The British economy will suffer its worst recession in more than three centuries this year, and the scarring will take years to overcome, the country’s independent fiscal watchdog said Wednesday.
The Office for Budget Responsibility forecast an economic contraction in Britain of 11.3 percent this year, one of the steepest declines among developed countries as a result of the pandemic.
“Our health emergency is not yet over and our economic emergency has only just begun,” Rishi Sunak, the chancellor of the Exchequer, told lawmakers in Parliament before he revealed the forecasts.
Britain already knew it was in the midst of a historic recession. But the figures from the Office of Budget Responsibility, which provides forecasts on the economy and public finances twice a year, were its first complete forecasts since March, before the impact of the pandemic had been known and before spending measures were taken to support the economy.
Britain’s economy won’t return to its pre-crisis levels until the end of 2022, and long-term damage means that the economy will be 3 percent smaller at the end of 2025 than the agency predicted eight months ago. Unemployment levels will peak at 7.5 percent next year, with 2.6 million people out of work, after the government’s wage-subsidy program ends in March. At the end of 2025, nearly six years on from the time the virus reached Britain, the unemployment rate will be 4.4 percent, still higher than the rate before the pandemic.
By the end of this year, Mr. Sunak said, the government will have spent more 280 billion pounds ($374 billion) on its economic response to the pandemic. This leads to the second biggest increase in the deficit as a percentage of G.D.P. among developed economies, after Canada. To pay for it, the public borrowing will be £394 billion this year, 19 percent of Britain’s gross domestic product and the highest annual rate except for World War I and II.
Britain enjoyed an economic recovery in the summer faster than the Office for Budget Responsibility had anticipated, thanks to consumer spending, including a popular meal-discount program. But the second wave of the pandemic and another lockdown has sent the economy into reverse. A recovery is expected to return next year but will mostly be supported by consumer spending again, with business investment remaining depressed.
Mr. Sunak announced plans to keep spending on the nation’s health service, education and infrastructure plans, but he said there would be spending cuts, including a freeze in pay increases for public sector workers who are not in the National Health Service. He also said Britain would reduce its commitment to international aid: Instead of spending 0.7 percent of gross national income, as it normally does, it will allocate 0.5 percent, or about £10 billion, next year.
“During a domestic fiscal emergency, when we need to prioritize our limited resources on jobs and public spending, sticking rigidly to spending 0.7 percent of our national income on overseas aid is difficult to justify to the British people,” Mr. Sunak said.
The Office for Budget Responsibility’s forecasts assume Britain and the European Union reach a trade agreement by the end of the year. Negotiations are still happening, but if an agreement isn’t reached, G.D.P. would be pulled down by 2 percent next year, the agency said.
President-elect Joseph R. Biden Jr. will announce more members of his economic team next week, transition officials confirmed on Wednesday, saying those individuals will have diverse ideologies and backgrounds.
Mr. Biden is expected to officially name Janet L. Yellen, the former chair of the Federal Reserve, as his nominee for Treasury secretary. While transition officials would not specify which other positions Mr. Biden will announce, he is likely to reveal appointments to the White House’s Council of Economic Advisers, among other roles inside the West Wing.
Among the leading contenders for top economic roles on Mr. Biden’s team are a pair of liberal economists who advised him during the campaign: Jared Bernstein, a former top economist for Mr. Biden when he was vice president, and Heather Boushey, who was a top aide to Hillary Clinton in her 2016 presidential run, and currently runs the Washington Center for Equitable Growth, a think tank focused on inequality.
People close to Mr. Biden’s selection process widely expect his top economic aides will reflect the racial diversity of the coalition that elected him, including prominent Black advisers. Liberal groups have pressured the Biden team in recent days to choose prominently progressive advisers over aides with ties to Wall Street or those from the centrist wing of his party that have argued for aggressive deficit reduction in the past.
Federal Reserve officials discussed options for adjusting their bond-buying campaign at the central bank’s early-November meeting, minutes from the gathering showed, laying the groundwork for the next step in their response to the economic blow brought on by the pandemic.
Economists and analysts had expected the central bank to shake up its government-backed bond purchases as soon as its next meeting, Dec. 15-16. Some have suggested that the Fed might want to provide the economy with more support amid a recent surge in virus infections that has caused some states and localities to once again restrict activity.
The minutes of the Fed’s Nov. 4-5 meeting show an appetite for providing more detail on timing soon, but little consensus about the speed and style of future bond purchases, which are overseen by the Federal Open Market Committee.
