LONDON (AP) — The United Kingdom’s central bank on Thursday became the first in a major advanced economy to raise interest rates since the coronavirus pandemic began, as banks controlling monetary policy around the globe shift their focus from stimulating the economy to combating soaring consumer prices that arrived during the recovery.
The moves come despite the threat that the new omicron variant of COVID-19 poses. The European Central Bank took a much more cautious approach than the Bank of England, but it also decided the economic recovery was strong enough for it to start carefully dialing back some of its stimulus efforts over the next year.
The U.K. bank was joined by Norway, which hiked its benchmark interest rate in the face of troublesome levels of inflation. Central banks typically raise rates to fight inflation and lower them when economies are weak, as they were during the pandemic. They have also used bond purchases to drive down market rates for borrowers during the pandemic, aiming to help businesses limit staff cutbacks or avoid bankruptcy.
The U.S. Federal Reserve also decided this week to speed up its exit from pandemic crisis support as inflation reached a 40-year high of 6.8% in November, putting it on a path to start raising interest rates as early as the first half of next year. The eurozone’s inflation rate is 4.9%, highest since statistics started in 1997, though the central bank says much of that is temporary.
At first glance, the central bank moves seemed to show a disconnect from government warnings about the spread of omicron and the accompanying new travel restrictions and testing requirements. That is at least partly because central banks know their policies take months to push inflation and economic growth up or down — and may take full effect only after the omicron wave has crested and subsided.
“By the time today’s rate increase will have any noticeable impact on the inflation outlook, the potential near-term hit to economic activity from omicron will almost certainly be history,” said Holger Schmieding, chief economist at Berenberg bank.
European Central Bank President Christine Lagarde also acknowledged what many economists have been saying: Businesses and consumers have been learning to navigate the new world of anti-virus restrictions — meaning successive waves have less overall economic impact, as miserable as they may be for the hardest-hit sectors like hotels and restaurants.
“Overall, society has become better at coping with the pandemic waves and resulting constraints,” she said.
The Bank of England’s increase in its main rate to 0.25% from the record low of 0.1% was a surprise given the news around omicron’s rapid spread across the U.K., which is already hurting many businesses, particularly those in the hospitality sector.
The country’s chief medical officer urged people to limit socializing over the holidays as the U.K. on Wednesday recorded the highest number of confirmed new COVID-19 infections since the pandemic began. British restaurants and pubs demanded government help.
But with consumer price inflation running at 5.1%, more than double the bank’s target of 2%, the vast majority on the bank’s rate-setting Monetary Policy Committee decided action was needed now. For many households struggling with rising prices, it’s likely to be another hit to their incomes, at least in the short-term, with mortgages and loans set to increase, too.
Economists said the decision underlined the extent to which policymakers are worried about inflation, even before knowing the full extent of the hit to growth stemming from omicron.
“Instead of battening down the hatches and waiting for the latest COVID storm to subside, they are taking action now to prevent an even sharper spiraling upwards of prices,” said Susannah Streeter, senior investment and markets analyst at stockbrokers Hargreaves Lansdown.
Britain becomes the first member of the Group of Seven economies — a group of democracies with high living standards and advanced economies — to start raising interest rate benchmarks. The other members are Canada, France, Germany, Italy, Japan and the U.S. France, Germany and Italy are part of the eurozone.
The U.K. rate increase sent the pound soaring in currency markets — one sign that it hadn’t been expected. Soon after the decision, the pound was trading 0.7% higher at $1.3360.
The outlier in Thursday’s action was Turkey, where the central bank again cut a key interest rate despite soaring consumer prices that are making it difficult for people to buy basic goods. The decision sent the country’s currency to record lows against the U.S. dollar.
The bank’s policies are in line with the views of President Recep Tayyip Erdogan, who has been pressing for low borrowing costs to boost growth, despite conventional economic policy that says raising interest rates eases high inflation.
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.