Beyond Currency: Recent Episodes
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Managing a country’s monetary policy with only the “blunt” tool of short-term interest rates is challenging.Andrew Bailey took over as Governor of the Bank of England following an unprecedented period of stability for the economy. Almost at once, the country was plunged into the COVID-19 pandemic, followed by rising inflation, which was due, in no small part, to the level of support pumped into the economy by a government desperate to avoid a deep and lasting recession.The Bank of England was the first G7 Central Bank to begin to hike rates and while the MPC may have been a little timid in the incremental size of the hikes it made, the models they were using at the time were not equipped to forecast the pace at which inflation would rise.Never had so much fiscal support been pumped into the economy, so blaming Bailey and his colleagues for the level of inflation created is grossly unfair.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
On a visit to Warsaw yesterday, the Prime Minister announced a commitment for the UK to increase defence spending to 2.5% of GDP by 2030. This is a significant undertaking that will see the country spend several billion pounds to ensure that it can both defend itself adequately and provide support, as has been seen recently in nations like Ukraine.It would be cynical to say that the announcement was part of the Conservative Party’s election strategy. Still, it begs the question of which of the major parties is most committed to the safety of the country, as the geopolitical situation around the world has been at its most critical since the end of the Cold War.By comparison, the Opposition has also pledged to raise defence spending to the same level, but only when the country’s finances allow. Although the commitment is similar, it carries less weight than yesterday’s undertaking by Rishi Sunak.The Bank of England’s Chief Economist, Huw Pill, spoke yesterday of his view that a cut in interest rates is still “some way off”.He agreed that the recent absence of “bad news” had brought a cut in rates closer, there is still more risk to the economy from a cut which becomes considered to have been premature, than delaying until the MPC can be confident that inflation is truly under control.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The five lenders that constitute most of the mortgage lending market independently raised the rates at which they priced new loans yesterday.NatWest, Barclays, Accord, Leeds Building Society and HSBC, each cited the uncertainty surrounding the amount by which interest rates will be cut later this year.Medium and long-term interest rates have risen over the past few weeks as consumer price inflation in both the U.S. and UK, is due to the “stickiness” of consumer price inflation.The rises were insignificant, but the message they sent was more meaningful.Some economists believe that the Bank of England may not feel sufficiently confident about the path of price increases to cut rates before November. This is despite Andrew Bailey confirming recently that the Monetary Policy Committee does not have to wait until inflation reaches its 2% target for cuts to begin.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Members of the Government are beginning to question the definition of a recession to convince the public that the current upturn in economic activity started during the second half of last year.Unfortunately, if it looks like a duck, swims like a duck, and quacks like a duck, it is probably a duck. The data published during the period between July and December last year clearly shows that the economy teetered on the verge of contraction and, as the Head of the Office for Budget Responsibility said recently, it was always a risk that output would shrink, even if the shrinkage were minimal, as we have seen with hindsight.While preparing for the upcoming General Election, the Prime Minister is trying to show that the path he set out, halfway through 2023, was correct.He is likely wasting his time since the public knows full well that its pay bought less than it did one year previously, while household costs, like energy and services, were still rising.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The “basket” used to determine headline inflation does not always represent the everyday goods and services concerning the man in the street. While headline inflation fell according to data published yesterday, the fall was less than the market had predicted due to increases in the cost of hotel rooms and train fares.Although the cost of commuting has grown into a significant factor in many household budgets, very few people stay in a hotel regularly. The cost of accommodation is more of an issue for businesses than individuals.This is why Jerome Powell prefers to use personal consumption expenditures as a more rigorous guide to the “wider” view of inflation.The Basket used to calculate CPI is too “narrow” and needs to be updated so often that it becomes unrepresentative for comparative purposes.Headline inflation fell to 3.2% in March, down from 3.4% in February and less than the 3.1% the market had expected.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The March employment report was published yesterday, and it contained two items that will be of concern to members of the Monetary Policy Committee. Job creation is still strong, with the claimant count for February being revised down from 16.8k to 4.1k, while the March number was close to the long-term average at 10.1k. This led to an unchanged unemployment rate of 4% which is not a rate that is usually associated with an economy that has recently been in recession and even now is struggling for growth.Furthermore, the rise in average earnings was also unchanged at 5.6%. That will make introducing a cut in interest rates more difficult for the Bank of England.With monthly inflation data due for publication later this morning, the market's prediction is a fall from 3.4% in February to 3.1%. While any drop is positive, the rate of fall is still not what was expected at this stage of the economic cycle, with interest rates unchanged at a sixteen-year high for six months.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Governor of the Bank of England appeared before the House of Commons Treasury Select Committee yesterday and continued his recent upbeat view of the economy.He told MPs that the economy is already showing signs of an upturn, after dipping into the very shallow recession that he had predicted during his last testimony.He also told the cross-party committee that, in his opinion, inflation will fall to 2% in the coming months before picking up again later in the year.The recession that was over almost as quickly as it had begun bears no comparison with previous recessions over the past fifty or sixty years since the fall in GDP barely registered on the precise scale used to measure a recession with two successive quarters of contraction the “basic minimum.”During the recessions of the seventies, the cumulative fall in output was much larger at around 2.5%, so by comparison using the size and the duration of the latest downturn it barely registered.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Former Fed President Ben Bernanke has completed his review of the Bank of England’s inflation forecasting models. In a statement on Friday, the Bank’s Governor, Andrew Bailey, said that the review marked a once-in-a-generation opportunity to “upgrade our forecasting” and ensure that it is fit for purpose in an uncertain world.It is understood that Bernanke made twelve recommendations for upgrades. “The forecasting and policy challenges faced by the Bank of England in recent years were hardly unique. Still, they have served as a stress test of forecasting at the Bank,"" Bernanke said. ""The Bank, like other Central Banks and policy institutions, will be working to draw the appropriate lessons from this experience. The goal of this review is to assist in this effort.""Bailey and his colleagues can expect their forecasting to be severely tested in the coming months as the growing threat to the economy from the worsening situation in the Middle East and the continued “stickiness” of domestic consumer price inflation.Data published on Friday showed that the economy grew for the second month in February. While the Office for National Statistics will want to wait until the Data for March is released, the economy likely has already recovered from the recession it dipped into in December last year.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
