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Can the UK government afford to increase public sector salaries?

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The UK government’s refusal to improve the wage offer for public sector workers has led to a direct clash with unions, with a wave of strikes set to disrupt key services in the run-up to Christmas.

As nurses and ambulance crews prepare to join railway workers, postal employees and border officials on the picket lines, Prime Minister Rishi Sunak said the current offers were “reasonable and fair”, while ministers stressed they could not be more generous without jeopardizing public finances and fighting for Reduce inflation.

“It is high inflation that eats away at people’s wages and that is why the government must take the tough decisions needed to support the bank [of England’s] A Treasury spokesperson said, adding that any deviation from this would result in a “mission”. . . long-run economic growth”.

But economists say the pressure on public sector workers is a political choice, rather than a necessity – and that better paying NHS staff could bring broader benefits to the economy.

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Are workers’ wages more in the private or public sector?

Average earnings excluding bonuses in the private sector rose 6.9 percent over the past year, according to The latest official data Too high for the Bank of England as it struggles to bring inflation back to its 2 per cent target. But public sector earnings grew just 2.7 per cent – trailing by one of the largest margins on record.

The government argues that this year’s pay awards, which vary by workforce but are in the region of 5 per cent, mark the highest rise the public sector has seen in 20 years. But the Treasury warned that those awards are higher than allowed under current spending plans, meaning next year’s reward could be lower.

Granting wages is well below the rate of inflation and comes after a long period in which austerity policies eroded the premiums public sector workers once enjoyed over their private sector counterparts. Research by the Institute for Fiscal Studies, a think tank, shows that public sector workers earn on average 3 percent less than their private sector counterparts in 2021, once bonuses are included.

They still do better overall if generous public sector pensions are factored in, but Ben Zaranko, chief economist at IFS, said this would be “a little consolation” in the current cost-of-living crisis, as they would have a lower take-home wage. Short term.

As a result, the government loses workers to the private sector, where employers are more willing to raise wages in order to combat labor shortages and help employees deal with cost-of-living pressures.

Can the government afford the salaries of public sector employees more?

Jeremy Hunt, the finance minister, has argued that raising wages in line with inflation for all public sector workers would cost taxpayers around £28bn – or £1,000 per household.

This calculation assumes a wage increase of 11 percent in 2023-24, to expand the workforce as well as this year’s wage bonus.

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Economists say this is misleading. Unions are sparring over a wage deal for this year, not next, and the government has already factored wage deals in the region of 4 to 5 per cent into its spending plans.

Zaranko said that if the government were to deliver a two-fold increase in wages in the current financial year, the extra cost to the Exchequer would be closer to £10 billion, given that workers would pay part of it in taxes.

However, any meaningful increase would not be within reach of current spending plans. The government has minimal leeway against its fiscal goals. “It has to be accompanied by higher taxes,” Zaranko said.

Will offering higher salaries in the public sector increase inflation?

In theory, wage deals to reduce inflation could lead to an increase in inflation. If the government offered workers double-digit wage increases without compensating them through higher taxes, it would pump more money into the economy, adding to inflationary pressures.

But public sector wages currently lag so far behind the private sector that there is little danger that the government will set any precedent for an inflationary increase in wages by firms.

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Tony Yates, an independent economist and former Bank of England official, said that if an increase in public sector salaries appears inflationary, the central bank can in any case offset it by raising interest rates. However, if the government finances higher salaries by increasing taxes, there will be no effect on inflation.

The real objection is the ideological, in particular the Tory’s no-brainer argument [a bigger state] In line with conservatism.

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Will the rise of the public sector impede long-term growth?

The government’s argument against increasing public sector salaries ignores the fact that efficient public services bring greater benefits to the economy.

there Mounting evidence Staff shortages are making it difficult for the NHS to tackle long waiting lists and for schools to help pupils replace what was lost during coronavirus lockdowns. This has long-term economic effects that could outweigh the direct costs of the wage increase.

The real question for ministers is how much they will need to pay to recruit and retain the people needed to deliver the public services that voters want.

