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Tag: INFL

  • Canada housing market upturn could delay shift to BoC rate cuts

    Canada housing market upturn could delay shift to BoC rate cuts

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    TORONTO, May 14 (Reuters) – Signs of recovery in Canada’s housing market after a year-long slump, just as higher borrowing costs are expected to slow much of the rest of the economy, could raise inflation and delay a shift by the central bank to interest rate cuts, analysts said.

    The housing market’s upturn comes after the Bank of Canada paused its interest rate hiking campaign last month, leaving the benchmark rate at a 15-year high of 4.50% since January.

    In addition, analysts say higher borrowing costs have so far caused less financial stress for homebuyers than they had expected, so the market has not had to accommodate a flood of supply from forced sellers.

    The BoC is counting on slower economic growth to return inflation to its 2% target. A rebound in the housing market could boost activity and contribute directly to price pressures.

    “The Bank of Canada at the end of the day is probably not going to be too thrilled if the housing market really starts to ramp up,” said Robert Kavcic, a senior economist at BMO Capital Markets. “From a shelter cost perspective, you are going to start to see more upward push on inflation in the second half of this year.”

    The cost of shelter has the highest weighting in Canada’s consumer price index, accounting for 30%. And, home prices tend to be highly visible, so an increase could have a pronounced impact on inflation expectations, analysts say.

    The average price for a home in the Greater Toronto Area, Canada’s most populous metropolitan region, rose in April on a month-over-month basis for a third straight month, while sales also moved higher. Other major markets have also showed gains.

    Despite higher borrowing costs, mortgage delinquency rates have remained low for now in Canada after mortgage borrowers were put through a stress test showing they could manage if interest rates were 2 percentage points higher than the rate on their loan.

    In addition, variable-rate borrowers have been sheltered from higher interest rates after lenders temporarily extended the period over which their debt is amortized, keeping their payments the same.

    “One of the reasons the market has been able to stabilize so quickly is because there’s just no forced selling,” Kavcic said.

    Things could change – Royal Bank of Canada recently warned of the risk that mortgage delinquencies rise by more than a third over the coming year.

    The other worry is that stress in the U.S. regional banking sector could spill over to Canada. Clues on that front could come from the BoC’s Financial System Review – an annual checkup of financial system tensions – which is due for release on Thursday.

    But there are also tailwinds to support a recovery, including supply shortfalls, record immigration and labor market strength, analysts said.

    Wage growth could cool over the coming months, helping to lower inflation, but the Bank of Canada “is unlikely to be in a rush to cut interest rates if house prices are roaring higher again,” Stephen Brown, senior Canada economist at Capital Economics, said in a note.

    Reporting by Fergal Smith; Editing by Steve Scherer and Jonathan Oatis

    Our Standards: The Thomson Reuters Trust Principles.

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  • Saudi Arabia could invest in Iran ‘very quickly’ after agreement – minister

    Saudi Arabia could invest in Iran ‘very quickly’ after agreement – minister

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    RIYADH, March 15 (Reuters) – Saudi Arabia’s Finance Minister Mohammed Al-Jadaan said on Wednesday that Saudi investments into Iran could happen “very quickly” following an agreement to restore diplomatic ties.

    “There are a lot of opportunities for Saudi investments in Iran. We don’t see impediments as long as the terms of any agreement would be respected,” Al-Jadaan said during the Financial Sector Conference in Riyadh.

    Iran and Saudi Arabia agreed on Friday to re-establish relations and re-open embassies within two months after years of hostility, following talks in China.

    “Stability in the region is very important, for the world and for the countries in the region, and we have always said that Iran is our neighbour and we have no interest to have a conflict with our neighbours, if they are willing to cooperate,” Al-Jadaan later told Reuters in an interview.

    The hostility between the two Middle Eastern powers had endangered the stability and security of the Middle East and helped fuel regional conflicts including in Yemen, Syria and Lebanon.

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    “We have no reason not to invest in Iran, and we have no reason not to allow them to invest in Saudi Arabia. It is in our interest to make sure that both nations benefit from each others resources and competitive advantage,” Al-Jadaan told Reuters.

