UK national debt grew this month to its highest level as a share of the economy since 1961, according to figures released on Friday, adding to the financial issues that the new administration will face when it takes office following a general election in two weeks.

The UK national debt, excluding state-controlled banks, hit 2.742 trillion pounds ($3.47 trillion), or 99.8% of annual GDP, in May, up from 96.1% the previous year, according to the Office for National Statistics.

The increase came despite somewhat lower-than-expected government borrowing in May, which was 15.0 billion pounds, compared to experts’ median projection of 15.7 billion pounds in a Reuters survey.

Following an election on July 4, Britain appears to be on the verge of a change of government, with Keir Starmer’s Labour Party leading Prime Minister Rishi Sunak’s Conservatives in surveys.

During the COVID-19 epidemic, state debt in Britain skyrocketed, and the public finances have been hampered by poor growth and a 16-year high in Bank of England interest rates.

Western Nations Debt

Most other Western countries had significant rises in debt during the same period, although British debt levels are lower than those of the United States, France, and Italy.

A person enters the Treasury government building in London, Britain, on March 5, 2024. REUTERS/Toby Melville/File Purchase Licensing Rights opens a new tab.

Borrowing in the UK totaled 33.5 billion pounds in the first two months of the fiscal year, 0.4 billion more than the same period in 2023 but 1.5 billion pounds less than government budget estimates expected in March.

Capital Economics consultants warned that the lower-than-expected borrowing figures represented less public investment and would provide little comfort to Britain’s future finance minister.

“They do little to reduce the scale of the fiscal challenge that awaits them, in part because of the upward pressure on the debt interest bill from higher interest rates,” said Alex Kerr, an assistant economist at Capital Economics.

Labour and the Conservatives want to keep to existing budget rules that require official estimates – most recently updated in March – to indicate that debt as a proportion of GDP is dropping in the fifth year of the forecast.

Higher interest rates than projected in March’s budget left Britain’s next chancellor with only 8.5 billion pounds of freedom to meet these standards, down from the historically low 8.9 billion in March, Kerr noted.

Both Labour and the Conservatives have committed not to raise income tax, value-added tax, or other major levies, but government budget predictions in March revealed that tax as a percentage of GDP was on track to hit its highest level since 1948.

Source: Reuters

Canada’s Household Debt Nears $3 Trillion Under Trudeau

Canada’s Household Debt Nears $3 Trillion Under Trudeau

The Bank of England maintained its main interest rate at a 16-year high of 5.25% on Thursday, despite inflation falling to its target of 2%, with several policymakers warning that a premature decrease may spark another wave of price increases.

Seven of the nine members of the bank’s ruling Monetary Policy Committee voted against a rate drop for the second week in a row, while two supported one. Interest rates have been constant since August, following a series of rises.

The statement accompanying the vote made it plain that there was disagreement on the forecast for inflation, with some expressing concern about continued significant price increases in the services sector, the key driver of the British economy.

“It’s good news that inflation has returned to our 2% target,” said Bank of England Governor Andrew Bailey, who voted to maintain current policy. “We need to be sure that inflation will stay low and that’s why we’ve decided to hold rates at 5.25% for now.”

The decision will likely dismay the ruling Conservative Party ahead of the United Kingdom’s general election in two weeks. Prime Minister Rishi Sunak would have seen a cut as good economic news, especially if it came with a drop in mortgage rates.

Upcoming UK Election

The panel maintained that the upcoming election, which the main opposition Labour Party, led by Keir Starmer, is generally expected to win, did not influence its conclusion. It stated that the decision was, as always, based on meeting the 2% inflation objective “sustainably in the medium term.”

Economists anticipate a rate decrease is on the way, either at the bank’s next policy making meeting in August or the one following in September. They expect clear evidence by then that inflation will remain close to the target for the next year or two.

“We continue to believe that the MPC will ease restrictive policy beginning in the summer and deliver two rate cuts this year,” said Sanjay Raja, Deutsche Bank’s senior U.K. economist.

The reduction in the primary inflation measure to a near three-year low of 2% in the year to May does not imply that prices are falling; rather, they are rising at a slower rate than they have in recent years during a cost-of-living crisis that has resulted in reduced living standards for millions in Britain.

Central banks worldwide dramatically increased borrowing costs from the lows seen during the coronavirus pandemic, when prices began to rise, first due to supply chain issues accumulated during the pandemic and then due to Russia’s invasion of Ukraine, which pushed up energy costs.

Bank of England unduly cautious

Higher interest rates, which cool the economy by making borrowing more expensive, have helped to reduce inflation, but they have also weighed on the British economy, which has hardly expanded since the pandemic’s recovery.

