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BoE says monitoring markets ‘very closely’ after pound plunges – Al Jazeera English

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The Bank of England has said it would not hesitate to change interest rates and that it is monitoring markets “very closely” after the pound plunged to a record low and British bond prices collapsed in response to the new government’s financial plans.

The finance minister, Kwasi Kwarteng, sent sterling and government bonds into free fall on Friday with a so-called mini-budget that was designed to grow the economy by funding tax cuts with huge increases in government borrowing.

Such was the market turmoil on Monday, there was growing speculation in financial markets that the BoE would make an emergency interest rate rise after it hiked rates only last week to 2.25 percent from 1.75 percent.

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Instead, with the pound fragile and bond prices still tumbling, Kwarteng issued a statement just before the British stock market closed to say he would set out medium-term debt-cutting plans on November 23, alongside forecasts from the independent Office for Budget Responsibility of the full scale of government borrowing.

The central bank on Monday welcomed “the commitment to sustainable economic growth” from Kwarteng and the independent scrutiny that the OBR growth and borrowing forecasts would bring.

“The bank is monitoring developments in financial markets very closely in light of the significant repricing of financial assets,” Bank of England Governor Andrew Bailey said.

“The MPC will not hesitate to change interest rates by as much as needed to return inflation to the 2 percent target sustainably in the medium term, in line with its remit.”

US Federal Reserve official Raphael Bostic said the market moves could lead to greater economic stress in Europe and the United States, while analysts and investors said the government had done the bare minimum to reassure markets.

“There seems no reason to believe that markets will give the government the benefit of the doubt ahead of a new fiscal plan by Kwasi Kwarteng,” said Chris Scicluna, head of economic research at Daiwa Capital Markets.

“The market could force their hand and there still could be an emergency rate hike before the next BoE meeting,” he said, referring to the next scheduled policy announcement on November 3.

Day of turmoil

The Treasury and central bank statements came towards the end of a day of turmoil for Britain’s currency and debt.

While the pound plunged by as much as 5 percent against the dollar to touch $1.0327, its weakest on record, in Asian trade, it had pared most of the day’s losses in European trading on hopes of an emergency rate hike.

The statement at the close of trading on Monday pushed the pound back to as low as $1.0645 from $1.0820. Sterling was trading at $1.0680 at 16:44 GMT, down 1.6 percent on the day.

Liz Truss
Prime Minister Liz Truss has pledged to reignite the UK economy through tax cuts and deregulation [File: Pool/Getty Images/AFP]

In the market for British government bonds, or gilts, the pressure had been even more intense, with five-year bond prices recording their joint-biggest daily fall since at least 1991, matching Friday’s historic slump.

The five-year gilt’s yield – the cost for the British government of new borrowing over five years – reached its highest since September 2008 at 4.603 percent, and has risen a full percentage point in the last two trading days as Prime Minister Liz Truss’s government lost credibility with investors.

“The reaction to the proposed plan is a real concern and a fear that the new actions will add uncertainty to the economy,” Atlanta Fed President Bostic told The Washington Post.

“The key question will be what does this mean for ultimately weakening the European economy, which is an important consideration for how the US economy is going to perform.”

With markets remaining hugely volatile, British lenders Halifax, Virgin Money and Skipton Building Society withdrew mortgage products from the market.

Mohamed El-Erian, chief economic adviser at Allianz, had earlier said the central bank would have no choice but to raise interest rates if Truss and Kwarteng did not back down.

“And not by a little, by 100 basis points, by one full percentage point to try and stabilise the situation,” he told BBC Radio.

Truss, Britain’s former foreign secretary, was elected as prime minister earlier this month by a vote of the Conservative Party’s 170,000 members – not the broader electorate – after an internal party rebellion that drove Boris Johnson out of power.

She largely beat her rivals to the top job by promising to reignite economic growth through tax cuts and deregulation to bring an end to the largely stagnant real wage growth that has marked her party’s 12 years in government.

Her pledge to end so-called “Treasury orthodoxy” and go for growth marked a step change in British financial policy, harking back to the Thatcherite and Reaganomics doctrines of the 1980s.