Officials “judged that immediate adjustments to the pace and composition” were not needed in early November, but they “recognized that circumstances could shift to warrant such adjustments,” the minutes said. They “saw the ongoing careful consideration of potential next steps for enhancing the Committee’s guidance” as appropriate.
Many said they might want to update that guidance “fairly soon.”
There was agreement among “most” officials that the central bank should be clearer about the time horizon in which they expect to keep buying assets, tying that qualitatively to economic conditions, because doing so “would help keep the market’s expectation for future asset purchases aligned with the Committee’s intentions.”
Most also felt the Fed should say that its purchases would taper off and stop before it would lift interest rates, which officials cut to near-zero in March.
But there seemed to be some debate over the speed and nature of purchases. Many Fed watchers have been expecting officials to continue buying about $120 billion in bonds per month, but to shift toward securities that expire later. The goal would be to weigh down longer-term interest rates, potentially offering an extra economic boost to sectors that are sensitive to interest rate changes, like housing. Such a plan was noted, along with alternatives.
“Several” officials suggested the Fed could provide the same boost to the economy by reducing the pace but shifting toward longer-dated bonds, for instance.
“Such a change in the Committee’s purchase structure would have to be carefully communicated to the public to avoid the misperception that the reduced pace of purchases represented a decline in the degree of accommodation,” the minutes said.
Central bank officials gave a watchful assessment of the economy, especially as government supports expire.
Officials “registered a rapid though incomplete rebound,” the minutes said. They generally expected strong household spending to continue, but “several participants expressed concern that, in the absence of additional fiscal support, lower- and moderate income households might need to reduce their spending sharply when their savings were exhausted.”
IBM is said to be planning to cut about 10,000 workers in Europe as it prepares to split off its traditional technology services business from the rest of the company.
IBM has been briefing works councils — committees that represent employees to management — in Europe, a step large companies are required to take in advance of any significant layoffs, said a person familiar with the talks who spoke on condition of anonymity because he was not authorized to speak publicly on the matter. The largest cuts will be in Britain and Germany.
IBM declined to comment directly on the report of coming layoffs in Europe. “Our staffing decisions are made to provide the best support to our customers,” the company said in a statement, adding that it would “also continue to make significant investments in training and skills development” of its remaining workers.
Bloomberg first reported the planned job cuts.
The company announced last month that it would spin off its basic technology services business, which maintains, supports and upgrades the computing operations of thousands of corporate customers. That business generated about $19 billion in revenue last year, accounting for about a quarter of IBM’s total revenue.
The remaining business, which will retain the IBM name, will focus on faster-growth fields like cloud computing and artificial intelligence. It will also include its hardware, software and consulting services units. The technology support business to be split off has not yet been named.
For more than a decade, IBM has taken annual charges of up to $1.5 billion for laying off thousands of workers. The yearly shedding of jobs is a process the company calls work force “rebalancing” — cutting employment in slower growing operations and hiring workers in growing operations. IBM had 352,600 employees worldwide at the end of last year.
But the cuts in preparation for the spinoff will be deeper than in recent years. When it announced the breakup plan, IBM said it would take a $2.3 billion charge for “structural actions,” mainly severance payments for laid-off workers.
The separation into two companies is expected to be completed by late next year.
IBM executives have also said that the future of the legacy technology services company would be as a leaner operation, requiring fewer workers as more data center tasks are automated.
Applications for unemployment benefits rose for the second week in a row last week, the latest sign that the nationwide surge in coronavirus cases is threatening to undermine the economic recovery.
More than 827,000 people filed first-time applications for state unemployment benefits last week, the Labor Department said Wednesday. That was up 78,000 from a week earlier, before adjusting for seasonal patterns, and more than 100,000 from the first week of November, when weekly filings hit their lowest level since pandemic-induced layoffs began last spring.
Another 312,000 people filed for benefits under the federal Pandemic Unemployment Assistance program, which covers freelancers, self-employed workers and others who don’t qualify for state benefits. And 4.5 million people are now receiving benefits under a separate program that extends payments during the pandemic, a total that has been rising as more people reach the end of their state benefits. Both those programs expire at the end of the year.
Unemployment filings have fallen substantially since last spring, when more than six million people a week were applying for benefits. But progress has stalled in recent months, and the data reported Wednesday suggests it could be going in reverse.
