Evelyn Reynolds

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    As Businesses Clamor for Workplace A.I., Tech Companies Rush to Provide It

    Amazon, Box, Salesforce, Oracle and others have recently rolled out A.I.-related products to help workplaces become more efficient and productive.Earlier this year, Mark Austin, the vice president of data science at AT&T, noticed that some of the company’s developers had started using the ChatGPT chatbot at work. When the developers got stuck, they asked ChatGPT to explain, fix or hone their code.It seemed to be a game-changer, Mr. Austin said. But since ChatGPT is a publicly available tool, he wondered if it was secure for businesses to use.So in January, AT&T tried a product from Microsoft called Azure OpenAI Services that lets businesses build their own A.I.-powered chatbots. AT&T used it to create a proprietary A.I. assistant, Ask AT&T, which helps its developers automate their coding process. AT&T’s customer service representatives also began using the chatbot to help summarize their calls, among other tasks.“Once they realize what it can do, they love it,” Mr. Austin said. Forms that once took hours to complete needed only two minutes with Ask AT&T so employees could focus on more complicated tasks, he said, and developers who used the chatbot increased their productivity by 20 to 50 percent.AT&T is one of many businesses eager to find ways to tap the power of generative artificial intelligence, the technology that powers chatbots and that has gripped Silicon Valley with excitement in recent months. Generative A.I. can produce its own text, photos and video in response to prompts, capabilities that can help automate tasks such as taking meeting minutes and cut down on paperwork.To meet this new demand, tech companies are racing to introduce products for businesses that incorporate generative A.I. Over the past three months, Amazon, Box and Cisco have unveiled plans for generative A.I.-powered products that produce code, analyze documents and summarize meetings. Salesforce also recently rolled out generative A.I. products used in sales, marketing and its Slack messaging service, while Oracle announced a new A.I. feature for human resources teams.These companies are also investing more in A.I. development. In May, Oracle and Salesforce Ventures, the venture capital arm of Salesforce, invested in Cohere, a Toronto start-up focused on generative A.I. for business use. Oracle is also reselling Cohere’s technology.Salesforce recently rolled out generative A.I. products used in sales, marketing and its Slack messaging service.Jeenah Moon for The New York Times“I think this is a complete breakthrough in enterprise software,” Aaron Levie, chief executive of Box, said of generative A.I. He called it “this incredibly exciting opportunity where, for the first time ever, you can actually start to understand what’s inside of your data in a way that wasn’t possible before.”Many of these tech companies are following Microsoft, which has invested $13 billion in OpenAI, the maker of ChatGPT. In January, Microsoft made Azure OpenAI Service available to customers, who can then access OpenAI’s technology to build their own versions of ChatGPT. As of May, the service had 4,500 customers, said John Montgomery, a Microsoft corporate vice president.Aaron Levie, chief executive of Box, said generative A.I. creates “a complete breakthrough in enterprise software.”Michael Short/BloombergFor the most part, tech companies are now rolling out four kinds of generative A.I. products for businesses: features and services that generate code for software engineers, create new content such as sales emails and product descriptions for marketing teams, search company data to answer employee questions, and summarize meeting notes and lengthy documents.“It is going to be a tool that is used by people to accomplish what they are already doing,” said Bern Elliot, a vice president and analyst at the I.T. research and consulting firm Gartner.But using generative A.I. in workplaces has risks. Chatbots can produce inaccuracies and misinformation, provide inappropriate responses and leak data. A.I. remains largely unregulated.In response to these issues, tech companies have taken some steps. To prevent data leakage and to enhance security, some have engineered generative A.I. products so they do not keep a customer’s data.When Salesforce last month introduced AI Cloud, a service with nine generative A.I.-powered products for businesses, the company included a “trust layer” to help mask sensitive corporate information to stop leaks and promised that what users typed into these products would not be used to retrain the underlying A.I. model.Similarly, Oracle said that customer data would be kept in a secure environment while training its A.I. model and added that it would not be able to see the information.Salesforce offers AI Cloud starting at $360,000 annually, with the cost rising depending on the amount of usage. Microsoft charges for Azure OpenAI Service based on the version of OpenAI technology that a customer chooses, as well as the amount of usage.For now, generative A.I. is used mainly in workplace scenarios that carry low risks — instead of highly regulated industries — with a human in the loop, said Beena Ammanath, the executive director of the Deloitte A.I. Institute, a research center of the consulting firm. A recent Gartner survey of 43 companies found that over half the respondents have no internal policy on generative A.I.“It is not just about being able to use these new tools efficiently, but it is also about preparing your work force for the new kinds of work that might evolve,” Ms. Ammanath said. “There is going to be new skills needed.”Panasonic Connect began using Microsoft’s Azure OpenAI Service to make its own chatbot in February.Panasonic ConnectPanasonic Connect, part of the Japanese electronics company Panasonic, began using Microsoft’s Azure OpenAI Service to make its own chatbot in February. Today, its employees ask the chatbot 5,000 questions a day about everything from drafting emails to writing code.While Panasonic Connect had expected its engineers to be the main users of the chatbot, other departments — such as legal, accounting and quality assurance — also turned to it to help summarize legal documents, brainstorm solutions to improve product quality and other tasks, said Judah Reynolds, Panasonic Connect’s marketing and communications chief.“Everyone started using it in ways that we didn’t even foresee ourselves,” he said. “So people are really taking advantage of it.” More

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    The Russia-Ukraine War Changed This Finland Company Forever

