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UK government scraps spending plans as Covid woes deepen
Boris Johnson’s hopes of regaining the political initiative in the UK and mapping out his priorities for a post-Covid-19 world have been dashed by the deepening economic crisis.
The Treasury confirmed on Wednesday that a proposed three-year comprehensive spending review had been scrapped in favour of a one-year one.
The decision to delay the spending review has been a source of tension between the chancellor Rishi Sunak and the prime minister over the past week as the country teeters on the edge of further lockdowns.
Last month Mr Sunak, who is increasingly seen as a possible successor to the PM, was also forced to scrap plans for an autumn Budget because of a resurgence of coronavirus that has thrown economic planning into chaos.
Wednesday’s confirmation that the three-year spending review will not go ahead is the latest sign of chaos surrounding the government’s response to the pandemic. As the Financial Times reveals today, the disease has also exposed tensions between Downing Street and the devolved governments of Scotland, Wales and Northern Ireland.
The pandemic has presented the government in London with a unique challenge: a UK-wide crisis with no respect for borders but in an area where policy was not controlled from the centre. Crucially, the four governments of the UK are controlled by five different political parties.
As the UK government’s borrowing reaches record levels, the latest part of our series Coronavirus: Could the world have been spared? investigates the tensions and disputes at the heart of Mr Johnson’s muddled response to the pandemic and explores the policy responses needed to hold the union together.
US technology stocks rallied and the dollar weakened on Wednesday, as US Democrats and Republicans inched closer to agreeing a second major fiscal stimulus for the world’s largest economy. The tech-heavy Nasdaq Composite rose 0.7 per cent while the broader-based S&P 500 gained 0.5 per cent in early trading in New York. The dollar index, a measure of the US currency against six peers, slipped 0.4 per cent to the lowest level since early September.
China’s renminbi has hit its strongest level in more than two years, fuelling expectations Beijing will move to arrest the appreciation in the currency prompted by the country’s robust recovery from the coronavirus crisis.
The renminbi gained as much as 0.5 per cent to Rmb6.64 against the dollar in trade within mainland China on Wednesday, marking its highest level in relation to the US currency since July 2018. Strategists said the renminbi’s push past Rmb6.65 and the vigorous pace of its appreciation could foster unease among policymakers in Beijing because it makes exports more expensive.
The EU reported huge demand for an issue of new coronavirus-related bonds on Tuesday. The €17bn sale forms the start of a borrowing binge that will make Brussels one of the region’s biggest debt issuers. Buyers — who placed bids of more than €233bn — were drawn by the relatively high yields on the bonds, which came with 10-year and 20-year maturities, and offered more income for investors than the eurozone’s safest government debt.
City centres have become ghost towns during this pandemic and London — with its high-rise office blocks and dependency on financial services — has been among the hardest-hit. The response of the City of London Corporation — which governs the UK’s financial capital — is to reinvent the City. It plans to draw small businesses and the arts back into the area, wants a fifth of office tenants to be new by 2025, and plans to decrease its reliance on commuters.
The boost Netflix has received from lockdown life has come to an end. Subscriber growth at the streaming service slowed dramatically in the third quarter. It added just 2.2m subscribers in the three months to the end of September — compared with 26m in the previous two quarters. Moreover, most of its growth came from outside its home market. Yet, as the Lex column points out, the competition is flailing. HBO is plagued by a huge debt burden and Disney’s theme parks and movie business has been hammered by the pandemic.
The pandemic is driving companies’ use of technology, particularly robotics and automation. In the US, Japan, China and Europe sales of industrial robots are rapidly increasing, bucking the overall downward trend in global trade. The pandemic is “a real boost for digital factory technologies”, said Patrick Schwarzkopf of the International Federation of Robotics. The IFR expects the number of professional services robots in operation around the world to rise 38 per cent this year, helped particularly by demand from logistics companies but also medical and cleaning groups.
Beijing is using vaccine development as a new diplomatic tool to bolster relations with nations neglected by the US. China, which has four vaccines in phase-3 trials, is promising them to countries across Asia, Africa and Latin America. It has already pledged that Malaysia, Thailand, Cambodia and Laos will be among “priority” recipients of Chinese vaccines. Beijing is determined that “vaccine diplomacy” succeeds where “mask diplomacy” failed, said one expert.
The debilitating symptoms of “long Covid” suffered by patients can be replicated in the economy, writes Martin Wolf. To meet this threat governments have to spend and avoid repeating the mistakes of the 2008 financial crisis when fiscal support was withdrawn too soon. “History will judge policymakers harshly if those with room to do so do not rise to the occasion,” he concludes.
The cost of shipping goods from Asia to the US has soared in the past month as American companies seek to restock depleted inventories ahead of the holiday season and prepare for the pandemic to worsen over the winter. According to international shipping association Bimco, long-term shipping rates between China and the west coast of America jumped 12.7 per cent over the weekend and are more than 60 per cent higher than on the same day in 2019. Prices from Asia to the US east coast are 25 per cent higher than this time last year.
While coronavirus infections have been surging again across Europe since late summer, the chances of surviving the respiratory disease seem to have improved from the first phase of the outbreak. The number of Covid-19 patients ill enough to go to hospital has risen less steeply — and mortality more slowly still, according to an FT analysis. The falling “case fatality rate” can partly be explained by increased testing and a higher percentage of young people contracting Covid-19. But even patients admitted to critical care are more likely to survive now than their counterparts earlier in the pandemic, our research shows.
Tell us what you think
How is your workplace dealing with the pandemic? How are you dealing with it as a professional or a manager? And what do you think business and markets — and our daily lives — will look like after we eventually emerge? Also — tell us what you think about this newsletter and how we can make it more useful to you. Email us at email@example.com. We may publish your contribution in an upcoming newsletter. Thanks.
In response to Chinese officials downplayed coronavirus risks, reader Italian expat writes:
China made many mistakes at the start of the pandemic because of their political system. But I doubt this caused the mayhem that we have witnessed in recent months in too many countries.
I expect to be made redundant. How do I prepare? This is the latest question for our careers adviser Jonathan Black from a civil servant whose department is facing restructuring. “I have been there for decades and am worried I have become institutionalised at work. How can I change my mindset to de-institutionalise myself?” writes the correspondent. Mr Black, who is director of the careers service at the University of Oxford, will give his answer on Monday.
“It is hard to convey the sheer size and majesty of these titans,” writes Hugh Carnegy, recalling the wonder of California’s redwood forests for the series: Wish I were there. The state’s coast redwoods are the tallest living trees on earth and at 2,000 years old, some of the most ancient. Industrial logging in the 19th and 20th centuries almost destroyed these magnificent trees. But, as Hugh reveals, their unique flame-resistant properties have helped protect them against this year’s fires.