by tyler | Oct 13, 2023 | CNN, economy
Persistently high inflation took a toll on Americans’ attitudes this month as many began to pay back student loans following a three-year hiatus.
The University of Michigan’s consumer sentiment index fell 7% in October from the prior month, according to a preliminary reading released Friday. Sentiment in October was gloomy by historical standards, but well above the all-time low recorded in June 2022 when inflation was at a four-decade high.
“Nearly all demographic groups posted setbacks in sentiment, reflecting the continued weight of high prices,” said Joanne Hsu, director of the university’s Surveys of Consumers, in a release.
Americans’ moods toward the economy are influenced by current events, including the recently unfolding war between Israel and Hamas, a spike in bond yields and the stalled selection of a new congressional leader.
“There are lots of other headlines that might be worrying consumers,” wrote Bill Adams, chief economist at Comerica Bank, in an analyst note Friday. “The impasse over the next House Speaker could be adding to fears of a government shutdown in November; the UAW strike; the restart of student loan payments; and the recent uptick in long-term interest rates could be affecting sentiment, too.”
Overall inflation has picked up in recent months due to higher oil prices, which pushed up retail gasoline prices. The Consumer Price Index rose 3.7% in September from a year earlier, slightly hotter than economists’ expectations, as higher gasoline and rents kept prices elevated.
US consumers are extremely sensitive to changes in gas prices, but after a late-summer surge, the pain at the pump has eased recently. Easing gas prices could bode well for Americans already dealing with higher borrowing costs and inflation in other areas such as housing. But that could change depending on the trajectory of the Israel-Gaza conflict.
Investors are currently pricing in some geopolitical risk, focusing on how tensions between Israel and its arch-enemy Iran play out. If a clear link to Iran emerges, analysts say, some kind of an intervention by the United States cannot be ruled out. That would likely entail tighter enforcement of existing sanctions on Iran’s oil exports, which could compromise current flows to the global oil market.
“The tremendous degree of uncertainty around the Israel-Hamas war means it’s very difficult to predict the potential economic fallout,” wrote Gregory Daco, chief economist at EY-Parthenon, in a statement provided to CNN.
A scenario in which the conflict broadens to include involvement from Iran and spillovers into Lebanon and Syria wouldn’t necessarily be of grave consequence for the United States, however.
“The inflation and growth consequences for the region and the rest of the world would likely be more significant than for the US,” Daco said. “A risk-off environment with falling yields and stock prices and rising volatility would further weigh on economic activity globally.”
He added that “a surge in oil prices in the current economic environment would likely lead to more demand destruction than in 2022 when the economy was fiscally stimulated.”
The survey’s index of personal finances plunged about 15%, “primarily on a substantial increase in concerns over inflation,” according to the release. October marks the first month of Americans paying back their student loans since the pandemic-related pause.
The pause gave relief to more than 43 million Americans who have student loans, with the vast majority owing less than $40,000 and nearly one-third owing less than $10,000. The resumption of student loan payments isn’t expected to have a major macroeconomic impact, but US consumers with student debt will still have to factor those payments in to their budgets.
The average monthly student loan payment is between $210 and $314, according to Wells Fargo.
Expectations for inflation in the year ahead rose to 3.8% this month from 3.2% in September, “the highest since May 2023” and “well above the 2.3-3.0% range seen in the two years prior to the pandemic,” according to the university. Expectations can worsen, the longer inflation remains elevated, so the upward pressure from higher gas prices on headline inflation can make Americans more pessimistic about inflation.
Federal Reserve officials pay close attention to longer-run inflation expectations. Americans’ outlook for inflation rates in the next five to 10 years edged up to 3% in October from 2.8% in September.
Minutes from the Fed’s policymaking meeting in September — when officials voted to hold rates at a 22-year high — said that “inflation expectations appeared to remain very well anchored.”
by tyler | Oct 12, 2023 | CNN, economy
Inflation remained elevated in September as gas and rents kept prices high and heaped more pressure on consumers, according to new data released Thursday by the Bureau of Labor Statistics.