    Even with sheets of rain falling, the sprawling construction site was buzzing. Yellow and orange excavators slowly danced around a maze of muddy pits, swinging giant fistfuls of dirt as a chorus line of trucks traipsed across the landscape.This 50-acre plot in Oradea, Romania, close to the border with Hungary, beat out scores of other sites in Europe to become the home of Nokian Tyres’ new 650 million-euro, or $706 million, factory. Like an industrial-minded Goldilocks, the Finnish tire company had searched for the just-right combination of real estate, transport links, labor supply and pro-business environment.Yet the make-or-break feature that every host country had to have would not have even appeared on the radar a few years ago: membership in both the European Union and the North Atlantic Treaty Organization.Geopolitical risk “was the starting point,” said Jukka Moisio, the chief executive and president of Nokian. That was not the case before Russia invaded Ukraine on Feb. 24, 2022.Nokian Tyres’ altered business strategy highlights the transformed global economic playing field that governments and companies are confronting. As the war in Ukraine drags on and tensions rise between the United States and China, critical decisions about offices, supply chains, investments and sales are no longer primarily ruled by concerns about costs.As the world re-globalizes, assessments of political threats loom much larger than before.Oradea, Romania, became Nokian Tyres’ top choice for a new factory.Andreea Campeanu for The New York TimesThe new factory is going on a 50-acre site.Andreea Campeanu for The New York Times“This is a world that has fundamentally changed,” said Henry Farrell, a political scientist at Johns Hopkins. “We cannot just think in terms of innovation and efficiency. We have to think about security, too.”For Nokian Tyres, which first sold shares on the Helsinki stock exchange in 1995, the new reality struck like a hammer blow. Roughly 80 percent of Nokian’s passenger car tires were manufactured in Russia. And the country accounted for 20 percent of its sales.The perils of over-concentration hit home, Mr. Moisio said, “when your company loses billions.”Within six weeks of the war’s start, it became clear that the company had no choice but to exit Russia and ramp up production elsewhere. Rubber had been added to the European Union’s rapidly expanding package of sanctions. Public sentiment in Finland soured. The share price plunged. In January 2022, the share price was over €34; today it’s €8.25.“We were very exposed,” Mr. Moisio said, sipping coffee in a sunny conference room at the company’s low-key Helsinki office. The Russian operation had high returns, but it also had high risks, a fact that, over time, had faded from view.Diversifying may not be as efficient or cheap, he said, but “it’s far more secure.”With roughly 80 percent of its production located in Russia, “we were very exposed” when Russia attacked Ukraine, said Jukka Moisio, Nokian’s chief executive.Juho Kuva for The New York TimesC-suite executives are relearning that the market often fails to accurately measure risk. A January survey of 1,200 global chief executives by the consulting firm EY found that 97 percent had altered their strategic investment plans because of new geopolitical tensions. More than a third said they were relocating operations.China, which has become an increasingly fraught home for foreign businesses and investment, is among the places that firms are leaving. Roughly one in four companies planned to move operations out of the country, a survey conducted last year by the European Union Chamber of Commerce in China found.Businesses are suddenly finding themselves “stranded in the no-man’s land of warring empires,” Mr. Farrell and his co-author, Abraham Newman, argue in a new book.Mr. Moisio’s tenure at Nokian has coincided with the triple crown of crises. He started in May 2020, a few months after the Covid-19 pandemic essentially shut down global commerce. Like other companies, Nokian hunkered down, cutting production and capital spending. Its lack of outstanding debt helped it ride out the storm.And when the economy bounced back, Nokian scrambled to restart production and restock raw materials amid a huge breakdown of the supply chain and transportation. The war posed an existential threat to Nokian’s operations.Adding production lines to existing facilities is often the fastest and cheapest way to increase output. Still, Nokian decided not to expand its operation in Russia.Production there was already concentrated, Mr. Moisio said, but more important, the persistent supply chain bottlenecks underscored the added risks and costs of transporting materials over long distances.The Nokian Tyres main office in Nokia, Finland.Juho Kuva for The New York TimesNewly completed tires on the production line. Nokian is moving manufacturing closer to specific markets.Juho Kuva for The New York TimesGoing forward, instead of locating 80 percent of production in one spot, often far from the market, 80 percent of production would be local or regional.“It turned upside down,” Mr. Moisio said.Tires for the Nordic market would be produced in Finland. Tires for American customers would be manufactured in the United States. And in the future, Europe would be serviced by a European factory.Diversification had, to some extent, already been incorporated into the company’s strategic plan. It opened a plant in Dayton, Tenn., in 2019, in addition to the original factory that operated in Nokia, the Finnish town that gave the tire maker its name.At the end of 2021, the company opened new production lines at both of those plants.When it came time to build the next factory, executives figured it would be in Eastern Europe, close to its largest European markets in Germany, Austria, Switzerland and France, as well as Poland and the Czech Republic.That moment came much sooner than anyone expected.In June 2022, less than four months after the invasion of Ukraine, Nokian executives asked the board to approve an exit from Russia and the construction of a new plant.Negotiations to leave Russia commenced, as did a high-speed search for a new location. Aided by