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Britain's Economy Has Transformed During Queen's 70-Year Reign – BNN

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(Bloomberg) — Sign up for the New Economy Daily newsletter, follow us @economics and subscribe to our podcast.

The UK economy of 2022 is barely recognizable from the one that greeted Queen Elizabeth II 70 years ago.

Butter, bacon and meat were rationed in 1952 as World War II cast a long shadow over an economy that was just a fifth of current size. Money was counted in shillings, men wore ties even on days off and pub goers could enjoy pints of beer for just 6p.

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Today, suits and cash are both a far less familiar sight in the British pub, while wine and gin have both become much more popular tipples. Houses that once could be bought on one income now require two. 

But some problems of that era remain familiar. Inflation was at 11.2% when Elizabeth became Queen — within a whisker of the level economists expect to see later this year.

Following are charts that describe the massive shifts the economy has seen since the coronation in 1952.

The UK as a whole is richer and healthier. The cohort born in 1952 had incomes higher than the average of their fellow citizens throughout their lives, according to the Institute for Fiscal Studies. At age 70, men and women can both expect to live seven years longer than they did seven decades ago.

The economy meanwhile has had a number of booms and busts. Oil shocks, currency crises, financial crashes along with Britain’s exit from the European Union and the pandemic have bookended periods of rapid growth. The overwhelming trend has been one of expansion. 

Much of that increase has been fueled by a boom in services, which have flourished as the manufacturing sector receded. While the “big bang” deregulation of banking made Britain a global financial center, the portion of jobs done in factories has plunged to just 7%, from almost 30% in 1952.

Nowhere has Britain’s transformation been more apparent than in the housing market. The average house price has jumped from less than £2,000 — the equivalent of around £60,000 today — to a record £270,000, according to Nationwide Building Society. 

It means housing has vastly outpaced inflation and earnings growth, and in some years generated more wealth for homeowners than they gained from employment. Those increases have strained the finances of people buying property. Many families require two incomes now to get on the housing ladder, whereas in 1952 it was mainly the salary of men that provided.

Homeownership surged in the second half of the last century. The shift accelerated under Margaret Thatcher, who promoted her vision of a “property-owning democracy” by encouraging council tenants to purchases their homes in the 1980s. 

However, the trend has gone into reverse in the past 20 years because of the sharp increase in house prices.

The boom in house prices over the past decade was supercharged by record-low interest rates. Since it was founded in 1694, the Bank of England’s benchmark lending rate never strayed below 2% until 2009. 

Then the financial crisis hit, followed by a period of sluggish growth and the coronavirus pandemic. The BOE responded by pushing rates close to zero and buying bonds to depress market rates. Now that inflation has reached a 40-year high, that era is screaming to a halt.

Across the 70 years inflation has averaged just shy of 5%, leaving prices almost 24 times higher in total across the period.

The UK is no longer the trading force it was. In 1960, it accounted for almost 9% of world merchandise exports. Now its share is little more than 2%. 

The decline came as manufacturing shifted to lower-cost economies such as China. A further period of weakness followed Brexit, with exports recovering from the pandemic less strongly than in neighboring countries.

©2022 Bloomberg L.P.

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Yellen Sounds Alarm on China ‘Global Domination’ Industrial Push – Bloomberg

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US Treasury Secretary Janet Yellen slammed China’s use of subsidies to give its manufacturers in key new industries a competitive advantage, at the cost of distorting the global economy, and said she plans to press China on the issue in an upcoming visit.

“There is no country in the world that subsidizes its preferred, or priority, industries as heavily as China does,” Yellen said in an interview with MSNBC Wednesday — highlighting “massive” aid to electric-car, battery and solar producers. “China’s desire is to really have global domination of these industries.”

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Opinion: The future economy will suffer if Canada axes the carbon tax – The Globe and Mail

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Open this photo in gallery:

Poilievre holds a press conference regarding his “Axe the Tax” message from the roof a parking garage in St. John’s on Oct.27, 2023.Paul Daly/The Canadian Press

Kevin Yin is a contributing columnist for The Globe and Mail and an economics doctoral student at the University of California, Berkeley.

The carbon tax is the single most effective climate policy that Canada has. But the tax is also an important industrial strategy, one that bets correctly on the growing need for greener energy globally and the fact that upstart Canadian companies must rise to meet these needs.

That is why it is such a shame our leaders are sacrificing it for political gains.

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The fact that carbon taxes address a key market failure in the energy industry – polluters are not incentivized to consider the broader societal costs of their pollution – is so well understood by economists that an undergraduate could explain its merits. Experts agree on the effectiveness of the policy for reducing emissions almost as much as they agree on climate change itself.

It is not just that pollution is bad for us. That a patchwork of policies supporting clean industries is proliferating across the United States, China and the European Union means that Canada needs its own hospitable ecosystem for clean-energy companies to set up shop and eventually compete abroad. The earlier we nurture such industries, the more benefits our energy and adjacent sectors can reap down the line.

