Economy

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.A six-year freeze on personal tax thresholds has been a big factor holding back growth in the UK economy, a Bank of England rate-setter warned on Thursday, days before Rachel Reeves is expected to extend the policy in the Budget. Catherine Mann, an external member of the BoE’s Monetary Policy Committee, said people on middle incomes had been hard hit by the effect of income tax and national insurance thresholds being fixed in cash terms, coming on top of higher mortgage costs and consumer prices.“This middle income group is an especially important one. They have been exposed to a relatively greater degree to tax-bracket creep. Under inflation, more of this group had more of their income creep into a higher tax bracket. This is an important consideration for purchasing power in the current environment,” she told an event at the IMF’s annual meetings in Washington.Mann said she was not making any comment on the October 30 Budget, where Reeves is expected to extend the freeze — first announced by the former Conservative government in 2021 — in a move that could raise £7bn a year, even with tax rates unchanged.But she said the central bank had identified the existing freeze as “a significant drag” on growth, with its latest forecasts for the UK economy, published in August, singling out fiscal policy as “an important ingredient in the slowdown in economic activity associated with that forecast”.She added that this was one reason UK growth prospects remained “pretty modest” even after this week’s upgrade by the IMF, which now expects Britain’s GDP to grow by 1.1 per cent in 2024, up from 0.7 per cent previously, and 1.5 per cent in 2025.“Consumer behaviour really is the linchpin,” Mann said, noting that middle income households in the UK were still saving more than before. “In the past, I’ve said that’s dry powder for consumption going forward,” she added, but it was also possible that people felt “scarred” by recent experience and now felt the need to have a higher savings buffer.  Since “fiscal drag” does not involve changing headline rates, it has generally not provoked the public opposition generated by more explicit tax-raising measures.  However, the UK’s freezes are bringing more people into paying income tax. Two-thirds of the adult population is set to pay income tax in 2027-28, compared with 58 per cent before the freezes started, according to the Institute for Fiscal Studies think-tank. The number of people paying higher rates of income tax has more than doubled since 2010. The squeeze on middle-income households could also lessen inflationary pressures, however. Mann, who has voted against interest rate cuts at recent BoE meetings, said she was watching prices for “things that really are discretionary” for this group — including restaurants and package holidays — to judge whether service price inflation was easing.Mann described the last month’s drop in inflation as “good news”, with the headline rate undershooting the BoE’s forecasts at 1.7 per cent and services inflation below 5 per cent “for the first time in a very, very long time”.But reinforcing comments made on Wednesday by BoE governor Andrew Bailey, she said there was still “a long way to go” before services inflation returned to levels consistent with headline inflation remaining durably at the 2 per cent target. More

The Omaha-Nebraska based company benefited from higher grain and intermodal volumes, which were led by a strong harvest season and higher west coast imports.The railroad has said it handled record intermodal volumes in August at the ports of Los Angeles and Long Beach as shippers shifted freight to the west coast, keeping in mind the strikes at the U.S. east and gulf coast ports.The company reported an operating ratio of 60.3% for the third quarter, an improvement from 63.4% a year earlier. The ratio is a keenly watched metric that indicates operating expenses as a percentage of revenue. More

