Monday, October 03, 2022

U.N. chief: Current climate change pledges 'far too little and far too late'

David Knowles
·Senior Editor
Mon, October 3, 2022 

United Nations Secretary-General António Guterres issued a dire assessment Monday on the current world pledges to cut greenhouse gas emissions causing climate change, saying they were "far too little and far too late" to keep temperatures from rising above a critical threshold.

“The collective commitments of G20 governments are coming far too little and far too late. The actions of the wealthiest developed and emerging economies simply don’t add up,” Guterres said at a press conference at U.N. headquarters in New York City of the efforts to keep average global temperatures from rising 1.5° Celsius or higher above pre-industrial levels.

The world has already warmed by 1.2°C due to the greenhouse effect caused by mankind’s burning of fossil fuels, and studies show that that amount of warming is already having a profound impact on the planet, including making hurricanes stronger and worsening drought, heat waves, wildfires, and extreme rainfall events.

Despite pledges from world governments made at past U.N. climate change conferences in Paris and Glasgow, a study by the Met Office in the United Kingdom found that there is a 50-50 chance that the world will exceed 1.5 C of warming by the year 2026.

On Monday, Guterres made clear that current emissions trajectories looked even more grim in the decades ahead.

“Taken together, current pledges and policies are shutting the door on our chance to limit global temperature rise to 2 degrees Celsius, let alone meet the 1.5-degree goal,” Guterres said. “We are in a life-or-death struggle for our own safety today and our survival tomorrow.”


U.N. Secretary-General António Guterres. (Lev Radin/Pacific Press/LightRocket via Getty Images)

September report by the U.N. and the World Meteorological Society found that in order to keep global average rise to “1.5 degrees Celsius above pre-industrial levels, greenhouse gas emission reduction pledges need to be seven times higher.”

The report also stated that unless world nations strengthened and carried out pledges to reduce greenhouse gas emissions above and beyond current commitments the world was poised to see median warming of 3.2°C (5.76°F) by the year 2100. Warming of that amount would result in a world that is almost unrecognizable from the one we live in today, scientists say, with radically redrawn coastlines due to sea level rise and large swaths of the planet made unlivable due to scorching summertime temperatures.

Pointing to these findings, Guterres once again called on humanity to act to try to save itself from the worst consequences of climate change.

“There is no time for pointing fingers — or twiddling thumbs,” he said. "It is time for a game-changing, quantum-level compromise between developed and emerging economies. The world cannot wait. Emissions are at an all-time high and rising.”


Matlacha, Fla., in the aftermath of Hurricane Ian. (Ricardo Arduengo/AFP via Getty Images)

After a brief decline in greenhouse gas emissions caused linked to the economic slowdown in the early stages of the coronavirus pandemic, the world has resumed burning fossil fuels at an increasing rate. Russia's war in Ukraine and the ensuing energy crisis stemming from it, have further set back the push to curb emissions.

"The war in Ukraine is putting climate action on the back burner while our planet itself is burning," Guterres said.

Guterres made his remarks just a month prior to COP27, the next U.N. climate change conference, which will be held in Sharm el-Shaikh, Egypt. Despite his gloomy assessment, Guterres attempted to rally support among nations for not only attending COP 27, but for world leaders to come with stronger plans of action.

"On every climate front, the only solution is decisive action in solidarity," Guterres said. "COP27 is the place for all countries – led by the G-20 — to show they are in this fight and in it together."

Lack of funding in focus as Congo hosts pre-COP27 climate talks



Congo holds informal ministerial meeting ahead of COP27 climate summit in Kinshassa


Mon, October 3, 2022
By Sonia Rolley

KINSHASA (Reuters) -High-level speakers at climate talks in Kinshasa called out rich nations on Monday for failing to honour a $100 billion per year funding pledge to developing countries, warning that fair finance was needed to avert the worst of the climate crisis.

Dozens of ministers and senior delegates are in Democratic Republic of Congo this week for a final meeting before the COP27 climate summit in November, where more vulnerable countries hope to push for compensation for economic losses linked to climate catastrophes.

"The finance currently available is a pittance with respect to the magnitude of disasters vulnerable nations and people are facing and will face," U.N. Deputy Secretary-General Amina Mohammed said at the start of the three-day event.

Egypt, which is hosting COP27, is working on how to include this kind of compensation for so-called loss and damage on the formal agenda - a task complicated by industrialized nations' wariness of the liabilities they may face.

"Failure to act on loss and damage will lead to more loss of trust and more climate damage," U.N. Secretary-General Antonio Guterres said in New York on Monday. "The collective commitments of G20 governments are coming far too little and far too late."

He also called out international financial institutions: "Beyond pursuing their own drop-in-the-bucket initiatives, they must intensify their efforts to leverage the necessary massive increases of private finance as first-investors and risk-takers."

In Kinshasa, Mohammed and Egyptian Foreign Minister Sameh Shoukry highlighted the failure to deliver on an existing $100 billion per-year pledge to developing countries, which has only ever been partially met and is due to expire in 2025.

Mohammed also criticised an over 50% shortfall in the $356 million pledged to a climate adaptation fund at COP26 last year.

The pre-summit is meant to be a forum for countries to shape the agenda for negotiations in Egypt and improve the chance of progress.

Welcoming delegates, Congo's Environment Minister Eve Bazaiba said she was concerned that countries' ongoing failure to fulfil commitments had become a matter of course.

Earlier Bazaiba told Reuters the focus of talks would be how the richest and most industrialised nations should take financial responsibility for their role in the climate crisis.

"The G20 is responsible for 80% of the pollution in the world," she said in an interview on Saturday. "The real debate of this pre-COP and COP27 is the responsibility of the polluting countries."

Around a dozen young activists protesting outside the venue called on Congolese authorities to cancel plans to drill for oil and gas in its share of the world's second-biggest rainforest and in peatlands that store billions of tonnes of carbon.

"We cannot sacrifice them at the altar of fossil fuel," said activist Bonaventure Bondo.

Congo, like other African nations, has insisted on its right to develop its economy by exploiting its vast natural resources, pledging to minimise the potentially devastating environmental impact by using modern drilling methods and tight regulation.

U.S. climate envoy John Kerry is due to meet Congolese President Felix Tshisekedi on Tuesday. The two countries have set up a working group to help protect Congo's rainforests and peatlands.

(Writing by Alessandra Prentice; additional reporting by Michelle Nichols; Editing by Andrea Ricci)

Africa wants $1.3 trillion in climate financing


Faustine Ngila

Mon. October 3, 2022

Amid failed promises of climate funds to a continent that contributes the least to climate change yet suffers the greatest devastation, climate activists are pushing for more: a tenfold increase in climate funding commitments to Africa from the west’s 2009 $100 billion figure to $1.3 trillion. These calls were made during a recent pre-COP27 media conference in Kigali, Rwanda.

This year alone, climate-change has caused one of the worst droughts in the Horn of Africa region. At least 453 people died as a result of flooding in South Africa in April, while hundreds perished due to devastating tropical storms in Madagascar and Mozambique in the same month. On Aug. 3, at least 24 Ugandans lost their lives as flash floods hit the town of Mbale, leaving 5,600 people displaced and over 5,000 acres of crops destroyed. A 2019 Save the Children report shows over 1,200 people died as the result of cyclones, floods, and landslides in Mozambique, Somalia, Kenya, Sudan, and Malawi.