When he became Prime Minister, Rishi Sunak made five promises about his priorities: Halve inflation, grow the economy, reduce debt, reduce waiting lists and stop the boats.Other than the halving of the rate of inflation, which he can hardly claim to have “had a hand in”, his record so far has been pretty abysmal.The economy indeed appears to have scraped its way out of the recession that it dipped into in the final two quarters of 2023, but data published yesterday showed growth of just 0.1% in February, following a 0.3% rise in GDP in January, hardly a result to shout from the rooftops.His efforts to reduce immigration have barely got off the ground, due in no small part to the efforts of his backbenchers, while the national debt has barely changed while households are still struggling with the cost-of-living crisis.The NHS is close to being swamped every month now, with the so-called “winter crisis” now having given way to an “all-year-round crisis”.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Labour Party has a problem. In the recent past, it had to do very little other than “sit back” and watch as the Conservative Party came close to tearing itself apart. It felt like backbench Conservative MPs were doing the hard work that Labour should be doing to pit itself forward as a viable Party to lead the country for the next five years.British politics appears to have a finite tolerance for political dogma. It happened to both Thatcher and Blair, two of the more resilient Prime Ministers of the modern era, and it is happening now to the present Government, despite the issues that Cameron, May, Johnson, Truss, and Sunak have faced driven by Brexit and the Pandemic.Towards the end of last year, Rishi Sunak’s Cabinet resembled a rabble, seemingly accepting its fate to face years in the political wilderness that is opposition.However, since the turn of the year, there has been an almost inevitable improvement in the state of the economy, since the recession that began in the final two quarters of 2023 ended as quickly as it began. There has been no economic miracle, it is more a case of the economic cycle reaching its nadir, and while the nascent recovery owes nothing to the efforts of Sunak and Jeremy Hunt to fan the flames, neither they nor the Bank of England can take any credit.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The second half of this year is expected to see a significant rise in volatility in financial markets as G7 Central Banks begin to make good on their commitments to cut short-term interest rates.Several members of the Bank of England’s Monetary Policy Committee have “pledged” that if inflation continues to fall, and there is no spike in wage demands, cuts will begin in the current quarter.The Bank’s Chief Economist, Huw Pill, and two of the independent members of the committee remain slightly more hawkish than their colleagues regarding the cuts' number and incremental value.Pill wants to be “convinced” that inflation will not flare up once cuts begin, although he has not provided any criteria for that to happen. Catherine Mann and Jonathan Haskell both see the economic risks as being balanced. They believe that inflation is not yet under control while growth is beginning to become more easily attainable, although geopolitical conditions are still a concern. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The latest data for wage growth show that increases have fallen to their lowest level since the middle of 2020. This satisfies the more hawkish monetary policy committee members that there is likely a significant rise in demand driven by a loosening of monetary policy.Bank of England Governor, Andrew Bailey, has been more pragmatic about the prospect of a cut in interest rates recently. He acknowledges that there is an economic need for rates to be lowered, even though his preference would be for inflation to have fallen to the Bank’s 2% target. His comment that inflation does not have to have fallen to that level before rates are cut if it is consistently moving in the right direction, has led the market to believe that the Bank is committed to cutting rates.The next opportunity for the first cut to take place is at the meeting which takes place on May 9th, however, there was no indication at the meeting a little over two weeks ago that the committee is happy that prices are at a level where they would be comfortable cutting rates, and the market expects that there will be a significant amount of advance guidance provided that a cut is imminent.The concern that a wage/price spiral was beginning which would see inflation climb due to the additional costs firms incurred that would force them to raise prices, which in turn led to businesses facing demands for higher wage increases which created a seemingly endless round of higher wages and prices appears to have eased. This should see one of the major concerns of independent MPC members Catherine Mann and Jonathan Haskell removed.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Government needs to concentrate on the step-up in economic performance since the start of the year, rather than talking about tax cuts that are being swallowed up by the continued “stickiness” of inflation.If the Conservative Party is to make a meaningful contest of the upcoming election and make ground in the opinion polls, they need to not only promote how the economy is recovering from the twin effects of the Pandemic and the cost of living crisis, neither of which any G7 nation was immune from, and challenge the Opposition’s proposals for future growth.Economic output has recovered well from the mild recession that took place in the last quarter of 2023. Growth of 0.2% was achieved in January according to preliminary data, which may well be revised upwards. Data for February will be published later this week, and it is expected to show another increase.Services output is still strong, while manufacturing is experiencing an expansion for the first time in 20 months.Employment is still growing, and the number of new claimants stays reasonably stable.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Data published this week has provided the market with a sense of optimism that the economy is indeed on an upward trajectory, as the Prime Minister has suggested recently.Preliminary PMI data has shown that manufacturing activity has moved into expansion for the first time in many months, driven partly by an increase in the desire of UK companies to “buy British”. Furthermore, although there was a marginal decline in the latest figures, services output is now firmly in expansive territory. This has led the composite data to continue to show improvement.The housing sector is “holding its own” with data for mortgage approvals that was published yesterday, showing that approvals rose to £60.823 million from an upwardly revised £58.08 million.Andrew Bailey has encouraged the market to believe that an interest rate cut is “around the corner” as the headline rate of inflation continues to fall.The two members of the MPC who have been concerned about the possibility of a rate cut reigniting inflation, both voted for rates to remain on hold, with one, Catherine Mann, commenting that the balance of risks in the UK economy is now balanced between inflation and recession is now roughly equal.