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Economy

Britain’s Sunak tries to move on from pandemic with new spending

By William Schomberg

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Britain's Sunak tries to move on from pandemic with new spending
© Reuters. Britain’s Chancellor of the Exchequer Rishi Sunak arrives at Broadcasting House to take part in an interview on BBC’s ‘The Andrew Marr Show’, in London, Britain, October 24, 2021. REUTERS/Peter Nicholls

By William Schomberg

LONDON (Reuters) – Finance minister Rishi Sunak will try to show that he is moving Britain on from the coronavirus pandemic on Wednesday when he announces multi-billion-pound investments to help Prime Minister Boris Johnson meet spending promises to voters.

But Sunak, who has racked up the biggest ever peacetime budget deficit to combat COVID-19, will keep a tight grip on day-to-day spending by many government departments, something that could slow Britain’s still incomplete recovery.

As well as a budget update – which for once is not expected to include emergency stimulus measures – Sunak will announce a three-year spending plan with investments in public transport, skills training and other projects to advance Johnson’s plan to “level up” poorer regions.

Newspapers said he was expected to soften the hit to lower-earnings households who recently lost a COVID emergency top-up to welfare payments and are facing higher inflation.

Sunak will also try to burnish the government’s low-carbon credentials before Britain hosts the COP26 climate summit starting next week.

“Today’s budget begins the work of preparing for a new economy post-COVID…, an economy fit for a new age of optimism,” Sunak is due to say, according to excerpts of his speech released by the finance ministry.

That Sunak can focus on extra spending in his speech to parliament – expected to start around 1130 GMT – is due not only to stronger forecasts for economic growth but also to a big tax increase for workers and employers announced in September.

Companies face an additional tax hike in 2023.

“Sunak, a Conservative chancellor, is presiding over a tax burden rising to its highest sustained level in history,” Paul Johnson, director of the Institute of Fiscal Studies, a non-partisan think tank, wrote on Monday.

Britain’s economy suffered a near 10% collapse last year after the country was slower than others to shutter its economy to ward off coronavirus contagion, and ended up spending more time in lockdown.

Nonetheless, an upgrade of Britain’s growth forecasts on Wednesday will give the government extra room for manoeuvre.

Bond dealers polled by Reuters expect borrowing this financial year of 190 billion pounds ($261 billion), 44 billion pounds less than the government forecast in March and equivalent to around 8% of gross domestic product.

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Sunak, a former Goldman Sachs (NYSE:) analyst, has pre-announced higher spending on health, public transport in cities away from London, and skills training as well as the lifting of a freeze on public sector pay.

However, many ministries will face a further squeeze as Sunak sets a new fiscal rule for the government. It is expected to focus on bringing day-to-day spending into balance with tax revenues over a three-year horizon.

Many economists say that target looks achievable and could allow Sunak to cut taxes before the next election, which is due in 2024 but could come earlier.

The Sun newspaper said Sunak would also commit to bringing down Britain’s debt by the time of the next election.

As well as a renewed rise in COVID-19 infections in Britain, a big risk for Sunak is that the recent jump in inflation proves to be more stubborn than expected, which could push up the government’s debt costs sharply.

Around a quarter of British gilts are indexed to inflation, a higher share than most other rich economies.

A 1-percentage-point rise in interest rates and inflation would cost taxpayers about 25 billion pounds a year, according to government estimates.

That would be equivalent to double the money that Sunak plans to raise with his increase in social security contributions to fund the health service and social care.

Borrowing costs could start to go up as soon as next week when the Bank of England is due to announce its November policy decision against the backdrop of an inflation rate on course to hit 5%, more than double its target.

($1 = 0.7272 pounds)

Economy

Fed’s Williams says Omicron variant may prolong supply-demand imbalances

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Fed's Williams says Omicron variant may prolong supply-demand imbalances
© Reuters. FILE PHOTO: John Williams, Chief Executive Officer of the Federal Reserve Bank of New York, speaks at an event in New York, U.S., November 6, 2019. REUTERS/Carlo Allegri

(Reuters) – The latest COVID-19 variant could extend some of the supply-chain challenges and shortages that have led to higher inflation, and Federal Reserve officials will need to factor that in as they decide how to withdraw their monetary policy support, New York Fed President John Williams said.

“Clearly, it adds a lot of uncertainty to the outlook,” Williams said, referring to the Omicron variant of COVID-19, during an interview with the New York Times that was published on Wednesday.

If the variant leads to continued demand for goods and services that are currently facing shortages, and if it stalls the recovery in other areas, that could lead to a “somewhat slower rebound overall,” Williams said. It might also “increase those inflationary pressures, in those areas that are in high demand,” he added.

Last month, the Fed began reducing its purchases of Treasuries and mortgage-backed securities from $120 billion per month at a pace that would put it on track to complete the wind-down of its bond-buying program by mid-2022.

On Tuesday, Fed Chair Jerome Powell told the U.S. Senate Banking Committee that U.S. central bank policymakers would discuss at their Dec. 14-15 meeting whether to end that program a few months earlier than had been anticipated.

Williams did not say whether he supports speeding up the taper of the asset purchases, but noted that Fed officials will have a lot to weigh at their next policy meeting, including more data on inflation, employment and the economic effects of the Omicron variant.

“The question is: Would it make sense to end those purchases somewhat earlier, by maybe a few months, given how strong the economy is?” Williams said. “That’s a decision, discussion, I expect we’ll have to grapple with.”

