By Andy Bruce and William Schomberg
LONDON (Reuters) – Britain’s economy may have more room to bounce back from the COVID-19 pandemic before it generates excess inflation than the Bank of England predicted last month, one of its policymakers said, signalling no rush to start reining back on stimulus.
Michael Saunders said the recovery from last year’s 10% slump might be quicker than the BoE’s central forecasts, made in early February. Those forecasts include a 5% recovery in 2021 as the country races ahead with coronavirus vaccinations.
But that did not automatically mean inflation pressure will surge too, the rate-setter said in a speech on Friday.
It was reasonable to think slack in Britain’s economy – the output gap – was “much greater” than the BoE assumed last month, Saunders said, citing a rising jobless rate and surveys that show many companies are working below capacity.
“My hunch, taking account of a somewhat more optimistic assessment of the outlook for potential output, is that it will take longer to close the output gap than forecast,” he said.
The risk posed by an incomplete recovery with a persistent output gap was greater than a scenario in which the gap closes quickly and generates inflation, Saunders said.
This meant that “risk management considerations” might be needed when weighing up how much stimulus the economy needs.
Saunders’ comments put him broadly in the centre of the range of views among the nine members of the Monetary Policy Committee and contrast with those of Chief Economist Andy Haldane, who has warned of an inflation “tiger”.
Saunders said the unemployment rate would be a good future benchmark in judging the extent to which the output gap is closing.
“In my view, a jobless rate of well above 5% (the February … forecast for Q1-2022 was 5.7%) would almost certainly indicate that we are some way from closing the output gap sustainably,” he said.
Officials are debating how the BoE might eventually unwind some of the stimulus it has pumped into the economy, first to offset the global financial crisis and more recently to tackle the COVID-19 pandemic.
Saunders said the BoE’s record-low interest rates might not need to rise as high as 1.5% before the central bank starts to bring down the size of its 895 billion pound bond-buying scheme.
“There are arguments to set a slightly lower threshold on the grounds that … a slightly negative policy rate will be in the toolkit, whereas it wasn’t previously,” he said in answer to an audience question.
(Reporting by William Schomberg and Andy Bruce; Editing by Catherine Evans)
TSX extends gains as gold prices rise, set to rise for third week
(Reuters) -Canada’s main stock index extended its rise on Friday after hitting a record high a day earlier as gold prices advanced, and was set to gain for a third straight week.
* At 9:40 a.m. ET (13:38 GMT), the Toronto Stock Exchange‘s S&P/TSX composite index was up 24.24 points, or 0.1%, at 19,326.16.
* The Canadian economy is likely to grow at a slower pace in this quarter and the next than previously expected, but tighter lockdown restrictions from another wave of coronavirus were unlikely to derail the economic recovery, a Reuters poll showed.
* The energy sector climbed 0.6% even as U.S. crude prices slipped 0.1% a barrel. Brent crude added 0.1%. [O/R]
* The materials sector, which includes precious and base metals miners and fertilizer companies, added 0.3% as gold futures rose 0.7% to $1,777.9 an ounce. [GOL/] [MET/L]
* The financials sector gained 0.2%. The industrials sector rose 0.1%.
* On the TSX, 117 issues advanced, while 102 issues declined in a 1.15-to-1 ratio favoring gainers, with 14.26 million shares traded.
* The largest percentage gainers on the TSX were Cascades Inc, which jumped 4.2%, and Ballard Power Systems, which rose 2.9%.
* Lghtspeed POS fell 5.6%, the most on the TSX, while the second biggest decliner was goeasy, down 4.9%.
* The most heavily traded shares by volume were Zenabis Global Inc, Bombardier and Royal Bank of Canada.
* The TSX posted 23 new 52-week highs and no new low.
* Across Canadian issues, there were 160 new 52-week highs and 12 new lows, with total volume of 29.68 million shares.