While asking all African nations to fully participate at the COP27 climate summit in Egypt in November, Faustine Munyazikwiye, deputy director, Rwanda Environmental Management Agency called on the need for an afrocentric approach to advance the continent’s quest for more funding.

“The $100 billion promise was just a number. It didn’t meet the climate needs of developing nations which are most vulnerable. Africa has never been compensated enough for loss and damage which it didn’t cause,” Munyazikwiye told participants.

California-based climate policy organization Climate Policy Initiative last month estimated that climate funding to Africa stands at only around $30 billion per year. It also estimates that funding Africa’s mitigation needs would cost $1.6 trillion by 2030, along with an additional $580 billion for adaptation and $242 billion for “dual benefit” measures, which is short of the $1.3 trillion the continent is asking for.

The effects of climate change in Africa are dire

Africa produces less than 4% of the world’s carbon emissions, but has witnessed some of the worst hazards of climate change, with temperatures rising faster than the global average. A 2019 World Meteorological Organization report warned that a temperature rise of 4°C relative to pre-industrial levels could reduce Africa’s GDP by up to 12.12%.

The World Health Organization estimates that climate change will claim the lives of 250,000 more Africans per year between 2030 and 2050.

A 2021 report (pdf) by the Food and Agriculture Organization (FAO) indicates that the number of undernourished people in Africa has increased by 45.6% since 2012 due to climate change. “Some 281.6 million people on the continent faced hunger in 2020, which is 46.3 million more than in 2019.”
The carbon credit narrative is a sky trap for Africa

In the global carbon market, which grew by 164% to a record $851 billion last year, the continent ranks last in terms of green development mechanisms and funding. “Africa has the largest room to trade its carbon credits but what are the obligations of the buyer and seller?” Munyazikwiye asked.

“Rich countries do not want to decarbonize their economies. It’s a sky trap. Instead of cutting emissions, they pay poor countries for running projects that reduce emissions and take credit for that. Africa doesn’t have emissions to cut, but emissions to avoid,” said founder of climate think tank Power Shift Africa Mohamed Adow.

Adow called on all African presidents to consider leading climate dialogues in their countries because “if you’re the least developed and face the biggest climate vulnerabilities, you need to choose the right climate path.”

Hitting out at African countries such as Namibia, Uganda,and DRC which want to follow the fossil fuel path, Mohamed warned that such moves “inspire climate change perpetrators.” Last February, Namibia discovered 11 billion barrels of oil, Uganda wants to mine its 6.5 billion barrels of oil while the DRC wants to exploit its 5 billion oil barrels, exposing more than 1 million people to pollution and disease.

UN chief: World is in `life-or-death struggle' for survival


Kenya Climate Protests
Kenyan activists demonstrate at a protest to highlight the effects of global warming and demand more aid for poor countries, in downtown Nairobi, Kenya Saturday, Sept. 24, 2022. U.N. Secretary-General Antonio Guterres told world leaders earlier this week that rich energy companies should be forced to fork over some windfall profits to aid victims of climate change and offset rising fuel and food costs.
 

EDITH M. LEDERER and SETH BORENSTEIN
Mon, October 3, 2022 

UNITED NATIONS (AP) — U.N. Secretary-General Antonio Guterres warned Monday that the world is in “a life-or-death struggle” for survival as “ climate chaos gallops ahead” and accused the world’s 20 wealthiest countries of failing to do enough to stop the planet from overheating.

The U.N. chief said emissions of global-warming greenhouse gases are at an all-time high and rising, and it’s time for “a quantum level compromise” between rich developed countries that emitted most of the heat-trapping gases and emerging economies that often feel its worst effects.

Guterres spoke as government representatives opened a meeting in Congo’s capital Kinshasa to prepare for the major U.N.-led climate conference in the Egyptian resort of Sharm el-Sheikh in November. It's a time of immense climate impacts around the world — from floods that put one-third of Pakistan under water and Europe’s hottest summer in 500 years to hurricanes and typhoons that have hammered the Philippines, Cuba and the U.S. state of Florida.

In the last few weeks, Guterres has amped up a push for climate’s version of asking polluters pay for what they’ve done, usually called “loss and damage,” and he said Monday that people need action now.


“Failure to act on loss and damage will lead to more loss of trust and more climate damage. This is a moral imperative that cannot be ignored.”

Guterres said the COP27 meeting in Egypt “must be the place for action on loss and damage.”

In unusually critical language, he said commitments by the so-called G20 group of the world’s 20 leading economies “are coming far too little, and far too late.”

Guterres warned that current pledges and policies “are shutting the door on our chances to limit global temperature rise to 2 degrees Celsius, let alone meet the 1.5 degree goal.”

“We are in a life-or-death struggle for our own safety today and our survival tomorrow," he said.

“COP27 is the place for all countries -- led by the G20 -- to show they are in this fight, and in it together,”Guterres said. “And the best way to show it is by showing up at COP27 in Sharm el-Sheikh.”

Rich countries, especially the United States, have emitted far more than their share of heat-trapping carbon dioxide from the burning of coal, oil and natural gas, data shows. Poor nations like Pakistan and Cuba have been hurt far more than their share of global carbon emissions.

Loss and damage has been talked about for years, but richer nations have often balked at negotiating details about paying for past climate disasters, like Pakistan’s flooding this summer.

The issue is fundamental for the world's developing countries and Guterres is reminding rich nations “that they cannot try and brush it under the carpet ... G20 nations have to take responsibility for the great need their actions have caused,” said Mohamed Adow of Power Shift Africa, which tries to mobilize climate action in Africa.

Princeton University climate science and international affairs professor Michael Oppenheimer said in an email that if high-income and other big emitters like China want the U.N. convention on climate change to remain useful, "they will need to grapple seriously with loss and damage.”

Otherwise, he said, negotiations “are headed for interminable gridlock.”

Poor countries with low emissions can simply refuse to discuss anything else until the issue is resolved, Oppenheimer said. Richer countries may find a way around the issue without paying for direct damage by paying poorer nations more to adapt to lessen future disasters, but even then developed nations will have to pay out money, not just make promises as they have in the past, he said.

Guterres’ remarks “highlight what small islands and least developed countries have been arguing for decades — that loss and damage is irrefutable and already disproportionately affecting the most vulnerable countries and communities,” said Adelle Thomas, a climate scientist from the Bahamas.

“We are reaching a breaking point, where developed countries must respond instead of continuing to delay action with empty promises and prolonged discussions," she added.

___

Borenstein reported from Washington

___

Follow AP’s climate and environment coverage at https://apnews.com/hub/climate-and-environment

___

Follow Edith Lederer and Seth Borenstein on Twitter at @edithledererAP and @borenbears

___

NONE FLYING IN BY AIRSHIP
Egypt: About 90 heads of state confirmed for COP27 climate summit

General view of hotels, banks and office buildings by the Nile River after an interview about the COP27 summit in Cairo

Mon, October 3, 2022 
By Aidan Lewis

CAIRO (Reuters) - About 90 heads of state have confirmed attendance at November's COP27 climate negotiations in Egypt where they will address issues including energy transition and food security at opening sessions, a senior Egyptian official said on Monday.

"We've received a large number of confirmations from around the world, I think the last count was about 90 heads of state but the numbers keep coming in," said Wael Aboulmagd, special representative for the COP27 presidency, without mentioning specific countries.

"What we've decided is that our heads of state section will not be a traditional plenary-only type of affair, but rather there will be six roundtables ... for heads of state to actually engage in a discussion on the issue at hand."

