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Bank of Canada set to make rate announcement, release economic outlook – Lethbridge News Now

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By Canadian Press

Jul 15, 2020

OTTAWA — The Bank of Canada will make its latest interest rate announcement today and update its outlook for the economy.

The central bank’s key interest rate has been at 0.25 per cent since March when it was dropped in response to the economic fallout from COVID-19.

Governor Tiff Macklem has seemingly ruled out any further cuts, adding that the central bank doesn’t plan to raise its key rate until well into an economic recovery.

In his first speech as governor late last month, Macklem said the central bank expects to see growth in the third quarter of this year as restrictions ease.

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As economy struggles, Fed weighs boosting bond purchases – OrilliaMatters

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WASHINGTON — At their meeting earlier this month, Federal Reserve officials discussed possible future adjustments to the central bank’s monthly bond purchases to boost the economy.

The Fed on Wednesday released minutes of its Nov. 4-5 meeting revealing that while officials believed that no changes were needed to the bond purchase program at that time, “they recognized that circumstances could shift to warrant such adjustments.”

The Fed since June has been buying $120 billion in bonds each month to keep downward pressure on long-term interest rates as a way of giving the economy a boost as it struggles to emerge from a deep recession.

The purchases have included $80 billion a month in Treasury bonds and $40 billion in mortgage-backed securities.

With the economy showing signs of slowing in the face a resurgence in coronavirus cases and a return to shutdowns in some areas, there has been market speculation that the Fed could decide to boost the size of its monthly purchases.

The minutes show that while no decision was taken on what to do or when, Fed officials were keeping their options open. Some analysts believe the Fed will make an announcement on boosting the bond purchase program at its next meeting on Dec. 15-16, especially if there has been no movement by Congress to provide more economic relief to individuals and businesses.

The minutes said that many Fed officials “judged that asset purchases helped provide insurance against risks that might reemerge in financial markets in an environment of high uncertainty.”

Concern has been growing among economists that the economy is slowing after an initial rebound this summer and could even topple into a double-dip recession in the early part of 2021 if Congress does not replenish expiring support programs.

At the White House Wednesday, Peter Navarro, one of President Donald Trump’s economic advisers, told reporters that a “sober” reading of the economic recovery shows “we are facing … a chasm ahead for millions of Americans unless there can be a bipartisan” deal to provide further economic relief.

The minutes released Wednesday covered the Fed’s Nov. 4-5 meeting, held just after the November elections, and were released with the customary lag of three weeks.

At the meeting, the central bank kept its benchmark interest rate at a record low near zero and signalled that it was prepared to do more if needed to support the economy.

A multitrillion-dollar stimulus effort enacted in the spring has helped support millions of Americans who have been thrown out of work and provided further assistance to struggling individuals and businesses.

But many of those programs have expired and jobless benefits are due to run out for millions of Americans by the end of this year.

Federal Reserve Chairman Jerome Powell had said at a news conference following the two-day meeting that Fed officials had discussed whether and how a bond buying program might be altered to provide more economic support.

In addition to increasing the size of the program, the Fed could decide to alter the composition of the bonds purchases to focus on buying long-term securities as a way of putting added downward pressure on long-term rates.

___

AP White House reporter Kevin Freking contributed to this report.

Martin Crutsinger, The Associated Press

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UK borrowing to hit peacetime high as economy faces COVID-19 emergency – The Guardian

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By William Schomberg and David Milliken

LONDON (Reuters) – Britain will borrow almost 400 billion pounds this year to pay for the massive coronavirus hit to its economy, finance minister Rishi Sunak said on Wednesday, as he took his first steps to offset the country’s highest budget deficit outside wartime.

The world’s sixth-biggest economy is now set to shrink by 11.3% in 2020 – the most since “The Great Frost” of 1709 – before recovering by less than half of that in 2021, Sunak told parliament as he announced a one-year spending plan.

“Our health emergency is not yet over. And our economic emergency has only just begun,” he said, promising more money for health, infrastructure, defence and to fight unemployment.

Britain’s budget watchdog estimated borrowing would be 394 billion pounds ($526 billion) in the 2020/21 financial year that began in April, slightly more than it predicted in August.

At 19% of gross domestic product, the deficit will be almost double its level after the global financial crisis which took nearly a decade of unpopular spending squeezes to work down.

Sunak announced cuts to foreign aid spending and a freeze on pay for many public sector workers.

But with many public services still stretched, Sunak is expected to look more at tax rises to make up the shortfall.

“We have a responsibility, once the economy recovers, to return to a sustainable fiscal position,” he said on Wednesday.

Britain was hammered harder by the coronavirus pandemic than most other rich economies as it underwent a long lockdown.

Nearly 56,000 Britons have died from COVID-19, the highest death toll in Europe.

Even with recent positive news about vaccines, the Office for Budget Responsibility (OBR) said the economy was only likely to regain its pre-crisis size at the end of 2022 – or later if Britain fails to get a post-Brexit trade deal with the European Union before a transition arrangement expires on Dec. 31.

Sunak made no reference to Brexit in his speech.

YET MORE SPENDING

Since the pandemic struck Britain a few weeks after he took over as finance minister, the former Goldman Sachs analyst has rushed out emergency spending – much of it on pay subsidies to fend off a surge in unemployment – and tax cuts.

The shift away from the traditional economic orthodoxy of the Conservative Party has alarmed some lawmakers.

Sunak said the cost of his measures to fight the coronavirus was now 280 billion pounds for this year, up from a previous estimate of about 200 billion pounds.

Even so, long-term economic damage of roughly 3% of GDP was likely as a result of COVID-19, the OBR said.

Unemployment was likely to peak at 7.5%, from 4.8% now.

With that damage in mind, Sunak sought to stress how spending would rise in the short term as Britain grapples with the fallout from the pandemic.

