Second rating agency cuts UK outlook in wake of mini-Budget
The UK’s credit rating came under further threat on Wednesday as Fitch put the country on a “negative” outlook while giving a damning verdict on the government’s fiscal policy and political credibility.
The rating agency maintained the UK’s AA- investment grade but warned the outlook was now negative rather than stable — mirroring the action taken last week by its peer S&P.
Fitch said the large, unfunded tax cuts announced as part of the government’s mini-Budget — without any independent evaluation of their impact — could lead to a significant increase in deficits in the medium term, while creating an immediate tension between monetary and fiscal policy given high inflation. This had hit market confidence and the credibility of the policy framework.
The rating agency’s statement made it clear that the U-turn the government made this week, scrapping its plan to abolish the 45p top rate of income tax, would not be enough to repair the damage done by its initial announcements, and by chancellor Kwasi Kwarteng’s subsequent hints that he was minded to cut taxes further while changing fiscal rules that had been set only in January.
White House disappointed by ‘shortsighted’ Opec+ decision to cut output
The Biden administration expressed its disappointment at the move by Opec+ to cut oil production quotas, describing it as a “shortsighted decision” that would have the biggest negative impact on lower- and middle-income countries.
The White House will consult with Congress on additional tools and authorities to reduce the control the cartel, whose members include Saudi Arabia, Venezuela and the UAE, has over energy prices, US national security adviser Jake Sullivan and National Economic Council director Brian Deese said in a joint statement.
The cut to production quotas comes at a time when the global economy is already dealing with the adverse effects of Russia’s invasion of Ukraine and many countries are struggling with elevated energy prices, the administration said in its statement on Wednesday.
“The President is also calling on US energy companies to keep bringing pump prices down by closing the historically large gap between wholesale and retail gas prices — so that American consumers are paying less at the pump,” the White House said.
The administration said that, at the President’s direction, the energy department will deliver a further 10mn barrels of oil from the country’s strategic petroleum reserve to the market in November.
Wall Street rally takes a breather as stocks ease
US stock and government bond prices fell on Wednesday, putting the brakes on a brief rally that had been fuelled by bargain-hunting investors and hopes that weak economic data could slow the pace of monetary policy tightening by central banks.
The broad S&P 500 index fell as much as 1.8 per cent on Wednesday morning, but recovered the bulk of its losses to close the day 0.2 per cent lower. The tech-heavy Nasdaq Composite slipped 0.3 per cent. European stocks also fell, with the continent-wide Stoxx 600 dropping 1 per cent.
The bumpy day contrasted with strong gains at the start of the week, with the S&P 500 enjoying its largest two-day rally since the depths of the coronavirus pandemic in spring 2020 as some analysts and investors identified bargain opportunities after three straight quarters of losses.
The gains had picked up following the release of weaker than expected US labour market data on Tuesday that showed the number of job vacancies in the world’s largest economy dropped in August to 10.1mn, below economists’ forecasts of 10.8mn and the previous month’s figure of 11.2mn.
Jobs reports have been closely watched as an indicator of how far and fast the US Federal Reserve will tighten monetary policy to curb inflation, with stronger data driving expectations of more aggressive action and weaker numbers soothing concerns over the scale of future rate rises.
Concerns have intensified in recent months that the Fed and its peers will increase borrowing costs to such an extent that they compound an economic slowdown.
Mexico’s president praises Senate for extending military’s power
Mexican president Andrés Manuel López Obrador welcomed the Senate’s approval of a constitutional amendment that extends the defence ministry’s authority over public safety until 2028.
The Senate’s vote to keep soldiers on the street for the next six years follows the legislative body’s recent approval of an amendment that places the National Guard under military command, even though the constitution mandates it have civilian leadership.
“We have confidence in the members of the Armed Forces,” López Obrador said at a press conference on Wednesday, “because a different conception of absolute respect for human rights now prevails.”
López Obrador has depended heavily on the military through his administration for tasks ranging from building and operating major infrastructure projects to managing seaports and a national park.
Approval of the amendment follows a pair of investigations raising questions about the military’s actions during the 2014 attack on 43 students from a teacher’s college in rural Guerrero state.
A team of outside experts said last week that soldiers hindered access to army files, violating López Obrador’s instructions. The experts also found text messages traded between soldiers and members of the drug cartel accused of attacking the students.
The defence ministry has also come under scrutiny for its alleged use of Pegasus spy software against journalists and human rights workers. On Wednesday, it acknowledged that it does indeed posses the spyware, but denied using it against the individuals.