However, the latest Consumer Price Index also showed that certain inflation gauges are the lowest they’ve been in more than two years.
The Consumer Price Index rose 3.7% for the 12 months ended in September, holding steady with August’s annual gain and landing a touch above economists’ expectations for a 3.6% rise.
On a monthly basis, prices grew 0.4%, landing above Refinitiv estimates for a 0.3% gain.
Although the annual headline inflation rate held steady, Thursday’s CPI report also showed encouraging progress on areas critical to American households as well as the Federal Reserve.
Food price inflation is at its lowest rate since March 2021, matching overall inflation at 3.7%. It’s the first time since early 2022 that food prices did not outpace overall inflation, CPI data shows. And grocery price increases are even lower, at 2.4% annually.
Also, underlying inflation trends are moving in the desired direction of the Fed, which has been on an inflation-busting campaign of rate hikes since March 2022.
When stripping out gas and food, the core CPI cooled for the sixth month in a row and was up 4.1% annually off a 0.3% monthly gain.
It’s the lowest annual growth rate for core CPI in two years. The monthly increase in core held steady from what was seen in August.
Nagging, and lagging, rents
The shelter index, which is largely a measurement of rental leases as well as the implicit rental value of owner-occupied properties, accounted for 70% of the monthly core increase and more than half of the overall monthly increase.
Economists have said that shelter costs, as measured by the CPI, should eventually start to wane. That’s because the CPI rental calculations significantly lag what’s happening in real time and are not showing the recent declines.
“Market rents are flat across the country since the end of last year,” Mark Zandi, chief economist at Moody’s Analytics, told CNN. “So it’s only a matter of time — months — before we start to see much slower increases in shelter costs. And once that happens, we’ll be back within spitting distance of the Fed’s target.”
Taking shelter out of the equation, core CPI rose just 0.1% for the month and is up 2% year over year, according to the report. That’s the lowest annual increase that index has recorded since March 2021.
The Fed’s goal inflation rate is 2%, as measured by the core Personal Consumption Expenditures price index. That inflation gauge remains nearly double that target rate — it rose 3.9% for the 12 months ended in August — however, it’s been steadily cooling.
“The Fed will want to see at least six months of lower inflation before declaring victory,” said Julia Pollak, chief economist at online job marketplace ZipRecruiter. “In the meantime, higher borrowing costs are weighing on households, particularly those with credit card debt or subprime car loans; and on businesses, especially those with high levels of debt in variable-rate bonds. If rates stay higher for longer, as the Fed has signaled, that will likely drag down consumer spending and business spending — including on hiring — in the coming months.”
Adding to the consumer headwinds are a cooler labor market, the return of student loan payments and slowing wage growth.
While that’s not great news for Americans, it could help bring down inflation.
“When you look ahead, and you look at the broader picture, we’re still in an environment in which labor market conditions are going to be softening and continuing to loosen, we are also expecting to see more disinflation from reduced housing rents and just lower economic activity,” Lydia Boussour, EY’s senior economist, told CNN in an interview. “So we do think that this disinflation trend remains in place and will continue as we head into 2024.”
There may be some bumpiness on that path lower, Zandi said.
“But we’re on a line, and I think we’re going to get back to the target and something all Americans feel comfortable with by this time next year,” he said.
by tyler | Oct 11, 2023 | CNN, economy
Wholesale price increases of US goods and services jumped higher for a third consecutive month, influenced by still-high energy prices, according to data released Wednesday by the Bureau of Labor Statistics.
The Producer Price Index, which measures the average price changes that businesses pay to suppliers, rose 2.2% for the 12 months ended in September. On a monthly basis, prices rose 0.5%, a slight cooldown from August’s 0.7% increase. September’s overall increase was driven by a 0.9% gain in goods prices due to higher energy prices and food prices, BLS data shows.
