Connect with us

Business

OBR given more powers to prevent repeat of Liz Truss mini-budget

Published

2 months ago

on


A new law is set to prevent any future government from sidelining the UK’s independent forecaster from assessing its economic plans like former prime minister Liz Truss did for her short-lived mini-budget.

Powers will be given to the Office for Budget Responsibility (OBR) to make judgements on any major taxation or spending announcements in a bid to deliver “stability”, the Treasury said.

Ms Truss’s mini-budget saw her administration shun the OBR when it announced £45bn in unfunded tax cuts in September 2022, spooking financial markets and leading to mortgage rates soaring.

The new Labour government hopes preventing such a move from happening again will build confidence among investors and boost economic growth.

In the City of London later on Thursday, Chancellor Rachel Reeves will tell financiers the “budget responsibility bill” will deliver economic stability, bolster market confidence, and “help protect family finances by keeping inflation, mortgages, and taxes low as low as possible”.

The law will mean the OBR, which independently monitors and checks the UK government’s financial plans, will have the power to make an assessment on announcements over the course of a financial year, which make permanent tax or spending commitments worth more than 1% of the size of the UK’s economy, or around £30bn.

If the government wanted to announce significant economic measures but did not ask for an OBR forecast on the plans, a “fiscal lock would be triggered”, the Treasury said.

This would mean the OBR at its own discretion would be able to decide to produce a forecast on such plans.

However, the law does not apply to emergency or temporary measures lasting fewer than two years, such as the government’s response to the Covid pandemic.

The lack of an OBR assessment on Ms Truss’s and her chancellor Kwasi Kwarteng’s mini-budget two years ago were seen as a key reason for the lack of investor confidence in the plans.

This is because the OBR uses its forecasts to assess whether the government is likely to meet the rules it has set for managing the economy. Its judgement is closely watched by investors to see if the plans are sound.

In the aftermath of the mini-budget, the value of the pound crashed, signalling that international investors had no confidence in the government’s measures. The Bank of England was also forced to step in to protect pension funds.

Ms Reeves said the government’s “defining mission is to deliver economic growth”, but that growth can “only come through economic stability and a commitment to sound public money”.

“So never again can a government play fast and loose with the public finances,” she added. “This new law is part of our plan to fix the foundation of our economy so we can rebuild Britain.”

Conservative leader Rishi Sunak said on Wednesday his party would examine Labour’s plans to strengthen the OBR “carefully”.

The decision by Labour gives the OBR the most power it has ever had over the government’s policies since it was set up in 2010 by then-Chancellor George Osborne, which might prompt concerns it has too much sway over elected ministers.

While forecasts help businesses plan where to invest, they are only a guide or a prediction of what will happen in the future and can be wrong.

Since leaving Downing Street, Ms Truss has accused the OBR of belonging to an “economic establishment” that is too pessimistic about the potential benefits of tax cuts on the economy.

On Wednesday, civil servants have changed documents describing Ms Truss’s mini-budget as “disastrous” after she complained they showed political bias.

But Paul Dales, chief economist at Capital Economics, said he believed the new law “just formalises the current situation that the government needs to give the OBR enough notice and that the OBR is responsible for costing policy changes and judging whether the fiscal rules are being met or not.

“I don’t think it means the OBR has too much power. Instead, I view it as strengthening the independence required to keep the government straight on fiscal matters,” he added.

Laith Khalaf, head of investment analysis at AJ Bell, added while it was “unclear” how much of the turmoil created in the wake of the mini-Budget was created by the lack of an OBR report, it “didn’t help to calm any nerves” among investors.

“Ironically Liz Truss and Kwasi Kwarteng did more to burnish the credentials of the OBR than any politicians since its inception. As things stand, the OBR is now more commanding than ever,” he added.



Source link

Related Topics:
Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Business

China August factory output, retail sales miss expectations By Reuters

Published

15 hours ago

on

September 14, 2024

By


BEIJING (Reuters) – China’s industrial output growth slowed to a five-month low in August, while retail sales also weakened further, raising the case for bolder stimulus to shore up the world’s second-largest economy.

The sluggish data released on Saturday contrasted with the robust export growth seen in August, underscoring the uneven nature of China’s economic recovery.

Industrial output in August expanded 4.5% year-on-year, slowing from the 5.1% pace in July and marking the slowest growth since March, data from the National Bureau of Statistics (NBS) showed on Saturday.

That missed expectations for 4.8% growth in a Reuters poll of 37 analysts.

Retail sales, a key gauge of consumption, rose only 2.1% in August, decelerating from a 2.7% increase in July amid extreme weather and a summer travel peak. Analysts had expected retail sales, which have been anaemic all year, to grow 2.5%.

President Xi Jinping on Thursday urged authorities to strive to achieve the country’s annual economic and social development goals, state media reported, amid expectations more steps are needed to bolster a flagging economic recovery.

Faltering Chinese economic activity has prompted global brokerages to scale back their 2024 China growth forecasts to below the government’s official target of around 5%.

