Economy
U.K. data show strong rebound for retail, but slowing economy and further job loss likely
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Britain’s economic recovery from the shock of the COVID-19 pandemic has gathered pace, data showed on Friday, but government borrowing rose past the £2-trillion ($3.45-trillion) mark and fears of future job losses are mounting.
Retail sales rose above prepandemic levels in July, the first full month for many shops reopening after lockdown, and August’s Purchasing Managers’ Index (PMI) data showed the fastest growth in almost seven years.
But Britain’s economy still faces a long recovery after shrinking by a record 20 per cent in the second quarter, the largest decline of any big country.
“The U.K. is still seeing a V-shape bounce in activity. But … a hot summer can quickly turn to a cold autumn,” HSBC economist Liz Martins said, pointing to a softening in euro zone business activity as coronavirus cases begin to rise again.
Retail sales in July were 1.4 per cent above year-ago levels and 3.0 per cent above their level before the pandemic, the Office for National Statistics said.
August’s preliminary composite PMI, which covers most businesses outside retail, hit its highest level since October 2013.
But employers are increasingly planning to shed jobs and were making staff redundant rather than bringing them back from a government-subsidized furlough scheme that expires in October.
“Scarring from the pandemic and lingering doubts about the sustainability of recovery resulted in a need to cut overheads,” said Tim Moore, economics director at IHS Markit, which compiles the PMIs.
The Bank of England forecasts unemployment will reach 7.5 per cent by the end of the year, almost double its most recent reading.
Separately, the Confederation of British Industry said manufacturing orders were “severely depressed”, with little improvement in August.
Stuttering PMI surveys for the euro zone — where countries exited lockdown earlier than Britain — suggested the boost from pent-up demand was already fading.
Retail sales are only part of overall household spending. A GfK survey showed no improvement in consumer confidence since early July.
Within retail, different businesses have had contrasting fortunes. Grocery sales are 3 per cent up on the year and online sales are 50 per cent higher than before the pandemic. But sales volumes at clothing and footwear stores are 25 per cent lower than last year.
Stores including Marks & Spencer, Boots and John Lewis have announced plans for major job cuts.
Friday’s data also laid bare the impact of increased public spending and a slide in tax revenues on the public finances.
Public sector net debt exceeded £2-trillion ($3.45-trillion) in July for the first time, and is its highest since 1961 as a share of gross domestic product.
Government borrowing so far this financial year is £150.5-billion ($260-billion), almost seven times higher than in the same period in 2019, though below the £178.8-billion (308.7-billion) Britain’s budget forecasters predicted last month.
The government has spent more than £35-billion ($60-billion) so far on its job support scheme, the largest single measure to tackle the economic impact of the pandemic.
Government figures showed 6.8 million jobs were furloughed at the end of June, down from 8.9 million in early May.
Source: – The Globe and Mail
Economy
Japanese government maintains view that economy is in moderate recovery – ForexLive
Economy
Can falling interest rates improve fairness in the economy? – The Globe and Mail
The ‘poor borrower’ narrative rules in media coverage of the Bank of Canada and high interest rates, and that’s appropriate.
A lot of people have been financially slammed by the rate hikes of the past couple of years, which have made it much more expensive to carry a mortgage, lines of credit and other borrowing. The latest from the Bank of Canada suggests rate cuts will come as soon as this summer, which on the whole would be a welcome development. It’s not just borrowers who need relief – the boarder economy has slowed to a crawl because of high borrowing costs.
But high rates are also a big win for some people. Specifically, those who have little or no debt and who have a significant amount of money sitting in savings products and guaranteed investment certificates. The country’s most well-off people, in other words.
Lower rates will mean diminished returns for savers and less interest paid by borrowers. It’s a stretch to say lower rates will improve financial inequality, but they do add a little more fairness to our financial system.
Wealth inequality is often presented as the chasm between well-off people able to pay for houses, vehicles, trips and high-end restaurant meals and those who are driving record use of food banks and living in tent cities. High interest rates and inflation have given us more nuance in wealth inequality. People fortunate enough to have bought houses in recent years are staggering as they try to manage mortgage payments that have risen by hundreds of dollars a month. You can see their struggles in rising numbers of late payments and debt defaults.
Rates are expected to fall in a measured, gradual way, which means their impact on financial inequality won’t be an instant gamechanger. But if the Bank of Canada cuts 0.25 of a percentage point off the overnight rate in June and again in July, many borrowers will start noticing how much less interest they’re paying, and savers will find themselves earning less.
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Rob’s personal finance reading list
A look at two strategies for paying off debt – the debt avalanche and the debt snowball. I’ll go with the avalanche.
How not to ruin your kitchen countertop
Anyone who has renovated a kitchen lately knows how expensive stone countertops can be. Look after yours by protecting it from a few common kitchen items.
What you need to know about stock market corrections
A helpful explanation of stock market corrections. It seems an opportune time to look at corrections, given how volatile stocks have been lately. Like scouts, investors should always be prepared.
Food inflation requires more careful grocery shopping. Here’s a roundup of food products – cookies, snacks, ice cream – that don’t taste as good as they used to. Food companies have always adjusted their recipes from time to time. Is this happening more because of inflation’s impact on raw material prices? A U.S. list – most products are available are familiar to Canadians, too.
Ask Rob
Q: I have Tangerine children’s accounts for my kids. Can you suggest a better alternative?
A: The rate on the Tangerine children’s account is 0.8 per cent, which actually compares well to the big banks and their comparable accounts. For kids aged 13 and up, check out something new called the JA Money Card.
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Tools and guides
A comprehensive guide on how to build a good credit score.
In the social sphere
Social Media: An offbeat way of fighting high food costs
Watch: Is now the hardest time ever to buy a home?
Money-Free Zone: Singer-songwriter Maggie Rogers has a new album called Don’t Forget Me and it’s generating some buzz because it’s a great listen. Smooth vocals and a laid back countryish vibe that hits a faster pace on one of my favourite cuts, Drunk.
More PF from The Globe
– He keeps ‘a few thousand in crisp new bills’ at home – is that a good idea?
– The pension pivot: Employers recognizing that workers need help with debt as much as retirement
– Her bond ETF is ‘a dud and not promising at all’ – should she sell?
– Despite high fees, Canadians remain perplexingly loyal to mutual funds. Here’s why
More Rob Carrick and money coverage
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- 📈 Investing: Canada’s top digital broker is TD Direct Investing, with an assist from the TD Easy Trade app • 2023 Globe and Mail ETF buyer’s guide part one: Canadian equity ETFs • For the ultimate in cheap investing, check out the Freedom .08 ETF Portfolio • Yes, there is risk in Canadian bank deposits for the unwary and complacent • CDIC covers bank deposits, but who protects your investments if your broker goes bust? • Answers to your questions about the low-risk ETF paying almost 5% • Happy fifth birthday to one of the all-time best investing products for everyday people • An investing strategy that wins cleanly over the long term by outperforming in bad years like 2022
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LIVE: Freeland joins panel on Indigenous economy – CTV News Montreal
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LIVE: Freeland joins panel on Indigenous economy CTV News Montreal
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