Economists had projected an annual increase of 1.6% and a monthly uptick of 0.3%, according to Refinitiv consensus estimates.
Gas prices hit new yearly highs in September, as oil prices pushed past $92 a barrel amid supply cuts and catastrophic flooding in Libya. However, in October, oil prices have swung in the opposite direction, a welcome development for consumers and the Federal Reserve alike.
When stripping out the more volatile components of food and energy, the core PPI rose 2.7% for the month and was up 0.3% for the year. While higher than the estimated 2.5% annual increase in August, the year-over-year increase in core PPI remains near its 2023 lows and well below the record 9.7% high hit in March 2022.
Notably, without the influence of energy and food, final demand goods prices grew only 0.1% from August to September, BLS data shows.
“While the disinflationary impulse from easing supply chain strains is largely over, the all-important PPI for trade services — a proxy for margins — has shown significant disinflation which should in turn feed into lower consumer price inflation,” wrote Gregory Daco, EY chief economist.
Still, September’s PPI report serves as a reminder that inflation’s path downward will be a bumpy one, as Federal Reserve Chair Jerome Powell has warned during the central bank’s rate-hiking campaign to cool inflation.
Chris Rupkey, chief economist at FwdBonds said Wednesday: “The Fed has not finished the job and stamped inflation out completely yet, and if anything, policymakers have their work cut out for them as much as the inflation we see in producer prices is coming from food and energy prices that monetary policy has less effect on.”
While a two-month surge in energy prices may be enough to cause a short-term pinch to consumers and businesses, economists don’t expect the recent upswing to have a lasting effect.
The higher gas prices seen in August and September may filter through to some products and services but shouldn’t ultimately keep inflation higher in the months to come, said Stuart Hoffman, PNC Financial Services’ senior economic adviser.
However, the Israel and Hamas war in the Middle East does add volatility to energy prices, he said.
PPI is a closely watched inflation gauge since it captures average price shifts before they reach consumers and serves as a potential signal for the prices consumers ultimately end up paying.
However, Wednesday’s PPI could be foretelling in a different sense. The Consumer Price Index report for September, scheduled to be released at 8:30 am ET, is expected to show a similar trend: High, but easing, gas prices that could push up overall inflation, with underlying price increases showing gradual improvement.
“The CPI [Thursday] will be even more important, and it’s likely to also show a little bit of a hot rise, but not as hot as the month before, on energy prices,” Hoffman said, adding that he anticipates monthly increases of about 0.3% to 0.4% on the headline index and 0.2% to 0.3% on core. “I think there’s enough there, given everything else that’s going on in the world, that the Fed is going to pass on a rate hike on November 1.”
The markets largely anticipate the Fed holding steady. The CME FedWatch Tool on Wednesday morning showed an 84.2% probability that Fed policymakers keep the benchmark rate in the current range of 5.25% to 5.5%.
“We also think that’s going to be a decision for many meetings to come, [for the Fed] to just basically run in place at 5.25% to 5.5% and not feel the need to raise rates anymore,” Hoffman said.
by tyler | Oct 11, 2023 | CNN, economy
It’s October, and for millions of Americans, a familiar interloper has slid its way back into that pile of monthly bills: The federal student loan payment, which is resuming after a three-year reprieve.
Economists say the loan payments alone aren’t expected to dent the economy. Instead, they’re more likely to deliver a small ding, thanks in part to recently launched federal repayment programs and forgiveness efforts that are blunting the initial impact.
However, they’re also returning at a time when consumer headwinds are picking up speed: Interest rates are sky high, debt is mounting, delinquencies are growing, inflation pressures remain, and the job market and wage growth have slowed considerably.
As such, many households are now having to shoehorn payments that are hundreds of dollars in size into already snug monthly budgets.
Something has to give.
