The UK economy just panicked

Added: 2026-05-23

[00:00:00]Before we dive in, a quick heads up. Vulva and I are heading back to London for our second Inconross live recording. We'll be at a brand new town hall in King's Cross. And our guest is none other than Hassan That's Friday, June the 5th. So space is extremely tight, so don't wait and grab your tickets at unheard.com/econoclasts live.

[00:00:44]So, welcome back to the econo class. In the United Kingdom, there is a struggle for succeeding karma. I personally think that karma is toast. I may be wrong.

[00:00:54]What we do know is that Andy Bernham, the leader, the mayor of Greater Manchester, is throwing his uh hat in the ring. He's going to contest a bi-election in the area in the Greater Manchester area. Uh hoping he's going to win that seat in order to challenge Kyama. The question is what happens next? Vulcan >> Bernham is contesting a constituency that is in the sort of northwestern industrial heartland, the constituency of Makerfield. In this constituency, Labour lost to reform during the local elections by quite a wide margin. In fact, so this is one of the constituencies Labours needs to recoup to regain in order to be assured of winning say the next general election.

[00:01:39]So this is in many way a good test. If Berner makes it there, he can make it and I that is the one conditional statement I can make. if he wins this election, which is by no means clear, but if he does, you know, he will be in a very good position to become prime minister to challenge Starmmer. And I would even think that Stalma might in this case even, you know, step step down and let him proceed. If Burden fails to capture the seat, then we may well have Stalmer continuing because the other challenges to Stalmer are not very strong. The more interesting thing for me to actually discuss today is what to expect. Say Bernham wins. sermon becomes prime minister. This is something to do with economic policy. Now, most people don't, you know, find this find this rather technical this stuff, but economic policy is is important because it's the lack of an economic policy success that put Star where he is right now. Successful economic policies usually were the result of a strategy.

[00:02:35]This is not something that you come up with in an interview. This is not like, you know, something that, you know, Jiannis and I, you know, come up with in in a podcast. This is something you work on. It takes a long time. Thatcher took years to develop a strategy. Tony Blair took years to develop a strategy. Karl Marx took even longer to develop his strategy. These are successful strategies in the sense that they had an impact, a political impact. Can it work politically if you don't have a policy?

[00:03:02]Now, Burnham a year ago said to hell with the bond market. There was a supporter last week, an MP from Liverpool who said that the bond markets will have to fall in line with our policy. Now we we know very much it's almost the definition of the bond market that it doesn't fall in line with anyone's policy. What any successful strategy needs is some kind of plan to deal with these adverse situations. You know there is this bond market thing.

[00:03:28]structural economic growth in the UK is very low and that that any policy would need to deal with this issue and that any estimates of future tax revenues depend to a large extent on the economic growth rates and you might get into sort of you know vicious circles of you know lower growth lower tax revenues less money to spend higher deficits higher interest rates on bonds and and so on and you get a you get a vicious circle that's bit a little bit what happened with the current government the reason why this strategy I know I don't you know I've been a critic of kar farmer's economic policies and racial reefs fiscal policies precisely because they started off with a deficit and then they worked themselves sort of downward to you know what at least for spending and didn't didn't think about the the true dynamics about the economy about growth and it's all it's all about growth. If you have 3% of growth you can be pretty irresponsible in terms of or what people call irresponsible. You can be pretty irresponsible in terms of your fiscal policies. you you may still need a fiscal framework, but you don't need these these incredibly rigid fix fiscal rules. If you have zero growth, yeah, you need fiscal rules. Zero growth is is is a nightmare. You can tax people. You can do that. Uh but that may may reduce your growth and the experience in the UK has certainly shown that higher taxes, you know, are not certainly not going to help you raise more uh revenues in the long run. So these these strategies haven't worked very well. But we have to concede to stalmer and to ree that they prepared the policy that they have is a policy. It is thought through. It was costed. It is there was a thinking behind it. I don't like it myself. But this is different from something that doesn't even start from a a policy and that is just a collection of slogans.

[00:05:09]And there's an awful lot of slogans in in the left about you know about equality about opportunity and and about enabling people and you know thinking that the joining the EU this is the latest thing that sort of sort of happening happens in in in UK politics that joining the EU would miraculously you know bring the growth back because you know the growth was apparently lost because of Brexit. You have an awful lot of these oneliners you know you know Bernham changing his economic strategy during an interview. Now whenever I see that happen that to me is a red flag that to me means ah he doesn't have a strategy and when you don't have a strategy then the bond market is really in charge and we're already seeing this because the bond market started to panic last week when Burnham looked like you know like a very probable successor to star the bond yields have have risen they're now you know I was looking at the 30-year bond yield is now almost 6%.

