LONDON — The Bank of England predicted Thursday that the economic downturn in the U.K. economy might be less severe than it thought at the start of the COVID-19 pandemic – even as it warned it would take a longer time to heal the scars.
The central bank opened the door to providing more monetary stimulus as Britain reopens after the pandemic lockdowns and said the economy probably won’t return to pre-pandemic levels until the end of 2021 as spending by consumers and businesses remains weak.
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It also expressed concern about rising rates of unemployment – particularly at a time in which no one knows what will happen next.
“The outlook for the U.K. and global economies remains unusually uncertain,? the bank said in a statement. “It will depend critically on the evolution of the pandemic, measures taken to protect public health, and how governments, households and businesses respond to these.?
The central bank’s Monetary Policy Committee kept its benchmark interest rate at a record low 0.1%. It also kept its target for buying government and corporate bonds – by which it injects money into the economy – at 745 billion pounds ($980 billion).
The decisions on rates and economic stimulus were widely expected as the uncertainty over the pandemic could require more action later, economists say.
U.K. GDP probably shrank by 23% in the second quarter, though a recovery is already underway, the bank said. The economy will likely contract 9.5% for 2020 as a whole, before expanding 9% in 2021 and 3.5% in 2022, according to the bank’s forecasts.
The figures are more optimistic than its predictions issued in May for a 14% drop in the economy this year.
Still, Bank of England Governor Andrew Bailey suggested much was not straightforward.
“The forecast central case … looks quite beguilingly simple,” Bailey said, adding inflation and other measures are forecast to return to target eventually. “And yet we’ve got huge uncertainty and a very big downside risk… There are some very hard yards, to borrow a rugby phrase, to come.?
The minutes of the committee’s meeting showed that policymakers were particularly concerned that the rise in unemployment during the pandemic could prove to be more persistent than expected. The bank forecast that the unemployment rate would rise to 7.5% this year, from 3.75% in 2019.
Policymakers also said they were concerned the recovery may slow if uncertainty over the pandemic leads some households and businesses to hold off spending.
“The committee will continue to monitor the situation closely and stands ready to adjust monetary policy accordingly to meet its remit,? the policymakers said.
Some analysts were surprised by the centra bank’s assessments.
“The Bank of England’s overly optimistic updated economic projections leave the door wide open for more monetary stimulus later this year,” wrote Kallum Pickering, senior economist at Berenberg bank, in a note that began with the headline “Verging on unrealistic.?
“Relative to the obvious challenges ahead linked to the COVID-19 pandemic, highlighted by the recent re-imposition of modest containment measures in major parts of the U.K., the V-shaped recovery that the Bank of England continues to project seems unlikely, to put it mildly.”
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.
