In a statement, the bank’s nine-member Monetary Policy Committee lowered its main interest rate by a quarter of a percentage point to 4.50%, taking it to its lowest level since mid-2023.

That decision was widely expected in financial markets.

What wasn’t expected was the scale of the growth downgrade in the bank’s accompanying economic forecasts. The bank now predicts that the British economy will only grow by 0.75% this year, down from its previous forecast of 1.5% just three months ago.

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Source: https://apnews.com/article/britain-economy-interest-rates-inflation-bank-england-cecd754e6ff0f85dd33dba65813584eb

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The central bank warned that crumbling confidence in the economy posed a “material risk to U.K. financial stability,” while the International Monetary Fund took the rare step to urge a member of the Group of Seven advanced economies to abandon its plan to cut taxes and increase borrowing to cover the cost.

The Bank of England said it would buy long-term government bonds over the next two weeks to combat a recent slide in British financial assets. The bank’s actions are focused on long-term government debt, where yields have soared in recent days, pushing up government borrowing costs.

“Were dysfunction in this market to continue or worsen, there would be a material risk to U.K. financial stability,″ the bank said in a statement. “This would lead to an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy.″

The move came five days after Prime Minister Liz Truss’ new government sparked investor concern when it unveiled an economic stimulus program that included 45 billion pounds ($48 billion) of tax cuts and no spending reductions. It also wants to spend billions to help shield homes and businesses from soaring energy price s, sparking fears of spiraling government debt and higher inflation, which is already running at a nearly 40-year high of 9.9%.

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Source: https://apnews.com/article/inflation-economic-growth-international-monetary-fund-b6346608fbee3742ed95275136092b03

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The Bank of England building. Photograph: Ray Tang/REX/Shutterstock

The Bank of England has said Britain’s economy is recovering more quickly than initially feared from the coronavirus pandemic as consumer spending rises, despite the warning of significant risks to jobs and growth.

Leaving interest rates on hold at a record low of 0.1%, Threadneedle Street said Britain’s economy would shrink by a fifth in the first half of this year as a result of lockdown measures imposed in March. Against a backdrop of rapidly rising job losses across the country, it also warned unemployment would double by the end of the year.

However, it said the early signs for the economy as lockdown measures are gradually relaxed were more promising than it had previously anticipated, as consumer spending bounces back close to pre-pandemic levels.

Suggesting the scale of the shock to the economy could be smaller than first feared, the Bank said it expected GDP to plunge by 9.5% this year – the worst performance in 99 years. Threadneedle Street had previously warned that GDP could collapse by 14% this year in the biggest economic shock for three centuries.

Despite the rosy forecast contained in its regular monetary policy report, it warned Britain’s economy would take until the end of 2021 to regain the level of GDP recorded at the end of 2019 before the pandemic struck, and that there were serious risks to its assessment because of the continuing health risks from Covid-19 and the risk of a second wave in infections.

Andrew Bailey, the Bank’s governor, said: “The outlook for the UK and global economies remains unusually uncertain. It will depend critically on the evolution of the pandemic, measures taken to protect public health, and how governments, households, and businesses respond to these.”

Source: https://www.theguardian.com/business/2020/aug/06/bank-of-england-says-uk-economy-recovering-faster-than-first-feared

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Venezuela’s President Nicolas Maduro speaks during a news conference at Miraflores Palace in Caracas, Venezuela, March 12, 2020.Manaure Quintero / Reuters

LONDON—A British judge on Thursday refused to give Venezuela’s Nicolás Maduro control of over $1 billion in gold sitting in a Bank of England vault, ruling that it is unlawful to give it to the socialist leader since Britain does not recognize him as president of the Latin American nation.

Maduro has demanded the gold to help his cash-starved nation fight the coronavirus pandemic. But the central bank for the United Kingdom, whose government recognizes Venezuelan opposition leader Juan Guaidó as his country’s legitimate leader, had refused to hand it over to Maduro’s socialist administration.

The ruling clarifies the question of who is Venezuela’s legitimate leader — at least in the eyes of one world power.

Guaidó has sought to preserve the gold stash at the Bank of England to keep it out of the hands of the Maduro government, which it contends is illegitimate and corrupt. His lawyers reiterated during a recent four-day hearing their stance that the National Assembly leader became Venezuela’s rightful leader under provisions of the country’s constitution.

The dispute hinged on the British stance toward Venezuela, a country in economic and political crisis where both Maduro and Guaidó have been claiming presidential powers for more than a year.

Venezuela’s Central Bank sought to release the gold, which it says now that it wants to sell for food and medical equipment that is desperately needed to tackle the COVID-19 pandemic. But it had also sought the gold before the pandemic began.

A lawyer representing Maduro’s side promised to appeal. Sarosh Zaiwalla said in a statement that the judgment “entirely ignores the reality of the situation on the ground” in Venezuela.

“Mr. Maduro’s government is in complete control of Venezuela and its administrative institutions, and only it can ensure the distribution of the humanitarian relief and medical supplies needed to combat the coronavirus pandemic,” he said. “This outcome will now delay matters further, to the detriment of the Venezuelan people whose lives are at risk.”