the consulting firm Deloitte, the site assessment process, which included dozens of candidates across Europe, was completed in four months, said Adrian Kaczmarczyk, senior vice president of supply operations. By comparison, in 2015 Deloitte took nine months to recommend a site in a single country, the United States.Nokian expedited its search for a site, selecting Oradea in just four months, said Adrian Kaczmarczyk, senior vice president of supply operations.Andreea Campeanu for The New York TimesMr. Kaczmarczyk and engineers examining designs for the project.Andreea Campeanu for The New York TimesThe aim was to start commercial production by early 2025.Serbia had a flourishing automotive sector, but was eliminated from the get-go because it was in neither the European Union nor NATO. Turkey was a member of NATO but not the European Union. And Hungary was labeled high risk because of its illiberal prime minister, Viktor Orban, and close relationship with Russia.At each successive round, a long list of other considerations kicked in. Where were the closest highway, harbor and rail lines? Was there a sufficient pool of qualified employees? Was land available? Could permitting and construction time be fast-tracked? How pro-business were the authorities?Nokian would have looked to reduce a new factory’s carbon footprint in any event, Mr. Moisio, the chief executive, said. But the decision to commit to a 100 percent emissions-free plant probably would not have happened in the absence of war. After all, cheap gas from Russia was what helped lure Nokian there in the first place. Now, the disappearance of that supply accelerated the company’s thinking about ending dependence on fossil fuels.“Disruption allowed us to think differently,” Mr. Moisio said.As the winnowing progressed, a complex matrix of small and large considerations came into play. Was there good health care and an international school where foreign managers could send their children? What was the likelihood of natural disasters?Countries and cities fell out for various reasons. Slovenia and the Czech Republic were considered low-to-medium-risk countries, but Mr. Kaczmarczyk said they couldn’t find appropriate plots of land.A machine operator monitoring equipment on the production line inside the factory in Nokia.Juho Kuva for The New York TimesTires being made on the production line.Juho Kuva for The New York TimesSlovakia fell into the same bucket and already had a large automotive industry. Bratislava, though, made clear it had no interest in attracting more heavy industry, only information technology, Mr. Kaczmarczyk said.At the end, six candidates made Deloitte’s final cut: two sites in Romania, two in Poland, and one each in Portugal and Spain.The messy mix of new and old considerations that businesses have to contemplate were evident in the list of finalists. Geopolitics, as the Nokian Tyres chief executive said, had been a starting point, but it was not necessarily the end point.Spain has virtually no geopolitical risk. And the site in El Rebollar had a large talent pool, but Deloitte ruled it out because of high wage costs and heavy labor regulations. Portugal, another country with no security risk, was rejected because of worries about the power supply and the speed of the permitting process.Poland, along with Hungary and Serbia, had been labeled high risk despite its staunch anti-Russia stance. It has an antidemocratic government and has repeatedly clashed with the European Commission over the primacy of European legislation and the independence of Poland’s courts.Yet low labor costs, the presence of other multinational employers and a quick permitting process outweighed the worries enough to elevate the sites in Gorzow and Konin to second and third place.Oradea, the top recommendation, ultimately offered a better balance among the company’s competing priorities. The cost of labor in Romania, like Poland, was among the lowest in Europe. And its risk rating, though labeled relatively high, was lower than Poland’s.The factory in Nokia. The low cost of labor in Romania attracted the company.Juho Kuva for The New York TimesStretching the lining for tires. The main raw materials for tires are natural rubber, synthetic rubber, soot and oil.Juho Kuva for The New York TimesThere were other pluses as well in Oradea. Construction could start immediately; utilities were already in place; a new solar power plant was in the works. The amount of development grants from the European Union for companies investing in Romania was larger than in Poland. And local officials were enthusiastic.Mihai Jurca, Oradea’s city manager, detailed the area’s appeal during a tour of the turreted confection of Art Nouveau buildings in the renovated city center.“It was a flourishing cultural and commercial city, a junction point between East and West,” in the early 20th century, under the Austro-Hungarian Empire, Mr. Jurca said.Today the city, an affluent economic hub of 220,000 with a university, has solicited businesses and European Union funds, while constructing industrial parks that house domestic and international companies like Plexus, a British electronics manufacturer, and Eberspaecher, a German automotive supplier.Nokian is not looking to replicate the kind of megafactory in Romania that it ran in Russia — or anywhere else, for that matter. The idea of concentrating production is “old-fashioned,” Mr. Moisio said.For him, the company emerged from crisis mode on March 16, the day $258 million from sale of its Russian operation landed in Nokian’s bank account. Although only a fraction of the total value, the amount helped finance the construction and closed out the company’s involvement with Russia.Now uncertainty is the norm, Mr. Moisio said, and business leaders need to constantly be asking: “What can we do? What’s our Plan B?”Oradea “was a flourishing cultural and commercial city, a junction point between East and West,” in the early 20th century, said Mihai Jurca, the city manager.Andreea Campeanu for The New York TimesOradea is an affluent hub of 220,000 people with a university, and has solicited businesses and European Union funds.Andreea Campeanu for The New York Times More