LONDON (Reuters) – As U.S. election jitters hung over this week’s meeting of global finance chiefs in Washington, a smiling Vladimir Putin was in the Russian city of Kazan welcoming leaders of countries which together make up nearly half the world’s population.The BRICS club of emerging economies may be a long way from rivalling the International Monetary Fund (IMF) or challenging U.S. dollar dominance. But the first summit with its new batch of members showed clear signs of its growing weight.The final communique was long on words and short on detail about creating new payment and trade mechanisms which could by-pass Western-dominated structures – including, notably in Russia’s case, sanctions imposed after its invasion of Ukraine.But the summit scored a series of diplomatic wins: the presence of U.N. Secretary-General Antonio Guterres and of Tayyip Erdogan, president of NATO member Turkey, which has expressed interest in joining the BRICS group. India and China chose the summit to profile new efforts to nurture ties. For Putin, the simple fact that so many leaders travelled to Russia for the talks was useful in countering the narrative that his country faces isolation from the global economy.”They (Western capitals) are not getting the importance of this thing,” said Alicia Garcia-Herrero, a senior fellow at the Bruegel economic think tank. “It’s all signalling that the West is losing power.”Kazan may not go on to occupy the same place in history as Bretton Woods, the New Hampshire town where 80 years ago the victors of World War Two fashioned a monetary order that would dominate the global economy and consolidate dollar supremacy.However this week’s talks underlined dissatisfaction with a system seen under-serving much of the world, with a collapse in capital transfers to developing economies over the past decade and emerging countries under-represented in IMF decision-making.”See how many people are scrambling to apply to join the BRICS,” Mo Ibrahim, a Sudanese-British businessman who runs a foundation that tracks governance in Africa, told Reuters. Putin has said that more than 30 countries have applied.      “People see institutions which are not really representative or democratic – infrastructure established in 1945 or so after the world war, and nothing changes,” added Ibrahim.The club’s track record has been mixed since Brazil, Russia, India and China launched it in 2006. For one thing, its creation has not yet altered the earlier growth-per-capita path of those four founding nations, calculated Mario Holzner of the Vienna Institute for International Economic Studies (wiiw).Moreover, the $5 billion in loans which the BRICS’ New Development Bank (NDB) expects to make this year pales next to the $72.8 billion distributed by the World Bank in credits, loans and grants. Other projects remain in their infancy.”They might be able to establish some kind of money transfer systems which at least on a low level will work but that most likely won’t really be a game-changer,” said Holzner.HEDGING BETSMany commentators also note that as the group grows, imbalances in size and influence among member countries and sometimes duelling national agendas will make consensus-building on joint initiatives harder.But those queuing up to join see it as a de facto trade forum – already accounting for a fifth of global commerce. “There is a huge upside in sort of linking these corridors,” Pakistan’s Finance Minister Muhammad Aurangzeb told Reuters on the sidelines of the IMF meeting in Washington. “So indeed, we are keen to become a member of BRICS.”While most observers doubt BRICS’ pact to launch its own payment system will challenge the dollar’s supremacy any time soon, such initiatives appeal to countries who fear their own policies might one day draw Western sanctions.”You’re kind of geopolitically cushioning yourself against future friction with the West by coming up with this alternative structure,” said Hamish Kinnear, a senior analyst at global risk intelligence firm Verisk (NASDAQ:VRSK) Maplecroft, who described BRICS as “the signal and not the cause of the changing world order”.Indeed, rather than an outright alternative to the IMF, as some have ventured, many BRICS members and aspirant joiners view it opportunistically as a vehicle for hedging bets in a world facing geopolitical change.”In light of the rise of the Global South, we should respond favorably to the calls from various countries to join BRICS…we should deepen fiscal and financial cooperation,” said Shi Yinhong, Professor at the School of International Studies at Renmin University of China, noting many BRICS members are nonetheless also nurturing their ties with the West.”We must ensure that the international financial system more effectively reflects the changes in the global economic landscape.” More