The U.K. recognizes the claim of Guaidó, who heads Venezuela’s congress, as does the United States and about five dozen other governments. Guaidó proclaimed himself the interim president in early 2019, months after Maduro declared victory in an election that his critics say was rigged in his favor.

Despite its support for Guaidó, the U.K. continues to have diplomatic ties with Maduro’s government. The British have not granted diplomatic credentials to the envoy that Guaidó has named ambassador to the U.K.

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Source: https://www.nbcnews.com/news/latino/venezuela-s-nicol-s-maduro-denied-control-gold-london-bank-n1232759

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It’s that sensitivity that thrust the wildly successful investor, political activist, and philanthropist into the limelight for making over a billion dollars by shorting the British pound back in 1992, having correctly predicted that the Bank of England wouldn’t be able to defend itself from an attack in currency markets. Later, his understanding that markets aren’t self-correcting helped him navigate the thorny markets in the aftermath of the 2008 global financial crisis.

Now, Soros’ antennae are up again: The multi-billionaire thinks a new financial crisis might be on its way. This time, he’s looking to the unsustainable political and social structures brewing in Europe.

Everything is wrong

In a Tuesday (May 29) speech at the European Council on Foreign Relations, Soros laid out his dire diagnosis: “For the past decade, everything that could go wrong has gone wrong.” Soros thinks the European Union is already in the midst of an existential crisis, and what comes next will test whether the already fragile collective can stay together.

It’s easy to see what Soros means. The post-2008 policy of economic austerity—reducing a government’s deficits at any cost—pitted the Greeks against the Germans, and changed the relationship between poor and wealthy European nations to one of struggling, impoverished debtors versus agitated, powerful creditors. The debtor-nations had broken economies and masses of unemployed people, ensuring that they could not meet the conditions their creditors set. This dynamic bred widespread resentment on both sides toward the EU, which populist politicians would later exploit.

A decade later, the far-right Alternative für Deutschland is Germany’s largest opposition party. A right-wing populist coalition has advanced in Italy. In the ultimate death knell, the UK marches on towards Brexit. And as Donald Trump abandons the Iran nuclear deal (paywall) and signals the end of the longstanding transatlantic alliance between the US and Europe, the state of the EU looks even more precarious.

Soros thinks everything came to a head with the refugee crisis. Austerity had already set the stage for Germans and other rich countries to think of Greeks as foreign, or other. Then in 2015 came a whole new wave of outsiders from countries like Syria, Somalia, Bhutan, Iran, and Afghanistan. “At first, most people sympathized with the plight of refugees,” Soros said in his speech. “But they didn’t want their everyday lives disrupted by a breakdown in social services. And soon they became disillusioned with the failure of the authorities to cope.” The refugee crisis fueled populist ire even in countries with few migrants. Hungary’s current prime minister, Viktor Orbán, ran on an anti-refugee reelection campaign even though Hungary was hardly touched by the crisis.

At least one million people from sub-Saharan African countries have migrated to Europe since 2010, and the overall numbers coming from Africa, especially in post-Gaddafi Libya, only seem to be growing. Some experts believe that because Africa’s population skews young (paywall), and because—unlike Syrian refugees who flee war—Africans tend to be economic migrants looking for better opportunities, the African migration crisis will only get worse in the years to come.

In the long run, migration has major benefits for host countries, bringing in diverse populations who can help the economy grow. That said, any country, for a time being, might struggle to handle a high flow of economic migrants. Soros worries that Europe, in its current state of disintegration, political populism, and austerity, could collapse under the pressure to provide social services and jobs to incoming refugees. As migrants join the labor force, it could,in the short term, lead to growing competition for jobs and a fall in wages, only stoking populist anger. If the crisis continues at its current pace, the European Union is at stake.

The “Marshall Plan for Africa”

Soros’ plan to rescue Europe is both simple and incredibly difficult: Solve the refugee problem. Soros wants the EU to commit to giving €30 billion ($35.4 billion) annually to Africa for a number of years; he left the exact timeline vague. This “Marshall Plan for Africa” would go toward building and fortifying democratic nations in Africa. Support and improve African economies, the thinking goes, and fewer refugees will leave the region.

If Soros’ plan sounds idealistic, that’s probably because it is—crafted more to startle scholars and present an out-of-the-box solution than to pass in any sort of legislative body.

Even Soros, to an extent, is aware of this. “There is a woeful shortage of financial resources… so, where would the money come from?” In 2015, for example, the EU initiated a plan to “address the root cause of migration in Africa,” though it seemed more interested in fortifying borders than building up African democracies. That plan included just €1.8 billion ($1.9 billion) in funding.

Soros gestures at some financial wizardry, saying he has in mind “an ingenious device, a special-purpose vehicle, that would enable the EU to tap financial markets at a very advantageous rate without incurring a direct obligation for itself or for its member states.” Soros hints that his plan would take advantage of the long under-utilized borrowing capacity of the EU, which also happens to have a high credit rating. It might even stauch the flight of capital from emerging market currencies. “The economic stimulus of a Marshall Plan for Africa and other parts of the developing world should kick in just in time,” said Soros in his speech.