But with high fixed costs of entry and non-negligible technological hurdles, domestic clean energy is still at a significant disadvantage relative to fossil fuels.

A nuclear energy company considering a reactor project in Canada, for example, must contend with the fact that the upfront investments are enormous, and they may not pay off for years, while incumbent oil and gas firms benefit from low fixed costs, faster economies of scale and established technology.

The carbon tax cannot address these problems on its own, but it does help level the playing field by encouraging demand and capital to flow toward where we need it most. Comparable policies like green subsidies are also useful, but second-best; they weaken the government’s balance sheet and in certain cases can even make emissions worse.

Unfortunately, these arguments hold little sway for Pierre Poilievre’s Conservatives, who called for a vote of no-confidence on the dubious basis that the carbon tax is driving the cost-of-living crisis. Nor is it of much consequence to provincial leaders, who have fought the federal government hard on implementing the tax.

Not only is this attack a misleading characterization of the tax’s impact, it is also a deeply political gambit. Most expected the vote to fail. Yet by centering the next election on the carbon tax debate, Mr. Poilievre is hedging against the possibility of a new Liberal candidate, one who lacks the Trudeau baggage but still holds the line on the tax.

With the reality of inflation, a housing crisis and a general atmosphere of Trudeau-exhaustion, Mr. Poilievre has plenty of ammunition for an election campaign that does not leave our climate and our clean industries at risk. The temptation to do what is popular is ever-present in politics. Leadership is knowing when not to.

Nor are the Liberals innocent on this front. The Trudeau government deserves credit for pushing the tax through in the first place, and for structuring it as revenue-neutral. But the government’s attempt to woo Atlantic voters with the heating oil exemption has eroded its credibility and opened a vulnerable flank for Conservative attacks.

Thus, Canadian businesses are faced with the possibility of a Conservative government which has promised to eliminate the tax altogether. This kind of uncertainty is a treacherous environment for nascent companies and existing companies on the precipice of investing billions of dollars in clean tech and processes, under the expectation that demand for their fossil fuel counterparts are being kept at bay.

The tax alone is not enough; the government and opposition need to show the private sector that it can be consistent about this new policy regime long enough for these green investments to pay off. Otherwise, innovation in these much-needed technologies will remain stagnant in Canada, and markets for clean energy will be dominated by our more forward-thinking competitors.

A carbon tax is not a panacea for our climate woes, but it is central to any attempt to protect a rapidly warming planet and to develop the right businesses for that future. We can only hope that the next generation of Canadian leaders will have a little more vision.

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Business leaders say housing biggest risk to economy: KPMG survey – BNN Bloomberg

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Business leaders see the housing crisis as the biggest risk to the economy, a new survey from KPMG Canada shows.

It found 94 per cent of respondents agreed that high housing costs and a lack of supply are the top risk, and that housing should be a main focus in the upcoming federal budget. The survey questioned 534 businesses.

Housing issues are forcing businesses to boost pay to better attract talent and budget for higher labour costs, agreed 87 per cent of respondents. 

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“What we’re seeing in the survey is that the businesses are needing to pay more to enable their workers to absorb these higher costs of living,” said Caroline Charest, an economist and Montreal-based partner at KPMG.

The need to pay more not only directly affects business finances, but is also making it harder to tamp down the inflation that is keeping interest rates high, said Charest.

High housing costs and interest rates are straining households that are already struggling under high debt, she said.

“It leaves household balance sheets more vulnerable, in particular, in a period of economic slowdown. So it creates areas of vulnerability in the economy.”

Higher housing costs are themselves a big contributor to inflation, also making it harder to get the measure down to allow for lower rates ahead, she said. 

Businesses have been raising the alarm for some time. 

A report out last year from the Ontario Chamber of Commerce also emphasized how much the housing crisis is affecting how well businesses can attract talent. 

Almost 90 per cent of businesses want to see more public-private collaboration to help solve the crisis, the KPMG survey found.

“How can we work bringing all stakeholders, that being governments, not-for-profit organizations and the community and the private sector together, to find solutions to develop new models to deliver housing,” said Charest.

“That came out pretty strong from our survey of businesses.”

The federal government has been working to roll out more funding supports for other levels of government, and introduced measures like a GST rebate for rental housing construction, but it only has limited direct control on the file. 

Part of the federal funding has been to link funding to measures provinces and municipalities adopt that could help boost supply. 

The vast majority of respondents to the KPMG survey supported tax measures to make housing payments more affordable, such as making mortgage interest tax deductible, but also want to maintain the capital gains tax exemption for a primary residence.

The survey of companies was conducted in February using Sago’s Methodify online research platform. Respondents were business owners or executive-level decision makers.

About a third of the leaders are at companies with revenue over $500 million, about half have revenue between $100 million and $500 million, with the rest below. 

This report by The Canadian Press was first published March 27, 2024.

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