US Business

The UK’s new government on Friday unveiled a multi-billion-pound package to support households and businesses hit by the highest inflation in decades, cutting taxes as the nation heads for recession.

Finance minister Kwasi Kwarteng, fresh from being appointed by new Prime Minister Liz Truss, said caps on soaring energy bills would cost about £60 billion ($68 billion) in the first six months. 

“The PM has acted with great speed to announce one of the most significant interventions the British state has ever made,” Kwarteng told parliament in a so-called mini budget.

“People need to know that help is coming.”

In a controversial move as millions of Britons face a cost-of-living crisis, Kwarteng axed an EU-inherited cap on bankers’ bonuses following Brexit to bolster the financial services sector.

He brought forward a plan to cut the lowest rate of income tax and reduced the highest to 40 percent from 45.

The chancellor of the exchequer also reversed a planned increase in tax on company profits signed off by Truss’s predecessor Boris Johnson.

Kwarteng already on Thursday said he would scrap a tax on salaries, reversing a 1.25-percentage-point rise in National Insurance implemented by his predecessor Rishi Sunak.

It comes as the Bank of England warns that Britain is slipping into recession, as rocketing fuel and food prices take their toll.

Adding to the pain, the pound has fallen against the dollar, sinking to a fresh 37-year low under $1.12 ahead of Kwarteng’s announcement.

Kwarteng also lifted the point at which tax is levied on purchases of residential properties, as soaring interest rates put the brakes on the housing market.

– Capping energy bills –

Britain on Wednesday announced a six-month plan to pay about half of energy bills for businesses.

Truss had already launched a two-year household energy price freeze. The caps will not kick in, however, until Britons face another large hike in gas and electricity bills from October.

The average household will have their annual energy bill capped at £2,500 until 2024 but many are expected to spend above that to keep homes warm over the winter.

Wholesale electricity and gas prices for firms — as well as charities, hospitals and schools — will be capped at half the expected cost on the open market.

UK energy companies including BP and Shell will not benefit from the cap, as they enjoy soaring profits after the invasion of Ukraine by major oil and gas producer Russia.

Britain’s main opposition Labour party has demanded that the government extends a windfall tax on energy companies launched by Sunak earlier this year.

But Truss ruled out such a move, arguing that additional taxes hinder economic recovery and efforts by energy groups to transition into greener companies.

She took office on September 6, two days before the death of Queen Elizabeth II, after winning an election of Conservative party members on a tax-cutting platform.

Kwarteng on Friday confirmed plans to shake up the welfare system.

Some 120,000 people in part-time work would face a benefit cut should they fail to take new steps to look for more work.

Kwarteng had described the policy as a “win-win”, pitching it as a way to fill 1.2 million UK job vacancies.

– Strikes, rate rises –

With prices rocketing, wage values are eroding, triggering some of the biggest strike action Britain has seen in more than 30 years. 

From the rail sector to postal services and even lawyers, tens of thousands of workers are carrying out industrial action aimed at securing bigger salaries.

“At such a critical time for our economy, it is simply unacceptable that strike action is disrupting so many lives,” Kwarteng told MPs.

He said the government would legislate “to ensure strikes can only be called once negotiations have genuinely broken down”.

Surging interest rates aimed at cooling sky-high inflation are meanwhile hurting consumers and businesses, as well as pushing up the cost of government borrowing.

The Bank of England on Thursday ramped up its key rate by another half-point to 2.25 percent, and warned the UK would slide into recession in the current third quarter.

Asian markets fell again Friday and the dollar extended gains as part of a global sell-off fuelled by recession fears after central banks around the world ramped up interest rates to fight decades-high inflation.

With price rises showing no solid sign of letting up, monetary policymakers have been forced to go on the offensive, warning that short-term hits to economies are less painful than the long-term effects of not acting.

The Federal Reserve’s decision Wednesday to lift borrowing costs 75 basis points for a third successive meeting was followed by a warning that more were in the pipeline and they would not likely come down until 2024.

That came along with similar moves by banks in several other countries including Britain, Sweden, Norway, Switzerland, the Philippines and Indonesia — all pointing to a dark outlook for equities.

“We see this new even-higher-for-longer rate path as associated with a substantially higher likelihood of a hard landing, and so not just unambiguously hawkish but unambiguously bad for risk,” Krishna Guha, vice-chair of Evercore ISI, said.

In a sign that recession expectations are rising, the 10-year US Treasury yield jumped to 3.7 percent, its highest level in a decade, while the S&P 500 sank to its weakest level since June and just above its 2022 lows.