Egypt is taking over the presidency of the U.N. climate talks from Britain, and will host the talks from Nov. 6-18 in the Egyptian Red Sea resort of Sharm el-Sheikh.

Topics for leaders' roundtables held on Nov. 7-8 would include the development of green hydrogen, water and food security, achieving a just energy transition towards renewables, and vulnerable communities, Aboulmagd said.

The themes reflect some of the Egypt's priorities as it tries to better promote the interests of developing nations and their need for financing to adapt to the impacts of climate change.

"We strongly believe that we need all the political will and momentum and direction coming from heads of state to push the process forward, because it has become a very, very adversarial process," Aboulmagd said.

Egypt is working on how to include "loss and damage" - compensation to climate-vulnerable countries already suffering from climate-related weather extremes - on the summit's formal agenda.

At last year's COP26 in Glasgow, the United States and the European Union rejected calls for a fund to compensate for such losses.

At a pre-COP meeting of heads of delegations last month, "no one seemed to say we're against an agenda item", said Aboulmagd.

(Editing by David Evans)

NO YACHTS HERE
UN: 5.7 million Pakistani flood victims to face food crisis







Homes are surrounded by floodwaters in Sohbat Pur city, a district of Pakistan's southwestern Baluchistan province, Aug. 29, 2022. A new study says human-caused climate change juiced the rainfall that triggered Pakistan's floods by up to 50%. But the authors of the Thursday, Sept. 15, study say other societal issues that make the country vulnerable and put people in harm's way are probably the biggest factor in the ongoing humanitarian disaster.
 
(AP Photo/Zahid Hussain, File)More

MUNIR AHMED
Mon, October 3, 2022

ISLAMABAD (AP) — The United Nations humanitarian agency warned Monday that about 5.7 million Pakistani flood survivors will face a serious food crisis in the next three months.

A top U.N. official announced an increase in the humanitarian appeal for Pakistan to $816 million, from $160 million, amid rising deaths from disease.

In Geneva, Julien Harneis, the U.N. resident coordinator in Pakistan, told reporters that aid agencies needed more funds to prevent a “second wave of destruction" from waterborne and other diseases in Pakistan. He said the U.N. weeks ago issued an appeal for $160 million in emergency funding to respond to the floods but considering the scale of devastation, the Aug. 30 appeal was not enough.

The latest development comes hours after Pakistan’s National Disaster Management Authority reported that floods fueled by abnormally heavy monsoon rains have killed 1,695 people, affected 33 million, damaged more than 2 million homes and displaced hundreds of thousands now living in tents or makeshift homes.

The U.N. Office for the Coordination of Humanitarian Affairs in its latest report Saturday said the current floods are expected to exacerbate food insecurity in Pakistan and said 5.7 million people in flood-affected areas will be facing a food crisis between September and November.

Even before the floods, according to the World Health Organization, 16% of the population was living in moderate or severe food insecurity.

However, Pakistan's government insists that there is no immediate worry about food supplies, as wheat stocks are enough to last through the next harvest and that the government is importing more.

The U.N. agency said in a tweet on Monday that the agency and other partners have scaled up their flood response and delivered aid to 1.6 million people directly affected by the deluges.

OCHA said outbreaks of waterborne and other diseases are on the rise in Sindh and southwestern Baluchistan provinces, where floods have caused the most damage since mid-June.

Several countries and U.N. agencies have sent more than 131 flights carrying aid for survivors, but many are complaining they have either received too little help or are still waiting for it.

The U.N. humanitarian agency also said in its Saturday report that rainfall in Baluchistan and Sindh lightened substantially over the past week, as temperatures start to decrease ahead of winter.

“Normal conditions are prevailing in most districts of Baluchistan, while in Sindh, the Indus River is flowing normally,” said OCHA. Overall, it added, in 18 out of 22 districts of Sindh, floodwater levels had receded at least 34%, and in some districts up to 78%.

The OCHA report also highlighted the ordeal of flood survivors, saying many continue to live in “unsanitary conditions in temporary shelters, often with limited access to basic services, compounding the risk of a major public health crisis."

It said pregnant women are being treated in temporary camps when possible, and nearly 130,000 pregnant women need urgent health services.

“Already before the floods, Pakistan had one of the highest maternal mortality rates in Asia, with the situation likely to deteriorate,” it said.

Pakistan says floods caused about $30 billion of damage to its economy.

Floods washed away thousands of kilometers of roads, destroyed 440 bridges, and disrupted railroad traffic.

Pakistan Railways said it has started restoring train service from Sindh to other cities after repairing some of the tracks damaged by floods.
Nearly half of Canadians on the brink of insolvency: MNP survey

Alicja Siekierska
Mon, October 3, 2022 



46 per cent of Canadians find themselves closer to insolvency,  
the MNP survey found. 

Canadians are finding it more difficult to pay for food, housing and transportation and nearly half are on the brink of insolvency as rising interest rates and soaring inflation continue to weigh on household budgets.

That's according to MNP's quarterly Consumer Debt Index released on Monday. The survey, which is conducted by Ipsos and tracks Canadians' attitudes towards their debt situation, found that 52 per cent of respondents say it is becoming less affordable to feed themselves and their families, an increase of five percentage points from December 2021.

It also found that 45 per cent of respondents say it's becoming less affordable to pay for transportation, up nine percentage points from last year, and another 45 per cent say it is becoming more difficult to pay for clothing and other household necessities, an increase of five percentage points from last year. Paying for housing is also a challenge for many Canadians, with 37 per cent saying it is becoming less affordable (up two percentage points).


At the same time, Canadians are finding it more difficult to save. The survey found that 49 per cent say it's becoming less affordable to put money aside for savings, up five percentage points from last year.

"Canadians are putting more of their paychecks towards paying for basic necessities as the cost of living rises, which in turn is leaving less of a financial buffer to manage the impacts of current and potential future interest rate hikes," Grant Bazian, president of MNP, said in a statement.

The MNP Consumer Debt Index also found that 46 per cent of Canadians find themselves closer to insolvency – defined as being $200 or less away from being unable to meet their financial obligations – a six percentage point improvement from the previous quarter. However, with the cost of necessities soaring in recent months, the average Canadian now has less money overall to spend at the end of the month, dropping $37 from the previous quarter to $654. Younger Canadians between the ages of 18 and 34 saw the biggest decrease in their average month-end finances, falling $273 to $606.

"With less overall room in their budgets, any future increases to interest rates or the prices of everyday items could push individuals closer to insolvency," Bazian said.

"Younger Canadians are feeling the squeeze of inflation more than the rest, and will be more vulnerable to economic changes as a result."

Canada's inflation rate hit 7 per cent in August, a slowdown from the nearly four-decade highs reached in previous months, but still well above the Bank of Canada's target of two per cent. While some categories saw growth slow, food purchased from grocery stores increased 10.8 per cent, the fastest rate in 41 years.

The jump in prices has forced many Canadians to cut back on groceries and entertainment, according to a Yahoo/Maru Public Opinion poll. The survey, which was conducted in the summer, found that 60 per cent of Canadians set stricter priorities and reduced spending due to skyrocketing prices.

In response to red-hot inflation, the Bank of Canada has embarked on an aggressive tightening cycle, hiking its benchmark rate by 300 basis points since March to bring it to 3.25 per cent.