“Markets go up and down,” one veteran Conservative Party source said on Monday, declining to be named. “We did something structural, short-term, that will have seismic and positive long-term benefits.”

Further highlighting the extent to which investors have punished UK assets, the difference in 10-year borrowing costs for the British and German governments exploded to its widest since 1992, when Britain crashed out of the European Exchange Rate Mechanism.

British 10-year government bond prices are now on track for their biggest slump in any calendar month since at least 1957, according to a Reuters analysis of Refinitiv and BoE data.

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Consumer debt tops $2.36 trillion in third quarter, up 7.3 per cent from last year – BNN Bloomberg

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Equifax Canada says an increase in borrowers helped push total consumer debt to $2.36 trillion in the third quarter for a 7.3 per cent rise from last year, even as mortgage volumes decline. 

It says average non-mortgage debt rose to $21,183 for the highest level since the second quarter of 2020, with early signs of strain starting to show in auto loans and credit cards.

Overall non-mortgage debt came in at $599.9 billion for a 5.3 per cent climb from last year, and up 1.9 per cent from the third quarter of 2019, as the number of borrowers rose by 3.1 per cent.

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Rebecca Oakes, Equifax Canada’s head of advanced analytics, says the rising debt stems from a combination of growth from immigration, pent-up spending, as well as increased borrowing as consumers feel the strain of higher living costs.

Credit card spending in the quarter was up 17.3 per cent from last year to an all-time high for the time period. 

Average spending put on credit cards was almost $2,447, a 21.8 per cent jump from the third quarter of 2019.

There’s been an increase in credit card spending and new cards issued across all consumer segments, including the sub-prime segments, said Oakes in a statement.

She said there are some signs that borrowers are starting to have trouble covering the bills, with average payment rates for those who carry a balance down from a year ago, she said. 

“Consumers have been making strong payments, but we are starting to see a shift in payment behaviour especially for credit card revolvers — those who carry a balance on their card and don’t pay it off in full each month.”

Delinquencies on auto loans have also started to trend up, especially those opened since late 2021, she said. 

The overall rate of more than 90 day delinquencies for non-mortgage debt was 0.93 per cent, up from 0.87 last year, though insolvencies are still well below pre-pandemic levels.

New mortgage volume dropped 22.7 per cent in the quarter compared with last year and by 14.9 per cent compared with the third quarter of 2019. First-time home buyers are paying over $500 more for almost the same loan amounts as first-time buyers last year. 

Overall insolvency rates are up from a year ago but from a relatively low starting point, and there are some areas of concern including a rise in consumer proposals by seniors, said Oakes.

“The true impact of interest rate hikes could be visible by the end of 2023.” 

 This report by The Canadian Press was first published Dec. 6, 2022.

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Trudeau, Ford mark opening of Canada's first full-scale electric vehicle plant – CP24

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The Canadian Press


Published Monday, December 5, 2022 5:06AM EST


Last Updated Monday, December 5, 2022 1:17PM EST

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Prime Minister Justin Trudeau and Ontario Premier Doug Ford are celebrating the opening today of Canada’s first full-scale electric vehicle manufacturing plant.

Trudeau says electric delivery vans have started rolling off the line today at the General Motors CAMI production plant in Ingersoll, Ont., which has been retooled to build the company’s BrightDrop all-electric vehicle brand.

The prime minister was joined by Ford and the province’s Economic Development Minister Vic Fedeli to mark the milestone.

The provincial and federal governments each invested $259 million toward GM’s $2-billion plan to transform its Ingersoll plant and overhaul its Oshawa, Ont., plant to make it EV-ready.

The federal government says the Ingersoll plant is expected to manufacture 50,000 electric vehicles by 2025.

Canada intends to bar the sale of new internal-combustion engines in passenger vehicles by 2035.

This report by The Canadian Press was first published Dec. 5, 2022.

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Food prices in Canada: Families to pay $1,065 more in 2023 – CTV News

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HALIFAX –

Canadians won’t escape food inflation any time soon.

