Aurelia Butler

“On the basis of our work to date, the Bank of England and HM Treasury judge that it is likely a digital pound will be needed in the future,” the Telegraph quoted BoE Governor Andrew Bailey and finance minister Jeremy Hunt as saying in the joint report.”It is too early to commit to build the infrastructure for one, but we are convinced that further preparatory work is justified,” the Telegraph quoted the report saying.The BoE declined to comment on the Telegraph article, but said a joint consultation on CBDC issues would be published shortly.A government source said the report would be published next week.BoE Deputy Governor Jon Cunliffe is due to give a speech on Tuesday to update the finance industry on the BoE’s CBDC work.Britain’s Prime Minister Rishi Sunak asked the BoE to look into the case for a CBDC in 2021 when he was finance minister, and in October financial services minister Andrew Griffith said Britain could not avoid the issue indefinitely.A CBDC would allow a wider range of businesses – and potentially individuals – to hold electronic money in accounts directly with the BoE, potentially cutting out banks which have this right at present.The Bank of International Settlements, a forum for central banks, said in June that CBDCs are needed to modernise finance and ensure Big Tech does not take control of money.The Telegraph reported that the proposals being explored by the BoE did not include allowing individuals to hold accounts directly with it.The European Central Bank is working on a digital version of its currency and is in the process of outlining the broader design. Last month it said it would not offer personal bank accounts but would allow person-to-person payments.China has conducted the largest cross-border CBDC trial to date. More

BRASILIA (Reuters) – Newly elected Brazilian President Luiz Inacio Lula da Silva is considering an income tax exemption for workers who earn two times the minimum wage, or just over 2,600 reais ($504.64) a month from 1,903 currently, two sources with knowledge of the negotiations said on Saturday.The idea, still under review, is to at least partially fulfill one of Lula’s campaign promises – to raise the exemption even further to cover workers earning the equivalent of 5,000 reais, a move that would increase the disposable income of those who earn less in the country, said the sources anonymously.The information on the measure was first reported by newspapers Folha de S. Paulo and O Estado de S. Paulo. While it could reduce income inequality, a broader exemption would reduce tax revenue at a time when the economic team seeks to reduce the strong primary deficit expected for 2023 and signal fiscal discipline.As Reuters reported on Friday, the government is also considering raising the minimum wage to 1,320 reais from May. That means that the exemption, if decided, would apply to workers earning up to 2,640 reais monthly.Workers who currently earn up to 1,903.98 a month do not pay income tax, a figure that has not been updated since 2015, implying, in practice, an increase in the tax burden on Brazilians with lower wages.($1 = 5.1522 reais) More

France’s Bruno Le Maire and Germany’s Robert Habeck are due to press concerns in Washington about tax credits under the United States’ Inflation Reduction Act that subsidises products from electric cars to solar panels as long as they meet requirements on being locally produced.The two are due to meet White House officials on Tuesday in addition to Treasury Secretary Janet Yellen, Trade Representative Katherine Tai and Commerce Secretary Gina Raimondo, the officials from France’s economy ministry said.EU governments are worried the tax credits not only put European producers at an unfair disadvantage but could be actively used to lure investment away from Europe to the United States.”One of the ministers’ messages will be to not approach European companies about moving plants to the U.S. There will be enough room for everyone to invest both in Europe and the U.S.,” one official said. The second official said the aim was to avoid “aggressive pitches” to EU firms to invest in the United States.The first official said there was little scope for new concessions from Washington for better treatment of EU companies after the European Commission already secured a partial win on electric vehicles built outside North America qualifying for tax credits if leased by consumers.Nonetheless, the ministers are hoping to convince U.S. officials to allow more leniency over local production requirements for critical materials used in electric vehicle batteries, the first official said.They will also seek a U.S. commitment to be transparent about subsidies companies receive under the Inflation Reduction Act, both officials said.That is key because it could determine how much state support European companies can receive under a European Commission proposal to allow third-country subsidies to be matched in Europe. More

An unexpected surge in US jobs growth has brushed away concerns of a US economic slowdown in the near term, but could force the Federal Reserve to extend its campaign to cool the economy. The data released on Friday pointed to a surprising level of resilience in the labour market through the second half of 2022 and into the start of this year. It caught economists off-guard and defied expectations of a steady deceleration in job creation driven by much tighter monetary policy.On one hand, the figures could give a jolt of confidence that US policymakers may achieve the “soft landing” they have been searching for, in which consumer prices can be brought down without any significant adverse impact on employment.But that would depend on inflation continuing to ease and no evidence that the labour market is heating up again, raising the stakes for the next batches of data on both inflation and payrolls. Otherwise, it could start triggering new alarm bells that the Fed will need to squeeze the economy more aggressively than expected.“The combo of slower wage growth and lower unemployment is even better than Goldilocks. It’s a utopian scenario, which — if sustained — would allow consumer demand to remain strong while costs pressures subside, thus preserving profit margins and extending the business cycle,” wrote economists at Jefferies on Friday. “But can it last? We remain sceptical,” they added.