INTEREST RATES NOT INFLATION 



The rate increase is being felt most by lower-income Canadians, according to MNP. The survey found that 62 per cent of those making less than $40,000 a year are feeling the effects of interest rate increases and 44 per cent say interest rate hikes are pushing them closer to bankruptcy. For those making over $100,000 a year, 55 per cent are feeling the effects of interest rate increases and 29 per cent say interest rate hikes are pushing them closer to bankruptcy.


Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.











Stock markets will drop another 40% as a severe stagflationary debt crisis hits an overleveraged global economy

Nouriel Roubini -
PROJECT SYNDICATE

NEW YORK (Project Syndicate)—For a year now, I have argued that the increase in inflation would be persistent, that its causes include not only bad policies but also negative supply shocks, and that central banks’ attempt to fight it would cause a hard economic landing.

When the recession comes, I warned, it will be severe and protracted, with widespread financial distress and debt crises. Notwithstanding their hawkish talk, central bankers, caught in a debt trap, may still wimp out and settle for above-target inflation. Any portfolio of risky equities and less risky fixed-income bonds will lose money on the bonds, owing to higher inflation and inflation expectations.

Roubini’s predictions


How do these predictions stack up? First, Team Transitory clearly lost to Team Persistent in the inflation debate. On top of excessively loose monetary, fiscal, and credit policies, negative supply shocks caused price growth to surge. COVID-19 lockdowns led to supply bottlenecks, including for labor. China’s “zero-COVID” policy created even more problems for global supply chains. Russia’s invasion of Ukraine sent shock waves through energy and other commodity markets.

Central banks, regardless of their tough talk, will feel immense pressure to reverse their tightening once the scenario of a hard economic landing and a financial crash materializes.

And the broader sanctions regime—not least the weaponization of the dollar and other currencies—has further balkanized the global economy, with “friend-shoring” and trade and immigration restrictions accelerating the trend toward deglobalization.

Everyone now recognizes that these persistent negative supply shocks have contributed to inflation, and the European Central Bank, the Bank of England, and the Federal Reserve have begun to acknowledge that a soft landing will be exceedingly difficult to pull off. Fed Chair Jerome Powell now speaks of a “softish landing” with at least “some pain.” Meanwhile, a hard-landing scenario is becoming the consensus among market analysts, economists, and investors.

It is much harder to achieve a soft landing under conditions of stagflationary negative supply shocks than it is when the economy is overheating because of excessive demand. Since World War II, there has never been a case where the Fed achieved a soft landing with inflation above 5% (it is currently above 8%) and unemployment below 5% (it is currently 3.7%).

And if a hard landing is the baseline for the United States, it is even more likely in Europe, owing to the Russian energy shock, China’s slowdown, and the ECB falling even further behind the curve relative to the Fed.


















The recession will be severe and protracted


Are we already in a recession? Not yet, but the U.S. did report negative growth in the first half of the year, and most forward-looking indicators of economic activity in advanced economies point to a sharp slowdown that will grow even worse with monetary-policy tightening. A hard landing by year’s end should be regarded as the baseline scenario.

While many other analysts now agree, they seem to think that the coming recession will be short and shallow, whereas I have cautioned against such relative optimism, stressing the risk of a severe and protracted stagflationary debt crisis. And now, the latest distress in financial markets—including bond and credit markets—has reinforced my view that central banks’ efforts to bring inflation back down to target will cause both an economic and a financial crash.

I have also long argued that central banks, regardless of their tough talk, will feel immense pressure to reverse their tightening once the scenario of a hard economic landing and a financial crash materializes. Early signs of wimping out are already discernible in the United Kingdom. Faced with the market reaction to the new government’s reckless fiscal stimulus, the BOE has launched an emergency quantitative-easing (QE) program to buy up government bonds (the yields on which have spiked).

Monetary policy is increasingly subject to fiscal capture. Recall that a similar turnaround occurred in the first quarter of 2019, when the Fed stopped its quantitative-tightening (QT) program and started pursuing a mix of backdoor QE and policy-rate cuts—after previously signaling continued rate hikes and QT—at the first sign of mild financial pressures and a growth slowdown.

The Great Stagflation

Central banks will talk tough; but there is good reason to doubt their willingness to do “whatever it takes” to return inflation to its target rate in a world of excessive debt with risks of an economic and financial crash.

Moreover, there are early signs that the Great Moderation has given way to the Great Stagflation, which will be characterized by instability and a confluence of slow-motion negative supply shocks.

In addition to the disruptions mentioned above, these shocks could include societal aging in many key economies (a problem made worse by immigration restrictions); Sino-American decoupling; a “geopolitical depression” and breakdown of multilateralism; new variants of COVID-19 and new outbreaks, such as monkeypox; the increasingly damaging consequences of climate change; cyberwarfare; and fiscal policies to boost wages and workers’ power.

Where does that leave the traditional 60/40 portfolio? I previously argued that the negative correlation between bond and equity prices would break down as inflation rises, and indeed it has. Between January and June of this year, U.S. (and global) equity indexes fell by over 20% while long-term bond yields rose from 1.5% to 3.5%, leading to massive losses on both equities and bonds (positive price correlation).

Moreover, bond yields fell during the market rally between July and mid-August (which I correctly predicted would be a dead-cat bounce), thus maintaining the positive price correlation; and since mid-August, equities have continued their sharp fall while bond yields have gone much higher. As higher inflation has led to tighter monetary policy, a balanced bear market for both equities and bonds has emerged.

But U.S. and global equities have not yet fully priced in even a mild and short hard landing. Equities will fall by about 30% in a mild recession, and by 40% or more in the severe stagflationary debt crisis that I have predicted for the global economy. Signs of strain in debt markets are mounting: sovereign spreads and long-term bond rates are rising, and high-yield spreads are increasing sharply; leveraged-loan and collateralized-loan-obligation markets are shutting down; highly indebted firms, shadow banks, households, governments, and countries are entering debt distress.

The crisis is here.


Nouriel Roubini, professor emeritus of economics at New York University’s Stern School of Business, is chief economist at Atlas Capital Team and author of the forthcoming “MegaThreats: Ten Dangerous Trends That Imperil Our Future, and How to Survive Them” (Little, Brown and Company, October 2022).

This commentary was published with permission of Project Syndicate — The Stagflationary Debt Crisis Is Here

U.N. agency warns of recession linked to 'imprudent' monetary policy

Mon, October 3, 2022 at 9:05 AM·2 min read
By Emma Farge

GENEVA (Reuters) -A United Nations agency warned on Monday of the risk of a monetary policy-induced global recession that would have especially serious consequences for developing countries and called for a new strategy.

"Excessive monetary tightening could usher in a period of stagnation and economic instability" for some countries, the United Nations Conference on Trade and Development (UNCTAD) said in a statement released alongside its annual report.

"Any belief that they (central banks) will be able to bring down prices by relying on higher interest rates without generating a recession is, the report suggests, an imprudent gamble," it said.

The report said that higher interest rates, including hikes by the U.S. Federal Reserve, would have a more severe impact on emerging economies, which already have high levels of private and public debt. The report, entitled "Development prospects in a fractured world", also warned of a potential debt crisis in the developing world.


"The current course of action is hurting vulnerable people everywhere, especially in developing countries. We must change course," UNCTAD Secretary-General Rebeca Grynspan told a press conference in Geneva.




















Asked about solutions, she suggested there were other ways to bring inflation down, mentioning windfall taxes on corporations, better regulations to control commodity speculation and efforts to resolve supply-side bottlenecks.

"If you want to use only one instrument to bring inflation down...the only possibility is to bring the world to a slowdown that will end up in a recession," she said.

