Boris Johnson Vows ‘New Deal’ to Rebuild Post-Virus U.K. Economy
(Bloomberg) — Boris Johnson will commit to spending on infrastructure to rebuild the coronavirus-ravaged U.K. economy in a major policy speech Tuesday and say that balancing the books must wait until recovery is secure.
Reprising spending pledges he made before December’s general election, the prime minister will announce the acceleration of 5 billion pounds ($6.2 billion) of investment in roads, schools and hospitals and promise to publish a strategy for further capital spending in the fall.
“We will build build build. Build back better, build back greener, build back faster and to do that at the pace that this moment requires,” Johnson will say, according to extracts of the speech released by his office. What is needed is “a New Deal” and “a government that is powerful and determined and that puts its arms around people at a time of crisis,” he will say.
Johnson won a commanding 80-seat Parliamentary majority by promising to “level-up” left behind parts of the U.K. with spending on infrastructure and skills, but his plans were blown off course as ministers battled the pandemic, which has killed 43,575 people and plunged the economy into recession. As lockdown restrictions are lifted, he is seeking to regain the initiative and deliver on his pledges as the centerpiece of his rebuilding plans.
The prime minister, who has said he will not repeat the austerity policies his party imposed after the 2008 financial crisis, will compare his program to President Franklin Delano Roosevelt’s “New Deal,” which used government spending to help the U.S. out of the Great Depression in the 1930s.
And he’s prepared to increase borrowing to make it happen. In a briefing note about the speech, Johnson’s office said decisions over increasing taxes or cutting services to pay for the debt will have to wait.
“While in the long-term the government must set a path to balance the books, the prime minister is clear that we will not do so at the expense of investing now in the productive potential of the economy, or at the expense of the resilience of the U.K.’s public services,” it said.
With debt higher than GDP for the first time since 1963, Chancellor of the Exchequer Rishi Sunak will “provide an update” on the economy next week. The announcement angered the opposition Labour Party, which wants a full redrawing of the budget to focus on employment.
“Unemployment has climbed to its highest level in a generation, and our country is suffering the worst economic hit of all industrialized nations.” Anneliese Dodds, Labour’s economy spokeswoman said in a statement. “Instead of the Back-to-Work Budget our country needs focusing on one thing — jobs, jobs, jobs — the Chancellor will only be providing an ‘update’ on the economy.”
‘Biggest Bang’
The 5 billion pounds Johnson will allocate to hospital maintenance, school repairs and road improvements on Tuesday is not new money and is a fraction of the infrastructure spending announced in March.
Then, Sunak committed to increase total infrastructure spending across the next five years by 100 billion pounds to a total of 600 billion pounds. While much of that investment was designed to help reduce the U.K.’s long standing regional inequalities in growth and productivity, there are questions over whether such spending is the best way to stimulate the economy’s recovery from coronavirus.
“Infrastructure spending can get the biggest bang for the buck over the longer term, if projects are chosen carefully and boost productivity, but it is hard to find a large number of worthwhile shovel-ready projects that can boost demand quickly in the short term,” Julian Jessop, economics fellow at the IEA, said in an email Monday. “There is also a risk that the government simply takes jobs away from other priority areas, such as house building.”
‘We Must Act’
A delayed National Infrastructure Strategy, which was originally scheduled for March, will be published in the fall, Johnson’s office said. The document will outline plans for “core” services including roads, energy networks, rail, flood defenses and waste.
The economic impact of restrictions to control the virus has been unprecedented, shrinking the economy by 20% in April alone and leaving officials fretting over the long-term scarring effects of what could be the deepest recession in more than 300 years.
While the government’s furloughing plan has ensured the U.K. has so far avoided a wave of unemployment, data suggest the labor market is also weakening, and opposition parties have warned joblessness could soar to levels not seen since the 1980s unless support is extended beyond its scheduled end in October.
There was a reminder Monday that the U.K.’s path out of the crisis won’t necessarily be smooth when Leicester, a city in the English midlands, reimposed recently eased lockdown restrictions and closed schools amd non-essential shops after a spike in cases.
The British Chambers of Commerce welcomed Johnson’s infrastructure spending plans, though said he will need to move fast to achieve his goals.
“The infrastructure delivery plans announced by the prime minister are welcome, but they must take shape on the ground swiftly to give a real confidence boost,” BCC Director General Adam Marshall said in a statement. “In his first inaugural speech, Franklin Delano Roosevelt said, ‘We must act, and act quickly.’ The same holds true in Britain today.”
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TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
OTTAWA – Canada’s inflation rate fell to two per cent last month, finally hitting the Bank of Canada’s target after a tumultuous battle with skyrocketing price growth.
The annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021.
Statistics Canada’s consumer price index report on Tuesday attributed the slowdown in part to lower gasoline prices.
Clothing and footwear prices also decreased on a month-over-month basis, marking the first decline in the month of August since 1971 as retailers offered larger discounts to entice shoppers amid slowing demand.
The Bank of Canada’s preferred core measures of inflation, which strip out volatility in prices, also edged down in August.
The marked slowdown in price growth last month was steeper than the 2.1 per cent annual increase forecasters were expecting ahead of Tuesday’s release and will likely spark speculation of a larger interest rate cut next month from the Bank of Canada.
“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” wrote CIBC senior economist Andrew Grantham.
Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said Tuesday’s figures “tilt the scales” slightly in favour of more aggressive cuts, though he noted the Bank of Canada will have one more inflation reading before its October rate announcement.
“If we get another big downside surprise, calls for a 50 basis-point cut will only grow louder,” wrote Reitzes in a client note.
The central bank began rapidly hiking interest rates in March 2022 in response to runaway inflation, which peaked at a whopping 8.1 per cent that summer.
The central bank increased its key lending rate to five per cent and held it at that level until June 2024, when it delivered its first rate cut in four years.
A combination of recovered global supply chains and high interest rates have helped cool price growth in Canada and around the world.
Bank of Canada governor Tiff Macklem recently signalled that the central bank is ready to increase the size of its interest rate cuts, if inflation or the economy slow by more than expected.
Its key lending rate currently stands at 4.25 per cent.
CIBC is forecasting the central bank will cut its key rate by two percentage points between now and the middle of next year.
The U.S. Federal Reserve is also expected on Wednesday to deliver its first interest rate cut in four years.
This report by The Canadian Press was first published Sept. 17, 2024.
FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.
Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.
The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.
Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.
Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.
Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.
Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.
This report by The Canadian Press was first published Sept. 16, 2024.