    “If they (Iran) are willing to go through this process, then we are more than willing to go through this process and show them they are welcome and we would be more than happy to participate in their development,” he said.

    CHINESE LEVERAGE

    The deal, brokered by China, was announced after four days of previously undisclosed talks in Beijing between top security officials from Saudi Arabia and Iran.

    China has leverage on Iran and Tehran will find it difficult to explain if it does not honour the agreement signed with Saudi Arabia in Beijing, another Saudi official told reporters, separately, on Wednesday.

    The official, who declined to be named, said China is in a unique position as it enjoys exceptional relations with both Iran and Saudi Arabia.

    “China is the first trading partner for both countries so the leverage is very important in that regard. And since we are building confidence, that commitment should be made with the presence of Chinese officials,” he said.

    Saudi Arabia cut ties with Iran in 2016 after its embassy in Tehran was stormed during a dispute between the two countries over Riyadh’s execution of a prominent Shi’ite Muslim cleric.

    The kingdom also has blamed Iran for missile and drone attacks on its oil facilities in 2019 as well as attacks on tankers in Gulf waters. Iran denied the charges.

    The most difficult topics in the talks with Iran were related to Yemen, the media, and China’s role, the official said without elaborating.

    Both sides have agreed to re-activate a 2001 security agreement, which covers cooperation in fighting drugs, smuggling and organised crime, as well as another earlier pact on trade, economy and investment.

    “Resuming diplomatic relations does not mean we are allies… Diplomatic relations are the norm for Saudi Arabia, and we should have them with everybody,” the official said.

    Additional reporting by Aziz El Yaakoubi; Writing by Clauda Tanios and Hadeel Al Sayegh; Editing by Christopher Cushing, Jon Boyle and Andrea Ricci

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  • Canada’s deep yield curve inversion adds to BoC rate hike dilemma

    Canada’s deep yield curve inversion adds to BoC rate hike dilemma

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    TORONTO, Dec 4 (Reuters) – As the Bank of Canada considers ditching oversized interest rate hikes, it is dealing with an economy likely more overheated than previously thought but also the bond market’s clearest signal yet that recession and lower inflation lie ahead.

    Canada’s central bank says that the economy needs to slow from overheated levels in order to ease inflation. If its tightening campaign overshoots to achieve that objective it could trigger a deeper downturn than expected.

    The bond market could be flagging that risk. The yield on the Canadian 10-year government bond has fallen nearly 100 basis points below the 2-year yield, marking the biggest inversion of Canada’s yield curve in Refinitiv data going back to 1994 and deeper than the U.S. Treasury yield curve inversion.

    Some analysts see curve inversions as predictors of recessions. Canada’s economy is likely to be particularly sensitive to higher rates after Canadians borrowed heavily during the COVID-19 pandemic to participate in a red-hot housing market.

    “Markets think the Canadian economy is about to suffer a triple blow as domestic consumption collapses, U.S. demand weakens and global commodity prices drop,” said Karl Schamotta, chief market strategist at Corpay.

    The BoC has opened the door to slowing the pace of rate increases to a quarter of a percentage point following multiple oversized hikes in recent months that lifted the benchmark rate to 3.75%, its highest since 2008.

    Money markets are betting on a 25-basis-point increase when the bank meets to set policy on Wednesday, but a slim majority of economists in a Reuters poll expect a larger move.

    RESILIENT ECONOMY

    Canada’s employment report for November showed that the labour market remains tight, while gross domestic product grew at an annualized rate of 2.9% in the third quarter.

    That’s much stronger than the 1.5% pace forecast by the BoC and together with upward revisions to historical growth could indicate that demand has moved further ahead of supply, economists say.

    But they also say that the details of the third-quarter GDP data, including a contraction in domestic demand, and a preliminary report showing no growth in October are signs that higher borrowing costs have begun to impact activity.

    The BoC has forecast that growth would stall from the fourth quarter of this year through the middle of 2023.

    The depth of Canada’s curve inversion is signaling a “bad recession” not a mild one, said David Rosenberg, chief economist & strategist at Rosenberg Research.

    It reflects greater risk to the outlook in Canada than the United States due to “a more inflated residential real estate market and consumer debt bubble,” Rosenberg said.

