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Heads Turn to No. 10 as UK Economy Contracts: The London Rush

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(Bloomberg) — After the coronavirus crisis, inflation crisis, government crisis and gilt-markets crisis, you would be forgiven for feeling exhausted at the news that today’s GDP data only marks the start of what is expected to be a long recession. Yet we must only wait a few more days to find out what the men in charge of the state’s finances, Rishi Sunak and Jeremy Hunt, have in store to navigate the economy out of its malaise. Something to look forward to over the weekend?

Here’s the key business news from London this morning:

In The City

GDP: The UK economy shrank in the third quarter, marking the start of what is expected to be a protracted recession.

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  • Gross domestic product fell 0.2%, meaning Britain is the only Group of Seven economy that has yet to fully recover from the pandemic with output 0.4% below pre-Covid levels

Heathrow: The UK’s largest airport said it won’t need another passenger cap over the Christmas period, despite potential strike action in a number of areas, including the border force.

  • That return to operations is being supported by the airport’s efforts to recruit and train around 16,000 members of staff over the last year, setting it up to return to pre-pandemic employment levels by next summer

Pennon Group Plc: South West Water will refund customers in Cornwall £30 if they manage to reduce consumption enough to return the Colliford reservoir to 30% capacity by the end of the year.

  • In total, the incentive scheme would reduce Pennon’s revenue by about £10 million, but relieve pressure on water resources in Cornwall that have been impacted by a very hot summer and elevated customer demand

Redrow Plc: The homebuilder expects its revenue to be flat year on year, although it’ll take a hit to its operating margin.

  • Chairman Richard Akers said the recent instability in financial markets has had a “negative impact” on the housing market, echoing comments from other homebuilders

In Westminster

Rishi Sunak faces an extraordinary balancing act in his autumn budget next week. He needs to appease financial markets with a package of spending cuts and tax increases, while also winning over disgruntled voters. Jeremy Hunt is planning a spending freeze after Britain’s next general election, a person familiar with the chancellor’s thinking told Bloomberg. Here’s what else might be announced on Thursday.

Meanwhile, Sunak said he is “confident” that the post-Brexit dispute over Northern Ireland can be resolved, a latest positive note as UK-EU relations continue to thaw.

In Case You Missed It

Britons are sacrificing nights out and new clothes for gym memberships and streaming subscriptions, a new survey shows.

Crypto can survive the possible demise of FTX, writes Bloomberg Opinion’s Tyler Cowen.

Elsewhere, along with owning half of the world’s largest energy-drink company and two Formula One racing teams, Mark Mateschitz holds another distinction: Europe’s richest millennial.

Looking Ahead

UK inflation data are due Wednesday, one day before the government delivers its Autumn Statement.

Next week will also see a slew of FTSE 100 companies report results, including Vodafone Group Plc, Imperial Brands Plc and Burberry Group Plc.

For a news fix when the day is done, sign up to The Readout with Allegra Stratton, to make sense of the day’s events.

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The UK labor strikes are years in the making – Vox.com

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The UK labor strikes are years in the making  Vox.com

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Bond correction coming: What an economist and an investor say about inflation – Financial Post

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Bond correction coming: What an economist and an investor say about inflation  Financial Post

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Freeland meets with provincial, territorial finance ministers in Toronto

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TORONTO — Deputy Prime Minister and Finance Minister Chrystia Freeland is hosting an in-person meeting Friday with the provincial and territorial finance ministers in Toronto to discuss issues including the current economic environment and the transition to a clean economy.

The meeting will focus on the economic situation both domestically and globally, according to a federal source with knowledge of the gathering, including discussions on how to provide incentives and supports to be competitive with the U.S.’s Inflation Reduction Act.

U.S. President Joe Biden’s Inflation Reduction Act includes electric-vehicle incentives that favour manufacturers in Canada and Mexico, as well as the U.S.

The incentives, which were already revised to include Canada and Mexico after originally focusing on the U.S., are now facing criticism from Europe about North American protectionism.

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The source, who spoke on the condition they not be named to discuss matters not yet made public said the ongoing challenges with health care in Canada will also come up at the meeting. More substantive discussions on that will be held next week when the prime minister meets with premiers on Feb. 7.

In her opening remarks, Freeland said it’s essential for Canada to have its rightful place in the transition to a clean economy, calling it one of the biggest challenges of the moment.

We are in a situation with a lot of economic uncertainty globally, said Freeland, adding that later in the day, the ministers will have a discussion with Bank of Canada governor Tiff Macklem.

“I think that conversation with the governor will be useful and important for all of us,” she said.

Despite the need to address health care challenges, Canadian jobs and the transition to a clean economy, Freeland said the government recognizes it also has to contend with real fiscal constraints.

Freeland will hold a closing news conference at 3:30 p.m. local time.

The meeting comes at a tense time for many Canadian consumers, with inflation still running hot and interest rates much higher than they were a year ago.

The Bank of Canada raised its key interest rate again last week, bringing it to 4.5 per cent, but signalled it’s taking a pause to let the impact of its aggressive hiking cycle sink in.

The economy is showing signs of slowing, but inflation was still high at 6.3 per cent in December, with food prices in particular remaining elevated year over year.

Interest rates have put a damper on the housing market, sending prices and sales downward for months on end even as the cost of renting went up in 2022.

Meanwhile, the labour market has remained strong, with the unemployment rate nearing record lows in December at five per cent.

— With files from Nojoud Al Mallees in Ottawa and James McCarten in Washington

This report by The Canadian Press was first published Feb. 3, 2023.

 

The Canadian Press

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