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    How Inflation and Interest Rates Vary Around the World

    Prices are still rising too fast for comfort in many major economies, and policymakers across the globe are trying to wrestle them under control.From Melbourne to Manchester to Miami, people are struggling under the weight of hefty price increases for the things they buy each day.The worst spike in inflation that many advanced economies have seen in decades underscores the global forces driving prices higher, namely the disruptions set in motion by the coronavirus pandemic.The stakes are high for policymakers around the world, who are facing similar problems. To try to get inflation under control, central bankers have rapidly lifted interest rates, trying to slow their economies in hopes of cooling prices. More

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    Yellen’s China Visit Aims to Ease Tensions Amid Deep Divisions

    Mutual skepticism between the United States and China over a wide range of economic and security issues has festered in recent years.The last time a U.S. Treasury secretary visited China, Washington and Beijing were locked in a trade war, the Trump administration was preparing to label China a currency manipulator, and fraying relations between the two countries were roiling global markets.Four years later, as Treasury Secretary Janet L. Yellen prepares to arrive in Beijing, many of the economic policy concerns that have been festering between the United States and China remain — or have even intensified — despite the Biden administration’s less antagonistic tone.The tariffs that President Donald J. Trump imposed on Chinese goods are still in effect. President Biden has been working to restrict China’s access to critical technology such as semiconductors. And new restrictions curbing American investment in China are looming.Treasury Department officials have downplayed expectations for major breakthroughs on Ms. Yellen’s four-day trip, which begins when she arrives in Beijing on Thursday. They suggest instead that her meetings with senior Chinese officials are intended to improve communication between the world’s two largest economies. But tensions between United States and China remain high, and conversations between Ms. Yellen and her counterparts are likely to be difficult. She met in Washington with Xie Feng, China’s ambassador, on Monday, and the two officials had a “frank and productive discussion,” according to the Treasury.Here are some of the most contentious issues that have sown divisions between the United States and China.Technology and trade controlsChinese officials are still smarting at the Biden administration’s 2022 decision to place significant limitations on the kinds of advanced semiconductors and chip-making machinery that can be sent to China. Those limits have hampered China’s efforts to develop artificial intelligence and other kinds of advanced computing that are expected to help power each country’s economy and military going forward.The government of the Netherlands, which is home to semiconductor machinery maker ASML, on Friday announced new restrictions on machinery exports to China. On Monday, China placed restrictions on exports of germanium and gallium, two metals used to make chips.The Biden administration is mulling further controls on advanced chips and on American investment into cutting-edge Chinese technology.Semiconductors have always been one of the biggest and most valuable categories of U.S. exports to China, and while the Chinese government is investing heavily in its domestic capacity, it remains many years behind the United States.The Biden administration’s subsidy program to strengthen the U.S. semiconductor industry has also rankled Chinese officials, especially since it includes restrictions on investing in China. Companies that accept U.S. government money to build new chip facilities in the United States are forbidden to make new, high-tech investments in China. And while Chinese officials — and some American manufacturers — were hopeful that the Biden administration would lift tariffs on hundreds of billions of dollars of Chinese imports, that does not seem to be in the offing. While Ms. Yellen has questioned the efficacy of tariffs, other top officials within the administration see the levies as helpful for encouraging supply chains to move out of China.The administration is employing both carrots and sticks to carry out a policy of “de-risking” or “friend-shoring” — that is, enticing supply chains for crucial products like electric vehicle batteries, semiconductors and solar panels out of China.President Biden during a visit to a Taiwan Semiconductor Manufacturing Company plant under construction in Phoenix. The Biden administration’s efforts to assist the U.S. semiconductor industry has rankled Chinese officials.T.J. Kirkpatrick for The New York TimesDeteriorating business environmentsCompanies doing business in China are increasingly worried about attracting negative attention from the government. The most recent target was Micron Technology, a U.S. memory chip maker that failed a Chinese security review in May. The move could cut Micron off from selling to Chinese companies that operate key infrastructure, putting roughly an eighth of the company’s global revenue at risk. In recent months, consulting and advisory firms in China with foreign ties have faced a crackdown.American officials are growing more concerned with the Chinese government’s use of economic coercion against countries like Lithuania and Australia, and they are working with European officials and other governments to coordinate their responses.Businesses are also alarmed by China’s ever-tightening national security laws, which include a stringent counterespionage law that took effect on Saturday. Foreign businesses in China are reassessing their activities and the market information they gather because the law is vague about what is prohibited. “We think this is very ill advised, and we’ve made that point to several members of the government here,” said R. Nicholas Burns, the U.S. ambassador to China, in an interview in Beijing.In the United States, companies with ties to China, like the social media app TikTok, the shopping app Temu and the clothing retailer Shein, are facing increasing scrutiny over their labor practices, their use of American customer data and the ways they import products into the United States.CurrencyChina’s currency, the renminbi, has often been a source of concern for American officials, who have at times accused Beijing of artificially weakening its currency to make its products cheaper to sell abroad.The renminbi’s recent weakness may pose the most difficult issue for Ms. Yellen. The currency is down more than 7 percent against the dollar in the past 12 months and down nearly 13 percent against the euro. That decline makes China’s exports more competitive in the United States. China’s trade surplus in manufactured goods already represents a tenth of the entire economy’s output.The renminbi is not alone in falling against the dollar lately — the Japanese yen has tumbled for various reasons, including rising interest rates in the United States as the Federal Reserve tries to tamp down inflation.Chinese economists have blamed that factor for the renminbi’s weakness as well. Zhan Yubo, a senior economist at the Shanghai Academy of Social Sciences, said the decline in the renminbi was the direct result of the Fed’s recent increases in interest rates.At the same time, China has been cutting interest rates to help its flagging economy. The interest rate that banks charge one another for overnight loans — a benchmark that tends to influence all other interest rates — is now a little over 5 percent in New York and barely 1 percent in Shanghai. That reverses a longstanding pattern in which interest rates were usually higher in China.The Fed’s rate increases have made it more attractive for companies and households to send money out of China and invest it in the United States, in defiance of Beijing’s stringent limits on overseas money movements.China pledged as part of the Phase 1 trade agreement with the United States three years ago not to seek an advantage in trade by pushing down the value of its currency. But the Biden administration’s options may be limited if China lets its currency weaken anyway.Global debtChina has provided more than $500 billion to developing countries through its lending program, making it one of the world’s largest creditors. Many of those borrowers, including several African nations, have struggled economically since the pandemic and face the possibility of defaulting on their debt payments.The United States, along with other Western nations, has been pressing China to allow some of those countries to restructure their debt and reduce the amount that they owe. But for more than two years, China has insisted that other creditors and multilateral lenders absorb financial losses as part of any restructuring, bogging down the loan relief process and threatening to push millions of people in developing countries deeper into poverty.In June, international creditors including China agreed to a debt relief plan with Zambia that would provide a grace period on its interest payments and extend the dates when its loans are due. The arrangement did not require that the World Bank or International Monetary Fund write off any debts, offering global policymakers like Ms. Yellen hope for similar debt restructuring in poorer countries.Human rights and national security issuesTensions over national security and human rights have created an atmosphere of mutual distrust and spilled over into economic relations. The flight of a Chinese surveillance balloon across the United States this year deeply unsettled the American public, and members of Congress have been pressing the administration to reveal more of what it knows about the balloon. Mr. Biden’s recent labeling of China’s leader, Xi Jinping, as a “dictator” also rankled Chinese officials and state-run media.American officials continue to be concerned about China’s human rights violations, including the suppression of the democracy movement in Hong Kong and the detention of mainly Muslim ethnic minorities in the Xinjiang region of northwestern China. A senior Treasury Department official, speaking on the condition of anonymity before Ms. Yellen’s trip, said the United States had no intention of shying away from its views on human rights during the meetings in China.Chinese officials continue to protest the various sanctions that the United States has issued against Chinese companies, organizations and individuals for national security threats and human rights violations — including sanctions against Li Shangfu, China’s defense minister. The Chinese government has cited those sanctions as a reason for its rejection of high-level military dialogues. More

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    Inflation blame game: UK economic woes set government and central bank on a collision course

    Headline CPI in May came in at 8.7%, unchanged from the previous month, while core inflation — which excludes volatile energy, food, alcohol and tobacco prices — increased to 7.1%, its highest rate for 31 years.
    Economic growth has all but stagnated and public debt has surpassed 100% of GDP for the first time since March 1961.
    Shaan Raithatha, senior economist at Vanguard, told CNBC’s “Squawk Box Europe” on Monday that the U.K. is suffering from the “worst of both worlds.”

    Sunak has reiterated his “total support” for the Bank of England and under fire Governor Andrew Bailey.
    STEFAN ROUSSEAU/POOL/AFP via Getty Images

    LONDON — In January, with one eye on a critical general election in 2024, U.K. Prime Minister Rishi Sunak vowed to halve inflation by the end of the year.
    At the time, headline consumer price inflation was running at an annual 10.1%. Given that most economists were projecting that this would halve naturally as the shock of soaring energy prices fell away, the pledge seemed like an open goal for Sunak’s Conservative government.