Food prices in Canada will continue to escalate in the new year, with grocery costs forecast to rise up to seven per cent in 2023, new research predicts.

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For a family of four, the total annual grocery bill is expected to be $16,288 — $1,065 more than it was this year, the 13th edition of Canada’s Food Price Report released Monday said.

A single woman in her 40s — the average age in Canada — will pay about $3,740 for groceries next year while a single man the same age would pay $4,168, according to the report and Statistics Canada.

Food inflation is set to remain stubbornly high in the first half of 2023 before it starts to ease, said Sylvain Charlebois, lead author of the report and Dalhousie University professor of food distribution and policy.

“When you look at the current food inflation cycle we’re in right now, we’re probably in the seventh-inning stretch,” he said in an interview. “The first part of 2023 will remain challenging … but we’re starting to see the end of this.”

Multiple factors could influence food prices next year, including climate change, geopolitical conflicts, rising energy costs and the lingering effects of COVID-19, the report said.

Currency fluctuations could also play a role in food prices. A weaker Canadian dollar could make importing goods like lettuce more expensive, for example.

Earlier this year the loonie was worth more than 80 cents US, but it then dropped to a low of 72.17 cents US in October amid a strengthening U.S. dollar. It has hovered near the 74 cent mark in recent weeks, ending Friday at 74.25 cents US.

“The produce section is going to be the wild card,” Charlebois said. “Currency is one of the key things that could throw things off early in the winter and that’s why produce is the highest category.”

Vegetables could see the biggest price spikes, with estimates pegging cost increases will rise as high as eight per cent, the report said.

In addition to currency risks, much of the produce sold in Canada comes from the United States, which has been struggling with extremely dry conditions.

“The western U.S., particularly California, has seen strong El Nino weather patterns and droughts and bacterial contaminations, and that’s impacted our fruit and vegetable suppliers and prices,” said Simon Somogyi, campus lead at the University of Guelph and professor at the Gordon S. Lang School of Business and Economics.

“The drought is making the production of lettuce more expensive,” he said. “It’s reducing the crop size but it’s also causing bacterial contamination, which is lessening the supply in the marketplace.”

Prices in other key food categories like meat, dairy and bakery are predicted to soar up to seven per cent, the researchers found.

The Canadian Dairy Commission has approved a farm gate milk price increase of about 2.2 per cent, or just under two cents per litre, for Feb. 1, 2023.

“The increase for February is reasonable but it comes after the unprecedented increases in 2022, which are continuing to work their way through the supply chain,” Charlebois said of the two price hikes of nearly 11 per cent combined in 2022.

Meanwhile, seafood is expected to increase up to six per cent, while fruit could increase up to five per cent, the report said.

Restaurant costs are expected to increase four to six per cent, less than supermarket prices, the report said.

Rising prices will push food security and affordability even further out of reach of Canadians a year after food bank use reached a record high, the report said.

The increasing reliance on food banks is expected to continue, with 20 per cent of Canadians reporting they will likely turn to community organizations in 2023 for help feeding their families, a survey included in the report found.

Use of weekly flyers, coupons, bulk buying and food rescuing apps also ticked up this year and is expected to continue growing in 2023, the report said.

“We’re in the era now of the smart shopper,” said Somogyi, also the Arrell Chair in the Business of Food.

“For certain generations, it’s the first time that they’ve had to make a list, not impulse buy, read the weekly flyers, use coupons, buy in volume and freeze what they don’t use.”

Last year’s report predicted food prices would increase five to seven per cent in 2022 — the biggest jump ever predicted by the annual food price report.

Food costs actually far exceeded that forecast. Grocery prices were up 11 per cent in October compared with a year before while overall food costs were up 10.1 per cent, according to Statistics Canada.

“We were called alarmists,” Charlebois said of the prediction that food prices could rise seven per cent in 2022. Critics called the report an “exaggeration,” he said.

“You’re always one crisis away from throwing everything out the window,” Charlebois said. “We didn’t predict the war in Ukraine, and that really affected markets.”

This report by The Canadian Press was first published Dec. 5, 2022.

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