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    Brexit Turns 3. Why Is No One Wearing a Party Hat?

    The divorce between Britain and the European Union has become the dark thread that, to many, explains why Britain is suffering more than its neighbors.LONDON — The third anniversary of Britain’s departure from the European Union passed without fanfare on Tuesday, and why not? Brexit has faded from the political forefront, unmentioned by politicians who don’t want to touch it and overlooked by a public that cares more about the country’s economic crisis.The severity of that crisis was underscored by the International Monetary Fund, which forecast this week that Britain will be the world’s only major economy to contract in 2023, performing even worse than heavily blacklisted Russia.The I.M.F. only indirectly attributed some of Britain’s woes to Brexit, noting that it suffered from a very tight labor market, which had constrained output. Brexit has aggravated those shortages by choking off the pipeline of workers from the European Union — whether waiters in London restaurants or fruit and vegetable pickers in fields.The effects of Brexit run through Britain’s last-in-class economy because they also run through its divided, exhausted politics. In a country grappling with the same energy shocks and inflation pressures that afflict the rest of Europe, Brexit is the dark thread that, to some critics, explains why Britain is suffering more than its neighbors.“One of the reasons for our current economic weakness is Brexit,” said Anand Menon, a professor of West European politics at King’s College London. “It’s not the main reason. But everything has become so politicized that the economic debate is carried out through political shibboleths.”Years of debate over Brexit, he said, had contributed to a kind of policy paralysis. “If you look at it, it is astounding how little actual governing has happened since 2016,” Professor Menon said. “It has been seven years, and virtually nothing has been done on a governmental level to fix the country’s problems.”Inflation, though it has eased slightly, continues to run at a double-digit rate.Neil Hall/EPA, via ShutterstockThose problems continue to proliferate. Inflation, though it has eased slightly, continues to run at a double-digit rate. Britain’s National Health Service is facing the gravest crisis in its history, with overcrowded hospitals and hourslong waits for ambulances. On Wednesday, Britain will face its largest coordinated strikes in a decade, with teachers, railway workers and civil servants walking off the job.Not all these problems are wholly, or even principally, a result of Brexit. But tackling any of them, experts said, will require bolder solutions than the government of Prime Minister Rishi Sunak has yet proposed. Owing largely to Brexit, Mr. Sunak’s Conservative Party remains torn by factions that thwart action on issues from urban planning to a new relationship with the European Union.Part of the problem, experts said, is that the neither the government nor the opposition Labour Party is prepared to acknowledge the negative effects Brexit has had on the economy. The government may not ring the bell of Big Ben to celebrate the anniversary, as it did on Brexit day in 2020. But to the extent that Mr. Sunak refers to Brexit, he still portrays it as an undiluted boon to the country.“In the three years since leaving the E.U., we’ve made huge strides in harnessing the freedoms unlocked by Brexit,” Mr. Sunak said in a statement marking the anniversary. “Whether leading Europe’s fastest vaccine rollout, striking trade deals with over 70 countries or taking back control of our borders, we’ve forged a path as an independent nation with confidence.”A protest on Monday against a proposed bill to limit strikes outside Downing Street in London.Andy Rain/EPA, via ShutterstockHis predecessor, Boris Johnson, also cited the early authorization and rapid deployment of a coronavirus vaccine as proof of Brexit’s value — never mind that health experts said Britain would have had the authority to approve a vaccine before its neighbors, even if it had been part of the European Union.“Let’s shrug off all this negativity and gloom-mongering that I hear about Brexit,” Mr. Johnson said in a video posted on Twitter on Tuesday afternoon. “Let’s remember the opportunities that lie ahead, and the vaccine rollout proves it.”There is little evidence that Mr. Sunak and Mr. Johnson are convincing many people. Public opinion has turned sharply against Brexit: Fifty-six percent of those surveyed thought leaving the European Union was a mistake, according to a poll in November by the firm YouGov, while only 32 percent thought it was a good idea.And the sense of disillusion is nationwide. In all but three of Britain’s 632 parliamentary constituencies, more people now agree than disagree with the statement, “Britain was wrong to leave the E.U,” according to a poll released Monday by the news website, UnHerd, and the research firm, Focaldata.The three holdouts are agricultural areas around Boston and Skegness on the country’s eastern coastline, where immigration is still a resonant issue. And even in these places, public opinion about Brexit is finely balanced.At the same time, few people express a desire to open a debate over whether to rejoin the European Union. The prospects of doing that on terms that would be remotely acceptable to either side are, for the moment, far-fetched. The Labour leader, Keir Starmer, prefers to frame his party’s message as “Making Brexit Work,” having lost an election to the Tories in 2019, whose slogan was “Get Brexit Done.”The chief executive of the N.H.S., Amanda Pritchard, from left, with Prime Minister Rishi Sunak of Britain. They were visiting the University Hospital of North Tees in Stockton-on-Tees.Pool photo by Phil NobleBritain’s problems are exacerbated by the fact that the one leader who proposed radical remedies, Liz Truss, triggered such a backlash in the financial markets that she was forced out of office in 45 days. To restore the country’s reputation with investors, Mr. Sunak has scrapped her tax cuts and adopted a fiscally austere program of higher taxes and spending cuts that the I.M.F. says will curb growth.“Although we no longer have lunatics running the asylum, we have essentially a lame-duck government that doesn’t have any semblance of a plan to restore economic growth,” said Jonathan Portes, a professor of economics at King’s College London.The trouble is that the bitter squabbling over Brexit has made obvious responses politically perilous for the prime minister. Even the I.M.F.’s projection for Britain’s growth ignited a storm of commentary on social media about whether it would help the cause of “Remainers” or reopen the Brexit debate.The fund’s assessment was not completely gloomy despite its prediction of contraction in 2023. Britain, it estimated, grew faster than Germany or France last year. After inflation cools and the burden of higher taxes eases, it said, Britain should return to modest growth in 2024.Professor Portes said that there were policies Mr. Sunak could pursue, from liberalizing planning laws to overhauling immigration rules to ease the labor shortage, that would stimulate growth. “If you put all those together,” he said, “there is a reasonable, feasible strategy that could make the next 10 years better than the last.”But he added, “Any coherent strategy involves repairing the economic relationship with Europe, and that will depend on the political dynamic.” More

