The rate of inflation unexpectedly jumped back up to four per cent in December, fuelling fears that interest rates may remain higher for longer

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The unexpected rise in UK inflation in December has reopened the debate about the amount of credit – or blame – that the government should take when prices change.

Inflation has still fallen sharply over the past year. It was over 10 per cent when the Prime Minister made his pledge to ‘halve inflation’ last January. With the headline rate now down to 4 per cent, this target has been met.

What’s more, inflation is still lower than the Bank of England had been predicting. The November Monetary Policy Report assumed that inflation would average 4.6 per cent in the fourth quarter of 2023. It was actually just under 4.2 per cent.

The Bank was also not expecting inflation to return to the MPC’s two per cent target until late-2025. In reality, it should hit two per cent as soon as this April, once the recent declines in gas prices are reflected in the Ofgem cap on domestic bills.

However, the main reasons why inflation has fallen are that monetary policy has been tightened and that global commodity prices have eased. This is therefore down to the Bank of England, and world events, not the UK government.

At a stretch, the uptick in December could even be blamed on the Chancellor. The increase in tobacco duties in the Autumn Statement added 0.07 percentage points to the headline rate, enough to account for the bulk of the rise from 3.9 per cent to four per cent.

It would still be harsh to conclude that government decisions have played no part whatsoever in reducing inflation. The Bank’s job might have been harder if the Chancellor had not held the line on tax and spending. Actions taken to ‘make work pay’ may also have helped to boost the supply of labour.

But looking forward, other decisions will add to cost pressures, including increases in business rates and the near-10 per cent hike in the National Living Wage in April. This will be particularly unwelcome in the retail sector, which had a dire December.

The government could also do more to reduce burdens that are adding to the cost of living, including planning restrictions, Net Zero obligations, and ‘sin taxes’ that are far higher than anything that could be justified by any harm to others.

The upshot is that responsibility for success or failure on inflation may ultimately rest with the Bank of England, but the government should take a fair share too.

Julian Jessop

IEA Economics Fellow

Hopes of rate cut hit by a rise in inflation

Julian Jessop, The Daily Mail (p.8), The Daily Express (p.9) & The Daily Telegraph ([link removed])

The bigger picture… Unique factors like the rise in tobacco duty powered December’s unexpected rise in inflation. We can still be optimistic about an interest rate cut this year.
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** Trees for burning: the biomass controversy ([link removed])
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The government heavily subsidises dirty and expensive wood chip burning despite net zero goal.
* Burning wood produces more carbon dioxide than burning fossil fuels, including coal and gas.
* British biomass power plants burn the equivalent of 27 million trees in wood pellets per year, or 14 per cent of wood pellets burnt globally.
* The biomass energy industry is only viable due to taxpayer subsidies, estimated to reach £11 billion by 2027.
* Father of the House Sir Peter Bottomley MP says “Government subsidies must end.”

Press Release ([link removed])
Full Publication ([link removed])


** The elaborate hoax of biomass energy ([link removed])
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Christopher Snowdon, Reaction ([link removed])

Accounting tricks… Woody biomass carbon emissions are counted in the countries where trees are cut down, rather than where wood is actually burned.
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UK biomass subsidies undermining efforts to stop global warming, report warns ([link removed])

City AM ([link removed])

Policy sabotage… The government is pursuing an ambitious target in Net Zero by 2050, while subsidising the UK’s dirtiest energy source.


** Biomass Controversy: Unveiling UK's Carbon-Heavy Energy Subsidies with Christopher Snowdon ([link removed])
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IEA YouTube ([link removed])

Carbon conundrum… So why is the government contradicting its Net Zero rhetoric with these subsidies? Watch out latest explainer video to find out.
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IEA Latest.
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Between subscription and the state: a hybrid approach to BBC funding ([link removed])

Research Assistant Daniel Freeman has chapter published in new book on BBC funding

Got a licence for that television?… How do we pay for the BBC after 2027? ([link removed]) , a new collection of essays released on 12th January features a chapter from Daniel which proposes an innovative compromise on the BBC’s future funding.

You can purchase a copy on Amazon. ([link removed])
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1997: the last year of pre-housing-crisis Britain ([link removed])

Head of Political Economy Kristian Niemietz, IEA Blog ([link removed]) & CapX ([link removed])

Things can only get better… 1997 was a seminal year for the UK, it may even be the last year that its housing market resembled normality.
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Javier Milei has exposed Davos’ Left-wing rot ([link removed])

Director of Public Policy and Communications Matthew Lesh, The Daily Telegraph ([link removed])

A breath of fresh air… Argentinian President Javier Milei’s speech to this week’s World Economic Forum meeting emphasised individual liberty and free markets as the roots of success for the global economy.
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The Post Office Scandal | IEA Podcast ([link removed])

Matthew Lesh interviews ConservativeHome Deputy Editor Henry Hill, IEA YouTube ([link removed])

Accountability failure… The gut-wrenching miscarriage of justice caused by the Horizon scandal raises questions about how accountable government agencies really are.
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The unsung hero of economic freedom - James Gwartney (1940-2024) ([link removed])

IEA Trustee Christian Bjørnskov, CapX ([link removed]) & IEA Blog ([link removed])

All of us at the Institute of Economic Affairs were saddened to hear of the passing of James Gwartney on 7th January. Among his many contributions to the field of economics was the creation of the Economic Freedom of the World index in 1996.