There were also losses on the Nasdaq and Dow, while London, Paris and Frankfurt shed more than one percent apiece.

Asia followed suit.

Hong Kong dropped, even as the city’s government lifted long-running hotel quarantine rules for incoming travellers as officials look to kickstart the battered economy. 

Shanghai, Sydney, Mumbai, Bangkok, Seoul, Singapore, Wellington, Taipei and Manila also retreated.

London, Paris and Frankfurt all fell in the morning.

The dollar, which has surged to multi-decade highs against its major peers as well as emerging currencies, held its strength.

Traders are keeping a close eye on developments following the Japanese finance ministry’s intervention to support the yen, after it hit a new 24-year low of 146 against the dollar.

The first such intervention since 1998, it helped strengthen the yen to just above 140.

But analysts warned the move was unlikely to have much long-term impact and the yen remained vulnerable owing to the Bank of Japan’s refusal to tighten policy — citing a need to boost the economy — as the Fed ramps up rates.

“Given the now even starker contrast between the (central bank’s) policy stance and central banks everywhere else in the world… (the) MoF will need to be in this intervention game for the long haul and in size if it is to have much hope of arresting yen weakness in an ongoing strong dollar environment,” said National Australia Bank’s Ray Attrill.

The pound also fell to a new 37-year low of $1.1170, even after the Bank of England hiked interest rates by half a point.

Oil markets remain subdued by concerns about a hit to demand caused by the expected recession.

Both main contracts dipped even as speculation swirled that OPEC and other major producers could cut output as they fear prices are falling too fast.

The commodity has fallen about a third from highs seen soon after Russia’s February invasion of Ukraine, and is even below levels seen before the conflict.

“This is going to be a very, very volatile last quarter,” said Amrita Sen, of Energy Aspects, on Bloomberg Television. She added that there were “just too many different and contradictory factors driving prices right now”.

– Key figures at around 0810 GMT –

Hong Kong – Hang Seng Index: DOWN 1.2 percent at 17,933.27 (close)

Shanghai – Composite: DOWN 0.7 percent at 3,088.77 (close)

London – FTSE 100: DOWN 0.4 percent at 7,130.11

Tokyo – Nikkei 225: Closed for a holiday

Dollar/yen: DOWN at 142.27 yen from 142.35 yen Thursday

Pound/dollar: DOWN at $1.1178 from $1.1252

Euro/dollar: DOWN at $0.9777 from $0.9839

Euro/pound: UP at 87.43 pence from 87.40 pence 

West Texas Intermediate: DOWN 1.6 percent at $82.19 per barrel

Brent North Sea crude: DOWN 1.5 percent at $89.13 per barrel

New York – Dow: DOWN 0.4 percent at 30,076.68 (close)

— Bloomberg News contributed to this story —

A high-stakes defamation battle between News Corp co-chairman Lachlan Murdoch and small Australian news outlet Crikey will go to trial beginning March 27 in Sydney.

Rupert Murdoch’s eldest son — who is also chief executive of Fox News parent Fox Corporation — is suing Crikey over an opinion piece that linked his family’s media empire to the January 6, 2021 storming of the US Capitol by supporters of then-President Donald Trump.

The media scion’s lawyers claimed their client was defamed over a dozen times in the article, which accused “the Murdochs and their slew of poisonous Fox News commentators” of being “unindicted co-conspirators” in the Capitol riot.

On Friday, Murdoch’s barrister — top defamation litigator Sue Chrysanthou — pushed in the preliminary hearing for the earliest possible trial date, arguing Crikey had been “directing ridicule and hatred” towards her client.

Crikey was “publicly claiming martyrdom”, she told the largely administrative case management hearing, pointing to the outlet running billboard advertisements about the case and fundraising online for its defence.

In the past month, Crikey’s GoFundMe campaign has raised nearly A$500,000 (US$333,000) and garnered support from two former Australian Prime Ministers, Kevin Rudd and Malcolm Turnbull.

“Lachlan Murdoch owns boats that are worth more than Crikey,” Turnbull commented alongside his Aus$5,000 (US$3,400) donation.

– A very public fight –

The legal scuffle over the opinion piece burst into international headlines last month, when Crikey ran an advertisement in The New York Times daring Murdoch to sue.

The often pugilistic website said it welcomed the opportunity to “test this important issue of freedom of public interest journalism in a courtroom”.

Murdoch filed his lawsuit the next day.

The tussle pits an upstart website, with subscriber numbers in the low tens of thousands, against one of the world’s largest media empires.