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    U.S. Wages Grew More Slowly Than Expected Late Last Year

    The Employment Cost Index, which Federal Reserve officials watch closely as a gauge of pay trends, is picking up more slowly.A measure of pay and benefits that the Federal Reserve has been watching closely amid a strong labor market rose less than expected at the end of 2022, fresh data showed Tuesday.The Employment Cost Index climbed 1 percent in the final quarter of 2022 versus the prior three months, more slowly than the 1.1 percent that economists expected and a slowdown from the previous 1.2 percent reading.The data will probably reaffirm to central bankers that the economy and labor market are cooling, which could help inflation return to normal over time. While wage gains are still faster than normal, the moderation could help central bankers feel comfortable as they adjust interest rates less aggressively than they did throughout 2022.The employment cost measure picked up by 5.1 percent on a yearly basis, close to the 5 percent reading in the previous quarter’s report. In the decade leading up to the pandemic, the index averaged 2.2 percent yearly gains, underscoring the continued rapidness of today’s pace. But a measure of private-sector wages not including benefits, which economists see as a particularly good indicator of labor market tightness, slowed slightly.Fed officials are closely watching the labor market — and wages in particular — as they try to gauge how much further they have to go in their campaign against stubbornly high inflation. While goods price increases that are tied to supply chain snarls are beginning to fade, central bankers are worried that rapid pay gains could keep services costs rising rapidly. Labor is a big expense for service companies, like hotels and restaurants, and firms might pass higher wage costs on to customers in the form of higher prices. Bigger paychecks could also help sustain consumer demand, keeping pressure on prices.The Fed’s next interest-rate decision will be announced on Wednesday. Central bankers are widely expected to raise rates by a quarter of a percentage point, after raising them by three-quarters of a point per meeting for much of 2022 and by half a point at their last gathering, in December.The new adjustment would push rates up to a range of 4.5 to 4.75 percent. The question now is how many more moves the Fed will make — and how long policymakers will hold interest rates at a high level.Steeper borrowing costs deter consumers from making big purchases and businesses from expanding, which can slow the economy and weaken the labor market. Fed officials are hoping that they can cool the economy by just enough to allow supply and demand to come back into balance — causing inflation to moderate — without causing a punishing recession. But they have been clear that they are willing to accept some pain to bring price increases back under control.And they have underlined that they think the labor market needs to slow down to put inflation on a more sustainable path.“We want strong wage increases,” Jerome H. Powell, the Fed chair, said at his last news conference in December. “We just want them to be at a level that’s consistent with 2 percent inflation,” he said, referring to the Fed’s target inflation rate.For now, America’s rate of price increases remains much faster, at 5 percent.Mr. Powell will give another news conference on Wednesday, after the release of the Fed’s rate decision at 2 p.m. Eastern time. More

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    Falling Used-Car Demand Puts Pressure on Carvana and Other Dealers

