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World Economic News Roundup: Issue 4, November 2018

An update on some of the most important news stories in the world economy over the last few days.

* US Economy Continues To Grow

The US economy continues to perform well. According to the US Department of Commerce the annualised rate grew 3.5% in 3Q 2018. This was 0.2% more than forecast, although slower than the 4.2% annualised growth in the second quarter.

Commentators have attributed the growth to rising government and consumer spending on the back of falling unemployment rates and a rise in military spending. However, exports slowed as the US-China trade dispute began to have some impact and also following a surge earlier in the year as companies increased activity to beat new tariffs.

US economic growth for 2018 overall is forecast at 3% – the highest for 10 years – although the Department of Commerce, together with many experts, expect US growth to moderate in 2019.

* Oil Price Falls As Global Economic Outlook Weakens

Oil prices fell at the start of this week, following a trend that could see their largest percentage decline since July 2016. Brent crude oil futures fell 6.5% over the month, while US crude futures fell 8.5%.

The oil price fell even in the anticipation of reducing supply due to the tightening of US sanctions on Iran which are due to take effect next week.

Commentators suggest the fall in oil prices is due to an expectation amongst analysts and investors that the global economy will slow. The IMF has also reduced its forecasts for global growth from 3.9% to 3.7% in 2018, 2019 and 2020, giving reasons such as the US-China trade war, slowdown in China and a ‘state of flux’ in the NAFTA and EU trading blocs. It also sharply revised prospects for the economy downwards in a number of emerging economies.

Earlier last month the IMF also said that the global economy is at risk of another financial crash.

* UK Budget 2018

In delivering the annual budget Chancellor Philip Hammond said forecasts for UK economic growth had been raised modestly to 1.6% in 2019, 1.4% in 2020 and 2021, 1.5% in 2022 and 1.6% in 2023.

The Chancellor said that “austerity is coming to an end but discipline will remain”, and said he was proposing a “budget for Britain’s future”. The budget appeared to be a departure from recent Conservative policy in that it increased public spending, wasn’t orientated around reducing the deficit, and also accelerated planned personal tax allowances.

Some of the key points are as follows:

* Increased public spending on health, defence, social care and the implementation of the new Universal Credit benefits system.

* Increase in the Income Tax personal allowance to £12,500 from April 2019, a year earlier than planned.

* Higher rate income tax threshold for 40% Income Tax to rise from £46,350 to £50,000 in April. This plus the personal allowance to be inflation linked in future.

* The National Living Wage to increase by 4.9% to £8.21 an hour in April 2019.

* Introduction of a new digital services tax on UK revenues of large (£500m+ sales) technology companies.

* No new private finance initiative (PFI) contracts to be signed.

* An extra £500m allocated for preparations for leaving the EU. Also, Hammond said that these budget measures could be amended in spring 2019 depending on what happens with Brexit.

* Changes to the IR35 rules, so that self-employment contractors who are considered to be ‘artificially self employed’ are taxed as employees from 2020. To be applied to large and medium size businesses.

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