LONDON (Reuters) – Britain will borrow almost 400 billion pounds this year to pay for the massive coronavirus hit to its economy, finance minister Rishi Sunak said on Wednesday, as he took his first steps to offset the country’s highest budget deficit outside wartime.
The world’s sixth-biggest economy is now set to shrink by 11.3% in 2020 – the most since “The Great Frost” of 1709 – before recovering by less than half of that in 2021, Sunak told parliament as he announced a one-year spending plan.
“Our health emergency is not yet over. And our economic emergency has only just begun,” he said, promising more money for health, infrastructure, defence and to fight unemployment.
Britain’s budget watchdog estimated borrowing would be 394 billion pounds ($526 billion) in the 2020/21 financial year that began in April, slightly more than it predicted in August.
At 19% of gross domestic product, the deficit will be almost double its level after the global financial crisis which took nearly a decade of unpopular spending squeezes to work down.
Sunak announced cuts to foreign aid spending and a freeze on pay for many public sector workers.
But with many public services still stretched, Sunak is expected to look more at tax rises to make up the shortfall.
“We have a responsibility, once the economy recovers, to return to a sustainable fiscal position,” he said on Wednesday.
Britain was hammered harder by the coronavirus pandemic than most other rich economies as it underwent a long lockdown.
Nearly 56,000 Britons have died from COVID-19, the highest death toll in Europe.
Even with recent positive news about vaccines, the Office for Budget Responsibility (OBR) said the economy was only likely to regain its pre-crisis size at the end of 2022 – or later if Britain fails to get a post-Brexit trade deal with the European Union before a transition arrangement expires on Dec. 31.
Sunak made no reference to Brexit in his speech.
YET MORE SPENDING
Since the pandemic struck Britain a few weeks after he took over as finance minister, the former Goldman Sachs analyst has rushed out emergency spending – much of it on pay subsidies to fend off a surge in unemployment – and tax cuts.
The shift away from the traditional economic orthodoxy of the Conservative Party has alarmed some lawmakers.
Sunak said the cost of his measures to fight the coronavirus was now 280 billion pounds for this year, up from a previous estimate of about 200 billion pounds.
Even so, long-term economic damage of roughly 3% of GDP was likely as a result of COVID-19, the OBR said.
Unemployment was likely to peak at 7.5%, from 4.8% now.
With that damage in mind, Sunak sought to stress how spending would rise in the short term as Britain grapples with the fallout from the pandemic.
Over this year and next, day-to-day spending will rise by 3.8% in inflation-adjusted terms, the fastest growth rate in 15 years.
To meet Prime Minister Boris Johnson’s promise of “levelling up” growth around the country, 100 billion pounds will be spent next year on longer-term investments, 27 billion pounds more than last year.
A new national infrastructure bank will be based in the north of England, where many voters broke with tradition and backed Johnson in last year’s election.
Johnson later told Conservative lawmakers at a meeting of the 1922 Committee that he was confident the British economy could bounce back quickly, and that his government would deliver for the people who elected him, a lawmaker attending the meeting said.
The OBR said it would take 1% of GDP of spending cuts or tax hikes to bring the government’s day-to-day spending into line with its revenues. Debt was likely to rise further, to over 109% of GDP in 2023/24, up from about 101% now.
Paul Johnson, head of the Institute for Fiscal Studies think-tank, said the headline numbers were “completely staggering” but hid a squeeze on spending in three or four years’ time which would be challenging to deliver.
Sunak signalled some early cost-saving moves, including the freeze on pay for public sector workers, except for doctors, nurses, other health staff and the lowest-paid public sector workers.
And Britain will save 3 billion pounds a year by cutting overseas aid spending to 0.5% of GDP, a level that remains higher than almost all other rich countries.
The Archbishop of Canterbury Justin Welby said the cut was “shameful and wrong”, former Prime Minister David Cameron said the government had broken a promise to the poorest countries of the world, and the government’s minister for sustainable development resigned.
(Writing by William Schomberg; Editing by Catherine Evans and Jan Harvey)
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.