Overall, UNCTAD revised down its 2022 global growth projection to 2.5% from the earlier 2.6% estimated in its March assessment. It expects growth of 2.2% in 2023.

The International Monetary Fund also warned last month that some countries may slip into recession next year and revised its growth forecast downwards.

(Reporting by Emma Farge;Editing by Bernadette Baum and Aurora Ellis)


U.N. agency warns of recession linked to 'imprudent' monetary policy




Mon, October 3, 2022 at 9:05 AM·2 min read
By Emma Farge

GENEVA (Reuters) -A United Nations agency warned on Monday of the risk of a monetary policy-induced global recession that would have especially serious consequences for developing countries and called for a new strategy.

"Excessive monetary tightening could usher in a period of stagnation and economic instability" for some countries, the United Nations Conference on Trade and Development (UNCTAD) said in a statement released alongside its annual report.

"Any belief that they (central banks) will be able to bring down prices by relying on higher interest rates without generating a recession is, the report suggests, an imprudent gamble," it said.


The report said that higher interest rates, including hikes by the U.S. Federal Reserve, would have a more severe impact on emerging economies, which already have high levels of private and public debt. The report, entitled "Development prospects in a fractured world", also warned of a potential debt crisis in the developing world.

"The current course of action is hurting vulnerable people everywhere, especially in developing countries. We must change course," UNCTAD Secretary-General Rebeca Grynspan told a press conference in Geneva.

Asked about solutions, she suggested there were other ways to bring inflation down, mentioning windfall taxes on corporations, better regulations to control commodity speculation and efforts to resolve supply-side bottlenecks.

"If you want to use only one instrument to bring inflation down...the only possibility is to bring the world to a slowdown that will end up in a recession," she said.

Overall, UNCTAD revised down its 2022 global growth projection to 2.5% from the earlier 2.6% estimated in its March assessment. It expects growth of 2.2% in 2023.

The International Monetary Fund also warned last month that some countries may slip into recession next year and revised its growth forecast downwards.

(Reporting by Emma Farge;Editing by Bernadette Baum and Aurora Ellis)


Advanced economies need to change course on monetary policy as excessive central bank tightening risks sparking a global recession, UN trade group says


Jennifer Sor
Mon, October 3, 2022 

United NationsBebeto Matthews/AP Photo

Advanced economies need to change course on monetary policy, as central bank tightening could be sparking a global recession.

The idea that central banks can lower inflation with more rate hikes and avoid a recession is "an imprudent gamble," a UN trade group said.

The group trimmed its growth estimates for the global economy this year, and expects an even bigger slowdown in 2023.

Advanced economies need to change course on their monetary policy, as central bank tightening could be sparking a global recession, according to a United Nations trade group.

"Excessive monetary tightening could usher in a period of stagnation and economic instability," the United Nations Conference on Trade and Development warned in a statement on Monday, shortly after releasing a report on growing recession risks.

In the report, the UN group trimmed its growth estimates for the global economy from 2.6% to 2.5% this year, and expects an even bigger slowdown in 2023, with just 2.2% growth next year.

"Any belief that [central bankers] will be able to bring down prices by relying on higher interest rates without generating a recession is, the report suggests, an imprudent gamble," the group added.

That's largely due to global inflationary forces, with nations being rocked by soaring energy prices amid Russia's war on Ukraine as well as lingering supply-chain issues from the pandemic. Eurozone inflation touched a record 10% last week despite a series of aggressive rate hikes from the European Central Bank, and US inflation also remains stubborn to Fed policy, only cooling slightly to 8.3% in August.

It's supporting the case for more aggressive hikes to come from major economies, as central bankers scramble to get inflation back down to target levels. But the level of tightening needed to rein in prices risks screeching the global economy to a halt, the UN report warned. That particularly applies to the Fed and other advanced economies, as the dollar and euro encompass large chunks of world trade and debt volume.

"What does seem likely is that the impact of Fed tightening will be more severe for vulnerable emerging economies with high public and private debt," the report said, calling a debt crisis a "very real possibility" for developing countries.

It echoes warnings from other experts who have sounded global recession alarms as central banks attempt to undo the damage from ultra-loose monetary policies during the pandemic.

Top economist Nouriel Roubini warned on Monday there are signs that a debt crisis has already started, and a hard landing of the economy before the end of the year is now the baseline scenario.

Noble laureate Paul Krugman has also warned that the Fed's rate hikes could have an outsized effect on the global economy.
New British PM Liz Truss’ First Month in Power Is Officially a Record-Breaking Sh*tshow

Dan Ladden-Hall

Mon, October 3, 2022 

Ian Forsyth/Getty

Shortly after making it into the final two for the Tory leadership race in July, Liz Truss sent out a message of thanks to her supporters with an oddly prophetic typo. “I’m ready to hit the ground from day one,” she wrote.

What was once just an amusing typo has turned out to be a well-kept promise. Even with Truss’ first two weeks in office being eclipsed by the death of Queen Elizabeth II, the new regime has already managed to inflict a surprising array of disasters on the country and itself. The so-called “mini-budget” delivered by fledgling finance minister Kwasi Kwarteng on Sept. 23 has been at the heart of the mayhem.

Liz Truss is Britain's New Prime Minister—God Help Her (and Us)

Kwarteng, a longtime Trus ally, is a free-market radical who, like Truss, believes that unfettered economic growth will cure the United Kingdom’s legion of social ills. It may have come as a bit of a surprise when the free market, in turn, had a radically negative reaction to Truss and Kwarteng’s proposals, which represented the biggest cuts in British tax in half a century.

At a time when spiraling energy and food costs threaten to leave millions of Britons choosing between heating or eating this winter, Kwarteng’s flagship financial policies included removing a cap on banker’s bonuses and removing the top 45 percent rate of income tax, which would only benefit those earning over $168,000 a year.

But the breathtaking tax cuts, coupled with a promise to tackle rising energy bills through massive government borrowing, immediately sent the markets into meltdown as confidence in British finances evaporated. The pound fell to an all-time low against the dollar, British stocks and bonds plummeted, and the Bank of England was forced to take emergency action to avoid a potentially catastrophic collapse of pension funds, warning that a “material risk to U.K. financial stability” had been created by the statement.

Members of Truss’ own party reacted with horror. “Liz is fucked,” one former Conservative minister told Sky News after the mini-budget, adding that Tory lawmakers had already started formally requesting a vote of no confidence in her leadership over fears that she would “crash the economy.” And even Conservative party heavyweights Michael Gove and Grant Shapps on Sunday denounced the plans as “tin-eared,” adding that the cuts had “managed to alienate almost everyone, from a large section of the Tory parliamentary party taken by surprise to the City traders who will actually benefit.”

Kwarteng also faced calls to resign for the turmoil—which grew louder when it emerged that he’d attended a champagne reception attended by hedge fund managers who also allegedly benefited from the chaos in the market. But despite the uproar, it looked like for all the world like Truss and Kwarteng would stick to their guns and press ahead with $50 billion of unfunded tax cuts.

On Sunday, Truss was asked during a BBC interview if she was “absolutely committed to abolishing the 45 percent tax rate for the wealthiest people in the country.” She said yes. By Monday morning, that absolute commitment was absolutely dead. “We get it, and we have listened,” Kwarteng wrote in a tweet announcing that the tax cut would no longer go ahead.