“I think somewhere I’ll tighten up and spend a little less on groceries, but I don’t really know yet. Honestly, I go month by month,” said Justine Lyons, 49, of Decatur, Georgia. “I do have a little spreadsheet, where I lay it out a month or two in advance — and the next three months, they don’t look so good. Every month coming up looks tighter and tighter.”
The pandemic-related payment pause was transformational for many households, allowing them to buy homes, start families, pump money into the economy and pay down — or even pay off — those pesky and often hefty educational debts.
For households like the Lyonses, it was helpful in getting food on the table. The monthly sum not going toward repayment instead was absorbed by the highest inflation the United States has seen since the early 1980s.
Before the payment pause, Lyons had outstanding student loan debt totaling just under $40,000 and a monthly payment of nearly $300 a month, which was “not as bad as some, I know,” she said.
Still, for her situation — being a single mother for the past 10 years, raising three daughters (now aged 11 to 19) — Lyons knows that every penny is spoken for.
“It’s almost a little degrading, because I’m 49 years old, and I still feel like I’m scraping by,” she said. “Because every time you think you’ve got your foot stable, inflation goes up, the car insurance goes up, the groceries are just out of control.”
And now, the student loan payment is back in the mix.
When Lyons first ran the online calculator to estimate her expected loan payments, the system spat back a total that was tough to stomach: $380 each month. Cobbling that amount at this point in time would have been next to impossible, she said.
Fortunately, Lyons qualified for the newly launched Saving on a Valuable Education income-driven repayment plan, which dropped the monthly bill to about $150.
“I can do that,” she said. “It is stressful, for sure, because it’s just one more payment to take on and find somewhere, but I try not to dwell on it, and I will find a way to make it happen.”
About 43.4 million Americans have federal student loans, collectively amounting to $1.63 trillion of debt, according to the National Student Loan Data System.
Prior to the pandemic, student loan debt was the fastest-growing category of household debt, and vaulted from a 3% share in 2003 to 11% in 2018, according to Federal Reserve Bank of New York data.
The payment pause helped to cut that back down. Through June, outstanding student loans accounted for just over 9% of overall household debt (mortgages, understandably, account for the bulk of it, at 70%).
At the same time, Americans’ wealth grew during the past three years as spending was curtailed, the financial stimulus checks helped pay off a little debt, wages grew, the job market surged and the refinancing boom yielded $430 billion for 14 million households, New York Fed research shows.
“I think households are better equipped to handle this than they would’ve been before the pandemic, before the stimulus programs,” said Emerson Sprick, senior economic analyst with the Bipartisan Policy Coalition. “Of course, the lowest-earning households still collectively owe around $7 billion a year in student loan repayments. And for lower earners, that’s going to be hard.”
The Biden administration has sought to ease the blow by canceling millions of loans and launching the SAVE repayment plan. Especially in the short run, fewer households should face an immediate crunch, Sprick said.
“Unequivocally, things could be much worse,” he said.
The same goes for the overall economy.
The resumption of student loan payments is expected to shave off 0.4% to 0.6% from total annual consumer spending, said Shannon Seery, an economist with Wells Fargo.
“So that’s relatively small, when you think about that broken out on a monthly basis,” she said.
Some recent economic data does provide a window into that potential effect.
After the Supreme Court dashed any hopes of loan forgiveness, more Americans started making loan payments before the official repayment period, as well as interest, kicked in.
In August and September, the Department of Education recorded deposits of $6.4 billion and nearly $7 billion, respectively, according to Treasury data. By comparison, the Education Department recorded $13 billion in deposits for the entire 10 months prior, the data shows.
In August and September, consumer spending moderated only slightly.
“We still maintain the view that the student loan issue isn’t the straw that’s going to break the camel’s back here,” Seery told CNN. “It’s another burden, and it’s coming at a time when the household sector is more financially vulnerable.”
Oxford Economics estimates that the impact to economic growth would be relatively small, subtracting 0.1% from GDP this year and 0.3% next year.