    Dealerships are seeing sales and prices drop as consumers tighten their belts, putting financial pressure on companies like Carvana that grew fast in recent years.About a year ago, the used-car business was a rollicking party. The coronavirus pandemic and a global semiconductor shortage forced automakers to stop or slow production of new cars and trucks, pushing consumers to used-car lots. Prices for pre-owned vehicles surged.Now, the used-car business is suffering a brutal hangover. Americans, especially people on tight budgets, are buying fewer cars as interest rates rise and fears of a recession grow. And improved auto production has eased the shortage of new vehicles.As a result, sales and prices of used cars are falling and the auto dealers that specialize in them are hurting.“After a huge run up in 2021, last year was a reality check,” Chris Frey, senior manager of economic and industry insights at Cox Automotive, a market research firm. “The used market now faces a challenging year as demand weakens.”According to Cox, used-car values fell 14 percent in 2022 and are expected to fall more than 4 percent this year. That shift means many dealers may have no choice but to sell some vehicles for less than they paid.The industry’s difficulties have been exemplified by Carvana, which sells cars online and became famous for building “vending machine” towers where cars can be picked up. The company recently reported a quarterly loss of more than $500 million, and has laid off 4,000 employees.In the last 12 months, Carvana piled up debt. Its stock price has fallen by more than 95 percent in the last 12 months, and three states temporarily suspended its operating license after consumer complaints.“We think there’s a decent chance the company will end up having to file for bankruptcy protection,” said Seth Basham, an Wedbush analyst. “They have too much debt for the level of sales and profitability and can’t support that debt load, and likely will need to restructure.”In a statement to The New York Times, Carvana said it was confident it had “sufficient” funds to turn its business around, noting the company had $2 billion in cash and an additional $2 billion in “other liquidity resources” at the end of the third quarter.It has also hired the investment bank Moelis & Company and is working to reduce its inventory of vehicles and cut the cost of reconditioning them.Used-car values fell 14 percent in 2022. Some dealers may have no choice but to sell some vehicles for less than they paid.An Rong Xu for The New York Times“Millions of satisfied customers have responded positively to Carvana’s e-commerce model for buying and selling cars,” the company said. “Although the current environment and market has drawn attention to the near term, we continued to gain market share in the third quarter of 2022, and we remain focused on our plan to drive to profitability.”CarMax, another used-car giant, is also hurting, although it is on much steadier ground. In the three months that ended in November, its vehicle sales fell 21 percent to 180,000, and net income tumbled 86 percent, to $37.6 million.Inflation F.A.Q.Card 1 of 5What is inflation? More

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    Smaller Rate Increase by Federal Reserve Likely as Inflation Cools

    America’s central bank is expected to raise rates by a quarter point on Wednesday. The question now is what comes next.Federal Reserve officials are widely expected to raise interest rates by a quarter point at their meeting this week, further slowing what had been an aggressive pace of rate increases in 2022 as they wait to see how swiftly inflation will fade.Moving gradually will give Fed officials more time to assess how high rates need to rise and how long they need to stay elevated to fully wrangle inflation, both of which are looming and crucial questions. The answers will help to determine how much damage the Fed inflicts on the labor market and broader economy in its quest to control price increases.Central bankers raised interest rates from near zero to above 4.25 percent last year, and they are expected to lift rates to a range of 4.5 to 4.75 percent on Wednesday. Investors will be even more attuned to what may come next, and will parse the Fed’s 2 p.m. statement and the subsequent news conference by the Fed chair Jerome H. Powell for clues about the future.Fed officials predicted in December that they would lift rates to just above 5 percent in 2023, then hold them at a high level throughout the year. But incoming data will drive how high the Fed raises rates and how long they keep them at that level.Since the Fed’s last decision, inflation has meaningfully slowed, and data on the economy show that consumers are becoming more cautious and beginning to spend less. Anecdotes suggest that shoppers may be more sensitive to prices, which would make it more difficult for companies to continue passing along big price increases. At the same time, the job market remains very strong, and economists and central bankers have warned that a re-acceleration in growth and inflation remains possible. That is likely to keep the Fed wary of prematurely declaring victory over inflation.“They’re going to stay vigilant on inflation — I don’t think they’re going to break out the ‘mission accomplished’ banner just yet,” said Gennadiy Goldberg, a rates strategist at T.D. Securities. “If they don’t send the signal that they really want to get inflation under control, the market could over-interpret that as a signal that they’re done. That’s not the message they want to send.”Wall Street will be focused on one word in particular in the Fed’s policy statement: “ongoing.” In recent months, central bankers have stated that “ongoing increases in the target range will be appropriate.”Inflation F.A.Q.Card 1 of 5What is inflation? More

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    Consumer Spending Fell Again in December

