…October 2024

October has been mainly dominated by the US Presidential election and the worsening geopolitical situation – the two being inextricably linked as everyone waits for the results of the former to see if there’s any chance of dealing with the later.

In the last few weeks we’ve seen elections in Japan, Moldova, Georgia and Botswana, but even in these countries it’s the US elections that really count. The choice is between a former prosecutor, an apparently capable and decent woman of colour, or an ageing white man, a convicted felon who often appears to be suffering from some kind of cognitive decline and who has threatened to undermine democracy and rule as a dictator. Regardless of whether your politics are to the right or left, the fact that these two are locked into a tight race suggests that America is fundamentally broken. It’s difficult to see other democratic nations ever again accepting America’s claim to be the leader of the free world. 

That free world is facing a moment of great peril. There are currently two regional conflicts, in Eastern Europe and the Middle East but since there are several common players these could easily fuse together into a single world war. Most worryingly, we have been skirting around this for the last two years so that the risk of complete thermonuclear armageddon no longer seems as remote as it should do. Instead, many people are simply wondering how that might affect the interest rates.

The Russians have dramatically escalated the war in Ukraine by bringing in some 8000 or so North Korean soldiers but the West has been unable to respond this close to the US election. This has also put China in an awkward position because it expected to dominate its two needy allies, Russia and North Korea, but their alliance has left the Chinese in a complicated triangle as it tries to avoid further sanctions that might damage its increasingly fragile economy. 

The Ukrainians are clearly flagging, desperately begging for more help, while the West equivocates out of fear of Russia. Meanwhile Israel continues to win new friends in the Middle East by bombing just about everyone, including Gaza, Lebanon, Yemen, Syria, Iraq and Iran, mostly with Western support. There’s plenty of evidence that the increasingly influential global south players, most notably India, are withholding support for Ukraine out of unhappiness at Israels’s actions though there’s no chance that the West’s highly expensive and largely useless diplomatic services are listening. 

Against all of this, there is the stuttering economic news facing most countries. The latest UK inflation figures, for September, show a drop from 2.2 percent to 1.7 percent, the first time it’s dipped below the 2 percent target since April 2021. This has led to suggestions that the Bank of England could cut the interest base rates from the current 5 percent at its next meeting in November. However, many economists believe this could be a temporary blip, driven mainly by lower air fares and petrol prices. Food and other household items are still going up in price so there’s little relief for most householders.

Meanwhile, the European Central Bank has cut its interest rate for the third time this year to 3.25 percent. Inflation within the EU is now easing but there are fears that several European economies, particularly Germany, may be on the brink of recession. The Italian economy is also slowing down, while the Olympic bounce that France experienced over the summer is also running down. 

By the end of October, the US inflation had dropped to 2.1 percent, just above the Federal bank’s 2 percent target. However, although the latest US Q3 figures show 2.8 percent growth in gross domestic product, this is below the 3 percent from Q2, and there has been a worrying slowdown in the number of new jobs. Almost half of US voters believe their country is in recession, though the US economy has proven to be quite resilient, often against expectations over the last couple of years. 

Meanwhile the Chinese economy continues to grow, at rates that far outpace any Western country, but at a slower pace than expected. The Chinese government has opted for a big bang approach with an array of economic measures, that mostly amount to financial engineering of the state sector. The Chinese economy has significant long term structural problems, particularly around the property market, but also including high youth unemployment, weak productivity and deflation, plus the corruption that is endemic to any highly repressive autocratic nation. President Xi Jinping’s tendency is to rely on yet more political repression to cope with those issues that are directly outside his control, which will exacerbate these problems and prevent the Chinese people from reaching their true potential.

The main issue in the UK has been the long awaited budget. The run-up to this saw excessive briefing from the prime minister, Keir Starmer, and chancellor Rachel Reeves, who managed the unique trick of burning their bridges at both ends. Those of us living in the lower half of the economy were fearful of a return to austerity; while the better-off people were afraid there will be tax cuts. In the end Reeves delivered a largely positive budget, built around upgrading basic infrastructure including hospitals, schools and transport. Most of the tax rises needed to pay for this will be picked up by the better-off and businesses. There has been some carping that this will translate into less money to hire lower-paid staff but in reality most companies have already cut their staffing to the bone and the budget will make little difference to that. 

Britain’s economy has been fundamentally wrecked  by three continuing problems. The first is the economic austerity that the then chancellor George Osborne unleashed from 2010 to 2016, which crippled the country and damaged the critical infrastructure. Reeves’ budget is the first serious effort to unpick this but its success will depend on how well the government follows through on that. 

The second issue is Brexit, caused by the then prime minister David Cameron’s failure to lead his own party, which is now recognised as acting as a brake on the entire economy. Who knew that an economy that relied heavily on exports would suffer from turning its back on its closest export market? The question here is, does Starmer have the balls to align the UK more closely with the EU and release that brake?

The third issue is the continuing meltdown of international trade, sparked first by the supply chain crisis that came after the pandemic, driven now by several hot conflicts and the cold blanket of ideology and increasing trade tariffs. This requires international leadership but who from? Not the G7, which is too small and one-sided a group. Not the BRICS group of Brazil, Russia, India, China and South Africa plus Iran, UAE, Egypt and Ethiopia, half of whom are directly responsible for the problems. The G20 – maybe if it weren’t crippled by the rivalries between its BRICs members and the G7. 

Perhaps the Commonwealth, that unique group of countries that rose out of the ashes of the British empire to capitalise on the unique benefits of having been completely subjugated by another country and its army. The Commonwealth, as Starmer has discovered, is not quite as docile as he would have hoped, with many countries now openly calling for reparations for all the slavery, corruption, pillaging of national assets and so on. 

Yet in October Britain did returned the Chagos Islands, its last African colony, to Mauritius whilst still retaining Diego Garcia and its US-operated airbase. Luckily the Conservative opposition have managed to extract the maximum comedy value from this by first accusing the Labour government of giving up a British (!) outpost and then scrambling to blame each other when it emerged that the last Conservative government had started the process. This neatly encapsulates Britain’s approach to the modern world: we like the idea of the 21st century but still hanker for the good old days of the 19th century when superior military prowess obviated the need for any kind of diplomatic skill.

Next on Starmer’s to do list is to work out how much sucking up is going to be needed for whoever gets the keys to the white house. Perhaps it’s no wonder that he felt entitled to take a few free tickets to a Taylor Swift gig…