    Yet headline CPI in May came in at 8.7%, unchanged from the previous month, while core inflation — which excludes volatile energy, food, alcohol and tobacco prices — increased to 7.1%, its highest rate for 31 years.
    Annual average wage growth excluding bonuses also accelerated from 6.7% to 7.2% in the February-April quarter, the fastest rate on record, while the labor market remains hotter-than-expected and the U.K. has faced a unique spike in long-term sickness that has hammered its labor force participation rate.
    Meanwhile, economic growth has all but stagnated and public debt has surpassed 100% of gross domestic product for the first time since March 1961.
    The Bank of England re-accelerated the pace of interest rate hikes in June, raising the Bank rate by 50 basis points to 5%, further compounding domestic fears of a mortgage crisis and diverging from other major central banks that have been able to either slow or pause rate hikes.
    Shaan Raithatha, senior economist at Vanguard, told CNBC’s “Squawk Box Europe” on Monday that the U.K. is suffering from the “worst of both worlds.”

    “We’ve had a U.S.-style labor market shock, particularly the large number of long term sickness that has really impacted the supply of labor there, and they’ve also had a European-style energy shock emanating from the war in Ukraine,” he said.
    “What is perhaps surprising is that the energy shock in the U.K. was larger than in most of mainland Europe.”
    Raithatha suggested this could partly be a result of government policymakers being too slow to step in during the early stages of the energy crisis, and when they did step in, capping energy prices at a higher level than many peers.
    “There’s an issue here because the economy is very resilient, we know that the transmission towards mortgages is a bit slower and a bit less effective than we’ve had in the past as well, and so clearly the Bank has to do a bit more to get inflation under control,” he added.
    Problem ‘principally made in Moscow’
    In the aftermath of the most recent inflation print, Sunak reiterated his “total support” for the Bank of England and under fire Governor Andrew Bailey.
    In his January speech, the prime minister said the pledge to halve inflation was his personal responsibility, but should U.K. CPI remain stubbornly high through the end of the year, many expect the Bank of England to return to the crosshairs of government ministers looking to redirect blame.
    “The economic and political cycles also appear mismatched for the government, especially as the case for pre-election tax cuts in 2024 is becoming harder to commit to at this point given public debt has surpassed GDP for the first time since March 1961,” said Richard Flax, chief investment officer at Moneyfarm.
    “The chancellor reiterating his pledge to halve inflation this year while also promising to grow the economy and reduce debt appears to be a steep commitment given the challenges the U.K. faces.”

    Following the high inflation print last month, Panmure Gordon Chief Economist Simon French said the U.K.’s problems were “principally made in Moscow but not exclusively made in Moscow,” adding that there is a “Brexit element” at play.
    “There is a 4.5% increase in working age inactivity since the Brexit transition where all other G7 countries with perhaps the exception of the U.S. have seen inactivity falling, so we do look like an outlier in terms of impairments to the supply side of the economy which is driving core inflation higher,” French said.
    “But Mr. Sunak has a narrative there as well which is fair, which is global factors. The U.K. is disproportionately impacted by the gas price because it’s a large part of the heating bill, but also the swing supply for electricity, and that has driven up the CPI component — headline — by 120% compared to about 40% in mainland Europe.”
    In a recent CNBC-moderated panel at a monetary policy forum in Sintra, Portugal, Bailey noted that the U.K. labor force is unique in remaining below its pre-Covid levels.
    “I see this when I go around the country talking to firms. What they say to me very frequently is that their plan is to retain labor as much as they can, even in the event of a downturn, because they’ve been concerned and it’s been difficult to recruit labor,” he said.
    However, Bailey denied that Brexit was the key component in the labor market tightness and sticky inflationary pressures, instead citing the country’s response to the Covid pandemic.
    The Bank has estimated a long-run downshift in the level of U.K. productivity of just over 3% as a result of Brexit, while fellow Monetary Policy Committee member Catherine Mann recently told a parliamentary committee that additional paperwork had damaged small firms and added to inflationary pressures.
    “It’s not just small firms in the U.K. who want to export but it is also small firms in Europe who were suppliers and provided competition in the U.K. market, so there is an inflationary effect coming through the competition channel,” she added.
    Bank of England ‘impotence’ and the ‘British disease’
    U.K. inflation is still expected to fall sharply through the remainder of the year, in light of a 20% reduction in the energy price cap from July 1 and as the existing rate hikes feed through into the economy, compressing demand and employment.
    The Bank of England has retained its data-dependent, meeting-by-meeting approach to monetary policy tightening, and members of the Monetary Policy Committee have openly challenged the market’s pricing for a peak rate of just over 6% through the winter of 2023 and into next year.
    A major source of concern for economists is the central bank’s credibility, and Bailey recently offered a mea culpa on the MPC’s wayward forecasting of inflation over the last 18 months.
    Panmure Gordon’s French suggested that if the Bank of England had “unimpeachable credibility,” policymakers could say the blunt tool of interest rates will take 18 months to two years to pass through the economy and retain the faith of markets and the public. However, its recent proclamations have not gained traction.

    “The U.K. as an economy — 3% of global GDP, less than that in terms of population — is largely a price taker in terms of monetary conditions, and whether Andrew Bailey or indeed his predecessors want to admit to it, there is a degree of impotence in terms of the degree to which domestic monetary conditions can influence the domestic economic picture,” he said.
    French likened the current economic picture to the “British disease” period of economic stagnation and high inflation in the 1970s, also noting that the U.K. hit double-digit inflation in the 1990s and was the only developed country with inflation significantly above target in the aftermath of the global financial crisis.
    Thanos Papasavvas, founder of ABP Invest, also alluded to the unique susceptibility of the U.K. to high inflation, but said the Bank of England should have been alive to this far earlier.
    “I put a lot of the blame on what’s been happening on the comments that he was making a couple of years ago, talking down inflation, the risk of inflation, and smiling about it at a time when there were inflationary pressures coming through and for a country which has had inflationary-prone tendencies,” he told CNBC.