    Inflation is likely to be more persistent after it spread from goods prices to services and wages, where higher costs can become more entrenched. Still, 3-month measures of underlying inflation that are closely watched by the BoC – CPI-median and CPI-trim – show price pressures easing.

    They fell to an average of 2.75% in October, according to estimates by Stephen Brown, senior Canada economist at Capital Economics. That’s well below more commonly used 12-month rates.

    “The yield curve would not invert to this extent unless investors also believed that inflation will drop back down toward the Bank’s target,” said Brown.

    Like the Federal Reserve, the BoC has a 2% target for inflation.

    “The curve is telling us the Bank of Canada will be forced into a reversal by late 2023, with rates remaining depressed for years to come,” Corpay’s Schamotta said.

    Reporting by Fergal Smith; Editing by Andrea Ricci

    Our Standards: The Thomson Reuters Trust Principles.

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  • Consumer inflation in Japan’s capital rises at fastest pace in 40 years

    Consumer inflation in Japan’s capital rises at fastest pace in 40 years

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    • Tokyo Nov core CPI up 3.6% vs f’cast +3.5%
    • Tokyo CPI stays above BOJ’s 2% target for 6th straight month
    • Data underscores broadening inflationary pressure

    TOKYO, Nov 25 (Reuters) – Core consumer prices in Japan’s capital, a leading indicator of nationwide trends, rose at their fastest annual pace in 40 years in November and exceeded the central bank’s 2% target for a sixth straight month, signalling broadening inflationary pressure.

    The increase, driven mostly by food and fuel bills but spreading to a broader range of goods, cast doubt on the view of the Bank of Japan (BOJ) that recent cost-push inflation will prove transitory, some analysts said.

    The Tokyo core consumer price index (CPI), which excludes fresh food but includes fuel, was 3.6% higher in November than a year earlier, government data showed on Friday. The rise exceeded a median market forecast of 3.5% and the 3.4% increase seen in October

    The last time Tokyo inflation was faster was April 1982, when the core CPI was 4.2% higher than a year before.

    While the rise was driven mostly by electricity bills and food prices, companies were also charging more for durable goods as the weak yen pushed up the cost of imports, the data showed.

    “Price hikes are broadening and suggests the weak yen could keep inflation elevated well into next year,” said Mari Iwashita, chief market economist at Daiwa Securities.

    “Core consumer inflation may stay around the BOJ’s 2% target for much of next year, which would make it hard for the bank to keep arguing that the price rises are temporary.”

    The Tokyo core-core CPI index, which excludes fuel as well as fresh food, was 2.5% higher in November than a year earlier, picking up from the 2.2% annual gain seen in October.

    BOJ AN OUTLIER

    The BOJ has kept interest rates ultra-low on the view that inflation will slow back below its target next year when the boost from fuel price gains dissipate. The central bank has therefore remained an outlier from a wave monetary tightening around the world aimed at combating soaring inflation.

    Contrary to the experience of some western economies, where wages have surged with inflation, growth in wages and services prices remain muted in Japan.

    Of the components making up the Tokyo CPI data, services prices in November were up just 0.7% on a year earlier, after a 0.8% annual increase seen in October. That compared with a 7.7% spike in durable goods prices for November, which followed October’s 7.0% annual gain.

    Separate data released by the BOJ on Friday showed the corporate service price index, which measures prices that firms charge each other for services, had been 1.8% higher in October than a year earlier. That was slower than a 2.1% annual gain seen in September.

    BOJ Governor Haruhiko Kuroda has repeatedly said that, for inflation to sustainably hit his 2% inflation target, wages must rise enough to offset the rise in goods prices.

    Slow wage growth has been among factors delaying Japan’s recovery from the coronavirus pandemic. The world’s third-largest economy unexpectedly shrank an annualised 1.2% in the third quarter, partly because of soft consumption.

    The Tokyo CPI data heightens the chance of further rises in nationwide core consumer prices, which in October were 3.6% higher than a year earlier, also marking a 40-year high. The nationwide data for November is scheduled for release on Dec. 23.

    Reporting by Takahiko Wada and Leika Kihara; Editing by Sam Holmes and Bradley Perrett

    Our Standards: The Thomson Reuters Trust Principles.