[00:06:02]this is a very very high rate and Bernham played down the fears by saying yeah no he will pursue the same fiscal policies than Rachel Reeves now I'm not sure this is true but if it were true then the entire case for a burnham prime ministership would completely dissipate because if you do the same policies because it is the fiscal rules that Reeves has introduced that constrain the government in so many ways if you commit already at this stage to the same fiscal rules then I'm asking myself what is the point.

[00:06:32]>> I will agree a agree with your conclusion but disagree with many of the reasons that you give for it just to spice things up a bit of now you and I are economists and we are the econass we have a tendency towards economism that is to find the economic rationale behind uh everything I'm guilty of that as much as you are maybe more so uh but on this I'm going to take a distance from what you were saying because I don't think that Kmer is facing the difficulties that he's facing that is you know he's toast as I said in the introduction only because of his failed economic policies.

[00:07:11]I think that he's sensationally unpopular within the Labor Party and in the base of the of the Labor Party for a number of reasons. There is something else that I want to share with you. Um about a year ago, a year and a half ago when I was in London in the city of London, I was talking financiers. I can tell you that even though you know Kmer was still at the prime of his first term having won an a crashing majority in the House of Commons uh there were financiers including some former highranking members of the Bank of England who were speaking about Andy Burnham uh in glowing terms. uh one of them even said you know Burnham has actually done things he's actually shown that he can make uh at least the Greater Manchester municipality complete projects whereas these bozers and they were talking about Starmer and Reeves uh can't make anything work they are just absolutely incompetent they can't even organize their own office so you know the business model and the lack of a macroeconomic model that makes sense is important, but I don't think it's everything. It doesn't explain the the loss of faith in Kama, the fact that you almost every wing within the Labor Party wants him gone. Having said that, I will agree with you with your outcome outcome with your conclusion. Now, in the last 24 hours, I've seen statements coming out of Andy Bernham's mouth that to me had a very poor start of his campaign.

[00:08:45]First he allowed himself to be dragged into the Brexit debacle by saying that he he he feels that Britain should come go back to into the European Union. He always felt that. But this was the wrong thing to say at the beginning of his campaign to win this bi-election. Why?

[00:09:03]because he gave reform and Nigel Farage something to aim for to you know concentrate all their slings and arrows on uh portraying Andy Bernham as the man who wants to betray Brexit. Uh that was a very silly mistake to do and then he tried the what was even worse the was the way in which he tried to roll this back. He started saying, "Oh, we're not going to be talking about that. We're not talking about big questions. I want to concentrate on local issues because I want to give the people of this particular constituency, I forgot its name, the best service that an MP," it's like saying that the previous MP was a fool and couldn't deal with local issues and he's come in there to deal with local issues. He's not coming in there to deal with local issues. His line should be, "I'm standing because I want to be prime minister, and I want to demonstrate to the good people of the Labor Party, both members and friends, that I can defeat reform. I can defeat reform in a constituency where, as you said, Wulkan, uh, they won a few weeks ago in the municipal elections, in the local government elections. He should use this bi-election in order to tell his big story which could be about beating reform going against the misanthropy of uh the anti-migration drive that uh reform is leading and so are the tries by the way. But he's not doing that. He is flip-flopping between talking about Brexit which is a huge question in Britain and saying no no no this is not what I'm going to be on about elections about local issues. I think he he started very very badly. Now regarding the bigger question, I think you're absolutely right. You know, I remember listening to him talk few years ago and and he said and I don't disagree with what he said. He said that the UK economist problems are the industrialization, privatization, austerity and Brexit. I'm not so keen on the last explanation of the problems.

[00:11:02]Now de-industrialization is of course the key reason why Britain is finding itself in the quagmire it is in austerity you know my view about austerity so he was right and and privatization the way privatization was done under the but also Blair but he's missing the main culprit the elephant in the room and that's the city of London that is financialization there was no discussion about financialization no discussion of the problem that you and I have discussed many times before that you have so much money in in the city of London in the financial circuits of the United Kingdom which is not being invested in productive activities that's not on his radar and as long as this is not on his radar I agree with you that he is not going to have a business model but tactically at the political level he's set off in a terrible way by flip-flopping between saying that he's running this bi-election on local issues or on Brexit No, he can't do that and expect to win. So my fear is for him, not that I look, I'm not I don't consider him to be a a a figure of the left. By the way, you called him a leftist. I don't I you know, and I am a leftist. I should know. My prediction is that he he may very well lose this by election because he started off this in this particular manner.

[00:12:22]>> Yeah. I mean, I would agree with you that Star is certainly tonedeaf to the, you know, to the heartfelt wishes of his party. I want to leave this aside because this is a different subject and I also agree with you that his you know his campaign went off in the worst possible way. I would add his commitment which he made in the interview to keep Rachel Re's policies because that's something he shouldn't have done. you know, he should have instead come up with an idea, an alternative in in simply in order to give people a reason to vote for him because if you know, if if you already start this way, serious people can question what the outcome will be. And you said he doesn't have a policy for the city of London, he doesn't have an economic policy. I think we probably agreed we agreed on this.

