Britain will grind to a halt today as industrial action by teachers, train crews, civil servants, nurses, and ambulance crews down tools to protest in favour of higher pay rises.

The Government has so far stood its ground, saying that the offers made are in line with the recommendations of independent reviews and any additional money would simply begin a vicious circle which would feed inflation.

Real wages have been falling, which means that the cost of living crisis is being prolonged. There have been a number of support schemes provided by the Government, but pay itself has fallen so far behind that workers are looking for new jobs because it is simply no longer viable to do jobs which in the past have been considered a vocation.

There is a great deal of public support for the nurses and ambulance crews, especially given the awful toll taken by Coronavirus. However, teachers are facing a difficult time, with pupils who have already fallen behind following the Pandemic barely able to be away from school any longer.

The Government has asked that schools remain open today if at all possible. Special arrangements are being made to ensure that the children of essential workers are catered for, but if action continues, the disruption caused to exam timetables could contribute further to claims of a lost generation.

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The IMF in a report published yesterday commented that it believes that the ongoing cost of living crisis will hit the UK harder than other major economies, and it will be the only country that ends the year with a smaller economy than it started with.

The cautious optimism that was seen over the past couple of weeks has evaporated. The IMF expects the economy to contract by 0.6% this year rather than grow very slightly.

Although these are not the words Jeremy Hunt wanted to hear, the Fund did also comment that following the Autumn Statement that the country is now on the right track to recover next year.

The Chancellor's response to the report was to say that the UK had outperformed several forecasts made last year, and he remains optimistic.

The economy is not helped by the level of industrial action that is affecting the public sector. Yesterday, firefighters voted overwhelmingly in favour of strike action, while tomorrow sees the largest action for decades, with teachers and civil servants joining nurses and ambulance crews on strike.

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Andrew Bailey, the Governor of the Bank of England, believes that flexibility is the most important feature of monetary policy going forward.

The Monetary Policy Committee is due to announce the latest change in short term interest rates on Thursday following its meeting this week. While observers expect there to be a further hike of fifty basis points, they also expect the end to the current cycle of hikes to end quite soon, possibly by the end of the currency quarter.

Bailey is on record as saying that he doesn’t expect rates to begin to fall until the fourth quarter, but he has commented recently that he believes that the Bank needs to be more flexible on policy and look at ways in which the level of demand can be altered in the short term.

Having begun a programme of interest rates rises over a year ago when they were at historic lows, they have taken an inordinate amount of time to reach a level where they are beginning to restrict activity.

In the Governor's opinion, this is far too long a time while inflation was rising exponentially. One answer would have been to increase the increments of the increase, but there was concern that given the precarious state of the economy at the time, that it could easily have led to a deeply damaging recession.

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Following Andrew Bailey’s assertion that inflation is about to begin to fall more rapidly, the market has begun to speculate on how many more interest rate hikes the MPC will deliver before they pause.

The UK has a higher average level of interest rates historically than several of its competitors, so the level at which rates become restrictive is likely to be higher and certainly higher than it is at present despite over a years’ worth of interest rates.

Since rates have been at historic lows in order to combat various crises that have affected not only the UK but the global economy as well, borrowers have got used to a new paradigm that didn’t exist in the last three decades of the last century.

The gradual increase of interest rates over the past fourteen months has allowed borrowers to avoid the level of pain usually associated with tighter monetary policy. Given the circumstances that have surrounded the country politically, socially and financially, rising interest rates have not provided the shock that would usually be expected to the economy.

Brexit has been delivered, but following the jingoistic leave campaign orchestrated by Boris Johnson and Nigel Farage, there is the real probability that a majority of voters feel that it was the wrong decision.

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In spite of a continuing cost of living crisis, rising interest rates and industrial action across the public sector, Andrew Bailey the Governor of the Bank of England is optimistic that the contraction in the economy, which may have already started, will not be the devastating recession that he feared when he gave his last update on the economy last Autumn.

Although economic forecasts are based on more than gut feelings, and Bailey doesn't command the level of respect in the markets commanded by some of his predecessors, he is confident that inflation which remains at the root of the country’s issues and is still in double figures despite a tightening of monetary policy which has lasted over a year, is about fall rapidly.

Scarcity of workers brought about by Brexit and the unwillingness of workers to do the same jobs for the same money following the Pandemic as well as pent-up consumer demand meant that prices rose at a rate not seen in a generation.

Throw into the mix an energy crisis and the war in Ukraine and you have all the ingredients for a rapid decline in the economy.