At the very least, the data has offered the latest evidence of how unpredictable trends can be in economies that have been upended by the pandemic and its ripple effects. Forecasters initially misjudged the rapid bounceback in the labour market after the initial shock of the lockdowns, then many failed to forecast the surge in inflation: now expectations that higher interest rates will naturally crimp employment may also be called into question. The increases in employment in January were broad-based, cutting across many sectors of the economy, with bumps in leisure and hospitality, retailing, manufacturing and government. Overall, non-farm payrolls rose by 517,000, and there were upward revisions to last year’s data — as the unemployment rate sunk to a 53-year low of 3.4 per cent. Expectations had been for just 185,000 jobs added last month. Since the report came just days after the Fed opted to again downshift the pace of its monetary tightening to a more conventional quarter-point rate rise, breaking from the string of jumbo rate rises that had dominated throughout 2022, it will inevitably trigger calls for the Fed to reassess. Blerina Uruci, chief US economist at T Rowe Price, said the latest “strong” jobs report will put pressure on the Fed to “recommit” to its previous projections that the fed funds rate will need to surpass 5 per cent. That would suggest two more quarter point rate rises in March and May.“I think the Fed needs to take a step back from the February press conference and refocus its message on the risks not being so two-sided,” she said, referring to dual concerns among policymakers about raising borrowing costs enough to quell inflation but not doing so excessively to unnecessarily squeeze the economy.“The risks do not seem so two-sided with this payroll report.”Mary Daly, the president of the San Francisco Fed, told Fox Business on Friday that it was a “wow” number but did not necessarily change the big picture. “We knew that the labour market was strong, has been strong, despite the fact that the economy overall has been slowing,” she said. “My mind is 100 per cent on bringing inflation back down to 2 per cent over time. And, right now, I see some positive signs, but far from a victory,” she added. Joe Davis, global chief economist at Vanguard, said the report also affirms his view that the Fed will not reverse course by year end and deliver interest rate cuts, as traders in fed funds futures currently wager.The strong jobs report will ease worries that a spate of lay-offs in the technology sector are a harbinger of broader damage to the labour market.Not only they may be too small in scale to have a big macroeconomic impact, but Christopher Waller, a Fed governor, suggested last month that there was still so much churn that many tech workers would quickly find jobs elsewhere, limiting the pain. “In my own family. A relative lost their job in the tech sector, had three offers in a week. Never even going to show up in the data as being unemployed,” he said. While tech firms have announced steep job losses in recent weeks, openings for blue-collar jobs, especially in the energy sector, are booming.Clean energy bosses say they are staffing up as quickly as possible as investment pours into the country to take advantage of generous tax credits designed to spur new projects. Labour shortages have also troubled the oil sector and areas such as west Texas and south-east New Mexico, where shale production is soaring and producers are paying bumper salaries to draw in new workers.Still, some economists warned that January’s employment surge may ultimately be more of an aberration than anything else.“We expect outright job losses in the second half of the year and look for the unemployment rate to rise by about 1ppt. That would be a modest rise compared to prior recessions but will still take a toll on the economy,” said Nancy Vanden Houten of Oxford Economics. Additional reporting by Derek Brower in New York More

Corporate America’s top executives are sharply divided on the chances of the country escaping a recession, as conflicting signals on interest rates, labour markets and consumer spending muddle the business outlook for 2023. Halfway through the fourth-quarter earnings season, investors hoping for a clear signal on the US economy’s prospects from its largest businesses have been frustrated.Companies including Ford, McDonald’s, UPS and US Bancorp have told investors that they are preparing for at least a mild US recession. Elon Musk, Tesla’s chief executive, went further, telling analysts last week that the carmaker probably faced “a pretty difficult recession”. Yet even as Big Tech groups such as Alphabet cut costs in the face of an advertising slowdown, other companies including American Express and General Motors have assured analysts that they expect the US to avoid any serious downturn. Caterpillar, the industrial machinery group that is considered an economic bellwether, said this week that its US market “remains relatively strong to date”. 

