AFP

Britain on Thursday unveiled a painful budget with £55 billion ($65 billion) of tax hikes and spending cuts despite confirming its economy was in recession.

Finance minister Jeremy Hunt said the measures were needed to bring financial stability after recent markets turmoil, insisting they would alleviate rather than aggravate the downturn.

A day after official data showed UK inflation rocketing to a 41-year high above 11 percent, Hunt triggered a fresh era of austerity following the calamitous and short-lived tenure of former prime minister Liz Truss.

– ‘UK in recession’ –

Britain’s Office for Budget Responsibility judged “that the UK, like other countries, is now in recession”, Chancellor of the Exchequer Hunt told parliament on Thursday.

Despite the downturn, Hunt and Prime Minister Rishi Sunak insist tough action is needed after Truss unleashed a package of unfunded tax cuts that caused panic on financial markets.

The pound had hit a record-low close to parity against the dollar in late September after Truss failed to reveal the impact of her tax cuts on growth and inflation.

Her budget also triggered temporary purchases of UK government bonds by the Bank of England (BoE).

Sterling sank one percent against the US currency following Thursday’s budget.

Pantheon Macroeconomics analyst Samuel Tombs warned the budget risked “amplifying the recession already underway”.

Hunt said the UK economy was set to shrink 1.4 percent next year.

The BoE, which is raising interest rates to combat sky-high inflation, has warned the UK economy may experience a record-long recession until mid-2024.

Despite the grim outlook, Hunt on Thursday confirmed tax rises for workers alongside spending cutbacks.

He pledged, however, to increase spending on the cherished National Health Service amid a severe backlog in patient operations.

The chancellor added that benefits for the unemployed and pensioners would increase close to the inflation rate, and the minimum wage would climb.

Hunt also ramped up a windfall tax on oil and gas giants, whose profits have surged on fallout from the Ukraine war, to help fund support for the poorest consumers facing rocketing energy bills.

Energy giants such as BP and Shell will face an exceptional tax on profits of 35 percent, up from 25 percent, lasting an additional three years to 2028.

The government will also impose a new temporary levy on electricity generation companies.

The conflict in Ukraine has helped push worldwide inflation to its highest levels in decades. Prices are also up on supply constraints fuelled by the coronavirus pandemic.

Britain’s economy is additionally being impacted by Brexit, BoE governor Andrew Bailey repeated Wednesday.

– Scrooge –

Hunt at the weekend likened himself to the penny-pinching miser Ebenezer Scrooge in Charles Dickens’ festive favourite “A Christmas Carol”, but argued his plan will “make sure Christmas is never cancelled”.

He told MPs on Thursday: “In the face of unprecedented global headwinds, families, pensioners, businesses, teachers, nurses and many others are worried about the future.

“So today we deliver a plan to tackle the cost-of-living crisis and rebuild our economy.”

It comes as UK workers across various sectors have gone on strike this year to demand pay rises to compensate for surging inflation.

State-employed nurses and firefighters could be the latest groups to carry out industrial action, joining further walkouts this winter by rail workers and postal staff.

Hunt has already set about reversing Truss’s much-criticised budget by curtailing a freeze in domestic fuel bills, which have surged largely owing to the invasion of Ukraine by major energy producer Russia. 

The government said on Thursday a cap on average annual household fuel bills will rise by a fifth to £3,000.

Rachel Reeves, economy spokeswoman for the main opposition Labour party, slammed the budget.

“The Conservatives have crashed our economy, given up on growth and sent inflation through the roof.

“As usual, it is ordinary working people who are paying the price,” she added.

rfj-bcp/raz

Britain on Thursday unveiled an austerity budget with £55 billion ($65 billion) of tax hikes and spending cuts despite confirming its economy was in recession.

Finance minister Jeremy Hunt confirmed the painful measures were needed to bring financial stability after recent turmoil, and insisted they would alleviate rather than aggravate the downturn.

A day after official data showed UK inflation rocketing to a 41-year high above 11 percent, Hunt triggered a fresh era of austerity after the calamitous and short-lived tenure of former prime minister Liz Truss.

– ‘UK in recession’ –

Britain’s Office for Budget Responsibility judged “that the UK, like other countries, is now in recession”, Chancellor of the Exchequer Hunt told parliament Thursday.

