Economy

UK’s Hunt says won’t implement tax cuts that fuel inflation

Published

3 weeks ago

November 20, 2023

UK's Hunt says won't implement tax cuts that fuel inflation

By Kylie MacLellan and Andy Bruce

LONDON (Reuters) -British finance minister Jeremy Hunt said on Sunday he would not implement tax cuts that would push up inflation, days before he announces a major budget update that is widely expected to contain reductions in some taxes.

Hunt is due to present an Autumn Statement on Wednesday which he hopes will revive the fortunes of both a stagnant British economy and the governing Conservatives ahead of an election expected next year, and the Sunday Times reported he was considering cutting income tax or national insurance.

He has been under pressure from some Conservative lawmakers who, alarmed at the opposition Labour Party’s big lead in opinion polls, have demanded he deliver tax cuts.

“We do want to bring down the tax burden but we will only do so responsibly,” Hunt told Sky News. “The one thing we won’t do is any kind of tax cut that fuels inflation.”

Annual inflation tumbled to 4.6% in October from 6.7% a month earlier, putting Prime Minister Rishi Sunak on track to meet a pledge of halving inflation over 2023.

“I do think the British economy has turned a corner this week,” Hunt said in a separate interview with Times Radio, adding that his priority was growth. “I will be doing everything that I can possibly think of to boost growth.”

Asked if he would cut inheritance tax – a move the Sunday Times said could be delayed owing to bad press – Hunt told Sky “everything is on the table” ahead of his statement.

OPTIONS LIMITED AFTER HEAVY SPENDING

Labour’s finance spokesperson Rachel Reeves said cutting inheritance tax would be the wrong priority in a cost-of-living crisis.

“Lower taxes on working people – if the government can explain where the money is coming from – is something I would support,” Reeves told Sky News.

Hunt’s options are limited after heavy state spending on the COVID-19 pandemic and last year’s surge in energy prices. Public debt now stands close to 100% of economic output, more than three times its size 20 years ago.

Still, official forecasts due on Wednesday are expected to show Hunt has more room for giveaways before running into trouble with fiscal rules than in his annual budget published in March.

“If we’re going to be a dynamic, thriving, energetic, fizzing economy, we need to have a lower tax burden,” Hunt told Times Radio, adding that the only way to bring personal taxes down was to spend public money more efficiently.

“We want to show people there is a path to lower taxes but we also want to be honest with people this is not going to happen overnight.”

While UK tax revenues are at their highest since the 1940s, according to the Institute for Fiscal Studies, the country’s tax rate is lower than in most other western European countries. Data for 2021 from the Organisation for Economic Co-operation and Development showed Britain was the lowest among major European countries, well below France’s 45% or Germany’s 40%.

Economy

Fed pivot to interest-rate cuts seen likely to start in May

Published

2 hours ago

December 9, 2023

Fed pivot to interest-rate cuts seen likely to start in May

By Ann Saphir

(Reuters) – A stronger-than-expected U.S. labor market won’t keep the Federal Reserve from pivoting to a series of interest-rate cuts next year, but it could take until May for it to deliver the first reduction, traders bet on Friday.

Employers added 199,000 workers to their payrolls in November, the Labor Department’s monthly jobs report showed, more than the 180,000 that economists had expected, and the unemployment rate unexpectedly fell to 3.7%, from 3.9% in October.

Hourly earnings ticked up 0.4% from a month earlier, more than expected and an acceleration from the prior month. But the labor force participation rate also rose, to 62.8%, easing the prospect that an overheated job market will short-circuit progress on the Fed’s inflation battle.

A separate report Friday showed U.S. consumer sentiment improved more than expected in December as households saw inflation pressures easing.

The U.S. central bank is expected to keep rates in the current 5.25%-5.50% range when it meets next week, leaving policy on hold since July. Traders before Friday’s jobs report had put about a 60% probability on a March start to Fed rate cuts, but after the data reduced that to just under 50%, with a first reduction seen as more likely to come in May.

