(Bloomberg) — Britain under Prime Minister Boris Johnson is running into the biggest headwinds it’s faced since the 1970s, heaping pain on an economy still reeling from Brexit and the pandemic.
After suffering from unprecedented shocks in recent years, the nation is succumbing to more intractable problems marked by plodding growth, surging inflation and a series of damaging strikes.
The result is a plunge in consumer confidence that analysts warn may lead to a recession. Railway workers walked off the job in anger that their living standards are slipping, and teachers, doctors and barristers may be next.
The malaise is a far cry from the boom and “cool Britannia” reputation that Tony Blair’s government enjoyed through the early part of this century.
The headline figures make grim reading. The economy is on track to shrink in the second quarter, raising the possibility that the UK is already in a recession. Even when the outlook appeared brighter, officials estimated that growth would settle at a below-par 1.8% a year, with no end in sight to the feeble productivity that has blighted the country for over a decade.
While growth is on track to lag most major economies next year, inflation is also on the rise. Consumer prices surged by 9.1% in the year through May, the most for 40 years.
The Bank of England expects inflation to accelerate again when energy bills are allowed to rise in the autumn, reaching more than 11%.
It’s a blow for the UK, which led the world in growth after the pandemic, and recalls the dark days of the 1960s and 1970s when commentators and politicians identified Britain as the “sick man of Europe” because of its performance.
Those figures overshadow deeper structural problems hobbling the UK. Chief among them is productivity growth, which slowed to a crawl after the financial crisis in 2008 and 2009. Only Italy put in a worse performance.
How much a worker can produce is important because it drives the long-term potential of the economy. Low productivity limits the pace at which output can grow and depresses wage packets. Real wages took years to recover to their 2007 levels after the financial crash.
An hour of work in the UK generates around $60, according to the OECD. The figure is over $70 in the US and about $67 in France and Germany. Economists and policy makers debate the causes of the malaise but say that fixing it is crucial if Britain is to get out of the slow lane.
The gaps in performance within the UK are equally stark, with London consistently outpeforming other regions, in part due to the concentration of financial services in the capital city. Johnson came to to power in 2019 on a pledge to “level up” poorer parts of the country, but there are few signs that the policy is working.
One explanation for the productivity gap is a lack of investment. British companies spend less on things like plant, machinery and technology than those in most other major economies.
Chancellor of the Exchequer Rishi Sunak says the tax system is one of the problems and is working on a way to improve allowances companies can claim for making investments.
Brexit uncertainty also seems to have unsettled executives, with investment flat-lining since the 2016 public vote to leave the European Union. Had they continued to spend as they did before the referendum, investment would be around 60% higher today.
Life outside the EU has also had an impact on trade as importers and exporters contend with higher trade barriers. Despite a sharp fall in the pound since the vote, there is little evidence to suggest the external sector has benefited from increased competitiveness.
Analysis by Bloomberg Economics shows the UK lagged behind the trade performance of other big nations before the pandemic, and has failed to fully share in the global trade rebound since then.
What Bloomberg Economics Says:
“It’s been six years since the UK voted to leave the European Union and more than one since it established a new relationship with its main trading partner. From a 16% devaluation of the pound to an eye-watering slide in trade and investment, Brexit’s impact is plain to see. The data have only reinforced our view that life outside of the EU would leave the UK worse off.”
–Ana Luis Andrade, Bloomberg Economics. Click for the INSIGHT.
The housing market is another constraint. Prices have risen almost without break since 1995, straining affordabilty for first-time buyers. Properties are in short supply in places like London that’s long been the engine driving the national economy.
The expense and difficulty of moving limit labor mobility, depriving companies and public services of key workers, and leave consumers channeling more wealth into the property market than their peers abroad.
Housing is the most visible drain on consumers, but wages are lagging too. Real wages adjusted for inflation are now falling at the fastest pace in 20 years. In 2019, wages in the UK trailed far behind those in the US and Canada.
Workers are rebelling, with rail unions embroiled in the biggest work stoppage since 1989 and teachers, doctors and barristers are threatening to walk off the job.
The strife recalls the 1970s, when Harold Wilson’s Labour government put industry on a three-day week because of an energy crisis and strikes by coal miners.
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