Despite the downturn, Hunt and Prime Minister Rishi Sunak insist tough action is needed after Truss unleashed a package of unfunded tax cuts that caused panic on financial markets.

The pound hit a record-low against the dollar in late September after Truss failed to reveal the impact of her tax cuts on growth and inflation.

Hunt’s budget did the opposite, confirming that as well as the UK being in recession, its economy would contract 1.4 percent next year.

The Bank of England, which is raising interest rates to combat sky-high inflation, has warned the UK economy may experience a record-long recession until mid-2024.

Despite the grim outlook, Hunt on Thursday confirmed tax rises for workers alongside spending cutbacks.

However, he pledged to increase spending on the cherished National Health Service amid a severe backlog in patient operations.

Hunt also ramped up a windfall tax on oil and gas giants, whose profits have surged on fallout from the Ukraine war, to help fund support for the poorest consumers facing rocketing energy bills.

Energy giants such as BP and Shell will face an exceptional tax on profits of 35 percent, up from 25 percent, last an additional three years to 2028.

The government will also impose a new temporary levy on electricity generation companies.

The Ukraine war has helped push worldwide inflation to its highest levels in decades. Prices are also up on supply constraints fuelled by the Covid pandemic.

Britain’s economy is additionally being impacted by Brexit, Bank of England governor Bailey and fellow BoE rate-setter Swati Dhingra told MPs Wednesday.

– Scrooge –

Hunt at the weekend likened himself to the penny-pinching miser Ebenezer Scrooge in Charles Dickens’ festive favourite “A Christmas Carol”, but argued that his plan will “make sure Christmas is never cancelled”.

Hunt insisted that, thanks to his measures, the downturn would be “shallower”, shrugging off concerns that tax hikes and spending cuts could deepen the downturn.

Hunt told MPs: “In the face of unprecedented global headwinds, families, pensioners, businesses, teachers, nurses and many others are worried about the future.

“So today we deliver a plan to tackle the cost-of-living crisis and rebuild our economy.”

It comes as UK workers across various sectors have gone on strike this year to demand pay rises to compensate for surging inflation.

State-employed nurses and firefighters could be the latest groups to carry out industrial action, joining further walkouts this winter by rail workers and postal staff.

Hunt has already set about reversing Truss’s much-criticised budget by curtailing a freeze in domestic fuel bills, which have surged largely owing to the invasion of Ukraine by major energy producer Russia. 

Helping to stabilise markets, he also reversed her plan to cut tax on company profits. 

Chinese e-commerce giant Alibaba on Thursday reported a loss of 20.6 billion yuan ($2.89 billion) for the third quarter, as the company grapples with an economic slowdown and an anti-monopoly crackdown.

The heavy net loss attributable to ordinary shareholders was primarily due to a “decrease in market prices of our equity investments in publicly traded companies”, among other factors, the company said in a statement.

Alibaba’s performance is widely seen as a gauge of Chinese consumer sentiment, given its market dominance.

Revenue for the three months ending September 30 was up three percent year-on-year at 207.2 billion yuan, which Chief Financial Officer Toby Xu said was achieved “in spite of the impact on consumption demand by the Covid-19 resurgence in China as well as slowing cross-border commerce”.

Alibaba said it achieved revenue growth by “enhancing operating efficiency” as well as through the expansion of its logistics and services businesses, despite a slump in e-commerce sales within China.

It comes after the company earlier this year reported flat quarterly revenue growth for the first time ever.

– Flagging demand –

The company said in its statement on Thursday that revenue from domestic commerce had fallen in the third quarter, “mainly as a result of softer consumption demand, Covid-19 resurgence and restrictions, as well as ongoing competition”.

In a sign of difficulties for Alibaba, the company appears to have laid off a number of employees, with its headcount down more than 1,700 from the previous quarter.

China’s major tech companies have faced economic uncertainty, Covid-19 restrictions that have depressed consumer spending, as well as heightened scrutiny from regulators in recent months.

Fellow tech titan Tencent reported on Wednesday its second quarterly drop in revenue in a row.

Alibaba in particular has been at the centre of regulatory crackdowns at home and abroad.

US authorities have put the company on a watchlist that could see it delisted in New York if it does not comply with disclosure orders, causing its shares to slump.