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Accountancy firm KPMG warned in a note to investors yesterday that unless the Bank of England moves quickly and decisively to ease monetary policy, the economy will begin to suffer, and this will cut off any hopes of a recovery before the General Election.They called for Andrew Bailey and his colleagues on the Monetary Policy Committee to start to cut rates at once and make four twenty-five basis point cuts by the end of this year.It is well known that Bailey is fiercely protective of the Bank’s independence, but KPMG believes that unless cuts begin by June’s meeting at the latest, the Government's slim chance of winning the election will be lost. In his most recent press conference, Bailey told reports that a cut in rates is “in play” but when questioned on the timing of the first cut, he replied “not yet”.Headline inflation fell to a lower-than-expected 3.4% last month.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Rishi Sunak’s recent claims that the economy “turned a corner” at the beginning of the year and has more recently shown signs of a significant improvement have been dismissed as little more than electioneering.However, upon closer inspection, several emerging factors should lead to a rise in living standards, which are at their lowest level since World War Two, and a fall in the cost of living.The beginning of the new quarter saw the state pension increase by 10% and several benefits. This may well cause the Bank of England to wince, as it may cause core inflation to rise due to increased demand. Furthermore, the average annual cost of energy fell by close to £250 in the latest period. The economy is experiencing its first period of expansion of manufacturing output since before the COVID-19 pandemic. The S&P Purchasing Managers index came in a 50.3 with anything above 50 indicating expansion.This may be just a “flash in the pan”, but anecdotal evidence from factory owners shows that it may be the beginning of a more robust period for the economy. Forward indicators are predicting a healthy increase in activity and output.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Despite the view of Catherine Mann, the prospect of a rate cut at the June meeting of the MPC is gaining traction. Bank of England Governor Andrew Bailey has laid out clear conditions that will need to be in place and commenting that inflation doesn’t need to have reached the Bank’s target of 2% before a cut can take place, has made a June cut far more likely.Wage increases are one of the most obvious reasons that there may still be inflation “in the system” since they take time to work their way through. For that reason, the MPC will be “keeping an eye” on the employment reports during the next quarter to ensure that as inflation continues to fall, average earnings continue to follow.The BRC-Nielsen Shop Price Index showed that “shop inflation” continued to fall in March, with both food and non-food products falling, month-on-month by 0.3% and 0.4%, respectively.Overall, shop price inflation fell below 2% for the first time in more than two years. The Easter Holiday will have proved expensive for consumers, with the significant increases in both sugar and cocoa. Many retailers reduced the size of their products, a less obvious way of increasing prices, but they fooled very few people.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Independent member of the Monetary Policy Committee, Catherine Mann, voted for rates to remain unchanged at last week's meeting. This was the first time she had not voted for a hike since the committee began to hike rates in December 2021. Initially, she voted for higher incremental increases. She has more recently vehemently called for the MPC to continue to hike the rate after the majority of the committee voted for a pause, which then saw the end of the program of rate hikes.Following the meeting on February 1st, she commented that she had been close to voting for no change, but still felt that the effect of secondary inflation would still see the fall in inflation continue to be slower than the Bank desired.It was always considered to be one of the most interesting takeaways from last week's meeting to see if Mann finally voted with the majority for rates to remain unchanged. Mann was joined by Jonathan Haskell who has been a constant, but less vociferous hawk since the pause began.Yesterday, Mann gave her reasons for her change of heart and spoke of her view now being that the balance of risks between inflation and growth was roughly equal.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The clear implication of Andrew Bailey’s press conference following last week’s Monetary Policy Committee meeting was that the Bank of England is close to feeling able to cut interest rates.The headline rate of inflation has consistently fallen since the start of the year, which is a condition that Bailey set out in a previous speech. This was the first meeting in two years when no member voted for a rate increase. Catherine Mann, the Committee’s “resident hawk,” “celebrated” her reappointment to the committee by voting for no change, as she was close to doing in February.The only dissenting voice came from Swati Dhingra, who continued her “campaign” for rates to be cut immediately since she believes that the economy may be headed for a hard landing where inflation falls well below the Bank’s 2% target.Now that the three most influential Central Banks with the G7 have held their March meetings, the Bank of England has taken over as the one expected to cut rates first.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The rate of inflation fell by more than expected in February as last year’s energy price shock “fell off” the year-on-year numbers. The headline rate of inflation in February was 3.4 higher than a year ago. This was significantly lower than the rate of 4% recorded in January, and lower than the market's expectation of 3.6%.The data certainly keeps the idea of a summer rate cut “front and centre” in the minds of traders and investors and creates a small chance that the Monetary Policy Committee could cut rates at its meeting today.However, although Andrew Bailey spoke recently of his conditions for a rate cut being less demanding than the market had previously expected, the Bank of England Governor has said on many occasions that any decision on interest rates will be based on trends rather than one of data points.The data will certainly heighten the level of attention that today’s meeting will attract.There was a marginal fall in factory gate prices. In February, Producer Prices were 2.7% higher than a year ago. That was better than the 2.8 rise the market had been predicting.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The meeting of the Monetary Policy Committee that begins this morning has no “new news” to discuss. There will be a sense of relief that the “mini-recession” that started and appears to have finished at the back end of last year won’t force the Bank of England into a cut in interest rates that could be considered premature.Nonetheless, the economy would no doubt benefit from a cut in rates, but the unpredictability of the rate of inflation demands that the Bank remains cautious.Consumer price data will be published later this morning. It is expected to show that the rate of inflation fell to 3.6% in February, down from 4% in January. In his latest comments on inflation, the Bank’s Governor, Andrew Bailey, expressed his view that inflation only needs to show that it is on a sustainable path towards the 2% target to justify a cut in the base rate.It remains to be seen if a fall of almost half of one percent and the lowest rate of inflation in two years is sufficient justification for a cut. There will be a lively debate, with Catherine Mann altering her stance to neutral, after a lengthy period of voting for a hike. Her vote will be matched by a call from Swati Dhingra who will vote for a cut.The comments from the permanent members of the Committee recently have all been supportive of a cut in rates in the coming months, but there remains a hint of caution about when they should start.