The Bank of England has warned that the rising rate of coronavirus infections and a lack of clarity over the UK’s future trade relationship with the EU could threaten the economic recovery.
It said much of output lost during lockdown had been recovered but the outlook remained “unusually uncertain”.
The UK is still in a deep recession, while Covid-19 infections are at their highest level since mid May.
Citing the uncertainty, the Bank held interest rates at 0.1%, a historic low.
It added that it would continue its monetary support for the economy, but stopped short of increasing its bond-buying programme or reducing interest rates further.
What are interest rates?
If you borrow money you usually have to pay a small fee set by the person lending to you. How high that fee – or interest rate – is depends on a “base rate” that is set by the Bank of England at meetings throughout the year.
The rate determines how much banks have to pay to borrow money, and that has a knock-on effect on how much the bank charges consumers to borrow.
When the economy is growing quickly the Bank tries to stop it overheating by raising interest rates, making it more expensive to borrow.
When the economy is sluggish, cutting the Bank’s base rate lowers the cost of borrowing and can encourage businesses and consumers to spend more.
The Monetary Policy Committee (MPC), which sets interest rate policy, said previous projections of economic recovery were “on the assumption of an immediate, orderly move to a comprehensive free trade agreement with the European Union on 1 January 2021”.
Economic recovery would also depend on the evolution of the pandemic and measures taken to protect public health, the MPC said.
“The recent increases in Covid-19 cases in some parts of the world, including the United Kingdom, have the potential to weigh further on economic activity, albeit probably on a lesser scale than seen earlier in the year,” it said.
The government has had to impose new social distancing restrictions across England, as rising cases have forced many areas into local lockdowns.
On Wednesday, the Prime Minister said the government was doing “everything in our power” to prevent another nationwide lockdown, which could have “disastrous” financial consequences for the UK.
The Bank of England said despite a stronger than expected recovery in the last few months, the economy was still about 7% smaller than at the end of last year.
Usually if the economy is not growing strongly enough, the Bank of England considers lowering interest rates to encourage firms to invest and savers to spend.
However, interest rates are already close to zero after two emergency rate cuts in March.
Minutes from this month’s meeting show that the MPC discussed the use of negative interest rates to stimulate the economy. Last month, the Bank’s governor, Andrew Bailey, appeared to rule that out, though he said negative interest rates remained in the “tool box”.
If interest rates are negative the Bank of England charges for any deposits it holds on behalf of the banks. That encourages banks to lend the money to business rather than deposit it.
The Bank also signalled that it had no intention of raising interest rates until “significant progress” had been made in getting inflation back to the Bank’s 2% target. It is currently at a five-year low of 0.2%.
The Bank said it did not expect inflation to return to target levels for another two years.
“We expect interest rates to be no higher than 0.1% for the next five years,” said Andrew Wishart, UK economist at Capital Economics.
Alberta cities warned 'fiscal reckoning' is ahead as COVID-19 shakes economy – Calgary Herald
Article content continued
In the UCP government’s fall budget that year, cities saw their capital transfers and grants slashed, with Edmonton and Calgary taking the largest reductions.
AUMA president Barry Morishita said Thursday that the organization is looking forward to “resetting” the relationship between the advocacy group and the minister. AUMA declared its relationship with Madu “broken” over the summer after he didn’t respond to concerns on changes to local election rules and passed amendments into law over its objections.
In prerecorded remarks, Premier Jason Kenney touted the province’s infrastructure stimulus plan — $500 million that will be doled out to cities for projects that will spur job creation. Calgary is submitting a list of projects for a total of $152.8 million in funding.
But the premier also scolded local governments that have not embraced pro-growth policies. He said he wouldn’t “name names” but revealed a manufacturer complained that a municipal noise bylaw is preventing it from setting up shop.
“In the depth of a crisis like this, those 400 jobs matter a lot more than a few noise complaints from local residents,” he said.
He added cities should focus on getting rid of “unnecessary rules, red tape and costs” that might stand in the way of job creation.
“When I speak to major business leaders about prospective investment in Alberta, very often a message that I hear back is the greatest impediments they’ve experienced are at the local level, at the municipal level,” he said.
Climate activists demanding quick transition to a green economy in Quebec – Global News
Two Okanagan families are in a financial and literal hole after a pool contractor allegedly took their money and skipped town.