    “You don’t do that in the U.K. Even a few months ago, the expectations of inflation coming down to 2%, 3% were very unrealistic, so I think they’ve managed the communication very badly and they have a very hard decision.”
    The Bank of England is undertaking a review of its inflation forecasting mechanisms, and Bailey recently told a parliamentary committee that the central bank had “lessons to learn” from the process, though it still sees inflation coming down rapidly this year, albeit at a slower rate.
    Ahead of the coronavirus pandemic and the transition out of the EU in 2020, French highlighted that the Bank of England had managed 22 years of inflation averaging its 2% target, but that it had underestimated the supply side effects of Brexit.
    He suggested there are “further frictions to come” in terms of food inflation and second-order effects as further checks on EU animal and plant imports are introduced later this year.
    “Looking at some of the failings it’s made, some of the stuff was unforecastable, in terms of the futures and energy markets, some of the stuff actually bluntly they were asleep at the wheel in understanding the growth of U.K. imported labor supply,” French said. More

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    Canada Offers Lesson in the Economic Toll of Climate Change

    Wildfires are hurting many industries and could strain households across Canada, one of many countries reckoning with the impact of extreme weather.Canada’s wildfires have burned 20 million acres, blanketed Canadian and U.S. cities with smoke and raised health concerns on both sides of the border, with no end in sight. The toll on the Canadian economy is only beginning to sink in.The fires have upended oil and gas operations, reduced available timber harvests, dampened the tourism industry and imposed uncounted costs on the national health system.Those losses are emblematic of the pressure being felt more widely as countries around the world experience disaster after disaster caused by extreme weather, and they will only increase as the climate warms.What long seemed a faraway concern has snapped into sharp relief in recent years, as billowing smoke has suffused vast areas of North America, floods have washed away neighborhoods, and heat waves have strained power grids. That incurs billions of dollars in costs, and also has longer-reverberating consequences, such as insurers withdrawing from markets prone to hurricanes and fires.In some early studies of the economic impact of rising temperatures, Canada appeared to be better positioned than countries closer to the Equator; warming could allow for longer farming seasons and make more places attractive to live in as winters grow less harsh. But it is becoming clear that increasing volatility — ice storms followed by fires followed by intense rains and now hurricanes on the Atlantic Coast, uncommon so far north — wipes out any potential gains.“It’s come on faster than we thought, even informed people,” said Dave Sawyer, principal economist at the Canadian Climate Institute. “You couldn’t model this out if you tried. We’ve always been concerned about this escalation of damages, but seeing it happen is so stark.”Nonetheless, Mr. Sawyer and his colleagues did try to model it out. In a report last year, they calculated that climate-related costs would mount to 25 billion Canadian dollars in 2025, cutting economic growth in half. By midcentury, they forecast a loss of 500,000 jobs, mostly from excessive heat that lowers labor productivity and causes premature death. Then there are the increased costs to households, and higher taxes required to support government spending to repair the damage — especially in the north, where thawing permafrost is cracking roads and buildings.The recent fires have forced some lumber mills to idle. It’s not clear how widespread the damage will be to forest stocks.Jen Osborne for The New York TimesIt is too early to know the cost for the current fires, and several months of fire season remain. But the consulting firm Oxford Economics has forecast that it could knock between 0.3 and 0.6 percentage points off Canada’s economic growth in the third quarter — a big hit, especially since hiring in the country has already slowed and households have more debt and less savings than their neighbors to the south.“We already think we’re teetering into a downturn, and this would just make things worse,” said Tony Stillo, director of economics for Canada at Oxford. “If we were to see these fires really disrupt transportation corridors, disrupting power supply to large population centers, then you’re talking about even worse consequences.”Estimates of the overall economic drag are built on damage to particular industries, which vary with each disaster.The recent fires have left some lumber mills idle, for example, as workers have been evacuated. It’s not clear how widespread the damage will be to forest stocks, but provincial governments tend to reduce the amount of timber they allow to be harvested after large blazes, according to Derek Nighbor, chief executive of the Forest Products Association of Canada. Infestations of pine beetles, which have flared up as milder winter temperatures fail to kill off the pests, have curtailed logging in British Columbia.Although lumber prices have been depressed in recent months as higher interest rates have weighed on home construction, Canada is confronting a housing shortage as it works to bring in millions of new immigrants. Reduced availability of wood will make its housing problem more difficult to solve. “It’s safe to say there’s going to be a supply crunch in Canada as we work through this,” Mr. Nighbor said.The tourism industry is also being hit, as the fires erupted just as operators were going into the crucial summer season — sometimes far from the fires. Business plunged in the peninsula town of Tofino, a popular destination for whale watching off Vancouver Island, when its only highway access was cut off by a fire two hours away. The road has since reopened, but only one lane at a time, and drivers need to wait up to an hour to get through.Sabrina Donovan is the general manager of the Pacific Sands Beach Resort and the chair of Tofino’s local tourism promotion organization. She said that her hotel’s occupancy sank to about 20 percent from 85 percent in the course of June, and that few bookings were coming through for the rest of the year. Employers commonly house their staff during the summer, but after weeks without customers, many workers left for jobs elsewhere, making it difficult to maintain full service in the coming months.“This most recent fire has been pretty devastating for the majority of the community,” Ms. Donovan said, noting that the coast had never in her career had to deal with wildfires. “This is something we now have to be thinking about in the future.”The wildfires could depress spending when households are already strained.Jen Osborne for The New York TimesRegardless of the severity of any particular episode, the costs mount as disasters get closer to critical infrastructure and population centers. That is why the two most expensive years in recent history were 2013, when major flooding hit Calgary, and 2016, when the Fort McMurray fire wiped out 2,400 homes and businesses and hamstrung oil and gas production, the area’s main economic driver.This year, most of the burning has been in rural areas. While some oil drilling has been disrupted, the damage overall to the oil industry has been minor. The greater long-term threat to the industry is falling demand for fossil fuels, which could displace 312,000 to 450,000 workers in the next three decades, according to an analysis by TD Bank.But there is still a long, hot summer ahead. And the insurance industry is on alert, having watched the increasing damage in recent years with alarm. Before 2009, insured losses in Canada averaged around 450 million Canadian dollars a year, and now they routinely exceed $2 billion. Large reinsurers pulled back from the Canadian market after several crippling payouts, increasing prices for homeowners and businesses. That is not even counting the life insurance costs likely to be incurred by excessive heat and smoke-related respiratory ailments.Craig Stewart, vice president of federal affairs for the Insurance Bureau of Canada, said climate issues had become a primary concern for the organization over the past decade.The mounting cost of catastrophic events in CanadaPayouts including adjustment expenses by property and casualty insurers for disasters that total more than $30 million, in 2021 Canadian dollars.