On the campaign trail, Trump has made immigration a centerpiece of his message to supporters. He has frequently discussed a range of policy actions, including a move to prevent federal agencies from granting automatic citizenship to children of those who have unlawfully entered the country.Meanwhile, Trump has promised to restore his 2019 “remain in Mexico” law, which compelled asylum-seekers of some nationalities trying to cross the US southern border to wait in Mexico until their passage is cleared. Current US President Joe Biden has since ended the program.At a rally on Oct. 13, Trump said he would ask Congress to fund an additional 10,000 Border Patrol agents, greatly expanding the existing force. Kamala Harris, Trump’s Democratic rival for president, has suggested he used his influence to kill a bipartisan border bill earlier this year which had called for 1,300 more agents.Trump has said he would attempt to detain all migrants caught crossing the border illegally or violating other immigration laws, bringing an end to what he has dubbed “catch and release.”He has also raised the possibility of using the National Guard and local law enforcement to locate and deport illegal migrants, adding that he would be willing to utilize federal troops in the process as well — a step that would likely be challenged in the courts. Speaking to the New York Times, Trump’s running mate, JD (NASDAQ:JD) Vance, said deporting 1 million immigrants per year would be “reasonable.”Although the Piper Sandler analysts said they were “skeptical” that Trump would be successful in deporting millions of immigrants due to “legal, compliance and funding reasons,” they believe his plans could plausibly slow net migration to the US by about two million people.By the analysts’ estimates, Trump’s immigration policies could subsequently subtract between 10 basis points to 40 basis points in read gross domestic product growth in 2025.According to the US Customs and Border Patrol Agency, illegal border crossings have slowed this year, putting them on pace to fall to 1.1 million from 1.7 million in 2023. Using these figures and data from the Congressional Budget Office, the analysts projected that overall net migration would come in at 2.4 million in 2024 — down from the CBO’s estimate of 3.3 million last year.(Reuters contributed reporting.) More

Europe-based rating firm Scope rates the United States AA with a negative outlook. It next reviews the rating on November 22, just over two weeks after a tight presidential election.In the note, seen by Reuters on Thursday, Scope said unless the party of the winning candidate secures majorities in both the House of Representatives and the Senate, the United States is headed for another debt-ceiling crisis in early 2025.The U.S. budget deficit grew to $1.833 trillion for fiscal 2024, the highest outside of the COVID era, the Treasury Department said on Friday.The International Monetary Fund’s fiscal chief meanwhile said on Wednesday the U.S. debt path is still sustainable and policymakers have many options to bring debt under control and an enviable combination of strong growth and easing financial conditions.Scope said that while the United States benefited from the dollar’s role as the world’s No.1 currency and the deepest capital markets globally, the widening fiscal deficit was a concern.”It is inflationary, increases risk premiums at the longer end of the yield curve and reduces private investment,” the note said. “Higher interest rates, despite recent policy rate cuts, combined with persistent budget deficits of 6% to 8% of GDP, result in rising interest payments, which are set to exceed 10% of government revenue over coming years.”Ratings agency Moody’s (NYSE:MCO), which lowered the outlook on the triple-A rated United States to “negative” from “stable” in November 2023, said last month that U.S. fiscal health was expected to deteriorate further.Scope’s note added that a win by Republican former president Donald Trump could bring an additional risk of a further weakening of U.S. institutions, including the rule of law, further politicisation of the judiciary, and a possible challenge to Federal Reserve independence – and in turn the dollar’s global reserve currency status.”These factors may test the market’s long-held view of the global role of the dollar, and thus one of the main pillars supporting the sustainability of U.S. public finances,” Scope said. More