“So far, it’s safe to say that the recession is mostly in people’s minds,” said Danny Bachman, a US economic forecaster at Deloitte. “Sentiment data has been very negative even as actual economic activity — as measured by job gains, industrial production, and retail sales — [is] still indicating growth,” he noted, predicting very slow growth but no recession in the first half of this year. The split-screen picture of the world’s largest economy comes as the Federal Reserve this week slowed the pace of its recent interest rate increases while indicating that it would still have to raise borrowing costs further to tame inflation. Evidence of slowing growth is mounting, with an ISM report this week showing that manufacturing activity contracted for a third month in January. The IMF now projects that US growth will fall from 2 per cent last year to 1.4 per cent in 2023. Executives across a swath of industries have been expressing more caution about macroeconomic conditions for several months, with a Business Roundtable survey finding last month that CEO confidence had fallen below its long-term average for the first time since the third quarter of 2023. The number of mentions of “recession” on earnings calls by CEOs topped early-pandemic levels in November, according to data provider AlphaSense/Sentieo. Since the start of the year job losses have also spread from Silicon Valley to Wall Street. Challenger Gray & Christmas, an outplacement and executive coaching firm, estimated that US employers announced more than 100,000 job cuts in January, up from less than 44,000 in December and 19,000 a year earlier.This week PayPal blamed a “challenging macroeconomic environment” in announcing 2,000 lay-offs, FedEx said it would cut 10 per cent of its senior ranks to align better with customer demand, and Intel cited “macroeconomic headwinds” to explain why it was cutting the pay of its CEO and other executives and managers. Such announcements follow a run of stronger-than-expected hiring, however. A labour department report this week found that the country had 11mn vacancies at the end of 2022, up from 10.46mn in November. US employers defied forecasts by adding 517,000 jobs in January, nearly double December’s figure. “Pandemic paranoia has set in with employers who remember how hard it was to bring back workers. So, it makes sense that despite what we are seeing in headlines regarding lay-offs, they are still well below historical norms,” said Becky Frankiewicz, president of ManpowerGroup, the recruitment company.That strong labour market would continue to underpin consumer spending in 2023, Sachin Mehra, Mastercard’s chief financial officer, said last week. McDonald’s and Mondelez International echoed his description of the US consumer as “resilient”, with the burger chain joining Procter & Gamble in saying that it was seeing little evidence of its customers choosing cheaper options. Instead of such trading down, Starbucks said its customers spent a record average sum per visit in December. Other companies, however, have reinforced the message from consumer sentiment surveys which show Americans becoming more cautious about discretionary spending, particularly on goods rather than services such as travel and eating out. As Morgan Stanley economists pointed to how “belt-tightening” consumers are depleting the excess savings they accumulated early in the pandemic, apparel company Hanesbrands described demand as “muted”.“In total spend, it’s remarkable stability,” Vasant Prabhu, Visa’s CFO, told analysts last week: “What’s happening is as goods spending slowed down a bit, services spending really took up all the slack . . . Consumers have just shifted their spending but they’re spending the same amount.” A more bearish message has emerged from companies exposed to a housing market that is being slowed by rising mortgage rates. Sherwin-Williams, one of the largest US paint companies, said last week that it saw “a very challenging demand environment”.With little visibility beyond the first six months of the year, said CEO John Morikis, “our base case in 2023 remains to prepare for the worst”. More

COLOMBO (Reuters) -Sri Lanka is completing the pre-requisites to unlock a $2.9 billion bailout from the International Monetary Fund (IMF) and expects rapid approval from the global lender, President Ranil Wickremesinghe said on Saturday.”We are successfully completing the difficult stage required to get support from the International Monetary Fund. We expect to get their consent without delay,” Wickremesinghe said in his address to the nation to mark the 75th Independence Day.Sri Lanka, caught in the worst financial crisis since independence from Britain in 1948 triggered by a severe shortage of dollars, has seen steep inflation, a currency plunge and its economy slide into recession. The island of 22 million people has also been hit by high taxes, a shortage of essential items such as medicine and fuel, and daily power cuts. Wickremesinghe, who took over after his predecessor fled the country and resigned last year after thousands of protesters occupied his office and residence, has pledged to put the economy back on track but warned it will be an uphill task. “I know that many of the decisions I have been compelled to take since assuming the presidency have been unpopular …. I will continue this new reform program with the majority of people who love this country,” he added. Sri Lanka is currently focused on getting financing assurances from key bilateral creditors China and Japan. India, the third major creditor, agreed to support debt restructuring last month.Sri Lanka’s central bank estimates an economic turnaround in the second half of 2023 and inflation to reach single digits by the end of this year. More