One of the reasons for Baileys optimism is the fact that significantly lower energy prices, have fed through into official day yet, will lead to lower inflation.

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The level of UK borrowing has risen to frighteningly high levels as the cost of support provided to counter the effect of the Pandemic is added to the new energy cap.

The capo is set to be raised again in April, which will add to the pressure being felt by households struggling to cope with the cost of living crisis.

The Public Sector Borrowing Requirement (PSBR) rose to £27.4 billion in December, up from a little over £21 billion in November. This is almost double the single month amount from December 2021.

The Chancellor is reportedly looking at ways to both reduce the level of borrowing and how to service existing debt in the upcoming budget.

He is already committed to a 10% increase in state pensions and certain benefits following his decision to comply with the triple lock.

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Top accounting firm Ernst and Young dispute the Governor of the Bank of England’s assertion that while the coming recession may last longer than has been the norm over recent contractions, it will be shallower.

However, they still see the economy beginning to grow again from the middle of this year, which is earlier than Andrew Bailey has previously forecast. While the country will emerge from the recession, it will not see the level of growth it has seen in recent years. In 2023 the economy is expected to shrink overall by 0.7%, in 2024, 1.9% and in 2025 2.3%.

Overall, in 2022 the economy is expected to have grown by 2.3%.

The likelihood of a change of Government early in 2025 clouds the picture, but the Labour Party is unlikely to be able to have either the policies nor the wherewithal to change the outlook substantially, although it will have something of a free ride for a year being able to blame the previous Government for any problems it encounters.

One of the major contributors to the upturn expected in the second half of the year will be falling inflation. While the significant number of rate hikes that the Central Bank has put in place have begun to have an effect, it is only now that interest rates have entered a neutral phase and may turn restrictive as early next week that their effect will be magnified.

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The Government is close to agreeing a funding package for the UK steel industry in order to avoid its complete collapse. While it is dwarfed by the number of workers employed by Germany, British Steel remains a cornerstone of the UK industrial output.

The package, expected to be valued at around £300 million, is a bridge with the Chinese Jingye Group, the new owners, promising an investment of £1.2 billion over the next ten years.

While China has built up its internal capacity in the heavy industry sector, it has created difficulties for several nations who are unable to compete on output or price but employs a significant number of workers not just directly but across the entire supply chain.

Last week, Andrew Bailey, the Governor of the Bank of England, spoke of his expectations for the economy. The last speech he made on the subject, was following the resignation of Liz Truss and was extremely downbeat and referenced the lack of confidence in the UK created by the growth strategy of Rishi Sunak’s predecessor as Prime Minister.

While the situation is far from ideal, he was a little more upbeat in his comments. He believes that the UK will enter a recession in this quarter, but he feels that it will be shallow compared to previous downturns, but it will last for longer than before.

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The Governor of the Bank of England, speaking on a visit to South Wales, spoke yesterday of his belief that inflation will have fallen significantly from the Spring, although he feels that the continued tightness of the labour market will lead to the Central bank needing to continue to hike the base rate which currently stands at 3.5%.

He refused to speculate on where rates will be when the Bank feels confident to pause the current cycle of interest rates rises.

The feeling in the financial markets is that rates will reach at least 4.5% before the bank ends the current phase. As in the U.S. and the Eurozone, rates have been at historically low levels for a considerable time, and this means that finding the neutral level may be difficult.

There is no scientific method of predicting when rates have reached a point where they are no longer accommodative. However, a combination of falling inflation and rising unemployment, coupled with a downturn in economic activity, will guide the Bank.

Bailey went on to say that he expects the economy to suffer a recession from the current quarter. He feels that it will be shallower than on previous occasions, but will last longer than is what is considered normal.

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The Opposition Labour Party has labelled the collapse of the UK’s only domestically owned manufacturer of batteries to power electric cars as a disaster for the UK automotive sector.

They believe that the collapse of Britishvolt could potentially see the demise of car manufacture in the UK. The sector currently employs in excess of 750k people. Petrol and diesel vans will no longer be manufactured after 2030, so a reliable and efficient source of power is essential to the future production of electric cars.

With the lead in time to going from concept to production of batteries around five years, the clock is now genuinely ticking.

Since the announcement earlier in the week that Britishvolt had run out of money, there have been two expressions of interest from firms interested in taking on the building of the plant on the site that has already been allocated for production.

The most prominent of these is Tata Motors which already owns the Jaguar and Land Rover brands, The other is from the venture capital company which was an investor in the original undertaking.

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