(Reuters) – The U.S. Treasury Department said on Thursday it would allow some mining companies to access a tax credit aimed at boosting American production of solar panels, lithium-ion batteries and other clean energy components, a shift in position after industry pressure.The move reflects the growing realization in Washington that efforts to combat climate change will be moot unless the U.S. boosts its production of lithium, cobalt, and other critical minerals and curbs reliance on China and other overseas rivals.Washington last December issued proposed rules for manufacturers to access the so-called 45X tax credit, created by President Joe Biden’s 2022 climate change law, the Inflation Reduction Act, which offers a 10% production credit for U.S.-made products. Those draft rules excluded raw materials from the production costs in favor of processing. For example, the mining of lithium would not have received the credit, but the processing of that lithium into a form usable to build a battery would.The mining industry cried foul, noting that processing is impossible without first extracting a mineral. Citing “feedback from stakeholders,” the Treasury Department on Thursday reversed itself, saying that the “material costs and extraction costs” would be eligible for the tax credit under the final 45X rules, “provided certain conditions are met.””The Biden-Harris administration understands how important onshoring the production of critical minerals is to developing secure, clean energy supply chains,” Wally Adeyemo, the deputy Treasury secretary, told reporters on a call. “This will not only help incentivize additional mining, but will mean that mining that already exists is more profitable and they can make greater investments in those mines,” he said.The final rules stipulate that the credit can only be obtained once an “eligible component” is created, essentially favoring mining companies that own processing facilities. The mining would have to take place in the United States, officials said.”The action of extraction alone does not produce an eligible component,” the Treasury Department said in the final rule, which ran to 177 pages. That may help Sibanye Stillwater (NYSE:SBSW), which mines and processes palladium in Montana and had pushed for the 45X expansion to offset cutthroat Russian competition. But several proposed U.S. nickel mines, for example, would not be eligible because the U.S. does not yet have a nickel smelter.Ali Zaidi, the White House national climate adviser, gave the hypothetical example of a lithium hydroxide processor that also runs a lithium mine. That company would be eligible for a 10% per metric ton credit for the mining and another 10% per metric ton credit for the processing, he said.  “This is absolutely a game changer for our ability to lean into mineral security,” said Zaidi. The credits would begin phasing out in 2030 and end after 2032 for clean energy components. Critical mineral credits will not phase out.The National Mining Association, whose members include Lithium Americas (NYSE:LAC), ioneer Ltd and other mining companies that do not process metals, said it appreciated the updated rules but was disappointed they were linked to processing. “Treasury’s decision to limit the credit to those producers who also refine materials will prevent many important projects from benefiting from the credit as Congress intended,” said Rich Nolan, the trade group’s CEO. More

By Pete SchroederWASHINGTON (Reuters) – The chair of the Basel Committee on Banking Supervision (BCBS), the international regulatory body, on Wednesday defended its efforts to boost risk management standards and urged regulators to quickly complete the final set of Basel capital rules.Erik Thedeen, Sweden’s central bank chair who became BCBS chair in May, told financiers gathered in Washington that the committee’s work coordinating banking regulators globally is critical, and chided intense bank lobbying efforts to water down the stricter new “Basel III Endgame” capital rules. Those standards overhauling how banks gauge their risk, in turn boosting the amount of capital they must put aside to absorb losses, has faced unprecedented industry pushback in the United States, as well as resistance in Britain and the European Union which have both delayed and watered down the rules.They have argued the additional capital is unnecessary and will curb lending and hurt the economy. But Thedeen said tougher standards would strengthen the global financial system and that governments should “lock in” those benefits as soon as possible. Relief that banks might enjoy from weaker rules could carry long-term costs for lenders and the economy, said Thedeen, who also poured scorn on banks’ protests that the rules would hurt lending.”As with other areas of economic policymaking, any perceived short-term gains are usually more than offset by longer-term pain,” he told the Institute of International Finance conference, according to prepared remarks. “Shaving off a few basis points of capital will not unlock a wave of new lending, but it will weaken your resilience.”U.S. banking regulators are deadlocked on how to proceed with their version of the Basel Endgame. Michael Barr, the Fed’s top regulatory official, last month outlined an extensive overhaul of a 2023 proposal, roughly halving its capital impact, in response to industry criticism and litigation threats. But with just over two weeks to go before the presidential election that could upend U.S. regulatory leadership, that effort has not advanced due to resistance from other key officials who believe the overhaul goes too far, or does not go far enough. As several nations work to implement the Basel capital standards which they agreed to following the 2007-2009 financial crisis, Thedeen urged countries to stay consistent with one another and avoid a “free-for-all” of differing policies.Global minimum standards make it easier for international banks to operate across multiple jurisdictions, and avoids a “race to the bottom,” he argued. “We may have different opinions about Basel III, but I think we can all agree that having a globally consistent level playing field is preferable to a patchwork of disparate regulations,” he said. More

(Reuters) – International Monetary Fund Managing Director Kristalina Georgieva on Thursday warned that China’s annual economic growth could drop to “way below” 4% unless it executes reforms to lift domestic consumption.A major obstacle to improving Chinese consumer confidence is its depressed property sector, and actions should be take to address that, Georgieva said at a press briefing during the IMF’s annual meetings in Washington. More