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  • Ghana plans to buy oil with gold instead of U.S. dollars

    Ghana plans to buy oil with gold instead of U.S. dollars

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    ACCRA, Nov 24 (Reuters) – Ghana’s government is working on a new policy to buy oil products with gold rather than U.S. dollar reserves, Vice-President Mahamudu Bawumia said on Facebook on Thursday.

    The move is meant to tackle dwindling foreign currency reserves coupled with demand for dollars by oil importers, which is weakening the local cedi and increasing living costs.

    Ghana’s Gross International Reserves stood at around $6.6 billion at the end of September 2022, equating to less than three months of imports cover. That is down from around $9.7 billion at the end of last year, according to the government.

    If implemented as planned for the first quarter of 2023, the new policy “will fundamentally change our balance of payments and significantly reduce the persistent depreciation of our currency,” Bawumia said.

    Using gold would prevent the exchange rate from directly impacting fuel or utility prices as domestic sellers would no longer need foreign exchange to import oil products, he explained.

    “The barter of gold for oil represents a major structural change,” he added.

    The proposed policy is uncommon. While countries sometimes trade oil for other goods or commodities, such deals typically involve an oil-producing nation receiving non-oil goods rather than the opposite.

    Ghana produces crude oil but it has relied on imports for refined oil products since its only refinery shut down after an explosion in 2017.

    Bawumia’s announcement was posted as Finance Minister Ken Ofori-Atta announced measures to cut spending and boost revenues in a bid to tackle a spiraling debt crisis.

    In a 2023 budget presentation to parliament on Thursday, Ofori-Atta warned the West African nation was at high risk of debt distress and that the cedi’s depreciation was seriously affecting Ghana’s ability to manage its public debt.

    The government is negotiating a relief package with the International Monetary Fund as the cocoa, gold and oil-producing nation faces its worst economic crisis in a generation.

    Reporting by Cooper Inveen and Christian Akorlie
    Writing by Sofia Christensen
    Editing by Estelle Shirbon and Elaine Hardcastle

    Our Standards: The Thomson Reuters Trust Principles.

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  • Saudi Arabia ‘maturer guys’ in spat with U.S., energy minister says

    Saudi Arabia ‘maturer guys’ in spat with U.S., energy minister says

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    • OPEC+ oil output cut led to U.S., Saudi spat
    • Saudi Arabia and U.S. “solid allies” – minister
    • Big Wall St turnout at flagship Saudi investment summit

    RIYADH, Oct 25 (Reuters) – Saudi Arabia decided to be the “maturer guys” in a spat with the United States over oil supplies, the kingdom’s energy minister Prince Abdulaziz bin Salman said on Tuesday.

    The decision by the OPEC+ oil producer group led by Saudi Arabia this month to cut oil output targets unleashed a war of words between the White House and Riyadh ahead of the kingdom’s Future Investment Initiative (FII) forum, which drew top U.S. business executives.

    The two traditional allies’ relationship had already been strained by the Joe Biden administration’s stance on the 2018 murder of Saudi journalist Jamal Khashoggi and the Yemen war, as well as Riyadh’s growing ties with China and Russia.

    When asked at the FII forum how the energy relationship with the United States could be put back on track after the cuts and with the Dec. 5 deadline for the expected price-cap on Russian oil, the Saudi energy minister said: “I think we as Saudi Arabia decided to be the maturer guys and let the dice fall”.

    “We keep hearing you ‘are with us or against us’, is there any room for ‘we are with the people of Saudi Arabia’?”

    Saudi Investment Minister Khalid al-Falih said earlier that Riyadh and Washington will get over their “unwarranted” spat, highlighting long-standing corporate and institutional ties.

    “If you look at the relationship with the people side, the corporate side, the education system, you look at our institutions working together we are very close and we will get over this recent spat that I think was unwarranted,” he said.

    While noting that Saudi Arabia and the United States were “solid allies” in the long term, he highlighted the kingdom was “very strong” with Asian partners including China, which is the biggest importer of Saudi hydrocarbons.