Above all, Christian wrote “Everyone who knew Jim agrees that he was one of kindest people they had ever met.”
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Labour is lying through its teeth about children’s health ([link removed])

Christopher Snowdon, Spiked! ([link removed])

Dental health panic… Proposals for state-sponsored teeth brushing may be a minor change, but claims that Britain’s children’s teeth are in worse shape than ever are unfounded.
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Breaking down the Oxfam Inequality Report 2024 | Expert analysis ([link removed])

Communications Officer & Linda Whetstone Scholar Reem Ibrahim interviews Editorial and Research Fellow Len Shackleton, IEA YouTube ([link removed])

Unintended consequences… Oxfam’s latest global inequality report is heavy on recommendations but light on trade-off analysis.
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Is climate change denial really on the rise? ([link removed])

Communications Officer Harrison Griffiths, IEA Blog ([link removed])

Shifting the goalposts… Dissenting from the alarmist, pro-Net Zero, economics-free consensus is not the same as climate change denial.
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Durham academic argues the Bank of England is unnecessary in radical book ([link removed])

The Experience of Free Banking ([link removed]) featured in Business Live ([link removed]) & Newcastle Journal (p.15)

A radical overhaul… A series of central bank failures in recent years have prompted calls for reform. But could a complete rethink be the answer?
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Will local authorities be able to enforce the smoking ban? ([link removed])

Christopher Snowdon, ConservativeHome ([link removed])

Up in smoke… As Bhutan’s failed experiment showed, tobacco prohibition is going to be very difficult to enforce.

Meet the IATP Partners.

What are the barriers to African trade?…

Meet the IATP Partners is a YouTube series on on the Initiative for African Trade and Prosperity which dives into the inspiring stories of IATP partner organisations and reflects on the successes and challenges of running pro-liberty organisations in Africa.

This series celebrates their tireless efforts to advocate for economic liberty on the ground. The IATP are proud to stand with change-makers, supporting the vision of freer markets as a path to prosperity.
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In the latest episode of the Meet the IATP Partners series, founding President and CEO of IMANI Centre for Policy and Education Franklin Cudjoe discusses why free trade is the solution to Ghana's economic problems.

IEA Insider.


** Book Club with Jennifer Burns
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Milton Friedman was one of the most influential economists of the twentieth century. His work was instrumental in the turn toward free markets that defined the 1980s, and his full-throated defences of capitalism and freedom resonated with audiences around the world.

In Milton Friedman: The Last Conservative, Stanford University historian Jennifer Burns tells Friedman's extraordinary story with the nuance it deserves. Join the IEA book club later this month when Professor Burns discusses her new book with Executive Director Tom Clougherty.
RSVP (mailto:[email protected]?subject=IEA%20Book%20Club%20with%20Jennifer%20Burns&body=Hello%2C%20please%20may%20I%20attend%20the%20IEA%20Book%20Club%20event%20with%20Jennifer%20Burns%3F)

Date: Monday 29th January

Time: 17:30 drinks, 18:00 discussion start

Location: IEA (2 Lord North Street, Westminster, London, SW1P 3LB)

Topic: Milton Friedman: The Last Conservative

Speakers:
* Tom Clougherty (Executive Director at the Institute of Economic Affairs)
* Professor Jennifer Burns (Author of Milton Friedman: The Last Conservative)


Format: Drinks reception & panel discussion

Dress code: Business casual or smart casual

RSVP: Please RSVP to [email protected] (mailto:[email protected]) or call 020 7799 8910


** The Future of UK Trade Policy After Brexit
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What impact has Brexit really had on UK trade? Could new trade agreements – like the UK’s accession to CPTPP, a trade bloc covering 11 countries and over 500 million people – have a significant long-term impact? And what do changing attitudes towards globalisation – the rise of what The Economist calls ‘homeland economics’ – mean for the future of UK trade policy?

Join us at the IEA for a discussion of these and other trade-related issues.
RSVP (mailto:[email protected]?subject=The%20Future%20of%20UK%20Trade%20Policy%20After%20Brexit&body=Hello%2C%20please%20may%20I%20attend%20The%20Future%20of%20UK%20Trade%20Policy%20After%20Brexit%3F)

Date: Tuesday 30th January

Time: 17:30 drinks, 18:00 discussion start

Location: IEA (2 Lord North Street, Westminster, London, SW1P 3LB)

Topic: ‘The Future of UK Trade Policy after Brexit’

Speakers:
* Tom Clougherty (Executive Director at the Institute of Economic Affairs)
* Catherine McBride (Fellow at the Centre for Brexit Policy)
* John Springford (Associate Fellow at the Centre for European Reform)
* Julian Jessop (Independent Economist and Economics Fellow at the Institute of Economic Affairs)


Format: Drinks reception & panel discussion

Dress code: Business casual or smart casual

RSVP: Please RSVP to [email protected] (mailto:[email protected]) or call 020 7799 8910
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