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Prime Minister is struggling to assert any authority over his MPs, who see him as not making any difference to their chances of being re-elected, no matter how many “resets” attempts. The budget was a major disappointment, with the promise of significant tax cuts “dangled” in front of them only to turn out as being significantly less radical than promised.Although the Labour Party is avoiding “showing its hand,” due to fears that they will be seen as “more of the same,” Sunak has gained an unfortunate reputation as being something of a “Jonah” for the Party. The more he tries to make changes, the worse the situation becomes.Although he could be expected to face criticism for the lack of growth and output being achieved, even his two major successes, in lowering both inflation and unemployment, are considered as being the work of others, while there have been several incidents that may have been unexpected but have nonetheless been handled clumsily.Rumours are swirling around Westminster that members of the Parliamentary Party are considering ditching Sunak since they feel he cannot win the election. In truth, which was the case when he came to power, Tory MPs, particularly those for whom this is their first Parliament, see their careers ending prematurely and are looking for a scapegoat.The MPC will begin its latest meeting tomorrow with a vote taking place on Thursday, and Andrew Bailey will hold a press conference around lunchtime, most likely to confirm that short-term interest rates will remain at 5.25%, their highest level since February 2008.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Since the Bank of England paused its cycle of interest rate hikes last September, there have been several schools of thought about when rates would begin to be cut.The more hawkish commentators, sided with MPC member Catherine Mann, sharing the view that prices would continue to rise for some time since there is a lag before the full effect of rate hikes “works its way into the economy”. They were correct in their assumption that wage rises would soon exceed the headline rate of inflation, which would slow the fall. The hawks felt that it might be necessary for a further hike to quash inflation, but that has not been the case. Although Mann voted for a hike on February 1st, she has since confirmed that she was undecided if another hike is now called for and will likely vote for no chance at the next MPC meeting.Andrew Bailey has been reluctant to provide any clues about the future path for short-term interest rates, preferring to “keep his powder dry” in case of a sudden surge in prices due to the developing political situation. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Yesterday’s publication of employment data provided yet another twist to the seemingly endless saga of the timing of an interest rate cut by the Bank of England. Earlier this month, following the Budget it had been assumed that with inflation still being “sticky”, the Bank would hold off on a rate cut, particularly since the economy had seemingly come out of recession as quickly as it went in.Now, the jobs data shows that the labour market is cooling, likely in response to the level of interest rates. This is a far longer-term effect of monetary policy and may lead to a change of view, although there are several “voices” on the MPC who are calling for rates to be kept “higher for longer.”The Bank’s Chief Economist, Huw Pill, commented that he felt that the first cut in interest rates is still “some way off”, while the Committee’s arch-hawk, Catherine Mann spiked only yesterday because of her belief that rates need to remain at their current level until there is solid evidence that inflationary pressures are consistent with the Bank’s 2% target.While the UK may not now be in recession, data published later this morning will go a long way to confirming that, the employment data resembles tion heading in that direction.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Bank of England’s Chief Economist has warned that a cut in interest rates is still “some way off”.The Bank has left interest rates unchanged at recent meetings to allow the fourteen consecutive hikes that began in December 2022 to bring inflation down to take full effect.Pill believes that there needs to be “compelling evidence” that the Consumer Price Index is down to a sustainable level, although the fact that inflation has remained at around 4% for the past couple of months shows that wage settlements are still having a detrimental effect on prices, and the economy is still seeing “secondary effects” that are making inflation “sticky”.It could be argued that the significant fall in inflation before the end of the year had more to do with the “mechanical effect” of elements in the calculation like energy prices dropping off.For that reason, it is unlikely that the MPC will vote for a cut before June, despite the protestations of some independent members of the committee.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Jeremy Hunt will deliver his budget to Parliament on Wednesday, and he is expected to reduce taxes as a prelude to the forthcoming General Election. With Rishi Sunak trying to promote a “feelgood factor” by commenting whenever he gets that chance that the “plan” is working, the electorate is being bombarded with reasons to vote for the Conservative Party. The time it has taken for the country to become disillusioned with a government has been constant over the past fifty years, with first Thatcher, then Blair, and now the “hotchpotch” of Prime Ministers since 2010 “outstaying their welcome.It is fair to say that the present Government has had to face two “once in a lifetime” events Brexit and the Pandemic, and it is hard to say that any Government would have been able to cope any better.The latest economic data shows that the country is in recession. However, both the City and the Bank of England believe that the country's economic performance since the turn of the year has shown a marked improvement, and the recession may have ended as quickly as it began.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
In his Spring Budget that will be presented to Parliament next week, The Chancellor of the Exchequer is reportedly considering ending “non-dom” status for tax purposes. This allows people “non-domiciled” in the UK to only pay tax on earnings derived within the country.This will come as a blow to Akshata Murty, the wife of the Prime Minister, who is considered the country’s most famous “non-dom”.It has long been a cornerstone of Labour Party policy to end this tax loophole, and Jeremy Hunt will have “stolen their thunder” by choosing to close it before the election.It will provide a significant boost to Hunt's plan to cut taxes and produce a significant windfall. It was estimated that at the end of 2022, 68,000 people were claiming this status, and ending it would reap an added £3.8 billion for the Treasury.Although this policy may discourage wealthy investors from coming to the UK, which is angering ministers, it would likely be seen by voters as a significant signpost towards the Government’s commitment to levelling up which was a hot topic at the 2019 election and was considered the cornerstone of Boris Johnson’s eighty seat majority.