Defamation expert David Rolph from the University of Sydney told AFP Murdoch’s case could be the first test of recent attempts to reform Australia’s notoriously tough defamation laws.

Australia has gained a reputation as “the defamation capital of the world” after a slew of lawsuits launched by high-profile figures, including actors and politicians.

Crikey’s defence, filed with the Federal Court Tuesday, denied it defamed Murdoch and flagged it would lean on two new defences created by the reforms.

“One is a serious harm threshold… the plaintiff now has to prove that they not only suffered some harm to reputation, but that it was serious harm to reputation,” Rolph explained.

Crikey will also seek to argue that the opinion piece, by writer Bernard Keane, was in the public interest.

“I suppose the difficulty here is that defence is entirely untested. This will be a test case of that,” Rolph said.

– Public interest fight –

In a statement issued Thursday, Crikey chief executive Will Hayward said his company was fighting the case because “there is an issue of fundamental public importance at stake”.

“We think it is important in an open, well-functioning society that the rich and powerful can be critiqued.”

While Murdoch has stayed quiet since launching the case, his statement of claim accused Crikey of using the legal saga to drive subscriptions.

He has asked the court to permanently ban Crikey from publishing anything suggesting he “illegally conspired with Donald Trump” around the events of January 6.

The case will be heard by Justice Wigney, who has overseen several closely-watched defamation trials — including actor Geoffrey Rush’s successful suit against another Australian media outlet.

Wigney said Friday that before the trial begins, he would seek to have the parties enter mediation where “cool commercial minds may prevail”.

From her euroscepticism to her impact on Italy’s enormous debt, the likely victory of far-right leader Giorgia Meloni in elections Sunday is causing concern in financial markets and in Brussels.

The Brothers of Italy leader has abandoned her calls for the country to leave the EU’s single currency and the joint programme with her right-wing allies — the anti-immigration League and Silvio Berlusconi’s Forza Italia — commits them to the European project.

But concerns persist, particularly after she reiterated her support this week for Hungarian Prime Minister Viktor Orban in his battles with Brussels.

At an election rally in mid-September in Milan, Meloni declared that “the good times are over” and that Italy, like others, “is going to start defending its own national interests” in the EU.

“I don’t know any nationalists who are not against European institutions,” Frans Timmermans, vice-president of the European Commission, noted in an interview with La Repubblica newspaper earlier this month.

– EU recovery plan – 

Well placed to become the next prime minister, Meloni wants a “confederate Europe” which “respects the sovereignty of member states” to manage their own affairs.

She has called for a renegotiation of the Italian part of the EU’s mammoth post-pandemic recovery plan, from which Italy stands to receive almost 200 billion euros, to account for the spike in energy prices linked to the Ukraine war.

But the money is dependent on a series of reforms, which outgoing Prime Minister Mario Draghi began but must still be implemented.

“We could end up with a serious clash of ideas between Italy, which is by far the biggest beneficiary of the recovery plan, and the EU,” noted Nicola Nobile of Oxford Economics, a consultancy.

“There are many risks, but it will all depend on which Meloni leads the government — the one who has attacked Europe in the past or the one who now advocates a more moderate approach and could pursue the status quo on fiscal matters,” she told AFP.

– Spiralling debt –

Concerns about a slip in the reform timetable and an increase in Italy’s debt after the elections have already caused rating agencies Standard & Poor’s and Moody’s to downgrade the outlook for the country’s credit rating. 

Italy is saddled with a debt of more than 2.7 trillion euros, or some 150 percent of gross domestic product (GDP), the highest ratio in the eurozone after Greece.

Meloni’s right-wing coalition is calling for a revision of the EU’s rules against overspending, which were suspended during the pandemic but set a ceiling of three percent of GDP for the deficit and 60 percent for debt.

While some flexibility might be allowed, “it would be political suicide to say, ‘we don’t care about all the rules’,” noted Peter Bofinger, professor of economy at the University of Wuerzburg. 

“If Italy deviates from the European consensus” and does not maintain a minimum of budgetary discipline, “not even the European Central Bank will be able to help it”, he told AFP.

– Costly election promises –

The right-wing coalition has promised to cut taxes while increasing spending, including raising the minimum pension — plans that risk being hugely expensive.

“Their programme is very vague and does not explain how to finance these measures,” said Nobile.

“If they were implemented, Italy’s public deficit would remain above six percent of GDP for five years from 2023,” pushing the already high public debt to “unsustainable levels”.

