Financial Update

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British government plans housing market rescue: tax cuts, government fund

By Emily Flynn Vencat, The Associated Press

LONDON - The British government presented a package of tax cuts and spending moves Tuesday to try to reinvigorate a housing market suffering its worst crash since the early 1990s.
Treasury head Alistair Darling eliminated the 1% tax that buyers are required to pay for the next year on home purchases of less than 175,000 pounds (US$313,000) to encourage first-time buyers to jump on the property ladder.

Prime Minister Gordon Brown also unveiled plans to spend one billion pounds (US$1.8 billion) to help buyers hit by a cut in bank mortgage lending in the face of the global credit crunch.
Property prices have fallen 10.5 per cent in the last 12 months, according to Nationwide Building Society.

The billion-pound housing scheme targets first-time buyers and families at risk of having their homes repossessed.

Economic performance Canada's worst since 1991

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Julian Beltrame The Canadian Press OTTAWA

Canada's economy limped ahead in the second quarter barely enough to avoid the first recession in 17 years, recording the thinnest of gains after a much worse winter quarter than previously believed.

But with Statistics Canada sharply revising downward its first quarter tally on gross domestic product to a negative 0.8%, the modest 0.3% gain in the March-June period meant that the economy actually contracted during the first six months of 2008.

It constitutes the worst performance by the economy since 1991 and comes at a critical time for the Conservative government of Prime Minister Stephen Harper, who has hinted broadly he is close to seeking a second mandate.

Hoping to get ahead of the bad news, Finance Minister Jim Flaherty called an impromptu media scrum at the Toronto International Airport 15 minutes after the release of the figures to assure Canadians that economic fundamentals remain strong.

"Canada is better positioned than most to weather this period of global economic uncertainty,'' he told reporters. "For 2008 as a whole, I expect real gross domestic product to increase by about one per cent.''

But the Liberals were having none of that, accusing the government of mismanagement and not doing enough to help the embattled manufacturing sector.

"Stephen Harper and Jim Flaherty continue to talk about how good the 'fundamentals' are in Canada in spite of the fact that by any economic definition Canada is slumping,'' said Stephane Dion in a statement.

Liberal finance critic John McCallum said even more troubling to him was that Canada's economy struggled at the same time that the U.S. recorded an impressive 3.3 per cent growth, largely due to exports and a multibillion-dollar stimulus package.

Scotia Capital's Derek Holt said if Canada did avoid a mild recession -- assuming the second quarter GDP isn't revised downward at a later date -- it was mainly through a technicality.

The key point is that the Canadian economy contracted in the first half of 2008 and "more importantly it deteriorated at a faster pace than the Bank of Canada had expected,'' he said.

Holt said the miscalculation on the state of the economy has been large enough that Mark Carney, governor of Canada's central bank since February, should move quickly and cut interest rates next week by at least one-quarter of a point, and possibly by half a point.

"I think the bank misjudged the balance of risks in the summer and it's time to retract some of that,'' he said.

"Every single category of business declined and detracted from growth . . . residential structures, non-residential structures, business machinery and equipment. . . . and this is among the weakest pace of consumer spending we've had in years.''

But other economists questioned whether it was appropriate to talk about a recession when employment remains near record levels and incomes continue to grow.

"If it were a recession, Canadians should also see their incomes and spending power in decline,'' noted Avery Shenfeld, a senior economist with CIBC World Markets.

"Instead, real consumer spending advanced at a decent 2.5 per cent pace in the spring quarter. And both total wages and nominal after-tax incomes were climbing at a 4.5 per cent annualized pace, enough to cover the high gasoline bills without taking the savings rate below last year's average.''

The details of the growth results were no more comforting than the tepid overall numbers, with GDP edging up 0.1 per cent in the second quarter on a quarter-to-quarter basis. The monthly GDP advanced 0.1 per cent in June over May. Statistics Canada said the weakness was broad-based, encompassing exports, manufacturing -- particularly autos, forestry, and energy exports