“There is a huge macroeconomic case for the NHS to sort out,” Yates said, referring to the record number of people who said they were not in the workforce due to long-term illness. “If the money can vanish into that . . . the net benefits may be very great indeed.”

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We need to pay more attention to skewed economic signals

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The writer is chair of Queen’s College, Cambridge and advisor to Allianz and Gramercy

Inflation was the dominant economic and financial issue of 2022 for most countries around the world, especially for advanced economies that have a consequential impact on the global economy and markets.

The effects have been seen in declining living standards, increasing inequality, increasing borrowing costs, stock and bond market losses, and occasional financial mishaps (fortunately small and so far contained).

In this new year, recession, both actual and feared, has joined inflation in the driving seat of the global economy and is likely to replace it. It’s a development that makes the global economy and investment portfolios subject to a wide range of possible outcomes — something that a growing number of bond investors seem to be aware of more than their equity counterparts.

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International Monetary Fund iYou will likely review soon Her economic growth forecasts again, predicting that “a third of the world will be hit by recession this year”. What is particularly notable to me about these worsening global prospects is not only that the world’s three major economic regions – China, the European Union and the United States – are slowing down together, but also that this is happening for different reasons.

In China, a chaotic exit from the wrong Covid-19 policy is undermining demand and causing more supply disruptions. Such headwinds to domestic and global economic well-being will continue as long as China fails to improve the coverage and effectiveness of its vaccination efforts. The strength and sustainability of the subsequent recovery will also require that the country more vigorously renew a growth model that can no longer rely on greater globalization.

The European Union continues to deal with energy supply disruptions as the Russian invasion of Ukraine continues. Strengthening inventory management and reorientation of energy supplies is well advanced in many countries. However, it is not yet sufficient to lift immediate constraints on growth, let alone resolve long-term structural headwinds.

The United States has the least problematic view. The headwinds to growth are due to the Fed’s struggle to contain inflation after mischaracterizing rate increases as fleeting and then initially being too timid to adjust monetary policy.

The Fed’s shift to an aggressive front-load of interest rate hikes came too late to prevent the spread of inflation in the services sector and wages. As such, inflation is likely to remain stubborn at around 4 percent, be less sensitive to interest rate policies and expose the economy to greater risk for accidents from additional policy errors that undermine growth.

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The uncertainties facing each of these three economic areas suggest that analysts should be more careful in reassuring us that recessionary pressures will be “short and shallow”. They need to be open, if only to avoid repeating the mistake of prematurely dismissing inflation as transient.

This is especially important because these diverse drivers of recessionary risk make financial fragility more threatening and policy shifts more difficult, including potentially Japan. Get out of interest rate control Policy. The range of possible outcomes is extraordinarily large.

On the one hand, a better policy response, including improving the supply response and protecting the most vulnerable populations, can counteract the global economic slowdown and, in the case of the United States, avert a recession.

On the other hand, additional policy errors and market turmoil can lead to self-reinforcing vicious cycles with rising inflation and rising interest rates, weakening credit and compressed earnings, and stressing market performance.

Judging by market prices, more bond investors are better understanding this, including by refusing to follow the Fed’s interest rate guidance this year. Instead of a sustainable path to higher rates for 2023, they believe recessionary pressures will lead to cuts later this year. If true, government bonds would provide the yield and potential for badly missed portfolio risk mitigation in 2022.

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However, parts of the stock market is still weakly bearish pricing. Reconciling these different scenarios is more important than investors. Without better alignment within markets and with policy signals, the positive economic and financial outcomes we all desire will be no less likely. They will also be challenged by the risk of more unpleasant outcomes at a time of less economic and human resilience.

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Macro hedge funds end 2022 higher, investors say, while many others take big losses By Reuters

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© Reuters. FILE PHOTO: Traders work on the trading floor of the New York Stock Exchange (NYSE) in New York City, US, January 5, 2023. REUTERS/Andrew Kelly

By Svea Herbst Baylis

NEW YORK (Reuters) – Some hedge funds betting on macroeconomic trends have boasted of double and even triple-digit gains for 2022, while other high-profile companies that have long been on technology stocks have suffered heavy losses in volatile markets, investors said.

