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?
VANCOUVER – Canada’s labour minister says striking grain terminal workers in Metro Vancouver and their employers have reached a tentative labour deal.
Steven MacKinnon announced the agreement between Grain Workers Union Local 333 and the Vancouver Terminal Elevators’ Association in a post on social media platform X, but provided no other details.
The union confirmed the tentative deal in a statement on Facebook, saying its members will conduct the ratification vote by Oct. 4.
The notification from the union also says picket lines were to be removed Saturday and members will return to work pending ratification, ending the strike that had paralyzed grain shipments from Metro Vancouver’s port.
The dispute had previously led to picket lines going up at six Metro Vancouver grain terminals on Tuesday as about 600 workers went on strike.
Canadian grain producers had urged a resolution in the dispute, noting about 52 per cent of the country’s grains moved through Metro Vancouver terminals last year en route to being exported.
Farmers say the strike, happening during crop harvesting, would result in as much as $35 million per day in lost exports.
The Western Grain Elevator Association said on Friday that talks had stalled after two days of negotiations this week, with the employer saying it had increased its offers to settle “outstanding issues.”
The employers group had said they’ve reached the end of their “financial ability to conclude an agreement that industry can absorb” with the last offer, and it was up to the federally appointed mediator to report the results to MacKinnon for the next steps.
MacKinnon says in his tweet that both parties put in “the work necessary to get a deal done.”
This report by The Canadian Press was first published Sept. 28, 2024.
TORONTO – Canada’s main stock index dipped lower Friday despite strength in energy stocks, while U.S. markets were mixed as the Dow eked out another record but tech stocks dragged.
The mood Friday was mixed after a strong week for equities in both Canada and the U.S., said Andrew Buntain, vice-president and portfolio manager at Fiduciary Trust Canada.
The S&P/TSX composite index closed down 77.01 points at 23,956.82, one day after it . It closed over 24,000 for the first time on Thursday.
The strength this past week wasn’t just in North American markets, noted Buntain, as Chinese stocks enjoyed a rally after the country’s central banks announced a suite of measures intended to boost the economy.
Meanwhile, an undercurrent of broadening strength continued this week as investors spread out their interest beyond a narrow set of tech giants, said Buntain.
“Some of the sectors that have been ignored for several years have been some of the better performers this year,” he said.
“We’re very encouraged by that.”
In New York on Friday, the Dow Jones industrial average was up 137.89 points at 42,313. The S&P 500 index was down 7.20 points at 5,738.17 after setting an all-time high on Thursday, while the Nasdaq composite was down 70.70 points at 18,119.59.
A report Friday on one of the U.S. central bank’s preferred measures of inflation — the personal consumption expenditures price index — showed continued cooling.
The Federal Reserve started lowering its key interest rate last week, and is expected to keep going this fall and into 2025.
However, the Fed’s next interest rate decision isn’t until November, noted Buntain, so there’s plenty of data for the central bank to take in yet — including next week’s labour report.
The job market has been an increasingly key focus for the central bank after recent reports showed cooling in that area of the economy. Friday’s report also showed consumer spending in August didn’t meet economists’ expectations.
In Canada, where the Bank of Canada is set for its next rate decision later in October, Friday brought a GDP report that was a little stronger than expected, said Buntain.
“The Bank of Canada has already delivered three cuts and signalled maybe some further reductions,” he said.
If inflation continues to move lower, Buntain added, the Bank of Canada could even announce an outsized half-percentage-point cut, echoing the Fed’s move last week.
The Canadian dollar traded for 74.08 cents US compared with 74.22 cents US on Thursday.
The November crude oil contract was up 51 cents at US$68.18 per barrel and the November natural gas contract was up 15 cents at US$2.90 per mmBTU.
The December gold contract was down US$26.80 at US$2,668.10 an ounce and the December copper contract was down four cents at US$4.60 a pound.
— With files from The Associated Press
This report by The Canadian Press was first published Sept. 27, 2024.
OTTAWA – Statistics Canada says real gross domestic product grew 0.2 per cent in July, following essentially no change in June, helped by strength in the retail trade sector.
The agency says the growth came as services-producing industries grew 0.2 per cent for the month.
The retail trade sector was the largest contributor to overall growth in July as it gained one per cent, helped by the motor vehicles and parts dealers subsector which gained 2.8 per cent.
The public sector aggregate, which includes the educational services, health care and social assistance, and public administration sectors, gained 0.3 per cent, while the finance and insurance sector rose 0.5 per cent.
Meanwhile, goods-producing industries gained 0.1 per cent in July as the utilities sector rose 1.3 per cent and the manufacturing sector grew 0.3 per cent.
Statistics Canada’s early estimate for August suggests real GDP for the month was essentially unchanged, as increases in oil and gas extraction and the public sector were offset by decreases in manufacturing and transportation and warehousing.
This report by The Canadian Press was first published Sept. 27, 2024.