Fiscal policy and supply-side policies

Extract D: The UK's Consumer Prices Index (2015 = 100) rose from 131.5 in March 2023 to 134.9 in March 2024. CPI inflation had peaked at over 11% in October 2022, driven by energy and food prices after Russia's invasion of Ukraine. Extract E: The Bank of England raised Bank Rate fourteen times from 0.1% in December 2021 to 5.25% in August 2023. Mortgage rates rose sharply and house prices fell slightly. Some economists argued that rates were raised too late; others that much of the inflation came from global supply shocks that interest rates could not affect. Extract F: Wage growth reached around 8% in 2023, partly due to labour shortages. The government kept income-tax thresholds frozen, which increased tax revenue as wages rose ('fiscal drag'). Unemployment rose slightly from 3.8% to 4.3%. Productivity growth remained weak.

Extract G: In 2024 median weekly full-time earnings were £850 in London and £610 in the North East. Output per hour worked in London is about 30% above the UK average, while in Wales and the North East it is around 15% below. The UK has some of the largest regional inequalities of any developed economy. Extract H: Successive governments have promised to 'level up'. Policies have included investment zones with tax breaks, devolution of powers to metro mayors, transport projects and moving civil service jobs out of London. Critics say funding has been small relative to the scale of the gap and spread across too many competing schemes. Extract I: Economists disagree on the causes. Some stress agglomeration economies in big cities, which attract skilled workers and high-productivity firms. Others emphasise weak transport links in the North, lower levels of educational attainment and decades of under-investment. Housing costs in London limit the mobility of workers from poorer regions.