    Fresh data offered more detail on how shoppers retrenched at the end of 2022.For more than a year now, the U.S. economy has faced two fundamental, interwoven challenges: Consumers wouldn’t stop spending, and prices wouldn’t stop rising.Both trends are now showing early signs of reversing.Consumer spending fell in both November and December, the Commerce Department said on Friday, as shoppers pulled back amid rising prices, dwindling savings and warnings of a looming recession.Inflation is also easing: Consumer prices rose 5 percent in the year through December, according to the Federal Reserve’s preferred measure. While still much more rapid than normal, that was the slowest pace in more than a year.Taken together, the figures paint a picture of an economy that is, at long last, coming off the boil. From the Fed’s perspective, that is good news: The central bank has spent the past year aggressively raising interest rates in an effort to force consumers and businesses alike to pull back their spending, which should result in slower price increases. Now there is mounting evidence those efforts are bearing fruit.“The medicine is taking,” said Sarah Watt House, senior economist at Wells Fargo. “The economy is on the right path.”That path is an uncertain and narrow one, however. So far, the Fed has managed to cool down the economy without short-circuiting the recovery and causing a big increase in unemployment. But the full effects of its actions have yet to be felt.Policymakers are expected to raise rates by another quarter point at their meeting next week, a move that would put rates in a range of 4.5 to 4.75 percent. Even once they stop raising rates, the central bank has indicated it expects to keep borrowing costs high for a significant period.Inflation F.A.Q.Card 1 of 5What is inflation? More

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    A Closely Watched Measure of Inflation Slowed in December

    The Personal Consumption Expenditures price index climbed 5 percent from a year earlier, slower than the reading last month.The Federal Reserve’s preferred inflation index climbed 5 percent in the year through December, a notable slowdown from November and a continuation of a six-month downward trend.After stripping out food and fuel, the price index climbed 4.4 percent compared with a year earlier, in line with what economists in a Bloomberg survey had expected and a slowdown from 4.7 percent in November.The overall picture is one of moderating inflation — providing some long-awaited relief for consumers — but which remains unusually rapid at more than twice the 2 percent rate the Fed aims for on average over time.Central bankers are raising interest rates to make it more expensive to borrow money to make a major investment or finance a business expansion, hoping to cool demand enough that it drives price increases lower. Policymakers lifted their main policy rate from near-zero to more than 4.25 percent last year, and they are widely expected to raise it another quarter point in their decision on Feb. 1.The Fed is deciding when to stop its rate increases and how long to leave them high — decisions that it has said will be influenced by incoming data on inflation and the broader economy. That focuses attention on figures like the one released on Friday.“It will take time for supply and demand to come back into proper alignment and balance, so we must keep moving,” John C. Williams, the president of the Federal Reserve Bank of New York, said last week.The Fed is also keeping an eye on measures of economic activity, including consumer spending and the labor market. While layoffs at big technology companies have been grabbing headlines in recent weeks, jobless claims remain very low and the unemployment rate is at the lowest level in half a century.That is expected to change this year. As the Fed’s interest rate increases kick in fully, economists at the central bank and on Wall Street expect the U.S. economy to slow and for unemployment to tick higher. Officials are hoping that they can pull off the slowdown without tipping the economy into an outright recession, but there is no guarantee. More

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    U.S. Economy Grew at 2.9% Annual Rate in Fourth Quarter

    The continued growth in the fourth quarter showed the resilience of consumers and businesses in the face of rising inflation and interest rates.The economy remained resilient last year in the face of inflation, war and a Federal Reserve intent on curbing the pace of growth.A repeat performance in 2023 is far from guaranteed.U.S. gross domestic product, when adjusted for inflation, increased at an annual rate of 2.9 percent in the fourth quarter of 2022, the Commerce Department said on Thursday. That was down from 3.2 percent in the third quarter, but nonetheless a solid end to a topsy-turvy year in which the economy contracted in the first six months, prompting talk of a recession, only to rebound in the second half.Beneath the quarterly ups and downs is a simpler story, economists said: The recovery from the pandemic recession has slowed from the frenetic pace of 2021, but it has retained momentum thanks to a red-hot job market and trillions of dollars in pent-up savings that allowed Americans to weather rapidly rising prices. Over the year as a whole, as measured from the fourth quarter a year earlier, G.D.P. grew 1 percent, down sharply from 5.7 percent growth in 2021.“2020 was the pandemic; 2021 was the bounce-back from the pandemic; 2022 was a transition year,” said Jay Bryson, chief economist for Wells Fargo.The question is, a transition to what? Mr. Bryson, like many economists, expects a recession to begin sometime this year, as the effects of higher interest rates ripple through the economy.The initial rebound from the pandemic recession was much stronger in the United States than it was in much of the rest of the world. The gap widened last year as the war in Ukraine threatened to push Europe into a recession and the strict Covid suppression policies in China constrained growth there.But the U.S. economy faces fresh challenges in 2023. Inflation remains too high by many measures, and the Fed is expected to continue increasing rates in an effort to bring prices under control. A congressional showdown over raising the debt ceiling could cause further turmoil in financial markets — or a crisis if lawmakers fail to reach a deal.Inflation F.A.Q.Card 1 of 5What is inflation? More