Critics of the Bank of England argue that it is unduly cautious about inflation and that keeping interest rates too high for too long will put undue strain on the economy. It is an accusation that has also been leveled at the United States Federal Reserve, which has held interest rates constant in recent months.

“Given that the U.K. has moved onto a milder inflationary trajectory, rate setters remain overly cautious about the likelihood of loosening policy, risking impeding the U.K.‘s growth prospects,” said Suren Thiru, economics director at The Institute of Chartered Accountants in England and Wales.

Some central banks, like the European Central Bank, have begun to decrease interest rates as inflationary pressures have subsided. On Thursday, the Swiss National Bank cut its main interest rate by a quarter of a percentage point to 1.25%.

Source: The Associated Press

This week, new government data revealed that food costs in Canada are still rising as a result of Prime Minister Trudeau’s carbon tax. On April 1, 2024, Trudeau increased the carbon price by another 23 percent.

Trudeau’s carbon tax has forced Canadians to choose between heating their homes and putting food on the table; an average family of four will spend $700 more on groceries in 2024 than last year.

Though year-over-year consumer price inflation fell to 3.8% in September, food prices rose 5.8%, owing to increases in bakery items (up 8%), fresh vegetables (7.6%), pasta products (10.8%), and chicken (6.5%).

Canadians have long been dissatisfied with food prices. Even before 2023, figures showed that approximately 7 million Canadians, including 1.8 million children, lived in households trying to put food on the table. As inflation continued to drive food costs higher in 2023, customer discontent grew.

Last month, Trudeau threatened grocery chains with extra taxes if they did not find a way to reduce food prices.

“Large grocery chains are experiencing historic profits. “Those profits should not be made at the expense of people who are struggling to feed their families,” Trudeau stated.

By focusing on grocers and “record profits,” Trudeau is echoing the rhetoric of some US politicians who claim that inflation is fuelled by “corporate greed.”

The notion that firms suddenly became greedy in the aftermath of the epidemic did not pass the economic smell test, and it was recently refuted in a Federal Reserve report. “Corporate profit margins were not abnormally high in the aftermath of the COVID-19 pandemic,” according to Jon Miltimore from Fee.Org.

Trudeau threatens more tax

However, politicians, particularly Trudeau, who less than a year ago attacked the concept of imposing a windfall tax on grocery stores to reduce food costs, have repeatedly claimed that greedy corporations are the main source of inflation.

However, Trudeau bears primary responsibility for this tremendous inflation.

Pierre Poilievre, the leader of Canada’s Conservative Party, hit the nail on the head when he stated that the Canadian government’s policies, as well as people who lead it, are responsible for inflation.

“[Justin Trudeau] prints $600 billion, grows our money supply by 32% in three years,” stated Poilievre. “That means the money is increasing eight times faster than the GDP. No wonder we’ve seen the worst inflation in four decades.”

Trudeau flooded the economy with printed money, devaluing the Canadian dollar.

Economics 101 explains that expanding the money supply faster than an economy can produce new products and services causes price inflation, which is exactly what has occurred in Canada.

Inflation is the increase in the supply of money and credit. Its main effect is rising costs,” Poilievre explains. “Therefore inflation — if we misuse the term to mean the rising prices themselves — is caused solely by printing more money.”

Trudeau’s nasty deception

Trudeau, of course, cannot say that their own policies and money printing are to blame for rising food costs. So they give speeches condemning grocery stores and food manufacturers for the inflation they generated and threatening them with new taxes.

It’s questionable whether Canadians will see through Trudeau’s nasty deception. What is evident is that Canadian merchants are not responsible for Canada’s increasing food prices. Justin Trudeau and the Bank of Canada are.

Meanwhile, Justin Trudeau and the Liberals continue to oppose the common-sense Conservative measure, C-234, which would save Canadian farmers billions of dollars in carbon taxes and bring relief to families at the grocery store.

Trudeau’s carbon price has caused Canadians to choose between heating their homes and feeding their families. However, it is evident that the carbon tax has done virtually nothing to combat climate change.

According to the Climate Change Performance Index, Canada now ranks 62 out of 67 countries, a four-place dip from last year. That is because the carbon tax is a tax strategy rather than an environmental one.

It is evident that Trudeau must reverse this ineffective tax increase on Canadians. Only common sense Conservatives would reduce prices by eliminating the tax on everything for everyone.

By Geoff Thomas

Canada’s Liberal Party Facing Political Oblivion Under Justin Trudeau

Canada’s Liberal Party Facing Political Oblivion Under Justin Trudeau