Recession prediction leaves Labour with a labour problem

Dire economic predictions and high interest rates from the Reserve Bank this week have increased the pressure on Labour, and given National a chance to pitch itself as the solution. The opposition party also ditched its politically problematic plan to cut the top tax rate, after weeks of laying the groundwork. In today's Focus on Politics podcast, RNZ Political Editor Jane Patterson revisits the interest rate shock that spells trouble for an under-pressure Labour Party."Inflation is no one's friend and in order to rid the country of inflation, we need to reduce spending levels," - Reserve Bank Governor Adrian OrrDire economic predictions and high interest rates from the Reserve Bank this week have increased the pressure on Labour, and given National a chance to pitch itself as the solution. The opposition party also ditched its politically problematic plan to cut the top tax rate, after weeks of laying the groundwork. Listen to the full podcast hereAgainst a backdrop of global uncertainty and conflict, the cost of living continues to worsen for New Zealanders. Rebounding tourism is creating more demand and record-low unemployment is boosting wages - a recipe that promises to keep inflation higher for longer. The Reserve Bank is predicting a year-long recession starting mid-2023 will curb spiralling prices, and this week lifted the official cash rate a record 75 basis points to help push things along.It aims to slow the rate of borrowing, but this inevitably means more pressure on households. Mortgagees on floating rates or with fixed terms ending soon will be feeling increasingly stressed - particularly those first-home buyers who may have borrowed large sums.Read more:Labour's nightmare reality - an election year recessionRecession: What you need to knowOCR hike not fair, necessary or likely to stop rising prices - economistOrr apologises for 'significant economic shocks', says RBNZ engineering recessionOCR hike: What we know so far and what is being saidNational's tax policy under review post-OCR hike, Luxon saysThe OCR: What you need to knowAs well as higher mortgage rates, a higher OCR will also impact on the job market - unemployment is sitting at 3.3 percent, but is forecast to rise to over 5 percent through 2024 and 2025.Governor Adrian Orr assured MPs at Parliament's finance committee the bank had run scenarios with the cash rate over 7 percent, unemployment at 9 percent, and house prices falling at 45 percent, the financial system would remain stable. …Go to this episode on rnz.co.nz for more details