The coalition’s flagship measure, a so-called flat tax that the League wants to set at 15 percent and Berlusconi 23 percent, could cost between 20 billion and 58 billion euros, according to Italy’s public accounts observatory.

Investors fear the government could end up like its predecessors — Berlusconi’s resigned in 2011, under pressure from the markets and a surge in the cost of debt.

Hong Kong has lost its crown as Asia’s premier finance centre to Singapore in a global ranking list where New York and London maintained their number one and two spots.

Singapore jumped three places to third in the twice-a-year Global Financial Centres Index (GFCI) which assesses 119 cities around the world and was published late Thursday.

Hong Kong has adhered to a version of China’s strict zero-Covid rules throughout the pandemic, battering the economy and deepening a brain drain as rival business hubs reopen.

The city still mandates three days of hotel quarantine for all international arrivals while its border with the Chinese mainland is mostly closed.

In contrast, Singapore successfully shifted to endemicity earlier this year and has reopened without restrictions.

The city-state is hosting a slew of financial and business conferences in the coming months as well as a Formula 1 night race next week, while about four million people are expected to visit this year.

In a 600-word statement responding to the latest GFCI ranking, Hong Kong’s government focused on the city scoring a higher points rating than the year before.

“We will continue to listen to views and be bold in taking forward reforms to consolidate and strengthen Hong Kong’s capital market and our role as an international financial centre,” the government said.

The statement did not mention the coronavirus or the ongoing pandemic controls.

San Francisco came in at number five in the survey, up two spots. Shanghai, which was shut down earlier this year under China’s coronavirus controls, was number six followed by Los Angeles, Beijing and Shenzhen. 

Paris took tenth spot, replacing Tokyo which fell to 16th place.

US securities officials fined Boeing $200 million over the aviation giant’s misleading assurances about the safety of the 737 MAX airplane following two deadly crashes, regulators announced Thursday.

Boeing agreed to the penalty to settle charges it “negligently violated the antifraud provisions” of US securities laws, the Securities and Exchange Commission said in a statement, saying the company and its leader “put profits over people.”

Boeing’s former chief executive, Dennis Muilenburg, also agreed to pay $1 million to settle the same charges in a civil case.

The settlement is the latest hit to Boeing over the MAX following the Lion Air Crash in Indonesia in October 2018 and the Ethiopian Airlines crash in Ethiopia in March 2019, which together claimed nearly 350 lives.

One month after the first crash, a Boeing press release approved by Muilenburg “selectively highlighted certain facts,” implying that pilot error and poor aircraft maintenance contributed to the crash.

The press release also attested to the aircraft’s safety, not disclosing that Boeing knew a key flight handling system, the Maneuvering Characteristics Augmentation System (MCAS), posed safety issues and was being redesigned.

After the second crash, Boeing and Muilenburg assured the public that there was “no surprise or gap” in the federal certification of the MAX despite being aware of contrary information, the SEC said.

– Boeing ‘failed’ –

“In times of crisis and tragedy, it is especially important that public companies and executives provide full, fair, and truthful disclosures to the markets,” said SEC chair Gary Gensler in a press release.

“The Boeing Company and its former CEO, Dennis Muilenburg, failed in this most basic obligation. They misled investors by providing assurances about the safety of the 737 MAX, despite knowing about serious safety concerns.”

The SEC said both Boeing and Muilenburg, in agreeing to pay the penalties, did not admit or deny the agency’s findings.

Boeing said the agreement “fully resolves” the SEC’s inquiry and is part of the company’s “broader effort to responsibly resolve outstanding legal matters related to the 737 MAX accidents in a manner that serves the best interests of our shareholders, employees, and other stakeholders,” a company spokesman said.

“We will never forget those lost on Lion Air Flight 610 and Ethiopian Airlines Flight 302, and we have made broad and deep changes across our company in response to those accidents.”

Robert Clifford, a lawyer representing families of victims aboard the Ethiopian Airlines flight, called for “Muilenburg or anyone else who persuaded the government to keep the MAX 737 Boeing flying” to be “fully investigated for conduct that could be criminal in nature.”

US air safety authorities cleared Boeing’s 737 MAX to resume service in November 2020 following a 20-month grounding after the crashes.

A principal cause of the two crashes was identified as the MCAS, which was supposed to keep the plane from stalling as it ascended but instead forced the nose of the plane downward. The Federal Aviation Administration required Boeing to upgrade this system to address the flaw.

In January 2021, Boeing agreed to pay $2.5 billion to settle a US criminal charge over claims the company defrauded regulators overseeing the 737 MAX.