“I think the economy’s in a better position to withstand this than we might have thought, but I do still think it’s one thing that’s going to contribute to a slowdown of economic growth as the year winds down,” said Nancy Vanden Houten, senior economist at Oxford Economics.
Prior to the pandemic, Brian Snyder and his wife were paying $615 a month between them on their student loans.
During the payment pause, the Snyders initially socked away all the extra money, as they didn’t know how fleeting it would be nor how safe their jobs were during the incredibly uncertain and volatile early stages of the pandemic.
“As it became more apparent that wasn’t going to be the case, but also the rumbling about the potential of the student loan forgiveness, then we started spending it,” said Snyder, 34, of Baltimore, Maryland. “We bought a camper, we went on vacation more, started going back out to eat a little bit more.”
Now that payments are restarting, the $615 is returning to the mix. While it shouldn’t cause any significant hardship, Snyder said, it will mean that fewer camping trips will be taken, dinners out will be cut back and other discretionary purchases won’t happen.
“It’s just all the supplemental spending, a lot of that will disappear so that we can make room for the [student loan] payments,” he said. “I think with the way the economy is, having that money go back into the economy in the ways of spending, I think would be really helpful. So, it’s unfortunate [forgiveness] didn’t happen.”
About 2,500 miles west, in Las Vegas, Megan Lopez, 33, was told she’ll qualify for the SAVE program, which could likely bring her payments down by nearly $400 a month to under $200.
However, the everyday cost of living combined with the mounting toll of inflation, rising insurance and child care costs means she and her family are “squeezing pennies from absolutely everywhere” and feeling increasingly worried about how much they’ll be able to spend during the holidays, she told CNN.
“It’s helpful for sure, because we could be paying more,” Lopez said. “But at the end of the day, it doesn’t get rid of the debt. And based on the cost of everything else, it just feels like you’re just barely staying above water.”
In Cedar Park, Texas, the payment pause put on hold $800 of a monthly $1,200 student loan bill for Logan Ricketts and his wife, Jamie.
The Rickettses, who before were living “straight paycheck-to-paycheck,” were able to get some breathing room, pay down the credit card bills and saved up enough to buy a home.
In recent months, they’ve tucked away a couple hundred dollars a month, put a good chunk of money toward home repairs and spent a smaller share on experiences such as concerts, date nights and taking some adventures with their two kids. For now, they’re staying the course on those spending patterns in part because the SAVE program reduced monthly payments.
“Little adventures,” Logan said. “No big adventures, because all that money is really just tied up in the house at the moment.”
Jonnisha McCleod, 29, of Omaha, Nebraska, initially held off on making her $200-a-month student loan payment during the pandemic pause until a conversation with her mother changed her approach.
“My mom said, ‘If you have the money, you need to pay for it; you didn’t lose your job, pay it off while you don’t have to pay any interest on it,’” McCleod said. “Because she herself also had student loans and said, ‘you don’t want to be like me and have student loans for 20 years.’”
Not knowing how long the pause would last, McCleod kept making those payments and then some: With a growing desire to be debt-free, she paid extra when she could, even allocating her tax refunds to the cause.
By March of this year, that $12,000 debt was wiped out.
If she still had to pay $200 per month, “it would be a big stressor, because I’m not a super-rich person,” she said. “I’m not living paycheck to paycheck, but I don’t have an exorbitant amount of money to spend on debt and things like that. So that’s why I am happy that I am debt-free, so I don’t have to worry about that.”
Now in that position, she can continue paying for her Master’s program, saving for her first home, and spending a little every once in a while on experiences like dining out.
In the fall of 2019, Katrice Williams started a part-time law school program in pursuit of her dream as well as a desire to build wealth and stability for herself and her daughter.
But the single mother, who worked full time and applied for scholarships to defray as many costs as possible, was starting to buckle under the crushing weight of student loan debt incurred years before.