Further rate cuts are priced in for the rest of 2024, with the policy rate seen ending the year in the 4%-4.25% range as the Fed adjusts borrowing costs downward not as an antidote to a weaker labor market but rather to keep pace with an expected continued cooling in inflation.

The pace of that improvement in inflation will help determine the timing of the Fed’s pivot to rate cuts, analysts said.

“We maintain our call for the Fed to start cutting rates by mid-year, but it is contingent on inflation continuing to trend lower and further weakening in economic activity,” wrote Nationwide economist Kathy Bostjancic after the report.

Fed policymakers will release their own views of where the economy, inflation, and interest rates will go next year when they wrap up their last meeting of the year on Wednesday.

Economy

US consumers’ moods brighten as inflation worries subside – UMich

Published

2 hours ago

December 9, 2023

US consumers' moods brighten as inflation worries subside - UMich

(Reuters) -U.S. consumer sentiment perked up much more than expected in December, snapping four straight months of declines, as households saw inflation pressures easing, a survey showed on Friday.

The University of Michigan’s preliminary reading of its Consumer Sentiment Index shot up to 69.4, the highest since August, from November’s final reading of 61.3.

The median expectation among economists in a Reuters poll had been for the index to edge up to 62.0.

“Consumer sentiment soared 13% in December, erasing all declines from the previous four months, primarily on the basis of improvements in the expected trajectory of inflation,” survey Director Joanne Hsu said in a statement.

The survey’s preliminary gauge of current conditions rose to 74.0 from last month’s final level of 68.3, while the expectations index climbed to 66.4, the highest since July, from 56.8 in November.

Consumers’ outlook for inflation in the year ahead plunged to 3.1% – the lowest since March 2021 – from November’s final expectation of 4.5%. The 1.4 percentage point decline was the largest monthly drop in one-year inflation expectations in 22 years.

Over a five-year horizon, consumers expect inflation to average a three-month low of 2.8%, down from 3.2% in November, which had been the highest since March 2011, when it reached the same level.

Economy

Russian inflation accelerates in November, rate hike beckons

Published

2 hours ago

December 9, 2023

Russian inflation accelerates in November, rate hike beckons

MOSCOW (Reuters) – Inflation in Russia accelerated in November, data from state statistics service Rosstat showed on Friday, cementing expectations that the central bank will hike interest rates as it meets for the final time this year on Dec. 15.

The central bank has now raised rates by 750 basis points since July, including an unscheduled emergency hike in August, under pressure from a weak rouble, tight labour market and strong consumer demand. Analysts widely expect another hike, to 16%, next week.

High interest rates are one of several irksome economic challenges facing President Vladimir Putin, who on Friday said he would run again for president next year, although none seem insurmountable thanks to Russia’s success in evading a Western oil price cap helping to drive a recovery in economic growth.

In November, annual inflation stood at 7.48% year-on-year, up from 6.69% a month earlier and just shy of analysts’ expectations of a 7.6% reading.

The data suggests that annual inflation will exceed the central bank’s expectation of year-end inflation at the upper end of the 7.0%-7.5% range, which is well above its 4% target.

On a monthly basis, the consumer price index (CPI) rose 1.11% in November after a 0.83% increase in October, the data showed, coming just below analyst forecasts of a 1.2% increase. That was the fastest monthly rise since April 2022.

In the week up to Dec. 4, consumer prices rose 0.12%, separate Rosstat data showed.

Russian households regularly cite inflation as a major concern, with many having no savings after a decade of economic crises, while rising prices dragged living standards down across the country.

Rosstat gave the following details:

RUSSIAN CPI Nov 23 Oct 23 Nov 22

Mth/mth pct change +1.11 +0.83 +0.37

– food +1.55 +1.35 +0.40

– non-food +0.53 +0.55 +0.06

– services +1.23 +0.48 +0.76

Y/Y pct change +7.48 +6.69 +11.98

Core CPI y/y pct change +6.36 +5.50 +15.06