The humiliating U-turn was reportedly taken to avoid an even more humiliating open rebellion of Conservative lawmakers in the House of Commons planning to block the tax cut going through. Losing such a sensitive vote so early in an administration would be a disaster for Truss and her allies and their grip on power.

But Conservative lawmakers can already feel their party’s grip on the electorate more broadly slipping away, with fears growing that they will face decimation at the next election. Staggering polling figures published last week put the opposition Labour party 33 points ahead of the Tories—the biggest lead the party has enjoyed in Britain since the 1990s, according to data analytics firm YouGov. Even more alarming for Tory lawmakers was the fact that the mammoth lead was partly explained by an exodus of people who had voted for the Conservatives at the last general election in 2019 switching allegiance to Labour.

With the Conservative party’s annual conference underway this week, Truss will have to find some way to reestablish her credibility within the party. So somber is the mood at the event that even a traditional karaoke event has been canceled. Delegates arriving at the conference have even been subjected to abuse by angry protesters outside the venue. But the message inside is arguably even more upsetting for the Tories’ rank and file. Over the weekend, veteran British pollster Sir John Curtice informed gobsmacked attendees that they were heading for electoral disaster, with Truss now as unpopular as Boris Johnson when he was toppled.

To say she’s only been prime minister for less than a month, that’s a truly incredible achievement.

'Widespread dismay': Ex-Tory minister calls on Liz Truss to call general election


Emily Cleary
Mon, October 3, 2022 

Liz Truss smiled as she made her way to the Tory party conference on Tuesday 
(Getty)

Nadine Dorries has called for Liz Truss to call a general election after accusing her of reneging on a series of policies put in place when Boris Johnson was prime minister.

Dorries, one of Truss's earliest and most vocal supporters during the summer's leadership campaign against Rishi Sunak, revealed her "dismay" at Truss's performance since entering Number 10.

On Monday, Truss and chancellor Kwasi Kwarteng buckled in the face of widespread criticism from the public and Tory MPs and axed her plans to abolish the top rate of income tax that would benefit the most wealthy.

And later, Dorries applied more pressure with criticism of other steps taken by Truss, tweeting: "Widespread dismay at the fact that 3 years of work has effectively been put on hold. No one asked for this.

"C4 sale, online safety, BBC licence feee [sic] review - all signed off by cabinet all ready to go, all stopped."

"If Liz wants a whole new mandate, she must take to the country."

Nadine Dorries has blasted the PM for putting 'on hold' policies she had actioned while culture secretary (Twitter/Nadine Dorries)

Former ally Dorries is just one of a number of senior Tories to criticise Truss's performance since she became PM less than a month ago.

Last week a former Tory minister MP told Sky News the new Prime Minister is "f*****" and the party were already looking to bring her down following the disastrous mini-budget on 23 September.

The unnamed MP said: "They are already putting letters in as think she will crash the economy. The tax cuts don’t matter as all noise anyway - mainly reversing back to the status quo this year.

"The issue is government fiscal policy is opposite to Bank of England monetary policy - so they are fighting each other. What Kwasi [Kwarteng] gives, the Bank takes away."

Nadine Dorries was one of Truss's most vocal supporters during the Tory leadership contest. (Getty)

Another Tory MP told the broadcaster that Friday's announcement - which included reversing a 1.25% hike in National Insurance - had been a "s***show".

They said they weren’t aware of any coordinated plan to vote down government legislation, but added they would not rule it out.

On Monday morning Truss and Kwarteng abandoned their plan to abolish the top rate of income tax.

The pair had planned to scrap the 45% rate on earnings over £150,000 in a move to be paid for by borrowing. But despite defending the policy for more than a week despite widespread criticism from fellow party members as well as financial experts, the proposal was reversed on Monday morning in an embarrassing U-turn.

Kwasi Kwarteng and Liz Truss appeared stony-faced at the Tory party conference after announcing an embarrassing U-turn on tax policies on Monday morning (Getty)

Dorries' call for an election came as Labour pushed further ahead in the polls.

Last week, a YouGov/Times poll placed Labour 33 points ahead of the Conservatives, believed to be the largest lead for Labour in any recorded poll since 1998, when the-then PM Tony Blair was enjoying his "honeymoon period".

By Monday lunchtime almost half a million people had signed a petition calling for a general election. The petition must now be considered for debate in Parliament.
HERE COMES DOOM & GLOOM
UK
Kwasi Kwarteng won't rule out new wave of austerity after massive U-turn on 45p tax cut


Ross McGuinness
Mon, October 3, 2022 

Chancellor Kwasi Kwarteng at the Conservative Party annual conference in Birmingham on Monday. (PA)

Kwasi Kwarteng has refused to rule out austerity measures to pay for controversial tax cuts.

Kwarteng and prime minister Liz Truss abandoned their doomed plan to abolish the top rate of income tax for the highest earners.

The government had planned to scrap the 45% rate on earnings over £150,000 in a move to be paid for by increased borrowing.

But in a sensational U-turn, following fierce opposition from the public and politicians, Kwarteng announced on Monday that the plan had been ditched.

However, Kwarteng's budget last month also contained tens of billions of additional tax cuts, including: cancelling the planned increased in corporation tax; reversing the planned 1.25 percentage point rise in National Insurance contributions; bringing forward the 1p cut to the basic rate of income tax to April 2023 - one year earlier than planned; and major changes to stamp duty.

Minutes after the plan was scrapped, Kwarteng refused to rule out a new era of austerity to pay for these additional cuts.

Speaking from the Conservative Party conference in Birmingham, where he is due to give a speech later on Monday, he told BBC Radio 4’s Today programme: “You will see what our spending plans are in the medium-term fiscal plan but I’m not going to be drawn into that.”

And in a separate interview with LBC Radio, Kwarteng refused to rule out any more U-turns on his controversial mini-budget, which also scrapped rules which capped bankers' bonuses.

He would only say: "I'm totally focused on delivering the growth plan."

In the same interview, amid some confusion, Kwarteng indicated the government does not plan to introduce austerity measures.

"I don't think so at all," he said, when asked whether he thought there would be a return to austerity. "What we're trying to focus on is growing the pie, growing the economy, because without growth we won't get good public services.

"Without growth we won't have higher standards of living. Without growth we won't have enough funding for the NHS. So that's the focus of my chancellorship, that's what the prime minister's focused on and I think if we can grow this economy we can have a much more successful society."

Something that the chancellor did rule out, however, was more tax cuts, declining to repeat his previous pledge after his mini-budget that there is “more to come”.

He told the BBC: “There will be no tax cuts ahead of a budget.”

When asked if he planned to introduce cuts to public services, Kwarteng insisted the government was sticking to its comprehensive spending review (CSR) from last year, meaning it would not raise spending in line with inflation, which currently stands at just under 10%.

He said: “I think it’s a matter of good practice and really important that we stick within the envelope of the CSR."


Chancellor Kwasi Kwarteng speaking to LBC Radio at the Tory conference in Birmingham. (PA)


At the weekend, levelling-up secretary Simon Clarke, one of Truss's allies, said the UK must reduce public spending to help fund the government's tax cuts.

In an interview with The Times, he criticised the "very large welfare state" and said Britain has been living in a "fool's paradise".

As recently as July, a leading economist warned that the UK is facing "austerity by stealth" because of soaring inflation.

Jonathan Portes, professor of economics at University College London, said the UK's public services were facing austerity by the back door because inflation meant money promised to schools and hospitals is not stretching as far.

On Monday, Labour MP John McDonnell said he feared "the Tories are now planning another severe round of austerity to pay for the tax cuts to corporations and increased borrowing costs caused by them".