    The OPEC+ cut has raised concerns in Washington about the possibility of higher gasoline prices ahead of the November U.S. midterm elections, with the Democrats trying to retain their control of the House of Representatives and the Senate.

    Biden pledged that “there will be consequences” for U.S. relations with Saudi Arabia after the OPEC+ move.

    Princess Reema bint Bandar Al Saud, the kingdom’s ambassador to Washington, said in a CNN interview that Saudi Arabia was not siding with Russia and engages with “everybody across the board”.

    [1/3] Saudi Arabia’s Minister of Energy Prince Abdulaziz bin Salman Al-Saud speaks at the Future Investment Initiative conference, in Riyadh, Saudi Arabia, October 25, 2022. REUTERS/ Ahmed Yosri

    “And by the way, it’s okay to disagree. We’ve disagreed in the past, and we’ve agreed in the past, but the important thing is recognizing the value of this relationship,” she said.

    She added that “a lot of people talk about reforming or reviewing the relationship” and said that was “a positive thing” as Saudi Arabia “is not the kingdom it was five years ago.”

    FULL ATTENDENCE AT FII

    Like previous years, the FII three-day forum that opened on Tuesday saw a big turnout from Wall Street, as well as other industries with strategic interests in Saudi Arabia, the world’s top oil exporter.

    JPMorgan Chase & Co Chief Executive Jamie Dimon, speaking at the gathering, voiced confidence that Saudi Arabia and the United States would safeguard their 75-year-old alliance.

    “I can’t imagine any allies agreeing on everything and not having problems – they’ll work it through,” Dimon said. “I’m comfortable that folks on both sides are working through and that these countries will remain allies going forward, and hopefully help the world develop and grow properly.”

    The FII is a showcase for the Saudi crown prince’s Vision 2030 development plan to wean the economy off oil by creating new industries that also generate jobs for millions of Saudis, and to lure foreign capital and talent.

    No Biden administration officials were visible at the forum on Tuesday. Jared Kushner, a former senior aide to then-President Donald Trump who enjoyed good ties with Prince Mohammed, was featured as a front-row speaker.

    The Saudi government invested $2 billion with a firm incorporated by Kushner after Trump left office.

    FII organisers said this year’s edition attracted 7,000 delegates compared with 4,000 last year.

    After its inaugural launch in 2017, the forum was marred by a Western boycott over Khashoggi’s killing by Saudi agents. It recovered the next year, attracting leaders and businesses with strategic interests in Saudi Arabia, after which the pandemic hit the world.

    Reporting by Aziz El Yaakoubi, Hadeel Al Sayegh and Rachna Uppal in Riyadh and Nadine Awadalla, Maha El Dahan and Yousef Saba in Dubai; Writing by Ghaida Ghantous and Michael Geory; Editing by Louise Heavens, Mark Potter, Vinay Dwivedi, William Maclean

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  • As UK’s Truss fights for job, new finance minister says she made mistakes

    As UK’s Truss fights for job, new finance minister says she made mistakes

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    • Truss sacked finance minister on Friday
    • New chancellor Hunt warns of tough decisions
    • ‘I’ve listened, I get it’, Truss says
    • BoE’s Bailey says agrees with Hunt on need to fix finances
    • Some Conservative lawmakers say Truss will be ousted

    LONDON, Oct 15 (Reuters) – Britain’s new finance minister Jeremy Hunt said on Saturday some taxes would go up and tough spending decisions were needed, saying Prime Minister Liz Truss had made mistakes as she battles to keep her job just over a month into her term.

    In an attempt to appease financial markets that have been in turmoil for three weeks, Truss fired Kwasi Kwarteng as her chancellor of the exchequer on Friday and scrapped parts of their controversial economic package.

    With opinion poll ratings dire for both the ruling Conservative Party and the prime minister personally, and many of her own lawmakers asking, not if, but how Truss should be removed, Truss is relying on Hunt to help salvage her premiership less than 40 days after taking office.

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    In an article for the Sun newspaper published late on Saturday, Truss admitted the plans had gone “further and faster than the markets were expecting”.

    “I’ve listened, I get it,” she wrote. “We cannot pave the way to a low-tax, high-growth economy without maintaining the confidence of the markets in our commitment to sound money.”

