned of a £22bn ‘black hole” of overspend by Whitehall departments.

But…O’Donnell, O’Neill, Mazzucato, El-Erian, Muscatelli, Wren-Lewis, Portes, and Newman warn that cuts to investment must be avoided.

They write:

In the upcoming Budget it is essential that the government recognises the important role that public investment must play in the decade of national renewal.

Further cuts to public investment must be avoided, a strategy for substantially increasing public investment adopted, and a process initiated to implement a pro-investment fiscal framework that focuses on long-term fiscal sustainability.

The agenda

• 7am BST: Germany’s wholesale price index data for August

• 10am BST: Eurozone trade data for July

• 1.30pm BST: Empire State survey of US manufacturing