“I don’t think the report is cause for panic, but it certainly is concerning to see claims rise two week as in a row at a time when the level of claims is still above Great Recession peaks,” said Daniel Zhao, senior economist at the career site Glassdoor. He noted that unlike the previous week’s increase, which was concentrated in Louisiana, the latest report showed increases across the country.
Separate data released by the Commerce Department on Wednesday also pointed to a slowdown. Personal income fell 0.7 percent in October as declines in government aid offset wage and salary gains. Consumer spending rose 0.5 percent, the smallest gain since the recovery began last spring.
Evidence from private-sector sources tells a similar story. Consumer confidence fell in November, the Conference Board reported Tuesday, and data on job postings, hours worked and consumer spending show either a loss of momentum or outright declines in November.
“We have definitely seen a slowdown since Labor Day, and in the last few weeks, it’s actually gone into a decline,” said Dave Gilbertson, a vice president at UKG, which provides time-tracking software to about 30,000 U.S. businesses.
Economists worry that the slowdown could deepen in coming weeks, as consumers pull back on spending and cities and states reimpose business restrictions, something that has already begun to happen in California, Michigan and other states.
Unlike in the spring, households and businesses will have to weather the latest shutdowns largely on their own. Federal programs that provided trillions of dollars of support to small businesses and unemployed workers expired over the summer, and efforts to revive them have stalled in Congress. Many of the remaining programs run out at the end of the year.
“Part of the reason the recovery has done so well is because there was so much assistance for affected businesses and workers, and this is just really not the time to snatch defeat from the jaws of victory,” said Julia Pollak, a labor economist at ZipRecruiter. More aid, she said, is necessary to “prevent this temporary disruption from becoming permanent destruction.”
Credit Karma agreed to sell its tax business to the payments company Square in an effort to win approval from the federal government for its $7.1 billion acquisition by Intuit, the companies announced on Wednesday.
The Justice Department’s antitrust division had filed a lawsuit on Wednesday in the U.S. District Court for the District of Columbia to block the deal. But it also proposed a settlement: a sale of the tax unit to Square.
Court approval of the settlement would pave the way for Intuit, which owns TurboTax, to close its acquisition of Credit Karma, a deal that was announced in February, and create a financial assistant giant aimed at serving ordinary Americans.
The center of the government’s complaint rested on the affect the deal would have on Americans who rely on software to file their taxes. Intuit’s TurboTax has long dominated the do-it-yourself tax market, serving some 41 million people in 2020, according to the Justice Department. Credit Karma Tax, which served two million individuals this year, was introduced four years ago with an “always free service” offer for its products and e-filings.
The Justice Department claimed that putting the two tax companies under the same parent eliminated that necessary competition and would likely have resulted in higher prices and lower quality for consumers.
Under the terms of the government’s proposed settlement, Square would acquire Credit Karma Tax and integrate it into its Cash App platform. The Cash App, which serves as a tool for users to transfer money, bank and invest, has seen rapid growth during the pandemic, as consumers have looked to digital tools for banking.
The settlement would leave the core of Credit Karma’s business, access to free credit scores to more than 100 million customers, in the hands of Intuit. Intuit executives have said they hope to use that data and customer base to broaden the company’s platform of financial products, which includes the finance tracker Mint.
Intuit’s chief executive, Sasan Goodarzi, said this month in a call with analysts that the company wanted to buy Credit Karma “to create a consumer finance platform” — and not for its tax business.
Pilots at Delta Air Lines voted to approve an agreement that guarantees them job security through January 2022 in exchange for agreeing to reduced pay and hours, their union, the Air Line Pilots Association, said on Wednesday. The deal will protect about 1,700 pilot positions that the airline had previously indicated it wanted to cut. Delta welcomed the agreement and said its cost-cutting efforts had allowed it to avoid involuntary furloughs during the pandemic.
By: Ella Koeze·Source: Refinitiv
Stocks on Wall Street took a breather from their rally on Wednesday, a day after the Dow Jones industrial average crossed 30,000 for the first time and the S&P 500 also reached a record.
Both indexes fell slightly, following small declines in Europe.
Shares of Gap plunged nearly 19.6 percent after the retailer reported financial results on Tuesday that fell below investors’ expectations. Net sales were flat in the three months that ended in October, the company said.
On Wednesday, weekly data the U.S. government reported that applications for unemployment benefits rose for the second week in a row last week, the latest sign that the nationwide surge in coronavirus cases is threatening to undermine the economic recovery.
The New York Stock Exchange will be closed on Thursday and will close early on Friday at 1 p.m.
