British Prime Minister Rishi Sunak speaks during Prime Minister’s Questions in the House of Commons, in London, on Nov. 9.ANDY BAILEY/AFP/Getty Images
Britain has been in managed – or mismanaged – decline since its costly victory in the Second World War, a quarter-century after the British Empire reached its peak. That decline seems to be accelerating as Brexit, the pandemic, the energy crisis and seemingly endless political turmoil work their dark magic.
Every decade or so since the war ended, a currency or economic crisis or an epically bad political decision has pushed Britain’s economy – and global stature – ever lower. The pound’s devaluation in 1949 ensured the rise, and ultimate dominance, of the U.S. dollar. The chaos of the 1970s – strikes, social unrest, gaping budget deficits, soaring oil prices and inflation – intensified the country’s tribulations and triggered a bailout by the International Monetary Fund.
Then came another currency crisis – “Black Wednesday” of 1992 – that pushed Britain out of the European Exchange Rate Mechanism, which had been designed as the warm-up act to the euro. In 2007, the collapse of mortgage lender Northern Rock was instrumental in launching the global financial crisis a year later. After that, Britain was convulsed by Brexit, nearly flattened by the pandemic and, lately, shocked by the fallout of the war in Ukraine – an energy crisis and another bout of crippling inflation.
If that were not enough, Liz Truss, the country’s fourth prime minister since 2016, took a bad situation and made it worse with a mini-budget anchored by unfunded tax cuts that would have made the rich richer, widened the deficit and stoked inflation. The reaction to her “growth” plan was swift and cruel: the pound tanked, government bond yields soared and the Bank of England responded with emergency government bond purchases to stop pension funds from unloading financial assets at fire-sale prices.
Ms. Truss did not survive the budget catastrophe. After only 44 days in office, she was replaced late last month by Rishi Sunak, who had served as chancellor of the exchequer in the shambolic government of Boris Johnson. Jeremy Hunt, a former health minister, is Mr. Sunak’s Chancellor. They will present the fall economic statement on Nov. 17 – another budget revamp.
Mr. Sunak and Mr. Hunt cannot win with this budget – all the more so since indicators point to a long recession that seems to have started already. On Friday, the Office of National Statistics reported that GDP sank by 0.2 per cent in the three months to September, the first decline since early 2021, when Britain was still under tight pandemic restrictions.
No budget of any shape or form will quickly restore growth, bring down inflation, plug the deficit and heighten investor confidence – Britain is too far gone on those fronts.
There are no attractive options for the government. If the Chancellor unveils an austerity budget to try to slow the financial deterioration, the market will take the view that the economy will never grow, potentially making the country’s debt unsustainable. But a more relaxed budget risks delivering a signal that the government is fiscally irresponsible, again potentially making the debt unsustainable as interest rates rise (the government’s average borrowing costs have climbed to 3.8 per cent from 1.1 per cent at the start of the year). Ms. Truss’s fatal budget will spook chancellors for years.
A compromise that pleases no one will probably emerge, a mixture of light tax increases and spending cuts designed to prevent the £50-billion-plus budget hole from getting horribly deeper during the recession. At the same time, the budget authors will have to say how they will bring the debt burden down once the recession ends.
They will find little consolation in knowing that their dilemma is not unique. Government finances everywhere are deteriorating as growth stalls, tax revenues fall, borrowing costs rise and subsidies for families and businesses with crushing energy bills need to be funded.
Britain has no wiggle room – the government has effectively run out of money as the deficit deepens and most economic indicators point in the wrong direction. The Economist magazine recently compared Britain’s economy with Italy’s, an unflattering analysis but one that was undeniably valid.
Italy has always been held back by a lack of investment and poor productivity growth. Real per-capita GDP has not climbed since 2000, a remarkable non-achievement for a G7 and G20 country known for its manufacturing and design prowess. Italy is also burdened by the dead hand of excessive regulation and a rapidly aging population.
Britain’s growth is better, but not by much, and is falling behind that of Germany and the United States. Since the financial crisis of 2007-08, the economy has expanded at an average annual rate of 0.9 per cent, one-third the precrisis level. Only Italy’s growth rate is lower among G7 countries. Investment and productivity growth are almost as poor as Italy’s.
It is no exaggeration to say that Britain, lauded in the pre-Brexit years as one of the most innovative, freewheeling and entrepreneurial economies in Europe, is in crisis. Next week’s budget might be able to put a small bandage on the open wound, nothing more. The Conservatives are on a Titanic run in the polls, with the opposition Labour Party on course to dismantle Mr. Sunak’s government in the next election, scheduled for 2024, though it could happen earlier. He and Mr. Hunt may decide that a bold budget is not worth the effort: why not let Labour endure the pain of lifting Britain out of recession and filling the budget hole?
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.
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