    Source: Insurance Bureau of CanadaBy The New York Times“Back in 2015, we sent our C.E.O. across the country to talk about the need to prepare for a different climate future,” Mr. Stewart said. “At the time, we had the Calgary floods two years before in the rear view mirror. We thought, ‘Oh, we’ll get another event in two to three years.’ We never could’ve imagined that we’re now seeing two or three catastrophic events in the country per year.”That’s why the industry pushed hard for the Canadian government to come up with a comprehensive adaptation strategy, which was released in late June. It recommends measures like investing in urban forests to reduce the health effects of heat waves and developing better flood maps that help people avoid building in vulnerable areas. Fire and forestry experts have called for the forest service, decimated by years of austerity, to be restored, and prescribed burns to be scaled up — all of which costs a lot of money.Mike Savage, the mayor of Halifax, doesn’t have to be convinced that the spending is necessary. His city was the largest to sustain fire losses this spring, with 151 homes burned. That calamity came on the heels of Hurricane Fiona last year, which submerged much of the coastline. Mr. Savage worries about the fate of the isthmus that connects Nova Scotia to New Brunswick, and the power systems that now peak in the hot summer instead of the frigid winter.“I certainly believe that when you invest in mitigation there’s a dramatic positive impact from those investments,” Mr. Savage said. “It’s going to be a challenging time. To think we got through this fire and say, ‘OK, that’s good, we’re done,’ that would be a little bit naïve.” More

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    Los Angeles Hotel Workers Go on Strike

    The NewsThousands of hotel workers in Southern California walked off the job on Sunday demanding higher pay and better benefits, just as hordes of tourists descended on the region for the Fourth of July holiday.“Workers have been pent up and frustrated and angry about what’s happened during the pandemic combined with the inability to pay their rent and stay in Los Angeles,” said Kurt Petersen, co-president of Unite Here Local 11, the union representing the workers. “So people feel liberated, it’s Fourth of July, freedom is reigning in Los Angeles and hotel workers are leading that fight.”Representatives for the hotels have said that the union had not been bargaining in good faith, and that leaders were determined to disrupt operations.“The hotels want to continue to provide strong wages, affordable quality family health care and a pension,” Keith Grossman, a spokesman for the coordinated bargaining group consisting of more than 40 Los Angeles and Orange County hotels, said in a statement.The strike is part of a wave of recent labor actions in the nation’s second-largest metropolis, where high costs of living have made it difficult for many workers — from housekeepers to Hollywood writers — to stay afloat.Thousands of hotel workers in Southern California walked off the job, demanding higher pay and better benefits.Philip Cheung for The New York TimesWhy It MattersWorkers across Southern California in a range of industries have threatened to strike or walked off the job in recent months, displaying unusual levels of solidarity with other unions as they push for higher pay and better working conditions.Dockworkers disrupted operations for weeks at the colossal ports of Los Angeles and Long Beach until they reached a tentative deal in June. And screenwriters have been picketing outside the gates of Hollywood studios for about two months.Hugo Soto-Martinez, a Los Angeles City Council member who worked as an organizer for Unite Here Local 11, said that the breadth of industries locked in labor fights demonstrated frustration especially among younger workers, who have seen inequality widen and opportunities evaporate.“It’s homelessness, it’s the cost of housing,” he said. “I think people are understanding those issues in a much more palpable way.”The hotel workers’ strike comes just as the summer tourism season ramps up, and labor leaders say they are hoping to capitalize on that momentum.Last year, tourism in the city reached its highest levels since the coronavirus pandemic, according to the Los Angeles Tourism and Convention Board. Roughly 46 million people visited, and there was $34.5 billion in total business sales in 2022, reaching 91 percent of the record set in 2019.But for many workers like Diana Rios-Sanchez, who works as a housekeeping supervisor at the InterContinental Los Angeles Downtown, the pay has not helped to keep up with inflation.She often wonders how long she and her three children, who live in a one-bedroom apartment in El Sereno, a neighborhood on the Eastside of Los Angeles, can afford to stay in the city.“All we do in hotels is work and work and get by with very little,” Ms. Rios-Sanchez said. “We take care of the tourists, but no one takes care of us.”Business groups say that simply demanding that employers pay workers more does not address the much-deeper problems that have led to sky-high costs of living in California.BackgroundThe union has been negotiating since April for a new contract. In June, members approved a strike.The group has asked that hourly wages, now $20 and $25 for housekeepers, immediately increase by $5, followed by $3 bumps in each subsequent year of a three-year contract.By contrast, Mr. Grossman said in the statement that the hotels had offered to increase pay for housekeepers currently making $25 an hour in Beverly Hills and downtown Los Angeles to more than $31 per hour by January 2027.On Thursday, the Westin Bonaventure Hotel & Suites, a large hotel in downtown Los Angeles, announced that it had staved off a walkout of its workers with a contract deal.Agreements made this year will set pay levels ahead of the 2026 World Cup and 2028 Olympics, which are expected to be enormous tourist draws to the region.What’s NextMr. Petersen said on Sunday that the strike would go on for “multiple days.” The Hotel Association of Los Angeles had said in a statement that the hotels would be able to continue serving visitors.Anna Betts More

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    L.A. Workers Are Feeling Emboldened as Unions Pressure Employers in California