Williams couldn’t get ahead of the compounding interest that had ballooned her Master’s program debt to $91,000 from $79,000. And combined with $18,000 from undergrad, she was faced with a burdensome — and growing — $108,000 bill.
“In December of 2019, I was just really fed up,” said Williams, 36, of Cleveland, Ohio. “I felt like no amount of payment was going to pay this down.”
She started driving for UberEats part time in January 2020 in the hopes of putting those funds toward the student loan debt.
Two months later, she got a welcome respite when the pause button was pushed on those payments and that snowballing interest. During the Trump and Biden administrations’ payment relief pauses, Williams was able to pay down the debt by $87,487.03 ($16,000 of which came from landing a First Aid Beauty scholarship to wipe out undergrad debt).
Without the pause, Williams estimates she would have incurred more than $450 per month, or nearly $19,000, in interest alone. She also believes she was able to avoid having to take out loans to pay for home or car repairs, and she was able to build an emergency savings fund as well as a college savings fund for her daughter.
The pause benefited Williams’ “ability as a self-employed, disabled, African American woman to build a little more wealth and save for my daughter’s future,” she said. “If there were debt cancellation, it would be the biggest game-changer for closing the racial wealth gap, and I could substantially accelerate my financial independence.”
by tyler | Oct 11, 2023 | CNN, economy
Most Federal Reserve officials said last month that they expect one more rate hike, according to minutes from their September policy meeting released Wednesday. Some officials said that how fast inflation cools in the coming months will determine how long rates remain elevated.
“A majority of participants judged that one more increase in the target federal funds rate at a future meeting would likely be appropriate, while some judged it likely that no further increases would be warranted,” the minutes said.
The Fed held its key lending rate steady at a 22-year high in September as the central bank aims to assess more economic data to understand how the US economy is responding to previous rate hikes. Inflation’s steady descent over the past year, and the job market’s gradual cooldown, gave officials enough reassurance to pause, the minutes showed.
There is lingering uncertainty over how much the Fed’s 11 rate hikes since March 2022 will weigh on economic activity. Financial markets are pricing in another pause at the Fed’s upcoming October 31-November 1 monetary policy meeting, so that hike could come in December, depending on what economic figures reveal in the coming months.
The central bank’s latest set of economic projections also showed that most Fed officials expect fewer rate cuts next year, confirming investors’ fears that rates could remain higher for longer. Some officials said last month that how long they remain elevated hinges on inflation’s trajectory.
“A few participants noted that the pace at which inflation was returning to the committee’s 2% goal would influence their views of the sufficiently restrictive level of the policy rate and how long to keep policy restrictive,” according to the minutes.
The expectation that rates will remain elevated for longer thrust the bond market back into the doldrums, driving US Treasury yields higher and inflicting pain on investors who expected rate cuts sometime this year. The bond market’s selloff increases the financial burden for American families and businesses, since US Treasuries are the benchmark used to price debt. That means higher yields lead to higher rates on everything from car loans to the cost of mergers and acquisitions.
Fed Chair Jerome Powell has said the central bank needs to see “below-trend growth” to be assured that inflation is on track to the Fed’s 2% inflation target. It’s unclear how much higher yields will weigh on economic activity, but several Fed officials have said in public remarks this week that it could mean less action from the Fed. Wednesday’s minutes noted that “tighter credit conditions facing households and businesses were a source of headwinds for the economy and would likely weigh on economic activity, hiring, and inflation.”
If both economic growth and job market continue to cool, then the Fed might not go forward with another hike.
Employers added a robust 336,000 jobs in September as the unemployment rate held steady at low 3.8%, and some volatility in energy markets pushed up gas prices, leading to a pickup in headline inflation in August, though gas prices have retreated in recent days. The Labor Department releases its Consumer Price Index for September on Thursday.
This story is developing and will be updated.
by tyler | Oct 4, 2023 | CNN, economy
UK Prime Minister Rishi Sunak has taken the axe to Britain’s biggest current infrastructure project, ignoring warnings from business leaders that a U-turn would damage investor confidence in the country.
