In the House of Commons, when members of Parliament become rowdy, the Speaker will often bellow ‘Order, Order!’ Much of the same treatment is needed for gilts and sterling, both moving in a violent manner that historically has typified the breakdown of an economic regime.
There are several lessons to be learned here – one of which is that when making policy there is a need to be cognizant of the broader economic and financial environment. A financial climate troubled by inflation, rising interest rates and dangerous geopolitics is not one in which mistakes will be tolerated.
The early schoolboy/girl errors of the Truss government mark the cumulative effect of a long process of policy neglect and geopolitical decline. The death of Queen Elizabeth II has, amongst many other things, contributed to the sense that an era has passed, and that a new, more testing one is upon us.
Brexit
Wrapped up in all this is the Brexit project, which has drained U.K.’s economy of its vitality (investment, productivity and growth have stalled badly), exhausted the patience of Britain’s international partners and debased the political climate in the U.K. That Brexit is not working is a clear message from financial markets.
Another longer-term message is that Britain’s outsized role in the international economy and world stage is now over. Some years ago, the economist Barry Eichengren produced a paper that showed that through history, as empires have declined, so too has the role their currency has played in the international economy. This has led some to posit that the dollar should start to waken as we enter a multipolar world. If Britain does prove this theory correct, there should be a long lag to dollar weakness, if that is to happen, but the lag will be long. Bear in mind that at the time of the American Civil war, one pound bought ten dollars, and this fell to four at the time of the Suez crisis and, collapsed to one now.
Lessons of Small States
A further source of comfort for Americans is that unlike the U.K., the U.S. is not breaking up. In Britain, Brexit has detonated history such that Scottish independence is now likely in the next five to ten years, the reunification of Northern Ireland and the Republic is widely discussed, and there is even an upswing in Welsh independence sentiment.
Looking ahead, the chief issues now are in the short term whether economic and financial volatility will persist, and by association whether the Truss government survives its experiment with an economic model that appeared to work in 1980’s America, and then more challengingly, what becomes of the idea of Global Britain, and logically the ‘Little Britain’ that Liz Truss appears to be trying to create.
In the short term, there are two obstacles – the volatile financial market outlook and the rupture in the credibility of Britain as an investment destination, and a major economy (for comparison – British 10 year bond yields are 4% (helped lower by renewed buying by the Bank of England) whereas that of its neighbor Ireland trade at 2.7%).
In particular the reputation of the Tories as the stewards of the economy is in smithereens. The Tories face ongoing questions regarding their closeness to Russian money, and to the London hedge funds that shorted sterling.
In the longer term, the U.K. needs at least two changes of tack. The first is an economic model akin to that of small, advanced economies like Sweden, Singapore and Switzerland that priorities access to good education and public goods, focuses on the drivers of productivity, values the rule of law, good institutions and the people who run them (the sacking of Sir Tom Scholar from the Treasury was significant in this regard). In my view, it is unlikely that Britain will adopt this approach, even though it has been shown to produce high quality long-term growth in a range of countries (The Lessons of Little States).
The second changes relates to the political system. The distasteful chaos of the Johnson premiership and the incompetence of the Truss one have resulted in a sizeable lead in the polls for Labour. Should they come to power in a subsequent election, one choice that may confront them is electoral reform.
Introducing proportional representation in the place of the first past the post system would radically alter British politics – it would force collaboration, more coalitions and arguably foster a more policy focused debate. Importantly it would make it easier for parties to evolve. Brexit is largely the result of deep internal divisions within the Tory party that poisoned national politics because there was no suppleness in the party system.
Such a change might reestablish growth, and a sense of ‘order’ in Britain.
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.