    California union members are pressuring employers over wages in one of the nation’s most labor-friendly states.In the two months since they went on strike, screenwriters have become a fixture outside studios in Southern California, signs aloft as the traffic roars past. In many parts of America, theirs would be a lonely vigil.Not in Los Angeles.At the behemoth ports of Los Angeles and Long Beach, operations were disrupted for weeks until West Coast dockworkers reached a tentative contract deal in mid-June. Across the city, schools shut down for three days this spring when bus drivers, cafeteria workers and teachers walked out.Now, the union representing some 15,000 hotel workers in Los Angeles is threatening to strike this Fourth of July weekend, just as the summer tourism season ramps up. And more than 160,000 actors are poised to shut down Hollywood productions if they cannot reach a new contract deal later this month.Unions have been embattled nationally, but in California they are having a moment.“We’re calling it the ‘hot labor summer,’” said Lorena Gonzalez, the chief officer of the California Labor Federation, which represents more than 2.1 million union members statewide. “We have sparks and fires everywhere, and we’re not letting it die down in California. We’re fanning the flames.”California has long been a labor stronghold, with Democrats in control of state government and most large cities. Despite a string of labor wins in recent years — including a minimum wage of $15.50 an hour, more than double the federal rate — workers say they are feeling ever more pressure from inflation, housing shortages and technological disruptions.The Unite Here Local 11 union is seeking higher wages and better benefits. Some 15,000 members are threatening to strike at dozens of hotels in Los Angeles.Philip Cheung for The New York TimesThe unemployment rate remains below 5 percent in California, so workers know they have leverage. And numerous contracts are expiring this year, forcing California employers to negotiate with unions as they watch picket lines form daily in Los Angeles. Roughly half of the large work stoppages in 2023 have taken place in the state.On Friday, a major contract for the hotel workers ran out, while the actors’ union said that it would extend its expiring contract through July 12, buying more time to continue negotiations.Hotel workers could walk out as soon as this weekend, however. Operators of hotels might be able to muddle through a short-term walkout, but a longer one could deter tourists from visiting Los Angeles in the busy summer months, and erode the convention business that has rebounded since the beginning of the pandemic, said Kevin Klowden, chief global strategist with the Milken Institute, an economic think tank based in Santa Monica, Calif.Simultaneous strikes of hotel workers, screenwriters and actors would ripple first through Los Angeles businesses that rely on the region’s signature tourism and Hollywood industries. And they could have a broader effect beyond Los Angeles; during the 2007 screenwriters strike, the California economy lost $2.1 billion, according to one estimate.The Hotel Association of Los Angeles said in a statement that it had bargained in good faith and would continue to serve tourists during a walkout. Keith Grossman, a spokesman for the coordinated bargaining group consisting of more than 40 Los Angeles and Orange County hotels, said in a statement that it had offered to increase pay for housekeepers currently making $25 an hour in Beverly Hills and downtown Los Angeles to more than $31 per hour by January 2027.“If there is a strike, it will occur because the union is determined to have one,” Mr. Grossman said. “The hotels want to continue to provide strong wages, affordable quality family health care and a pension.”A recurring theme this year among striking workers has been the unbearable cost of living in Southern California. School employees said in March that they had to take two or three side gigs to afford their bills. Screenwriters have echoed that lament. A University of Southern California survey recently found that 60 percent of local tenants said they were “rent-burdened,” spending more than 30 percent of their income on housing.“How can anyone keep living here?” asked Lucero Ramirez, 37, who has worked as a housekeeper at the Waldorf Astoria Beverly Hills since 2018. On Thursday, Ms. Ramirez gathered inside an office space near downtown Los Angeles with dozens of other hotel workers represented by Unite Here Local 11 to decorate poster boards and staple together fliers ahead of a planned strike. Earlier that day, the Westin Bonaventure Hotel & Suites announced that it had staved off a walkout with a contract deal.The union has asked that the hourly wage, now $20 to $25 for housekeepers, immediately increase by $5, followed by $3 bumps in each subsequent year of a three-year contract. Hotel workers — and their employers — are well aware that this deal will set pay levels ahead of the 2026 World Cup and 2028 Olympics, when tourists will flood the region.Ms. Ramirez, who earns $25 an hour, has lived in a rent-controlled, one-bedroom apartment in Hollywood for the past decade, where she pays $1,100 a month. The hot water often goes out, and the flooring in her unit is cracked and decaying, she said.Lucero Ramirez, a housekeeper who’s been working at the Waldorf Astoria Beverly Hills since 2018.Philip Cheung for The New York Times“The landlord wants me to leave so they can boost the rent,” she said. “They want me out, but I cannot afford to go anywhere else, I would have to leave the city.”Labor power is a function of the electorate in California, where Democrats have nearly a 2-to-1 edge over Republicans, supermajority control of the state Legislature, a lock on state offices — and owe a debt to unions, whose members routinely knock on doors and contribute money to liberal candidates.Next year, voters in California will consider an initiative that would raise the minimum wage to $18 an hour. In Los Angeles, members of the City Council are weighing a plan that would raise the minimum wage for tourism workers to $25 an hour. Maria Elena Durazo, a Democratic state senator and former head of the Los Angeles County Federation of Labor, is carrying legislation that would give all health care workers a $25 minimum hourly wage.Tens of thousands of unionized teachers, bus drivers, cafeteria workers and other employees at the Los Angeles Unified School District, the nation’s second-largest district, won major raises this year after their high-profile walkout in March. Smaller labor actions have proliferated as well, including strippers organizing in May at a North Hollywood club, and Amazon drivers walking out in June at a warehouse in Palmdale, Calif. The Los Angeles Dodgers averted a strike by giving ushers, groundskeepers and other workers significant raises.Across the country, union membership as a percentage of the labor force has dropped to a record low of 10.1 percent of employed wage and salary workers. In California, however, such membership rose last year to 16.1 percent of wage and salary workers, compared with 15.9 percent in 2021.“This is a tug of war between inflation and wages,” said Sung Won Sohn, a finance and economics professor at Loyola Marymount University in Los Angeles. “Inflation has been winning and workers are trying to catch up with inflation that’s been persistent.”Nancy Hoffman Vanyek, the chief executive of the Greater San Fernando Valley Chamber of Commerce, which represents about 400 businesses from one-person operations to Hollywood studios, said that workers should be able to afford to live in Los Angeles. But she said simply forcing employers to pay more was a Band-Aid for a much deeper problem in California.“It’s business that always has to bear the brunt of fixing these issues, when we’re not looking at what’s causing them,” she said. “What’s causing the high cost of living in our state? What’s causing the high cost of housing?”Workers nationally are trying to lock in gains from a job market that has remained tight, as employers brace for a possible recession. Rail workers were on the brink of a strike last year, while employees at manufacturing companies like John Deere and Kellogg went on strike in late 2021.In California, the activism has been further driven by white-collar workers, whose jobs have been threatened by the rise of artificial intelligence and the gig economy.“It’s remarkable, the degree to which they are getting support from other unions,” said Nelson Lichtenstein, who directs the Center for the Study of Work, Labor and Democracy at the University of California, Santa Barbara. “There’s a new sense of commonality between the retail clerk who is being told to come in every other day from 3 to 7 p.m. and the screenwriter who is suddenly being offered seven episodes to write and then, goodbye.”Writers and supporters were on strike outside the Paramount Pictures studio in Los Angeles on Wednesday.Morgan Lieberman for The New York Times More