Sunak announced plans Wednesday to curtail High Speed Rail 2, known as HS2, the government’s flagship transport project intended to boost railway capacity and cut journey times between London, Birmingham and Manchester — England’s three largest cities.
The government will cancel the remainder of the project, scrapping the Birmingham-to-Manchester high-speed line and dashing hopes that it would deliver badly needed investment to less affluent parts of the United Kingdom.
The money saved will instead be reinvested into “hundreds” of new transport projects in the English midlands and the north of the UK, Sunak said at the Conservative Party Conference in Manchester in the north of England.
“This means £36 billion of investment the projects that will make a real difference across our nation,” he added. “Our plan will drive far more growth and opportunity here in the north than a faster train to London ever would.”
Sunak said the economic case for HS2 — a project 14 years in the making, plagued by repeated delays and cost overruns — had been “massively weakened” by a fall in business travel following the pandemic.
But business and political leaders, including members of the ruling Conservative Party, have strongly criticized the decision — leaked before Wednesday’s official announcement — as the latest example of confusing policymaking by the UK government.
“This is the biggest and most damaging U-turn in the history of UK infrastructure,” High Speed Rail Group, which represents rail and engineering firms, including Siemens and Hitachi, said in a statement. “What we have now is a plan for a railway that will not deliver the transformational benefits the north of England needs.”
Andy Street, the Conservative mayor of Birmingham, said the about-face “damages” Britain’s international reputation and that as a “serious G7 country” the UK had to be able to deliver on “difficult” infrastructure projects.
Investors had already committed “hundreds of millions, if not billions, of pounds” on the “promise” of HS2, he said in an interview with radio station LBC this week. “You cannot then turn around to those investors and say, ‘We’ve changed our mind.’”
One such investor is Tom Wagner, co-chairman of US private equity firm Knighthead Capital Management, which bought the Birmingham City football club earlier this year.
In a letter to Sunak published late last month, Wagner, now chairman of the club, said the improved connections with the rest of the UK that HS2 would bring was a “key” factor in Knighthead’s decision to invest in the club.
“The expectation is that the government will honor its commitment to deliver on publicly stated long-term plans,” he wrote. “Any deviation could result in a loss of investor trust, and this would have a considerable negative impact on the UK. The ambitious HS2 project falls into this category.”
Beyond the knock to business and investor confidence, there could also be an impact on local contractors and workers.
Scaling back the line will have “a chilling effect on the UK’s construction industry,” said Mark Reynolds, CEO of construction firm Mace Group, one of the contractors on the project.
“We look forward to seeing the detail of the hundreds of planned new rail and road projects,” he added, calling on the government to publish an updated infrastructure pipeline to give investors confidence and allow the construction sector to plan ahead.
Labor union GMB said cuts to HS2 would cost “hundreds” of jobs.
“The UK’s political instability was already holding the economy back — it will now be even harder to fund and deliver the new infrastructure that the country desperately needs,” the union’s head of research and policy, Laurence Turner, said in a statement.
The decision to scrap the northern leg of HS2 is just the latest policy muddle offered up by the UK government.
It follows last month’s decision to delay a ban on the sale of new gas and diesel cars by five years — a move criticized by leading automakers, including Ford (F), which had already invested heavily to meet the original target.
Sunak defended the newest policy shift, saying “facts have changed” and this required a change of direction.
He touted “ambitious” plans for new east-west transport links, dubbed “Network North,” and said the government would work to deliver quicker rail travel and more rail capacity between Birmingham and Manchester.
The HS2 line between the cities would have been up and running between 2035 and 2040.
Mark Allen, chief executive of listed property group Landsec, said the root of the issue was “less about the specifics of what HS2 will or won’t bring to the economy. It’s more what that says about our ability, or lack of ability, as a country to deliver major infrastructure projects.”