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Catherine Mann, the MPC’s most hawkish member, has recently attempted to justify her actions in continually voting for the Bank of England to continue to hike interest rates since the majority of her colleagues have voted for a pause.Earlier this month, she warned that increased hostilities in the Red Sea may lead to higher inflation, and yesterday she attempted to lay the blame for continued high inflation at the door of wealthy consumers who do not have the financial constraints that limit the “man in the street.”When the MPC met on February 1st, Mann again voted for rates to be hiked, although she did comment following the meeting that her vote had been “finely balanced”, leading the market to conclude that as inflation fell, she may change to voting for no change.The message that has been derived from her latest comments is that she remains a hawk and is searching for reasons to justify her view.The Bank of England forecasts that throughout 2024, inflation will fall from its current level of 4% to 2%, which is the Bank’s target. Andrew Bailey recently confirmed that if inflation is “on a sustained path towards its target,” the MPC won’t have to wait until it reaches 2% before beginning to cut rates.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Preparations for the Budget are entering their final stages, with the Chancellor still undecided about the size of the tax cuts he wishes to propose.It is believed likely that there will be a return to “traditional Conservative values,” which would mean significant cuts to direct taxation. There is a possibility that Jeremy Hunt may gamble on growth returning to the economy to such an extent that his proposals may, at least in part, be unfunded. This would mean that at the time of the proposal, the Treasury would be hoping that they can continue to provide services at their current level but will not have the resources to guarantee them without borrowing.This is the process that Kwasi Kwarteng used when proposing his “Budget for Growth” when Liz Truss was briefly Prime Minister, which was not received at all well by the City.Making unfunded proposals is a charge often levelled at the Labour Party, given its reluctance to “show its hand” when creating its manifesto for the General Election. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Bank of England appears to have performed a pivot following the news that the economy dipped into recession in the fourth quarter of 2023. When apportioning blame for the contraction, the media has decided that the fault lies with the Government. However, it is unclear what could have been done differently given the geopolitical situation. In contrast, the Bank was quick to react to the rise in inflation, hiking rates in December 2022 although the “drip feed” of twenty-five point increments “prolonger the agony”.Now, with inflation falling and likely to fall further given the regulator’s reduction of the price cap from £1,920 to £1,698 in April, Andrew Bailey and his colleagues who constitute the permanent members of the have given the market reason to believe that rates will be cut sooner than was previously expected.The Spring Budget will be delivered by the Chancellor, Jeremy Hunt, in a couple of weeks and there is speculation that he is mulling over more significant cuts in taxes than he was considering. The Public Sector Borrowing Requirement fell to £5.5 Billion from £7.1 Billion a year ago, which may provide Hunt with more “wiggle room”.It is unclear if Hunt and Rishi Sunak have agreed to deviate from “the plan.” Cutting tax would be more in line with Conservative Party values than the increases that have been agreed since the reversal of Liz Truss’s “Budget for growth” that almost wrecked the economy.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Independent MPC member, Swati Dhingra, followed up her testimony to the House of Commons Treasury Select Committee earlier in the week with a plea to her colleagues to consider the very real consequences of a failure to cut interest rates from their current, sixteen-year high.Although she has voted for a cut at several MPC meetings recently, Dhingra will have been encouraged by the testimony of Bank of England Governor, Andrew Bailey, who told MPs that as wage increases continued to moderate, there is no reason to delay a rate cut until inflation has reached the Treasury’s target of 2%.Dhingra believes that waiting for indicators to reach a particular level when those indicators are lagging the “real” economy, is counterproductive and carries its risks.Since wage growth had been between four and five per cent before the global financial crisis, the current level of 6% is consistent with an inflation rate of 2%, particularly given the productivity gains that have taken place since 2008/10.When considering the possibility of a soft landing for the economy, Dhingra warned that history shows that “overtightening” presents a risk of a hard landing, where job creation falls into negative territory without a comparable fall in inflation.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Bank of England Governor, Andrew Bailey, gave an unusually bullish assessment of the prospects for a recovery in the UK economy yesterday. Bailey considers that the cumulative contraction of the economy by 0.5% is by far the “mildest” recession that the UK has seen in the past fifty years.In earlier recessions, the minimum contraction has been 2.5%.He was joined by MPC colleague, Ben Broadbent, in giving testimony to the Parliamentary Treasury Select Committee. Broadbent went on to say that, although two quarters of negative growth is the “standard” definition of a recession, different countries, including the U.S. define a recession in different ways.Bailey was also surprisingly dovish about a cut in interest rates. He said that the Bank could begin to cut rates before the rate of inflation falls to the Treasury’s target of 2% if the progress that has been made so far on service sector inflation and the labour market continues.“Wages are adjusting downwards, contributing to lower inflation overall, which is encouraging.” Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The former Chief Economist of the Bank of England, Andrew Haldane, provided a stark warning yesterday of the consequences if the Bank doesn’t lower interest rates soon.Haldane who left his role in June 2021, when the base rate of interest was 0.10% warned that the recession could be made “immeasurably worse” and “crush” the economy.Ironically, Haldane was an advocate for higher interest rates during his time as Chief Economist. He was succeeded by Huw Pill, who hasn’t always been popular with the City of London owing to his often blunt appraisals of the economy.Haldane went on to say that, in his opinion, the balance of risks points to a further contraction rather than a surge in inflation. The MPC is still concerned about the tightness of the labour market and rising prices in the services sector, as well as geopolitical threats to supply chains.The independent members of the MPC each have considerably different views than the permanent colleagues.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Last week’s publication of inflation data for the UK was overshadowed by the news that the country had slipped into a recession. A closer inspection of the data showed that headline inflation fell by more than the market had expected. Sterling surprisingly ended the week stronger, even though the pressure on the Bank of England to cut interest rates has intensified. The Chancellor was relaxed over the news that the Fourth quarter GDP fell by 0.3% after a 0.1% fall in the period between July and September. He told reporters that his faith in the Monetary Policy Committee to make a “considered decision” about when to cut interest rates remains “unshaken.” Two independent members of the MPC commented on their views about the economy and inflation on Friday. Catherine Mann, the most hawkish member of the group, said that the news that the economy had fallen into recession had come as no surprise to her. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