(Reporting by Shashank Nayar in Bengaluru;Editing by Vinay Dwivedi)
Canadian economy likely to slow, but COVID-19 threat to growth low
By Indradip Ghosh and Mumal Rathore
BENGALURU (Reuters) – The Canadian economy is likely to grow at a slower pace this quarter and next than previously expected, but tighter lockdown restrictions from another wave of coronavirus were unlikely to derail the economic recovery, a Reuters poll showed.
Restrictions have been renewed in some provinces as they struggle with a rapid spread of the virus, which has already infected over 1 million people in the country.
After an expected 5.6% growth in the first quarter, the economy was forecast to expand 3.6% this quarter, a sharp downgrade from 6.7% predicted in January.
It was then forecast to grow 6.0% in the third quarter and 5.5% in the fourth, compared with 6.8% and 5.0% forecast previously.
But over three-quarters of economists, or 16 of 21, in response to an additional question said tighter curbs from another COVID-19 wave were unlikely to derail the economic recovery, including one respondent who said “very unlikely”.
“Canada is undergoing a third wave of the virus and while case loads are accelerating, the resiliency the economy has shown in the face of the second wave suggests it can ride out the third wave as well, without considerable economic consequences,” said Sri Thanabalasingam, senior economist at TD Economics.
The April 12-16 poll of 40 economists forecast the commodity-driven economy would grow on average 5.8% this year, the fastest pace of annual expansion in 13 years and the highest prediction since polling began in April 2019.
For next year, the consensus was upgraded to 4.0% from 3.6% growth predicted in January.
What is likely to help is the promise of a fiscal package by Prime Minister Justin Trudeau late last year, which the Canadian government was expected to outline, at least partly, in its first federal budget in two years, on April 19.
When asked what impact that would have, over half, or 11 of 20 economists, said it would boost the economy significantly. Eight respondents said it would have little impact and one said it would have an adverse impact.
“The economic impact of the federal government’s promised C$100 billion fiscal stimulus will depend most importantly on its make up,” said Tony Stillo, director of Canada economics at Oxford Economics.
“A stimulus package that enhances the economy’s potential could provide a material boost to growth without stoking price pressures.”
All but two of 17 economists expected the Bank of Canada to announce a taper to the amount of its weekly bond purchases at its April 21 meeting. The consensus showed interest rates left unchanged at 0.25% until 2023 at least.
“The BoC is set to cut the pace of its asset purchases next week,” noted Stephen Brown, senior Canada economist at Capital Economics.
“While it will also upgrade its GDP forecasts, we expect it to make an offsetting change to its estimate of the economy’s potential, implying the Bank will not materially alter its assessment of when interest rates need to rise.”
(Reporting and polling by Indradip Ghosh and Mumal Rathore; editing by Rahul Karunakar, Larry King)
CANADA STOCKS – TSX rises 0.78% to 19,321.92
* The Toronto Stock Exchange‘s TSX rises 0.78 percent to 19,321.92
* Leading the index were Martinrea International Inc <MRE.TO>, up 7.4%, Fortuna Silver Mines Inc, up 7.1%, and Hudbay Minerals Inc, higher by 6.7%.
* Lagging shares were AcuityAds Holdings Inc, down 6.7%, Ballard Power Systems Inc, down 6.5%, and Northland Power Inc, lower by 6.0%.
* On the TSX 165 issues rose and 60 fell as a 2.8-to-1 ratio favored advancers. There were 18 new highs and no new lows, with total volume of 203.0 million shares.
* The most heavily traded shares by volume were Royal Bank Of Canada, Suncor Energy Inc and Air Canada.
* The TSX’s energy group fell 0.59 points, or 0.5%, while the financials sector climbed 0.86 points, or 0.3%.
* West Texas Intermediate crude futures rose 0.27%, or $0.17, to $63.32 a barrel. Brent crude rose 0.36%, or $0.24, to $66.82 [O/R]
* The TSX is up 10.8% for the year.