“We hired a contractor back in late May, he came in and did all the excavation work,” said Steve Croxford, a Kelowna resident.
“He told us he had all the permits in place to get going.”
However, the contractor had no permits, according to the city.
It’s a case of buyer beware after Stephana Johnson and her neighbour Steve Croxford found what they thought was ‘a great deal’ after finding a pool contractor on Facebook.
They decided to hire the same contractor to build both of their pools in neighbouring yards.
What happened soon after construction began was a shock.
“That’s where he’s abandoned it basically, we paid him approximately half of the money for the pool,” said Croxford.
The two families said they hired a man who calls himself Jared or J-Hay and his company Pyramid Pools.
The pool contractor promised them two finished underground pools within four weeks — it’s now been almost four months.
Global News talked to multiple pool companies in Kelowna who say they’ve heard of this fly-by-night pool contractor who’s left multiple people high and dry.
Shortly after the alleged fraudster skipped out on the job, the city sent an inspector to their properties.
They issued a cease work order on Aug. 1st and the property owners say the city demanded a 71,000 dollar bond and ordered them to remove the massive dirt pile that was left on city property.
“We’re really hoping the city helps us as much as they can,” said Stephana Johnson, a Kelowna resident.
“As law-abiding citizens that we are, we want to do nothing but clean it up.”
RCMP had no comment about the possible fraud that has been reported to them and the city says it’s working to resolve the issue.
Power has now been restored to 3,900 customers in the Kelowna area following a powerful wind storm Wednesday night
© 2020 Global News, a division of Corus Entertainment Inc.
An economist explains what COVID-19 has done to the economy – World Economic Forum
- COVID-19 has caused an economic shock three times worse than the 2008 financial crisis.
- Europe and emerging markets have been hit hard economically, China has escaped a recession.
- But the worst could be behind us, and a greener economy could emerge after the pandemic, according to the Chief Economist at IHS Markit.
It has been a crisis like no other, shutting shops and schools, closing borders and putting half of humanity under some form of lockdown during the spring of 2020. And it’s not over, with cases continuing to mount worldwide as the death toll approaches one million.
To find out more about what the Coronavirus pandemic has done to the global economy so far, and what might lie ahead, I spoke to Nariman Behravesh, Chief Economist at the consulting firm IHS Markit.
Below is an edited transcript of the conversation.
In a nutshell, what has COVID-19 done to the world economy?
Nariman Behravesh: It has certainly plunged the world economy into a very deep but mercifully a short recession. Everybody’s been hurt. I don’t think anybody’s really been spared by this – it’s a combination of fear, uncertainty and the reaction to the lockdowns. Now, a lot of people blame this deep recession on the lockdowns, but I don’t think that’s a fair assessment. If you look at a country like Sweden, even though they didn’t do a lockdown, their economy still suffered pretty severely. It is mostly the uncertainty and the fear of catching the virus that is stopping consumers going to the places they normally would, and that’s hurting the economy.
Looking at historical precedents, it’s about three times as bad as the global financial crisis of 2008 in terms of GDP decline on an annual basis. It’s not quite as bad as the Great Depression in the 1930s, where the output drop was sustained over a three to four-year period, and the unemployment rate went up to 25% in the US. This time so far it only went up to 13% in the US, but it’s the worst downturn we’ve had globally since the 30s.
Do you think that, on a global level, the worst economic damage is behind us?
NB: Well, in some sense, the worst may be behind us. In many parts of the world, in many countries the numbers are coming down – although not everywhere. They’re going up in India, they’re going up in Brazil, they’re really not coming down much in the US. So I would say probably globally, the worst is behind us. But you can also argue that the easy part is behind us, because this thing is going to flare up again and again. We’re not out of the woods. So even when we think we’re done, as a number of countries have, we’re not. It probably won’t be as bad as it was last round, in part because the healthcare systems are prepared, but we’re not done with this.
If you look at 2020 to date, which regions have been the hardest hit, and which have weathered it well so far?
NB: Let’s look at countries first. Among the countries that have weathered it well is, of course, China. China technically did not have a recession. It had one quarter of negative growth and then it came right out the other side. Other countries that have done relatively well are South Korea and Taiwan, which did a lot of testing and tracing so they managed to keep things under wraps compared to the countries that have done the worst in terms of the virus, such as the US, Brazil and India. That judgement is based on the total number of deaths. But for the death rates, if you look at it on a per capita basis, the US is number 10 rather than one, which is lower than Belgium or Spain, so a lot depends on how you measure it.