After months of speculation about when interest rates will be cut, the pressure for cuts to take place has been “ramped up” by the news that the UK economy has slipped into a recession.There have now been three recessions in the past twenty-five years, The first followed the financial crisis in 2008 and was by far the most severe. The recession that took place in 2022 was precipitated by the first Covid lockdown when the country’s retail and services sectors simply closed down.The economy has been “bumping along the bottom” for some time, and a recession can be caused by a slowdown in a single sector of the economy. That is what marks the current contraction apart.The construction sector has been struggling for a considerable period. It was on the cusp of a significant slowdown for almost 2023, but the fourth quarter of the year saw borrowing costs and inflation take a toll on activity.Although both the services and manufacturing sectors appeared to “weather the storm”, it was building projects which took the hit.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The rate of inflation was unchanged in January, as a rise in energy costs was offset by the first fall in overall food prices in two and a half years.While energy prices continue to fluctuate, driven by geopolitical events, a fall in food prices is seen as a genuine signal that inflation may be beginning to subside.There is a growing view that the issues surrounding Brexit may be the most significant factor in the Bank of England’s seeming inability to drive inflation down to its 2% target.Politically, it is unthinkable that in an election year, the Treasury would accede to any question of raising the target since it would open it up to charges of moving the goalposts to satisfy its own policy choices.Although the Budget is around three weeks away, rumours are beginning to circulate that Jeremy Hunt is considering further cuts to public services to fund far larger cuts in taxes than were previously being considered.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Bank of England Governor, Andrew Bailey, took time out from directing the country’s monetary policy yesterday, to reprise his previous role as Head of the Financial Services Authority.He spoke of how robust he believes banks in the UK have become, having embraced new regulations that have been put in place to support them following a period of severe macroeconomic disruptions over the past four years.However, he is “bewildered” by the fact that the bank’s share prices have been “stagnating” despite “significant” profitability and relatively low provisions for bad debt.The level of bank reserves with the Bank of England has grown over the past two years, and this adds to the nation’s financial stability.Bailey’s comments were a distraction from his “day job” which has thrust him into the limelight since he took over from Mark Carney, a Governor who was “adored” by the City.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Brexit is still a significant drag on UK productivity, despite the Government’s continued efforts to convince people that the implementation of the deal to leave the European Union is in the country's best interests.Economists at global investment bank, Goldman Sachs believe Brexit has shrunk the economy by around 5% reducing growth and adding to inflation.The reticence of investors to commit to the country due to the uncertainty that continues to surround the country’s ability to agree on trade deals with important trading partners like the U.S., Canada, and India is holding back its development of new export markets.The UK imports a substantial volume of its agricultural product needs, and there have already been small but significant protests from farmers who believe that imports of cheap, low-quality meat, fruit, and vegetables are destroying their livelihoods.It may well be that the changes to the economy that Brexit have brought could mean that the Bank of England’s 2% for inflation is now undeliverable. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
This week will see two important pieces of economic data released, which will be eagerly awaited by both the Government and the Bank of England.The January employment report will be published tomorrow, followed on Wednesday by the latest inflation figures.Andrew Bailey, the Governor of the Bank of England, is facing the unenviable task of explaining why as average earnings continue to fall, the headline rate of inflation rose last month. Bailey has said recently that the lowering of wage demands is crucial in driving inflation down to the Bank’s target of 2%.Average earnings are expected to have fallen to 5.7% from 6.5% while the new claimant count will remain around 10k, leading to a fall in the unemployment rate to 4%.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Catherine Mann, the MPC’s resident hawk, spoke yesterday of her continued fears that there may be a flare-up in inflation if the Bank of England bows to market pressure and cuts interest rates in the coming months. Realizing that she is a lone voice standing for the hawkish “team”, she is struggling to find justification for her view that inflation remains the most significant factor currently driving the UK economy.In her speech yesterday, she alternated between the attacks on shipping in the Red Sea and a possible rise in energy prices to rationalize her opinion, which is becoming more than a little outdated.She struck a marginally less hawkish note in her final remarks, in which she acknowledged that her vote to hike rates at the most recent MPC was finely balanced, a sign that she is beginning to moderate her position.Following his clash with the Prime Minister at Prime Minister’s Questions on Wednesday, the Labour leader, Sir Keir Starmer, was faced with the unenviable task of announcing another U-turn in his Party’s policies. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Swati Dhingra, by far the most dovish member of the Bank of England’s Monetary Policy Committee has reiterated her call for an immediate interest rate cut.She warned that the Bank is seriously underplaying the risks to the UK economy by keeping rates at a sixteen-year high for longer than is necessary. Dhingra told the Financial Times that she is “not convinced that there is any kind of sharp excess demand that is coming from the consumption side”.She went on to say that as pandemic-era savings drop and job vacancies decline, the economy may start to be affected in a profoundly negative way. She doesn’t understand why the MPC would take such a risk. As inflation falls, she is also concerned that leaving rates as they are may lead to an overtightening.Dhingra believes that given that it takes some time for any monetary policy actions to work their way through into the mainstream economy, the risks of a cut now are negligible. She was the only member of the MPC to vote for a cut at last week's meeting.Andrew Bailey and Hugh Pill have made the case for their decision to vote for rates to remain unchanged since the meeting. Bailey believes that with inflation falling, it makes no sense to jeopardise the good work that has already been done but risk a flare-up now, while Pill believes that rate cuts later in the year will be a “reward” for seeing inflation return to its target level.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Even though he faces the prospect of the UK continuing to have the highest inflation rate in the G7, Andrew Bailey has softened his stance over rate cuts somewhat. He has now acknowledged that rates will need to fall in the coming months to ensure that the economy doesn’t fall into a recession.However, he still believes that the MPC is right to continue to focus on bringing inflation down by keeping rates at sixteen-year highs for the time being.He has listened to the arguments of his fellow MPC members, but he feels that the majority opinion is that rates should remain at an appropriate level to strike a balance between inflation and growth.However, Hugh Pill, the Bank’s Chief Economist, struck a more hawkish tone in a question-and-answer session yesterday. Pill would only commit to rates being cut this year, saying that any cut would be a “reward” for a fall in inflation. He believes that rates should remain unchanged until inflation is anchored at 2%Despite adverse weather conditions and pressure on household spending, retail footfall held up well in January. Although the attitude of shoppers is quite different from “spend, spend, spend,"" the consumer is proving far more resilient than the financial markets may have imagined.