Liberal democrat leader Sir Ed Davey said on Monday that Kwarteng should be sacked.

Read more: Mini-budget 'doesn't disproportionately benefit high earners' says Treasury minister

“I welcome this U-turn but the unfortunate truth is that this Conservative government is in complete chaos," he told Sky News.

“I don’t think the chancellor has the credibility to make all the changes that are needed and I think he has to go, and I think that would really restore confidence.

“We need a far more radical overhaul of the budget, we need it soon and we need it to be done in a transparent way, and I come to the conclusion, regrettably, that I think this chancellor can’t deliver that.”
Analysis-Britain's budget bomb still ticking despite tax U-turn



Mon, October 3, 2022 
By Andy Bruce

LONDON (Reuters) - Prime Minister Liz Truss's U-turn on abolishing Britain's top rate of income tax may be only a first step on the path to restoring fiscal credibility, with investors warning that the government still needs to show that it can afford its plans.

On the face of it, Britain's financial markets look in better shape than last week, when the pound crashed to a record low against the U.S. dollar and government bonds tanked in response to finance minister Kwasi Kwarteng's economic plans.

The BoE had to step in on Wednesday to restore order to Britain's long-dated government bond market, which seized up when pension funds rushed to raise cash amid the turbulent market reaction to Kwarteng's Sept. 23 "mini budget".

While the pound edged up and government borrowing costs fell on Monday after the decision to reverse the planned cut to the highest rate of income tax, investors still had a clear message: Kwarteng must convince them that he can finance his growth plan without ruining Britain's reputation for managing the budget.

"The answer will be clear in a few weeks' time when the Bank of England's emergency measures end," said Jane Foley, head of forex and rates strategy at Rabobank.

The BoE's bond-buying intervention is due to finish on Oct. 14.

"UK assets, the pound and gilts are not out of woods yet," Foley added.

The worry is that wild market conditions could return quickly unless Truss and Kwarteng acknowledge that their promises of future economic growth on their own are not enough to explain how a high-spending, low-tax agenda will be funded.

Any relapse into severe dysfunction for the gilt market would pile pressure on the BoE to keep buying bonds - even with inflation close to its highest level in 40 years.

This, economists say, could open the door to full-blown "fiscal dominance", when a central bank's mission to control inflation is compromised by its involvement in government financing - anathema for investor confidence.

"The issue was not tax changes announced at the mini-budget but the institutional 'scorched earth policy' that preceded it. UK risk premia will likely only pull back if that is addressed," said Simon French, chief economist of brokerage Panmure Gordon.

Orla Garvey, senior portfolio manager of fixed income at Federated Hermes, said last week that yields on long-dated gilts were likely to shift higher once the BoE's intervention ends.

Others too warned that gilts still look vulnerable.

British government bonds have mostly failed to recoup the historic losses incurred in the aftermath of Kwarteng's announcement - with the exception of the long-dated debt subject to the BoE's support.

"We have to see what happens when the Bank of England stops buying next month. It's just a sticking plaster," one pension fund manager told Reuters last week.

Kwarteng hopes markets stay calm enough to allow him to wait until Nov. 23 before announcing his next budget plans. Unlike his mini-budget, they will come with forecasts for the economy and the public finances from Britain's budget watchdog.
















 
HOME TRUTHS

Truss has repeatedly blamed Britain's market crash on global financial conditions.


While bond prices for many governments have fallen sharply in response to rising U.S. interest rates, in September 10-year British gilts suffered their steepest calendar-month loss since at least 1957, according to a Reuters analysis of Refinitiv and Bank of England data.

It was also the heaviest fall for any Group of Seven country's 10-year bonds since 1987.

One cabinet minister, Simon Clarke, said in an interview with The Times on Friday that the worst of the market anxiety had passed. But economists, including those from major U.S. banks, are not so sure, even after Monday's U-turn.

"The key question now is whether this signals a broader change in tack with respect to this government's fiscal approach," analysts at U.S. bank Citi said. "Markets are yet to be convinced."

The slump of Truss's Conservative Party in opinion polls "is likely to add to the pressure for the PM to (change) course, especially given the initial weakness of Truss' position," they said in a note to clients.

If the government fails to calm markets, the pressure on the BoE is likely to build as the Oct. 14 end-date for its emergency bond-buying approaches.

"If the Bank resists fiscal dominance and does indeed stick to its mandate, the pound should stabilise - but the costs will be substantial," said academic economist Jonathan Portes, senior fellow at the UK in a Changing Europe think tank.

In this scenario, which could see the BoE raising interest rates sharply, homeowners, businesses and public services would bear the cost of Kwarteng's tax cuts.

"But if it doesn't, the pound will continue to fall, and inflation will stay higher and longer, and the UK will become a steadily less attractive place to invest," Portes said. "Again, we will all pay the price."

(Reporting by Andy Bruce; Additional reporting by Kate Holton, Tommy Wilkes, Huw Jones and Sinead Cruise; Editing by Hugh Lawson)

Where does the UK go from here to fix budget crisis?



Mon, October 3, 2022 

LONDON (Reuters) - New Prime Minister Liz Truss and finance minister Kwasi Kwarteng reversed their controversial plan to scrap Britain's top rate of income tax on Monday, saying the furore was distracting from their broader economic plans.

Below is a summary of key dates ahead for Truss and Kwarteng as they try to stabilise financial markets and reassure investors - and members of their own Conservative Party - about their plans, which have caused turmoil in financial markets.

THIS WEEK - CONSERVATIVE PARTY CONFERENCE

Kwarteng is due to speak to the annual conference of the ruling Conservative Party after 4 p.m. (1500 GMT) on Monday, and Truss will speak on Wednesday, giving them a chance to try to move forward after the top income tax rate debacle.


COMING WEEKS - OUTLINE ECONOMIC REFORM PLANS

Truss and Kwarteng want to speed up Britain's slow economic growth rate, something they say will help fund the broader tax cuts they still plan to make. Details of how they will overhaul Britain's complex planning system, the rules that govern the City of London, immigration and other so-called supply-side reforms are expected in the coming weeks.

OCT. 7 - BUDGET WATCHDOG SENDS DRAFT FORECASTS TO KWARTENG

Britain's independent Office for Budget Responsibility is due to send a draft of its economic forecasts to Kwarteng, part of the process of preparing his first full budget statement on Nov. 23. The OBR is not expected to publish the draft forecasts despite the clamour among investors for more clarity on the outlook for the economy.

OCT. 14 - BANK OF ENGLAND'S BOND-BUYING DUE TO EXPIRE

The Bank of England last week launched an emergency move to buy long-dated British government bonds after the sudden surge in yields put pension funds at risk. The buying programme is only due to run until Oct. 14, exerting pressure on the government to calm investors before then.

OCT. 21 - THE RATINGS AGENCIES HAVE THEIR SAY

Ratings agencies Moody's and S&P Global have scheduled Oct. 21 as the date for their next updates on Britain's sovereign credit rating. Last week, S&P cut the outlook for its AA rating to "negative" from "stable," suggesting a downgrade could be coming. Moody's described the tax cut plans as "negative" for Britain's creditworthiness but stopped short of actually changing the rating's outlook.

OCT. 31 BANK OF ENGLAND SET TO START SELLING BONDS

The BoE had been due to start selling bonds from its roughly 840-billion-pound stockpile of government debt this week - a key part of its reversal of years of huge stimulus for the economy - but it postponed the first sale operations until Oct. 31 while it carries out its new temporary bond-buying programme.