He’s keeping the details of his plan vague. Still, If anyone can figure out a way for the EU to borrow billions of dollars at great rates while taking advantage of mysterious financial devices, it’s probably Soros.

But the plan is still largely a fantasy, sketching out an idea of what ought to be, rather than what might be politically actionable.

“It’s a long shot,” says Rob Johnson, an expert in global finance, a former managing director at Soros Fund Management and a close friend of Soros. Johnson has unmistakable respect for his former colleague, and considers Soros to be a deeply well-meaning person. He also agrees with Soros’ diagnosis of the situation of Europe, and respects the motivation behind his plan.

But any such plan requires political cooperation among nations that might well resist the initiative. Migration is not evenly distributed across countries in Europe. So any plan that spreads the costs disproportionately benefits high-migration places, like southern Italy, at the expense of countries like Germany.

“The German reluctance, and some of the other European countries’ reluctance, to engage in collective finance, will be hard to overcome,” says Johnson. “Countries like France and Italy want to retain national control over their budgets—you can’t have multiple countries control their own budgets and, simultaneously, have a shared financial responsibility.”

The message matters more than the plan

Realism aside, the Soros plan is a way of shocking the world and providing a call to action. When you’re a famed billionaire investor who thinks something really dangerous is happening, people pay attention.

“I don’t think George is suggesting that someone next week is about to draft a bill and pass it, but he’s creating a conversation,” says Johnson. “He is painting a vision to start a conversation to move the conventional wisdom away from its unsustainable structure.” That vision involves bringing about popular recognition that there is a positive, collective interest in everyone pitching in and doing something for Africa.

The Soros proposal is also notable because it involves some pretty controversial ideas—ideas that many, especially the powerful elite, shrink from. For example:

The refugee crisis is Europe’s responsibility. Some believe that when the EU cut deals with African nations back in 2015, it simply offloaded handling the refugee crisis to north Africa, essentially bribing poorer countries to handle border security on its behalf. Soros wants the EU to step up to the task. “It’s important to recognize that the refugee crisis is a European problem requiring a European solution,” he argues.

A European solution, Soros believes, has to be about far more than border security. “The main objective of most European countries is not to foster democratic development in Africa and elsewhere, but to stem the flow of migrants,” says Soros. He says that Europe is shirking its responsibility because “a large part of the available funds [go] to dirty deals with dictators, bribing them to prevent migrants from passing through their territory or to use repressive methods to prevent citizens from leaving.” The final result? More political refugees.

Migration should be entirely voluntary on both sides. “Member states should not be forced to accept refugees they don’t want,” says Soros. “And refugees should not be forced to settle in countries where they don’t want to go.” Soros thinks this fundamental idea needs to be the bedrock of any European migration policy. That means neither “Fortress Europe”—all borders on extreme shutdown—or an endless flood of refugees into Europe would be feasible. But this ideal may just be that. There are plenty of reasons why mutual and voluntary migration may be untenable.

Austerity doesn’t work. “Until recently, it could have been argued that austerity is working,” says Soros. “But austerity is itself a contributing factor to the crisis in which Europe finds itself.” Soros’s plan literally requires nations to abandon the practice of austerity, because no nation could fund so much aid without adding to the national debt.

So take the plan for what it is—a message about the kinds of values that Soros believes should be governing whatever decisions the EU will eventually make.

Could the plan backfire?

Soros is aware, to a degree, that when it comes to the rise of populism in Europe, he may be a part of the problem.

“This initiative needs to be a genuinely grassroots effort,” Soros said at the European Council on Foreign Relations. “Ordinary people feel excluded and ignored. Now we need a collaborative effort that combines the top-down approach of the European institutions with the bottom-up initiatives that are necessary to engage the electorate.”

In other words, saving Europe requires taking on elitism. Soros is unambiguously a member of the elite. “This is a man who is very wealthy, very influential, very active in politics, very influential in politics, and he has been demonized, he’s been mistrusted,” says Johnson. “Nobody has trust in these elite figures, nobody.”

Both Soros and Johnson believe the everyday electorate is fed up with having big political decisions made for them, instead of with them. With the spread of populism in Europe, it’s likely no “Marshall Plan for Africa,” or aid program in general, can happen without the large-scale support of the body politic—especially a plan that will cost upwards of $30 billion.

Soros had little to say on just how a plan given to a small audience at the European Council of Foreign Relations could turn grassroots. But he’s hopeful. And despite his history of detecting, and capitalizing on, insecurity, Soros remains fiercely optimistic about the value of the EU. “The idea of Europe as an open society continues to inspire me,” says Soros. Now, to remain a reality, it will need to reinvent itself.

Source:  https://qz.com/1292650/george-soros-radical-plan-to-save-the-eu-from-its-next-financial-crisis/

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