Chinese authorities pulled a planned IPO by the company’s financial arm Ant Group at the last minute in 2020, then hit Alibaba with a record $2.75 billion fine for alleged unfair practices last year.

The company’s Singles Day e-commerce festival, which traditionally dwarfs similar US events such as Black Friday and Cyber Monday, has been more muted in recent years.

Alibaba — alongside main rival JD.com — did not release full sales figures for the shopping bonanza for the first time ever this year, instead saying in a statement that sales were flat from last year.

The head of Binance, the world’s top cryptocurrency exchange, pledged Thursday to release an audit into the firm and rejected claims he sparked the recent collapse of rival platform FTX.

Changpeng Zhao said an independent audit into Binance would be released “in a couple of weeks” and urged a full investigation into FTX’s demise, before delivering a scathing critique of its founder Sam Bankman-Fried, questioning his mental stability.

Speaking at the Milken Institute’s Middle East and Africa Summit in Abu Dhabi, Chinese-Canadian Zhao, insisted “100 percent” that Binance would survive if investors suddenly withdrew funds from his platform.

Last week, FTX filed for bankruptcy and Bankman-Fried resigned as chief executive, a day after Zhao scrapped plans to acquire the crisis-hit competitor.

The collapse of FTX, once valued at $32 billion, sent major cryptocurrencies plunging and further undermined investor confidence in the young and turbulent cryptocurrency sector.

“That’s normal market behaviour. If you want everyone to be equal, then you go back to communism, and that doesn’t work well,” Zhao said.

But he denied intentionally wiping out FTX by earlier announcing Binance was liquidating holdings in FTX’s FTT token.

The move prompted Bankman-Fried to write on Twitter: “Well played; you won.”

“Only a psychopath can write that tweet,” 45-year-old Zhao said, playing down his influence on the market.

“If I sell Bitcoin, nobody cares,” he claimed.

FTX’s problems were due to investors’ “suspicion” and “frustration” according to the Forbes-listed multi-billionaire.

When asked whether Binance would release an independent audit of its reserves and liabilities, Zhao said: “Yes… and I think in a couple of weeks.”

Zhao was cautious that improved regulation was the only solution to the crypto sector’s problems, insisting senior industry figures should set standards.

“I think regulation is a key component…(but) more importantly the industry players should act by leading by example,” he said.

“The tricky part is, how do you strike the balance where you encourage innovation…and try to protect consumers?”

The collapse of the cryptocurrency exchange FTX has sent shockwaves through sport, which the platform used widely to build its brand.

FTX signed a series of sponsorship deals and recruited sports stars to appear in commercials, often aired during sports programmes.

Since the announcement of the company’s bankruptcy last week, many sports organisations have been quick to pull out of partnerships.

The Mercedes Formula 1 team removed the FTX logos from their Formula One cars ahead of the Brazil Grand Prix last Sunday.

The Miami Heat NBA basketball team dropped its deal with FTX, having signed a $135-million contract for arena naming rights in March 2021. 

The FTX Arena, previously known as the Miami Arena and the American Airlines Arena, will change its name again. Photos on social media showed that the FTX logo had already been removed. 

The debacle has also taken a legal turn. 

On Wednesday, an investor filed a lawsuit in Miami against the company, its former boss Sam Bankman-Fried and several famous athletes. 

These included basketball player Stephen Curry and his Golden State Warriors team, former NBA star Shaquille O’Neal, tennis player Naomi Osaka and NFL quarterback Tom Brady. 

The investor, Edwin Garrison, of Oklahoma, accused the company of “misrepresentations and omissions”.

“Some of the biggest names in sports and entertainment have either invested in FTX or been brand ambassadors for the company” and hyped the exchange in ads and on social media, the document said.

Comedian Larry David, who appeared in an FTX commercial that aired during the last Super Bowl, was also named.

– Cryptocurrency doubts –

FTX had also made a notable foray into the world of e-sports by forging a $210-million, 10-year partnership with the TSM Group, known for its League of Legends team. 

“After monitoring the evolving situation and discussing internally, we’re suspending our partnership with FTX effective immediately,” the company announced Wednesday. 

“This means that FTX branding will no longer appear on any of our org, team and player social media profiles, and will also be removed from our player jerseys.”

Other cryptocurrency exchanges have invested in the sports world in recent years, benefiting from the soaring price of bitcoin and other virtual currencies from 2020. 