The protracted property slump has prompted Chinese consumers to cut back spending. Some experts have even proposed distributing shopping vouchers to counter the trend.

Premier Li Qiang said last month the country will focus on stimulating consumption and look at measures to boost household income.

A central bank official said last week China still has room to lower the amount of cash banks must hold as reserves while it faces some constraints in cutting interest rates.

Data from the central bank on Friday showed August new yuan loans remained soft.

Fixed asset investment rose 3.4% in the first eight months of 2024 from the same period a year earlier, compared with an expected 3.5% expansion. It grew 3.6% in the January to July period.

Cash-strapped local governments issued bonds at a quicker pace last month for construction of major projects, a move that economists believe could spur investment and offer some short-term relief for the economy.

Meanwhile, the troubled property sector remains a major drag on growth. Property investment in January-August contracted 10.2% from the previous year, unchanged from a 10.2% slide in January-July.

© Reuters. FILE PHOTO: An employee works at a production line manufacturing optical fiber cables at a factory of the Zhejiang Headway Communication Equipment Co in Huzhou, Zhejiang province, China May 15, 2019. REUTERS/Stringer/File Photo

While Beijing has ramped up efforts to rescue the housing market, many analysts say much more aggressive steps are needed to help debt-laden developers, and encourage would-be home buyers back to the market.

Analysts at Nomura expect bolder measures to be released in the fourth quarter.





Source link

Continue Reading

Business

Boeing faces cash crunch as machinists’ strike weighs on production

Published

20 hours ago

on

September 13, 2024

By


Unlock the Editor’s Digest for free

A strike at Boeing has cast doubt on the company’s production goals for the 737 Max and raised the spectre of a cash crunch, as its chief financial officer on Friday said the company would fight to preserve its investment-grade credit rating.

Boeing’s investment-grade rating is crucial to its operations and losing it would be a serious blow, meaning the company could face a punishing increase in borrowing costs given a debt load that has swelled to $53bn. The options to keep it would likely include some kind of securities offering to shore up cash.

About 33,000 workers with the International Association of Machinists District 751 walked out at 12:01am on Friday after rejecting a tentative agreement with the company. Chief financial officer Brian West said Kelly Ortberg, the new chief executive is “personally engaged” in addressing the situation.

In June and July Boeing had been building roughly 25 Maxes a month, with plans to raise that to 38 by the end of the year. But West told investors on Friday that “now, obviously, that is going to take longer”.

“I can’t comment on 38 per month,” he said. “That rate is so dependent on the duration of the strike.”

Boeing’s share price closed down nearly 4 per cent at $156.77.

The company has slowed production of the Max this year as it tries to improve the quality of its manufacturing process. Boeing has been scrutinised by regulators, prosecutors and the flying public since January when a door panel, which was missing several bolts, blew off a commercial jet midflight. The US Federal Aviation Administration has capped the group’s production at 38 a month.

The slowdown has cost Boeing billions in free cash flow. A lengthy strike would impede the company’s ability to deliver planes to customers, further hurting its cash flow.

The credit rating agencies are closely watching Boeing’s deliveries and ability to generate cash. All three have the group rated one notch above junk, on a negative outlook. Moody’s on Friday said it had placed the company on review for a downgrade.

“Boeing’s investment-grade credit rating has limited headroom for a strike,” said Fitch Ratings analyst Dino Kritikos. “If the current strike lasts a week or two, it is unlikely to pressure the rating. However, an extended strike could have a meaningful operational and financial impact, increasing the risk of a downgrade.”

When asked if Boeing may raise debt or equity before early 2025, West said the company had two priorities: keeping its investment-grade rating and stabilising its supply chain and factory floor.

“That last objective just got harder based on last night,” he said. “So we are perfectly comfortable to supplement our liquidity position to support these two objectives.”

West said it has told suppliers which are not behind on their deliveries to stop shipping to Boeing’s factories in Renton, Washington. Supply schedules remain untouched for the group’s South Carolina plant, which builds the 787 and is not unionised.

The work stoppage is “disappointing”, West said, “because things were starting to move in the right direction”.

“We’re working every responsible lever to do what’s right to conserve cash,” he said. “Our expectation — and I don’t have any timetable — is to want to get back to the table and hammer out a deal.”



Source link

Continue Reading

Business

Dangers of being a FOMO customer as rates fall

Published

21 hours ago

on

September 13, 2024

By


Getty Images Woman lies in bed at night looking at her smartphoneGetty Images

Falling mortgage rates may, at last, be bringing some relief to embattled homeowners and first-time buyers.

In a market described as “frenetic”, lenders are locked in intense competition for new customers while simultaneously trying to hold on to borrowers already on their books.

On supposedly unlucky Friday the 13th alone, big-name providers such as the Nationwide, HSBC and NatWest reduced their fixed rates. In an unusual move, TSB did so for the second time in a week.

Analysts expect further cuts to come, but brokers say the fear of missing out (FOMO) on better deals is paralysing some borrowers.

Failing to act before their current deal expires leaves them exposed to a much more expensive variable rate.