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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Economy

Treasury’s Yellen: Biden stimulus at most a ‘small contributor’ to inflation

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Treasury's Yellen: Biden stimulus at most a 'small contributor' to inflation
© Reuters. FILE PHOTO: reasury Secretary Janet Yellen pauses while testifying before a Senate Banking Committee hybrid hearing on oversight of the Treasury Department and the Federal Reserve on Capitol Hill in Washington, U.S., November 30, 2021. REUTERS/Elizabeth F

By Andrea Shalal and David Lawder

WASHINGTON (Reuters) – U.S. President Joe Biden’s $1.9 trillion stimulus package in March contributed to stronger demand but is only a small factor in current higher rates of inflation, U.S. Treasury Secretary Janet Yellen told lawmakers on Wednesday.

Yellen told the House Financial Services Committee that the stimulus package clearly boosted demand but said it was not a “fair assumption” to say it overshot the need and fueled current spikes in inflation.

“It’s certainly true that the American Rescue Plan put money in people’s pockets … and contributed to strong demand in the U.S. economy, but if you look at the amount of inflation that we have, and its causes, that is at most a small contributor,” she said.

High inflation, now running at more than twice the Federal Reserve’s flexible target of 2% annually, is expected to ease in the second half of 2022, Fed Chair Jerome Powell told lawmakers at Wednesday’s hearing.

Yellen, grilled by Republican lawmakers about the inflationary impact of Biden’s response, insisted there was a “very good reason” to proceed with the stimulus package to deal with a shortage of demand that could have resulted in long-lasting joblessness and high unemployment.

“It’s been successful,” she said. “It did boost demand, and that is one of several factors that are involved in inflation.”

Yellen said the main driver of inflation was the COVID-19 pandemic and its impact in diverting demand away from services and “massively” toward goods, resulting in supply chain problems as well as a lasting effect on labor supply.

She said the pandemic had delivered an “unusual shock” to the workforce, and concerns about health issues were keeping many low-income workers from returning to their jobs, but that should recede as the pandemic was brought under control.

Biden’s plan for $1.75 trillion in further social and climate spending over the next decade was a small amount relative to the size of the U.S. economy, was paid for, and would lead to improvements that lowered deficits, Yellen said.

“It puts in place investments that will continue to bring down deficits,” she said. “It will improve the supply side of the economy, which is, in the long run, a factor that will tend to mitigate ongoing inflationary pressures.”

Yellen sparred for a second day with Republican lawmakers who cited a Congressional Budget Office estimate the “Build Back Better” legislation would add $367 billion to U.S. deficits over a decade.

She stuck to her argument that the CBO estimate does not include the effects of increased Internal Revenue Service enforcement, which the Biden administration has estimated would boost revenues by $400 billion over a decade.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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Economy

Some Republicans in U.S. Congress try to close government over vaccine mandates

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Some Republicans in U.S. Congress try to close government over vaccine mandates
© Reuters. FILE PHOTO: The U.S. Capitol building is seen in Washington, U.S., November 16, 2021. REUTERS/Elizabeth Frantz/File Photo

By Susan Cornwell and David Morgan

WASHINGTON (Reuters) – U.S. lawmakers’ efforts to keep the U.S. government operating hit a stumbling block on Wednesday as a group of hard-line Republicans threatened to try to block any plan that allowed COVID-19 vaccine mandates to proceed.

Congress has until midnight on Friday to pass a measure continuing to fund federal government operations or face a partial shutdown during a pandemic that would be a political embarrassment to President Joe Biden’s Democrats, who narrowly control both chambers of Congress.

The hard-line Republican House Freedom Caucus called on Senate colleagues on Wednesday to vote against any measure, known as a “continuing resolution,” that would support Biden’s requirements that workers at federal contractors and large companies receive the COVID-19 vaccine.

“Use all procedural tools at your disposal to deny timely passage of the CR unless it prohibits funding – in all respects – for the vaccine mandates and enforcement thereof,” the group wrote in an open letter to top Senate Republican Mitch McConnell.

McConnell earlier in the week said he was confident that the measure funding the government would pass. House Republicans do not have enough votes to block legislation. But most legislation requires 60 votes to advance in the evenly divided 100-seat Senate, so Democrats would need support from at least 10 Senate Republicans to get to a vote on passage.

Democratic Senate Majority Leader Chuck Schumer told reporters talks with McConnell on funding the government were “making good progress”. He dismissed the Freedom Caucus’ threat.

“We’ll have total chaos,” Schumer said. “It’s up to the leaders on both sides to make sure that doesn’t happen.” Other lawmakers suggested one way to solve the problem would be to allow a separate vote on the vaccine mandates.

Negotiations between the two parties are focused on how long to continue to fund the government. Democrats want to extend current funding levels just until January and then pass new spending bills, while Republicans have urged a delay until later in the spring, a move that would leave spending at levels agreed to when Republican Donald Trump was president.

The Biden administration was blocked in court on Tuesday from enforcing two mandates requiring millions of American workers to get vaccinated against COVID-19, a key part of its strategy for controlling the spread of the coronavirus.

One federal judge temporarily blocked enforcement of a government mandate for healthcare workers. Another blocked the administration from enforcing a regulation that new government contracts must include clauses requiring that contractors’ employees get vaccinated.Democrats were indignant at the conservative Republicans’ demand. “I think we’re in the middle of a public-health crisis. And vaccine requirements are reasonable public-health measures at this particular point in time,” House Democratic Caucus Chairman Hakeem Jeffries told reporters.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

Continue Reading

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