In terms of economic performance, Europe has been hit quite hard – the European recession is quite a bit deeper than the US or Canadian or Japanese recession. So, Europe and the emerging world have been hit pretty hard.
As we go through autumn, how do you expect things to evolve?
NB: We’re coming out of a very deep recession, so we’ll get what we call a technical bounce. Growth in the US for example will look remarkably strong in the third quarter, but then it will fade. We’re looking at what we call a bounce and fade pattern of growth throughout the world. But the bounce is because it went so far it had to come up – but it won’t continue at that strong rate. Just to give you a sense of the US, GDP was down 32% in the second quarter, we think it’s going to be up 30% in the third quarter, but by the fourth quarter back down to 2.5%.
How optimistic are you for a global recovery and what kind of shape do you think that recovery will take?
NB: I think we will see global growth in the third, fourth quarters and into 2021. It will not be a robust growth rate and a lot of it will depend on a vaccine. Obviously, the sooner a vaccine is available and widely distributed, the better the chances of growth, but we don’t really see that happening until the second half of 2021. A vaccine may get developed, but in terms of its pervasive availability, it’s going to take a while.
There’s been a whole alphabet soup of shapes discussed. One could say that manufacturing is probably enjoying a V-shaped recovery, at least temporarily, but services, which were among the hardest hits – especially airlines, travel and entertainment – these are in U-shaped recoveries. People have talked about a W. You probably won’t get a W unless there’s a serious second wave, which I don’t think is likely but it’s possible.
Could you tell us more about the sectors that have been hardest hit, and the ones that are thriving?
NB: Well, the hardest hit are clearly any activities or any industries that depend on large groups of people coming together in a spot, so airlines are a perfect example of this. Air traffic is barely at 25% of what it was at the end of 2019 and it’s not really going to recover for at least another couple of years. Hotels are another example. And there are huge amounts of excess capacity on cruise ships. Anything to do with conferences has also been hard hit.
In terms of the industries that have done well, high tech is of course an example. Obviously, everybody’s ordering from Amazon rather than going to stores but beyond that a lot of industries are looking to accelerate the digital revolution. Ironically, healthcare is also benefiting in some sense, because of the demand.
Is there anything that surprises you, as an economist?
NB: One sector that I didn’t mention that’s done well, and that surprises me, is housing. Why would housing boom? It is in the US, maybe less so elsewhere. Basically, a lot of people are fleeing to suburbs. A lot of people are buying homes, building homes – in my neighbourhood in Boston we’ve seen two people come from New York. We’re seeing people who can afford it just kind of deciding, “Now I’m done with the urban life. I want more space between myself and my neighbours.”
COVID-19 has hit even the richest countries in the world hard. What is it doing to developing economies? And are there lessons from the emerging world that could be applied to wealthier places?
Taiwan and South Korea are notable for their testing and tracing. If there’s one lesson from the experience there, it’s that massive testing and massive back tracing of contacts is crucial to keeping this thing under control. So that’s a definite lesson. But the rest of the emerging world, from Latin America to Africa, are struggling, there’s no question. Aside from the virus itself, they’re being hurt by collapsing global growth and trade and for a while, the collapse in commodity prices. It’s not only the virus itself but events outside of their countries that are then coming back to hurt them.
Looking at the big picture, are we going to see a different kind of economy and a green recovery emerge from the pandemic?
I don’t think it’s going to be business as usual: I think there are going to be some big, big changes happening. We may not see them overnight. It may take some time. But let’s go through a few of them. I think this will accelerate the movement towards a green economy. This is a perfect opportunity for a lot of companies as they look at new, green technologies. I think that’s going to be very positive. But we are going to see a substitution of capital for labour. Skill and labour-intensive industries are very worried about the vulnerability to viruses of all kinds, so you’ll see greater emphasis on robotics, which creates its own challenges, of course. We think that the process of urbanization will slow. I don’t know if it will reverse, but it will definitely slow down. We’ve seen this so-called flight to suburbs occurring. Separately, in terms of the travel and tourism industry, one has to wonder what will come out the other end. Our best guess is that things like business travel will be curtailed quite dramatically. I think healthcare is another area where we will see some massive transformations as we go forward.
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