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The only game in town at the moment is predicting when the first cut in interest rates will be made. Although it resembles the frenzy which surrounded the pause and eventual end of interest rate hikes, the current interest is more intense.It is as if every piece of data, every comment from an MPC member, and every geopolitical event is either dissected in the search for clues or is in some way related to this thirst for clues.This is in some ways a unique situation, many investors, traders and market commentators have never seen considerable changes in monetary policy happening and are fascinated that after such a long period of low inflation and stable interest rates, such a series of events are taking place to pique their interest.An example of almost every piece of news being viewed through the lens of its effect on monetary policy is the Prime Minister's claim that the airstrikes that have been taking place in Yemen currently are in self-defence. They are a direct result of the economic effect of the attacks that have been taking place over the past several months on British and other nations shipping entering the Red Sea via the Gulf of Aden.Last week, the market’s thirst for knowledge was barely quenched by the level of data that was released. The comments made by Andrew Bailey following the MPC meeting were overshadowed, possibly intentionally, by the FOMC meeting, which had more global significance.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
In his press conference following the latest Monetary Policy Committee meeting, Bank of England Governor, Andrew Bailey, admitted that an interest rate cut is “under review”. Surely that is the purpose of the regular meetings of the Committee, even when the outcome is as certain as is currently the case.Yesterday's meeting saw six votes to leave rates unchanged, two votes for a hike and one for a cut.The Changes from the last meeting were that Swati Dhingra voted for rates to be cut after voting for no change in December, while Megan Greene changed her vote from hike to no change.Catherine Mann and Jonathan Haskell both voted for a hike, just as they did in December. True to form, the five permanent members of the committee voted, “en bloc” for no change.Over the next month, the four independent members will no doubt take the opportunity to explain to the market their reasons for voting as they did.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Bank of England needs to begin rate cuts at once to “supercharge” the economy and supply a boost to consumers. That is according to the right-wing press, which traditionally supports the Conservative Party. A rate cut following today’s MPC meeting would send the perfect message to the country that the recovery is well underway.It is highly unlikely that Andrew Bailey and his colleagues will take that advice since they remain concerned about a flare-up in the rate of inflation. Instead, Bailey is expected to deliver another low-key press conference in which he repeats the challenges that still face the Bank that initially saw it embark on an extended rate hike cycle which began in December 2021 and continued until September last year.Bailey is the least comfortable of the G7 Central Bank Governors when facing the press. He better suits his earlier role as head of the financial regulator, wishing to stay out of the limelight. That was seen as acceptable when he took over from Mark Carney at a far more “peaceful” time for the world's Central Bankers. He was expected to manage the ramifications of Brexit while managing monetary policy in a low-inflation environment. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Chancellor of the Exchequer has been warned that the UK would be better off by boosting public spending in several key areas of the economy rather than cutting taxes. The Fund’s economists stopped short of calling the tax cuts an election gimmick, but they believe that they may not be possible without additional borrowing or post-election spending cuts.The damage to public finances by the support that has been given by Ukraine and the continuing cost of the Pandemic needs to be repaired while maintaining high-quality public services and undertaking critical public investments in transport infrastructure and the NHS would be a far better use of any windfall.In any other year, Hunt would probably agree, but he needs to contribute to the attempt to win the election, and he needs to get voters “onside”.The IMF has the luxury of simply being able to comment on what it believes would be best for the UK economy, irrespective of any outside pressures. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The output data that was published last week showed that although the services sector has seen a significant rise in productivity, manufacturing output still is in contraction.However, the “third leg” of the country’s GDP, construction, is going through another major downturn.It would be simple to blame Brexit and the number of tradesmen from the mainland who have left the country since the UK left the EU, but the issue is more systemic than that.The two main subdivisions of the sector, private sector new builds and repair and maintenance, are expected to contract by 2.1% this year. As with several other areas of the economy, the high-interest rates have made mortgages expensive, while home improvements, the creation of additional space in domestic homes, through loft conversions and extensions, have been badly hit.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
This week’s meeting of the Bank of England’s rate-setting Monetary Policy Committee will almost certainly vote for rates to remain unchanged. The latest data that has been released for output, employment and inflation shows that although progress has been made, there is no incentive for a cut since rates appear to be sufficiently restrictive to see inflation fall, but not drive the economy into a recession.Andrew Bailey and his colleagues from the Bank, who make up the permanent members of the Committee, will feel that one or possibly two further “pauses” will see inflation reach their target of 2%.Fiscal policy changes are going to provide sufficient stimulus for the economy to see a period of growth, and with rates sufficiently restrictive to put downward pressure on inflation, there will be no need for a change in monetary policy.It is expected that the four independent members of the committee, who have become irrelevant over the past few months, will begin to feel that a further hike is no longer necessary since any legacy of hikes that have taken place in the past will have faded.Last week saw the release of PMI data which showed that output continues to improve, particularly in the services sector, which is the main driver of GDP.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Economists at the Institute for Fiscal Studies believe that although there may be a “honeymoon period” during which there will be a feelgood factor generated by the first change in government for fourteen years, the overall effect of a Labour victory in this year’s General Election will not make a significant difference to the economy based solely on policies alone.The weak level of growth that is forecast together with the elevated level of interest that will still have to be paid on government debt will remain no matter the result. The tax cuts which have been alluded to by Jeremy Hunt in several recent speeches are little more than a bribe to the electorate and would be unlikely to happen were there not an election taking place. It may very well be that there will only be room for the initial cuts that are going to be delivered in the Spring Budget since there is a real doubt that any further “giveaways” will be possible. The strain on public services is already taking its toll. The short-term positivity that is currently being felt given that the state of public finances should allow Hunt to reduce the basic rate of income tax by one per cent in March, but, in truth, the additional funds would be better spent elsewhere.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