[00:13:04]Now, let's talk about Manchester. Now I've been to Manchester and uh I was I went I went there a year ago and I was absolutely stunned how how wonderful that city has how how it's changed how how wonderful it has become. I completely grant him that whether it was because of him or despite of him as people now quarrel I I'll give him the benefit of the doubt. It is you know he was a great mayor of Manchester in a way that Boris Johnson was a great mayor of London. I mean, this is, you know, they're doing their their mayorships, but Manchesterism, as as as you know, Burnham calls it, uh, you know, bernomics, as I would call it.

[00:13:37]Manchesterism isn't going to work. You and I talk about this all the time, fallacy of composition, everything.

[00:13:41]Something works for me and then it works for everybody. How does a city work? You have a budget. Uh, you do not have a currency. You do not have a bond market.

[00:13:50]You do not have these vicious circles that you have in macroeconomics. But the important point is that Manchesterism is irrelevant for the UK. I don't want to prop you whom you talk to in the in the in the city and there are people on the left and there are people you know so who support Burnham uh and there are people who cringe about Stal that's perfectly clear and a lot of people want to get rid of him but we should separate from this the the our analysis of what to expect from the economic policy because that is a policy that is failing in the UK it is not only the fact that some person has done some bad things I mean the whole Mandlesson thing and we had a whole session on that was so badly handled >> and maybe Burnham has that character.

[00:14:28]So, you know, you might swap, you know, swap the guy and get somebody who is slightly more, you know, more of more more of a of a human. The economic policy, this is what's failing people in, you know, especially in the north of England. Uh, the kind of the people that he claims to represent and that he he whose interests he claims to serve, they will not benefit from a policy that will be unchanged, an economic policy that will be unchanged, and it will only be about how we frame it, how we sell it.

[00:14:55]The Labour Party is about to change its leader. Uh this is a big deal. One of the lessons of this period is that you do it when you really know what you're doing. If you do it because the guy is nicer, but the economic policy is the same. I wouldn't, you know, I think this this bar is too low. If I was a strategic adviser to the Labor Party, which you know, I I you know, I'm not and will not be and not applied for that job either. I would say, you know, do it, get rid of him. But you you use the opportunity for new economic policy narrative. It has to be a different policy but it has to be a cohesive policy. You know there are intelligent policies on the left just as there are intelligent policy on the right. Um there are different ways of how to affect the economic outcome of the country. But Bernham doesn't have any.

[00:15:38]That is the point. It's not about whether his instincts are right. It is about you. He doesn't have a strategy.

[00:15:44]So he'll probably end up with Rachel Ree as his chancellor because he needs to pate the bond markets. it would be the worst possible start. And as you said, Jiannis, the you know, his election campaign, you know, didn't get off very well. And that basically tells tells me that he was not prepared. I mean, would you not have a strategy to talk about Brexit? Would this be something that you would accidentally get into if you if you were running for the job of prime minister?

[00:16:09]>> Yeah.

[00:16:09]>> Uh it's for me completely inconceivable.

[00:16:12]You're seeing a pattern already being established and this is why I'm skeptical about this potential U. Prime Minister Andy Bernham.

[00:16:19]>> Well, I couldn't agree with you more.

[00:16:21]When I have meetings with people in my party here in Greece, they say to me, well, why can't we emulate Zoran Manni?

[00:16:28]He promised three things, four things, and he's trying to deliver them. And what I say to them is exactly what you said, Vulcan, that you know, we are not running for a municipality. We are running to run a country. And you know when you do that you have to have a macroeconomic policy because you know you have to deal with the markets you have to deal with uh interest rates you have to deal with this uh remarkable inter interdependence between your fiscal policy and your constraints and therefore you must have a macroeconomic plan. Let's wait and see. I personally think that Andy Bernham has a capacity to would have had a capacity had he put his mind to it, had he had a better plan to defeat reform in that constituency, maybe he can recover his poise. The fact that he is more liked and has shown that he can complete a project that you know Kama never managed to complete. Even when he was director of public prosecutions, there was a mess in the Crown Prosecution Service. He was a terrible manager, even when it comes to micro stuff. So, let's wait and see, shall we? Indeed. And we discussed three subjects essentially today. The USChina relationship, AI, which is part of this, and the future of British politics. And I'm sure that they all have in common that we will return to them in the not too distant future.

[00:17:49]So, don't forget to rate, like, and subscribe to The Econas wherever you listen to or watch this podcast. We'll see you again next week.