Over this year and next, day-to-day spending will rise by 3.8% in inflation-adjusted terms, the fastest growth rate in 15 years.

To meet Prime Minister Boris Johnson’s promise of “levelling up” growth around the country, 100 billion pounds will be spent next year on longer-term investments, 27 billion pounds more than last year.

A new national infrastructure bank will be based in the north of England, where many voters broke with tradition and backed Johnson in last year’s election.

Johnson later told Conservative lawmakers at a meeting of the 1922 Committee that he was confident the British economy could bounce back quickly, and that his government would deliver for the people who elected him, a lawmaker attending the meeting said.

The OBR said it would take 1% of GDP of spending cuts or tax hikes to bring the government’s day-to-day spending into line with its revenues. Debt was likely to rise further, to over 109% of GDP in 2023/24, up from about 101% now.

Paul Johnson, head of the Institute for Fiscal Studies think-tank, said the headline numbers were “completely staggering” but hid a squeeze on spending in three or four years’ time which would be challenging to deliver.

Sunak signalled some early cost-saving moves, including the freeze on pay for public sector workers, except for doctors, nurses, other health staff and the lowest-paid public sector workers.

And Britain will save 3 billion pounds a year by cutting overseas aid spending to 0.5% of GDP, a level that remains higher than almost all other rich countries.

The Archbishop of Canterbury Justin Welby said the cut was “shameful and wrong”, former Prime Minister David Cameron said the government had broken a promise to the poorest countries of the world, and the government’s minister for sustainable development resigned.

(Writing by William Schomberg; Editing by Catherine Evans and Jan Harvey)

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UK borrowing to hit peacetime high as economy faces COVID-19 emergency – The Guardian

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By William Schomberg and David Milliken

LONDON (Reuters) – Britain will borrow almost 400 billion pounds this year to pay for the massive coronavirus hit to its economy, finance minister Rishi Sunak said on Wednesday, as he took his first steps to offset the country’s highest budget deficit outside wartime.

The world’s sixth-biggest economy is now set to shrink by 11.3% in 2020 – the most since “The Great Frost” of 1709 – before recovering by less than half of that in 2021, Sunak told parliament as he announced a one-year spending plan.

“Our health emergency is not yet over. And our economic emergency has only just begun,” he said, promising more money for health, infrastructure, defence and to fight unemployment.

Britain’s budget watchdog estimated borrowing would be 394 billion pounds ($526 billion) in the 2020/21 financial year that began in April, slightly more than it predicted in August.

At 19% of gross domestic product, the deficit will be almost double its level after the global financial crisis which took nearly a decade of unpopular spending squeezes to work down.

Sunak announced cuts to foreign aid spending and a freeze on pay for many public sector workers.

But with many public services still stretched, Sunak is expected to look more at tax rises to make up the shortfall.

“We have a responsibility, once the economy recovers, to return to a sustainable fiscal position,” he said on Wednesday.

Britain was hammered harder by the coronavirus pandemic than most other rich economies as it underwent a long lockdown.

Nearly 56,000 Britons have died from COVID-19, the highest death toll in Europe.

Even with recent positive news about vaccines, the Office for Budget Responsibility (OBR) said the economy was only likely to regain its pre-crisis size at the end of 2022 – or later if Britain fails to get a post-Brexit trade deal with the European Union before a transition arrangement expires on Dec. 31.

Sunak made no reference to Brexit in his speech.

YET MORE SPENDING

Since the pandemic struck Britain a few weeks after he took over as finance minister, the former Goldman Sachs analyst has rushed out emergency spending – much of it on pay subsidies to fend off a surge in unemployment – and tax cuts.

The shift away from the traditional economic orthodoxy of the Conservative Party has alarmed some lawmakers.

Sunak said the cost of his measures to fight the coronavirus was now 280 billion pounds for this year, up from a previous estimate of about 200 billion pounds.

Even so, long-term economic damage of roughly 3% of GDP was likely as a result of COVID-19, the OBR said.

Unemployment was likely to peak at 7.5%, from 4.8% now.

With that damage in mind, Sunak sought to stress how spending would rise in the short term as Britain grapples with the fallout from the pandemic.

Over this year and next, day-to-day spending will rise by 3.8% in inflation-adjusted terms, the fastest growth rate in 15 years.

To meet Prime Minister Boris Johnson’s promise of “levelling up” growth around the country, 100 billion pounds will be spent next year on longer-term investments, 27 billion pounds more than last year.

A new national infrastructure bank will be based in the north of England, where many voters broke with tradition and backed Johnson in last year’s election.

Johnson later told Conservative lawmakers at a meeting of the 1922 Committee that he was confident the British economy could bounce back quickly, and that his government would deliver for the people who elected him, a lawmaker attending the meeting said.

The OBR said it would take 1% of GDP of spending cuts or tax hikes to bring the government’s day-to-day spending into line with its revenues. Debt was likely to rise further, to over 109% of GDP in 2023/24, up from about 101% now.

Paul Johnson, head of the Institute for Fiscal Studies think-tank, said the headline numbers were “completely staggering” but hid a squeeze on spending in three or four years’ time which would be challenging to deliver.

Sunak signalled some early cost-saving moves, including the freeze on pay for public sector workers, except for doctors, nurses, other health staff and the lowest-paid public sector workers.

And Britain will save 3 billion pounds a year by cutting overseas aid spending to 0.5% of GDP, a level that remains higher than almost all other rich countries.

The Archbishop of Canterbury Justin Welby said the cut was “shameful and wrong”, former Prime Minister David Cameron said the government had broken a promise to the poorest countries of the world, and the government’s minister for sustainable development resigned.

(Writing by William Schomberg; Editing by Catherine Evans and Jan Harvey)

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