Crypto.com is a sponsor of the World Cup, which kicks off in Qatar next week, has a strong presence in  mixed martial arts and, among other deals, has sponsored events and teams in Formula One, the NBA and Australian Rules football. 

In the English Premier League, OKX sponsors Manchester City and WhaleFin is a sponsor of Premier League club Chelsea. 

Socios, which markets blockchain tokens to fans, has deals with six English clubs, a string of other big teams across Europe and bought almost 25 percent of Barcelona’s media studio in the summer.

Quite apart from the fear of signing big contracts that then evaporate, the crypto industry could face increased regulation by US and European authorities. 

John Fortunato, a professor at Fordham University’s business school in New York, said FTX’s dramatic fall would make teams and athletes wary of taking money from other companies in the sector in the short term.

“For the time being, there might be some reluctance entering this product category,” he said. 

“Sports leagues are pretty resilient when it comes to finding revenue streams,” he added.

“They are always looking for opportunities and will find other sponsors,” he added.  

European equities mostly fell Thursday with London on tenterhooks before a painful UK budget set to rip up the country’s economic forecasts.

The British stock market slid 0.6 percent and the pound fell versus the dollar as finance minister Jeremy Hunt readied a budget that will hike taxes and slash spending in a bid to balance the books.

In the eurozone, Paris lost 0.5 percent but Frankfurt won 0.2 percent on upbeat Siemens results, and after a mixed Asian session.

Investors also tracked fresh Russian strikes that hit cities across Ukraine, having been spooked Wednesday by a deadly missile blast in Poland.

Thursday’s focus remains squarely on Britain’s announcement which is scheduled for 1130 GMT.

Traders fear the budget will worsen Britain’s cost-of-living crisis after inflation spiked to a 1981 peak of 11.1 percent, as the economy heads toward recession. 

“Hunt is poised to unveil a raft of spending cuts and tax increases to plug the estimated £55 billion ($65 billion) fiscal black hole,” said Interactive Investor analyst Victoria Scholar.

“With a recession on the horizon and the 41-year high inflation there are concerns that we are heading back to an era of austerity and that could add to the woes facing consumers and businesses,” she warned.

The UK government will also give fresh estimates for the country’s growth and inflation.

Elsewhere, Wall Street was hit Wednesday after retailer Target posted weak results and warned of a poor festive shopping season.

Two reports showing inflation easing in the world’s top economy provided a springboard for world markets over much of the past week as investors took the readings to mean almost a year of monetary tightening was finally kicking in.

But on Wednesday the commerce department said retail sales jumped far more than expected last month, suggesting Americans are still able to weather the higher inflation and interest rate environment.

That was compounded by comments from a top Fed official that she did not see the bank stopping rate hikes, indicating she was willing to push borrowing costs above five percent, from the current 3.75 to 4.0 percent.

Traders have for months grown increasingly fearful that the Fed’s hawkish tilt will cause a recession, and policymakers have made clear they are willing to keep lifting even if that means hurting the economy.

The Bank of England, which is also raising interest rates to combat sky-high inflation, says Britain is probably already in recession after its economy shrank in the third quarter and will do so again in the final three months of 2022.

– Key figures around 1000 GMT –

London – FTSE 100: DOWN 0.6 percent at 7,309.46 points

Paris – CAC 40: DOWN 0.5 percent at 6,573.74

Frankfurt – DAX: UP 0.2 percent at 14,262.63

EURO STOXX 50: DOWN 0.2 percent at 3,876.21

Tokyo – Nikkei 225: DOWN 0.4 percent at 27,930.57 (close)

Hong Kong – Hang Seng Index: DOWN 1.2 percent at 18,045.66 (close)

Shanghai – Composite: DOWN 0.2 percent at 3,115.43 (close)

New York – Dow: DOWN 0.1 percent at 33,553.83 points (close)

Pound/dollar: DOWN at $1.1878 from $1.1914 on Wednesday

Euro/dollar: DOWN at $1.0360 from $1.0395

Dollar/yen: UP at 139.67 yen from 139.54 yen

Euro/pound: FLAT at 87.21 pence

Brent North Sea crude: DOWN 0.4 percent at $92.46 per barrel

West Texas Intermediate: DOWN 0.8 percent at $84.94 per barrel