National obsession

During the last couple of years, mortgage rates have featured in discussions from chats around the dinner table to election debates.

About 1.6 million existing borrowers had relatively cheap fixed-rate deals expiring this year. Hundreds of thousands of potential first-time buyers have been hoping to get a place of their own.

Yet, rates have been volatile and much higher than what was the norm for more than a decade.

Line chart showing the average interest rate charged on two-year and five-year fixed deals, according to Moneyfacts. The two-year rate was 5.49% on 13 Sep 2024, and it peaked at 6.86% in July 2023. The five-year rate was 5.15%, and it peaked at 6.51% in October 2022.

The interest rate on a fixed mortgage does not change until the deal expires, usually after two or five years, and a new one is chosen to replace it.

Average rates on new deals are now 5.49% for a two-year deal, the lowest for more than a year. Five-year deals have an average rate of 5.15%, according to the financial information service Moneyfacts.

However, the best, so-called headline, rates are reserved for those borrowing a small proportion of the value of the home (known as loan-to-value). A few are at levels not seen since rates shot up following the mini-Budget in the short-lived premiership of Liz Truss.

“Momentum is really starting to build now and the cuts are coming thick and fast.,” said Emma Jones, managing director at broker When The Bank Says No.

“Borrowers are the winners as lenders seek to compete for all-important market share as we head into the final months of the year.”

‘We took the plunge’

The Bank of England’s interest rate cut in August, with the potential for more to come, is part of the reason for falling mortgage rates.

That came slightly too late for Johnny and Sophie Abbott, whose last mortgage deal expired at the end of July.

Johnny Abbott Portrait of Johnny and Sophie Abbott, both of whom are smilingJohnny Abbott

Johnny and Sophie Abbott decided to move house

When they spoke to the BBC in March, the couple from Loughborough, who have three children, admitted every option seemed like a gamble.

In the end, they chose to buy a home that needed renovation.

“We took the plunge and can just about deal with the mortgage,” said Mr Abbott. “It will be great when it’s done.”

In June, the Bank of England said three million households would see their mortgage payments rise in the next two years, and about 400,000 mortgage holders were facing some “very large” payment increases.

A few months ago, Gary Rees expected to have to make serious lifestyle changes when his current deal expires in October. Now, things are looking better.

Yet, typical of many, the benefit is a smaller rise in his monthly mortgage repayments, not a fall. To be blunt, the financial punch won’t hurt as much.

“It’s improved, but my mortgage rate is still likely to double, rather than triple,” he said.

He is expecting to settle on a two-year deal, in the hope of further rate falls. The Bank of England’s next interest rate decision is on Thursday, although analysts are predicting a hold at 5%.

Getty Images A young man stands outside a house looking at his phone with a reflection of a tree in the window behind himGetty Images

These two cases show that, although things are looking more positive for borrowers, not all are getting an equal benefit. Savers, meanwhile, are seeing the interest they receive worsen.

Brokers say that lenders have been offering the best deals to new, house-purchasing customers, rather than those who are remortgaging.

With relatively few buyers, providers are trying to get a piece of a small pie, according to David Hollingworth, of broker L&C. That includes offering loans at higher multiples of income, up to 5.5 times.

He said that while the lowest rates were “not divebombing”, the market was frenetic.

The market could also improve for remortgagers, he said, as lenders try to hit year-end targets.

Time to act?

Mr Hollingworth said the danger for any borrowers endlessly waiting for even lower rates to come is that they do nothing.

If a fixed deal expires, then borrowers automatically move on to their lender’s standard variable rate – which currently carries an average interest demand of 7.99%, which is two-and-a-half percentage points higher than a new two-year deal.

Adviser Jo Jingree, director of Mortgage Confidence, said people in the process of buying or remortgaging could still switch to a better deal if rates continued to fall before their personal deadline.

“I’ve seen first-hand that customers have been able to achieve revised mortgage offers on the lower rates which will save them money on their monthly payments,” she said.

Borrowers should monitor their rates, particularly a few weeks before their mortgage completes, to ensure they are getting the best possible rate, said Aaron Strutt, of broker Trinity Financial.

He expected rates to keep falling, especially if the Bank of England cuts the base rate on Thursday, or later this year.

With the cost of funding mortgages coming down, some in the industry suggest lenders could have cut rates more quickly.

They say lenders are making smaller price cuts week after week when they could be making larger reductions in one go.

Tackling it Together strap

Ways to make your mortgage more affordable

  • Make overpayments. If you still have some time on a low fixed-rate deal, you might be able to pay more now to save later.
  • Move to an interest-only mortgage. It can keep your monthly payments affordable although you won’t be paying off the debt accrued when purchasing your house.
  • Extend the life of your mortgage. The typical mortgage term is 25 years, but 30 and even 40-year terms are now available.

Read more here.



Source link

Continue Reading
Advertisement

Trending

paribahis bahsegel bahsegel bahsegel bahsegel resmi adresi

Copyright © 2024 World Daily Info. Powered by Columba Ventures Co. Ltd.