NOV. 3 - BANK OF ENGLAND INTEREST RATES ANNOUNCEMENT

The BoE look set to raise interest rates sharply at its next scheduled policy meeting as it responds to the increased inflation pressure brought by the government's broad tax cut plans. A Reuters poll showed most economists expected a three-quarters-of-a-percentage-point increase which would be the biggest since 1989, taking Bank Rate to 3.0%. Almost as many economists forecast a bigger increase to 3.25%.

NOV. 23 - KWARTENG'S BUDGET DAY

After outlining his tax cuts on Sept. 23, Kwarteng is due to announce his first full budget on Nov. 23 when he is expected to spell out how he plans to address the huge increase in borrowing required to fund his programme. The OBR will also publish its forecasts for the economy and the public finances.

TO COME - LAWMAKERS VOTE ON TAX CUT PLANS

The government must seek parliamentary approval for its tax-cut plans but, facing unrest about its plans among some Conservative lawmakers, has not yet set out a timetable. Most of the measures are not due to come into force until April next year. But a tax cut for home buyers is immediate and must be put to a vote in parliament by late November, according to the Institute for Government. The government could introduce a Finance Bill after Kwarteng's Nov. 23 fiscal announcement, to secure approval for most of the tax changes, or it could introduce a specific bill to deal with the less contentious stamp duty change before an overall vote at a later date.

($1 = 0.8908 pounds)

(Additional reporting by Kylie MacLellan; writing by William Schomberg; editing by Mark Heinrich)
UK
Chart shows mini-budget still benefits the rich even after 45p tax rate U-turn


Ross McGuinness
Mon, October 3, 2022 

The chancellor's mini-budget still favours the rich despite a U-turn over scrapping the 45p rate of tax, economists say. (Getty Images)

Kwasi Kwarteng and Liz Truss are dealing with the fallout after they abandoned their plan to abolish the top rate of income tax for the highest earners.

Kwarteng said the policy, announced in his mini-budget on 23 September, to axe the 45% rate on earnings over £150,000 had become a “terrible distraction” amid widespread criticism.

A number of Tory MPs had gone public with their opposition to the plans, with rebels branding them “politically tin-eared”.

However the chancellor and PM are pressing on with other tax cutting measures announced last week – which still benefit higher earners.


Who benefits most from the government's mini-budget?
 (Resolution Foundation/Yahoo)

Analysis by the Resolution Foundation think tank reveals the richest 5% of British households are still set to gain £3,500 on average next year.

This is almost 40 times more than the £90 cash gain for the poorest households.

“Despite today’s U-turn, the richest 5% of households still stand to gain far more than the entire bottom half of the income distribution combined," said Lalitha Try, researcher at the Resolution Foundation.



“The welcome decision this morning to scrap the abolition of the 45p tax rate has made the chancellor’s package of tax cuts less focused on the very richest households.

"But the top are still the main winners, and the scale of spending cuts required to pay for them is largely unaffected."

Liz Truss and Kwasi Kwarteng have abandoned a plan to abolish the top rate of income tax for the highest earners in an astonishing U-turn. The Chancellor acknowledged that their desire to borrow billions to axe the 45% rate on earnings over £150,000 had become a “terrible distraction” amid widespread criticism and threats of a rebellion. Hours before he had been due to tell the Conservative Party conference they must “stay the course” on the plans, he issued a statement saying: “We are not proceeding with the abolition of the 45p tax rate.”

The think tank's chief executive, Torsten Bell, called Kwarteng’s mini-budget “the biggest unforced economic policy error of my lifetime”, after the value of the pound plunged against the dollar, forcing the Bank of England to pump in £65bn in an attempt to halt the market slide.

The Resolution Foundation found that scrapping the abolition of the 45p tax rate removes 62% of the cash gains going to the richest 5% of households, and 54% of the gains going to the richest 10%.

Chancellor Kwasi Kwarteng explains his 45p rate tax cut to the media at the Conservative Party annual conference in Birmingham on Monday. (PA)

Another think thank, the Institute for Fiscal Studies (IFS), pointed out that the planned axing of the 45p rate was the "smallest part" of the mini-budget, representing about £2bn out of £45bn in cuts.

Its director, Paul Johnson, tweeted: “From a fiscal point of view, important to remember cut to 45p rate was just about smallest part of the mini-budget.

“What was a £45bn tax cutting package is now a £43bn package. This U-turn has, in itself, essentially no effect on fiscal sustainability.”

He added: “The chancellor still has a lot of work to do if he is to display a credible commitment to fiscal sustainability.

“Unless he also U-turns on some of his other, much larger tax announcements, he will have no option but to consider cuts to public spending: to social security, investment projects, or public services."

Following the announcement of his U-turn, Kwarteng refused to rule out a return to austerity measures in order to fund his controversial tax cuts.

Read more: Ex-Tory minister calls on Liz Truss to call general election

Prime minister Liz Truss at the Conservative Party annual conference in Birmingham on Monday. (PA)

On Sunday, Truss was criticised for appearing to shift the blame on to Kwarteng, suggesting it was his idea to ditch the 45p rate.

While Downing Street insists she has full confidence in the chancellor, the pair are in for a rocky ride at the Conservative Party conference in Birmingham this week.

Former cabinet minister Michael Gove suggested Truss had bitten off more than she could chew with the plan for scrapping the 45p rate.

Gove told Times Radio: "I think she’s recognised, as we all do in politics, that if you bite off just that little bit more than you can chew, then the right thing to do is to extract the gobstopper as it were, and then get on with the job.

As turbulence goes, it has been a pretty hairy 24 hours.”








 




NOT MY FAULT
UK cabinet was not informed of plans to scrap top rate of tax, Truss says



Sun, October 2, 2022 

BIRMINGHAM, England (Reuters) - British Prime Minister Liz Truss said on Sunday her cabinet of top ministers was not informed in advance that the government planned to abolish the top rate of tax, adding it was a decision taken by finance minister Kwasi Kwarteng.

The government sparked turmoil in financial markets last month after Kwarteng delivered a plan to cut taxes, mainly benefitting the wealthiest, without detailing the impact on the public finances or how ministers would reform the economy to spur growth.

Truss's comment that it was Kwarteng's decision to remove the top rate of income tax is the first sign Truss might be trying to distance herself from her chancellor. However, she also reiterated the government was sticking with the policy.


Asked whether all her cabinet was told of the move, Truss told the BBC: "No, no we didn’t. It was a decision that the chancellor made."

Truss said: "When budgets are developed, they are developed in a very confidential way. They are very market sensitive. Of course, the cabinet is briefed, but it is never the case on budgets that they are created by the whole cabinet."

According to the Sunday Times, Kwarteng attended a champagne reception with hedge fund managers at the home of a Conservative donor on the same day he delivered his mini-budget.

One source told the newspaper that guests told Kwarteng to "double down" on his radical tax cutting plans.


Truss said her finance minister met business people all the time as "that's his job".

The opposition Liberal Democrats called for an official investigation into what happened.

Jake Berry, chairman of the Conservatives, said he also attended the event, when the finance minister gave a short speech that did not include any insight into the government's future plans.

Berry said Kwarteng in his speech at the event "did not give any insight into future plans and I’m sure in terms of his private conversations he didn’t give any".

(Reporting by Elizabeth Piper and Andrew MacAskill; Editing by Raissa Kasolowsky)