Rokos Capital, run by Chris Rokos and one of a handful of so-called global macro companies, gained 51% last year. Fund investors this week, who asked not to be identified, said Brevan Howard Asset Management, the company where Rokos once worked, posted a gain of 20.14% and Caxton Associates returned 16.73%.

Haider Capital Management’s Haider Jupiter Fund rose 193%, an investor said.

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Data from hedge fund research showed that many macro managers have avoided crumbling stock markets that have been rocked by rapid interest rate increases and geopolitical turmoil, including the war in Ukraine, to rank among the best performers in the hedge fund industry. The company’s macro index rose 14.2% while the general index of hedge funds fell 4.25%, its first loss since 2018.

Equity hedge funds, where the bulk of the industry’s roughly $3.7 trillion in assets are invested, fared worse with a loss of 10.4%, according to HFR data. And while that beat the broader stock market’s loss of 19.4%, some high-profile funds posted even bigger losses.

Tiger Global Management lost 56% while Whale Rock Capital Management ended the year with a 43% loss and Maverick Capital lost 23%. Coatue Management ended 2022 with a loss of 19%.

But not all companies that bet on technology stocks suffered. John Thaler JAT Capital finished the year with a 3.7% gain after fees after a 33% increase in 2021 and a 46% gain in 2020.

Sculptor Capital Management (NYSE::), where founder Dan Och is fighting the company’s current CEO in court over his salary increase, posted a 13% drop.

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David Einhorn’s Greenlight Capital, which bet that Elon Musk would be forced to buy Twitter, ended the year up 37% while Rick Sandler’s Eminence Capital rose 7%.

A number of so-called multi-manager companies where teams of portfolio managers bet on a variety of sectors also boast positive returns and have been able to deliver on their promise that hedge funds can deliver better returns in distressed markets.

Balyasny’s Atlas Fund (NYSE: Enhanced) gained 9.7%, while Point72 Asset Management gained 10%. Millennium Management gained 12% while Carlson Capital ended the year with a 7% gain.

Representatives for the companies either did not respond to requests for comment or declined to comment.

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German automakers point to easing supply chain problems

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Sales at BMW and Mercedes-Benz jumped in the final months of 2022 as the German premium auto brands indicated supply chain problems plaguing the industry were abating.

Automakers around the world have experienced parts shortages since the pandemic, especially semiconductors, leaving many of them with large fleets of incomplete vehicles that can’t be delivered to customers.

BMW and Mercedes each said their full-year vehicle deliveries fell last year by 4.8 percent and 1 percent, respectively, due to Suppliers Bottlenecks as well as lockdowns in China and the war in Ukraine.

But supply pressures eased in the last quarter of the year, as BMW recorded a 10.6 percent jump in sales, with 651,798 vehicles delivered, and Mercedes fulfilling 540,800 orders, up 17 percent from the same period in 2022.

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BMW He said the main effects of supply chain bottlenecks and continued lockdowns were felt in the first six months of the year, adding that “sales were steadily picking up in the second half.”

Mercedes boss Ula Kallenius told the Financial Times last week that the list of problems in the auto supply chain was declining, but added that long waits for cars would continue into 2023.

“One chip is enough to be vital [ . . .] Missing, and then you can’t finish the car, even if you have everything else.

Both brands recorded strong sales growth electric car. Mercedes, which last week announced a plan to build 10,000 charging docks, said EV shipments grew 124 percent to 117,800 last year compared with its predecessor.

Similarly, BMW reported strong growth in electric vehicle sales, with deliveries of fully electric vehicles doubling last year to 215,755.

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Analysts at Bank of America said that sales of electric vehicles, including hybrid cars, reached a historic peak last November, with 1.1 million units sold. They attributed this largely to the upcoming phase-out of customer subsidies in Germany.

Participate in Mercedes BMW and BMW prices held steady Tuesday morning as investors priced in an image of an improving showing.

Rolls-Royce, a subsidiary of BMW, announced Monday that sales have hit a 119-year record, driven by strong demand in the United States, its largest market.

The luxury brand has been largely unaffected by the semiconductor pressure, mainly because it makes relatively few compounds and therefore needs fewer chips.

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