    She said Hunt would lay out at the end of the month the plan to get national debt down “over the medium term”.

    But, the speculation about her future shows no sign of diminishing, with Sunday’s newspapers rife with stories that allies of Rishi Sunak, another former finance minister who she beat to become leader last month, were plotting to force her out within weeks.

    On a tour of TV and radio studios, Hunt gave a blunt assessment of the situation the country faced, saying Truss and Kwarteng had made mistakes and further changes to her plans were possible.

    “We will have some very difficult decisions ahead,” he said.”The thing that people want, the markets want, the country needs now, is stability.”

    The Sunday Times said Hunt would rip up more of Truss’s original package by delaying a planned cut to the basic rate of income tax as part of a desperate bid to balance the books.

    According to the newspaper, Britain’s independent fiscal watchdog had said in a draft forecast there could be a 72 billion pound ($80 billion) black hole in public finances by 2027/28, worse than economists had forecast.

    Truss had won the leadership contest to replace Boris Johnson on a platform of big tax cuts to stimulate growth, which Kwarteng duly announced last month. But the absence of any details of how the cuts would be funded sent the markets into meltdown.

    She has already ditched plans to cut tax for high earners, and said a levy on business would increase, abandoning her proposal to keep it at current levels. But a slump in bond prices after her news conference on Friday still suggested she had not gone far enough.

    ‘MEETING OF MINDS’

    Kwarteng’s Sept. 23 fiscal statement prompted a backlash in financial markets that was so ferocious the Bank of England (BoE) had to intervene to prevent pension funds being caught up in the chaos as borrowing costs surged.

    British Prime Minister Liz Truss attends a news conference in London, Britain, October 14, 2022. Daniel Leal/Pool via REUTERS

    BoE Governor Andrew Bailey said he had spoken to Hunt and they had agreed on the need to repair the public finances.

    “There was a very clear and immediate meeting of minds between us about the importance of fiscal sustainability and the importance of taking measures to do that,” Bailey said in Washington on Saturday. “Of course, there was an important measure taken yesterday.”

    He also warned that inflation pressures might require a bigger interest rate rise than previously thought due to the government’s huge energy subsidies for homes and businesses, and its tax cut plans.

    Hunt is due to announce the government’s medium-term budget plans on Oct. 31, in what will be a key test of its ability to show it can restore its economic policy credibility.

    He cautioned spending would not rise by as much as people would like and all government departments were going to have to find more efficiencies than they were planning.

    “Some taxes will not be cut as quickly as people want, and some taxes will go up. So it’s going to be difficult,” he said. He met Treasury officials on Saturday and will hold talks with Truss on Sunday to go through the plans.

    ‘MISTAKES MADE’

    Hunt, an experienced minister and viewed by many in his party as a safe pair of hands, said he agreed with Truss’s fundamental strategy of kickstarting economic growth, but he added that their approach had not worked.

    “There were some mistakes made in the last few weeks. That’s why I’m sitting here. It was a mistake to cut the top rate of tax at a period when we’re asking everyone to make sacrifices,” he said.

    It was also a mistake, Hunt said, to “fly blind” and produce the tax plans without allowing the independent fiscal watchdog, the Office for Budget Responsibility, to check the figures.

    The fact that Hunt is Britain’s fourth finance minister in four months is testament to a political crisis that has gripped Britain since Johnson was ousted following a series of scandals.

    Hunt said Truss should be judged at an election and on her performance over the next 18 months – not the last 18 days.

    However, she might not get that chance. During the leadership contest, Truss won support from less than a third of Conservative lawmakers and has appointed her backers since taking office – alienating those who supported her rivals.

    The appointment of Hunt, who ran to be leader himself and then backed Sunak, has been seen as a sign of her reaching out, but the move did little to placate some of her party critics.

    “It’s over for her,” one Conservative lawmaker told Reuters after Friday’s events.

    ($1 = 0.8953 pounds)

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    Reporting by Michael Holden, Alistair Smout and William Schomberg
    Editing by Emelia Sithole-Matarise, Helen Popper, Ros Russell and Diane Craft

    Our Standards: The Thomson Reuters Trust Principles.

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