Millions of Americans will exhaust their unemployment benefits in just a month.
Congress last spring created two programs to expand and extend the unemployment insurance system during the pandemic. But those programs expire at the end of the year; the week of Christmas will be the last week for which recipients can claim benefits.
Data from the Labor Department on Thursday showed that nearly 14 million Americans were receiving benefits under the two programs as of early November.
Roughly nine million of them were enrolled in the Pandemic Unemployment Assistance program, which covers freelancers, self-employed workers and others who don’t qualify for regular state benefits. That program has been plagued by fraud and double-counting, and many economists believe the Labor Department’s count inflates the true total. Still, by any measure there are millions of people enrolled in the program who will lose their benefits when it expires.
The other 4.5 million are receiving payments through a separate program called Pandemic Emergency Unemployment Compensation, which adds 13 weeks of benefits to the 26 weeks available in most states. Enrollment in that program has been rising rapidly as more people reach the end of their regular state benefits.
Some of those people will qualify for a separate federal extended benefits program that existed before the pandemic. But that program isn’t available in every state.
For workers, the timing could scarcely be worse.
“We’re going to be in the heart of winter, virus cases are likely to be through the roof and the holiday hiring season is over,” said AnnElizabeth Konkel, an economist at the career site Indeed. “It puts those who are potentially rolling off of those benefit programs in a really precarious situation.”
Adding to the risk: Federal rules to block evictions and allow borrowers to defer payments on home mortgages and student loans also expire at the end of the year. The Trump administration could choose to extend them, but if it doesn’t, families could lose their only source of income and lose the protections keeping them in their homes.
“It’s sort of like running into a giant brick wall,” said Elizabeth Pancotti, a policy researcher who co-wrote a recent report on the benefits cliff. “Not that there’s a good time for all these programs to end, but maybe all on the same day wasn’t a great idea.”
The mass cancellation of trade fairs has been a disaster for hotels, restaurants and taxi drivers around the world, but Germany has been hit particularly hard.
The country has four of the world’s 10 largest trade venues, more than any other nation, and trade fairs have played a central role in German economic life at least since the Middle Ages, when merchants convened in cities like Leipzig to trade wine, furs, grain and gossip, The New York Times’s Jack Ewing reports.
In a good year, trade fairs generate 28 billion euros, or $33 billion, in revenue for German convention centers, hotels, restaurants, airlines and various service providers, according to the Ifo Institute in Munich, a research organization. That revenue has largely evaporated.
Conventions are an underappreciated driver of economic growth worldwide, responsible for about 1.3 million jobs. Trade fairs generated revenue of $137 billion in 2018, as much as General Motors, according to the Global Association of the Exhibition Industry in Paris.
But revenue this year is down by two-thirds after the cancellation of events like the Mobile World Congress (which drew more than 100,000 visitors in 2019) in Barcelona, Spain, or the North American International Auto Show in Detroit (which drew more than 750,000).
Some fairs moved online when the pandemic made live gatherings inadvisable. After the cancellation of Leben und Tod, or Life and Death, a funeral industry event normally held in Freiburg, Germany, organizers turned to the internet. They livestreamed presentations on topics such as “Fear of Dying” and “Burial Preparation: Which Shoes for the Final Journey?”
But virtual events do not fill hotels or restaurants, or provide work for the carpenters who build the often elaborate company displays.
Following a slow rollout of rules governing opportunity zones, a program to encourage investment in low-income neighborhoods, developers have pumped billions of dollars into the zones nationwide, even in the midst of the pandemic, writes Joe Gose for The New York Times.
The opportunity zone program, which was part of the Tax Cut and Jobs Act of 2017, allows investors to defer capital gains taxes and receive other tax benefits for making equity investments in real estate and operating businesses in underinvested areas.
But the program has its challenges:
Some critics charge investors are using it simply to avoid paying taxes.
Others point to a lack of transparency that makes it tough to gauge whether the investments are making a real impact on communities.
The Trump administration has resisted providing much federal reporting or oversight.
Proponents of the initiative are pushing back against the criticism, saying the opportunity zone program is needed to attract real estate funding to underserved areas. And some states and cities are using it to help steer investment into their underserved neighborhoods and track how much residents are benefiting from it.
“There will be developers who make a bunch of money building fancy apartments, there’s no doubt about that,” said P. David Bramble, a managing partner for MCB Real Estate, a developer based in Baltimore. “But investors are providing capital to projects in low-income areas that they otherwise would have ignored because of demographics. That’s a win.”