There is a marked contrast between the relative performance of the UK and the Eurozone so far in 2024.Data published yesterday revealed that the UK's services sector, which makes up 80% of GDP, powered ahead in January. Output grew to 53.8 preliminary data showed, up from 53.4 in December. Manufacturing output is still in contraction, but there was some improvement seen there too. Output in this sector grew from 46.2 to 47.3.It appears that economist's gloomy forecasts for the comparative performance of the UK versus the Eurozone may have been a little ill-advised. With the Bank of England expected to cut interest rates appreciably before the ECB, even if the total of cuts expected this year is going to favour the Eurozone, the outlook for the UK is improving. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
It is not a piece of data that usually excites the market, but yesterday's publication of the latest figures for the Government’s borrowing requirement provided Chancellor, Jeremy Hunt with an opportunity to make good on his promise that he will be able to cut taxes in his Spring Budget, that is due for delivery in early March.The data showed that the Government needed to borrow just £6.86 billion in December, down from a slightly revised figure of £12.78 billion in November and well below the market’s expectations.This means that the interest payable on the Government’s borrowing requirement will also have fallen, providing the Chancellor with yet more “wiggle room”.The interest payments on the entire UK Government debt have fallen from £14 billion to £4 billion in a little more than a year since the interest payments are linked to the Retail Price Index measure of inflation, which has more than halved over the same period.The Office for National Statistics reported that in the nine months to December, the Government borrowed a total of £119.1 billion, which was more than £11 billion more than over the same period a year ago, but significantly less than the amount forecast by the Office for Budget Responsibility.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
It may be little more than pre-election hype, but there is a growing feeling that the UK economy could achieve a soft landing in the coming months. This would be a far cry from the fears of a deep and long-lasting recession which gripped the market as the Bank of England appeared to be stuck on a “treadmill” of twenty-five basis point interest rate hikes that appeared to be never-ending as inflation remained stubbornly high.There is no definitive agreement on what constitutes a soft landing, particularly since it is a rare occurrence in the global economy while in the UK, particularly post-war, it has never happened.When considering the UK economy, a soft landing would typically be considered should the rate of unemployment fall to and remain below its long-term average while consumer prices are at, or close to, the Government's two per cent target.The Labour Party will dread such an event because although the Government cannot claim to have been instrumental in the fall in headline inflation in recent months, the Prime Minister promised that inflation would be halved during his first year in office, a goal that has been easily achieved.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Chancellor of the Exchequer, visiting the World Economic Forum in Davos, spoke of his belief that the UK is in the perfect position to become a “magnet for investment” in the tech sector. He outlined his optimism for the country’s growth and productivity and spoke of the Government's belief that there should be a light touch in the regulation of AI.Jeremy Hunt made “all the right noises” that would be expected from a finance minister in a Government that is facing a General Election later this year.Later, in an interview with financial journalists, Hunt strongly hinted that there would be further tax cuts, both in his Spring Budget that will be presented to Parliament in early March, and post-election, should his Party be returned to Government.Hunt wants the country to be able to compete with countries that currently have greater potential for growth than is seen here. In both the U.S. and Asia, personal taxation is lower than in the UK, and that is one reason for their greater productivity.The Pandemic has sped up the natural development of the tech sector and following Brexit, the UK is now perfectly positioned to be at the forefront of ground-breaking developments.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Rachel Reeves, the Shadow Chancellor of the Exchequer and likely to be the UK’s first-ever female finance minister sometime this year, gave a speech at the World Economic Forum in Davos yesterday in which she attempted to outline the Labour Party’s plans for the economy.She spoke of “turbocharging” the economy, but while the speech was long on positive rhetoric, it was sadly lacking in substance. As Chancellor, she will be expected to “have her finger on the pulse” of the country’s finances but became very “woolly” when asked about how any changes, particularly around cutting NHS waiting lists, would be funded.Following a keynote speech recently, her boss, the Leader of the Party, Sir Keir Starmer was asked a similar question, and he responded by using Labour’s current catch-all fund-raising scheme of abolishing non-dom tax status which appears to be the Labour equivalent of Theresa May’s “magic money tree”.Sadly, when quizzed about actual figures, Starmer was only able to talk in very general terms.There seems to be a real and growing concern that the Opposition may be becoming complacent about the election, just when the Government, at least as far as the economy is concerned, is on the cusp of turning things around, and regaining the country’s trust.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Yesterday’s publication of employment data for the three months to November showed a significant fall in average earnings, which will have supplied encouragement to those who see the Bank of England cutting interest rates sometime during this quarter.Wages rose by 6.6% between September and November from 7.2% in the three months to October. There was also a significant fall in the claimant count for November, revised close to almost unchanged, while there were 11.7k new claimants in December.The market will be keenly awaiting this morning's release of inflation figures for December, as the pressure begins to rise on the Bank of England to cut interest rates from their highest level for fourteen years.While the rise in wages was still close to double the pre-pandemic rate of 3.8% it represents a significant improvement as interest rate hikes continue to influence demand and the number of available jobs diminishes.The hawkish members of the Monetary Policy Committee will still be concerned about the level of wage growth and are unlikely to vote for a cut until even more progress has been made.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
2023 was a year of transition for the City of London. The concerns over jobs being lost to mainland Europe following Brexit were realised, as both numbers of vacancies fell, and jobs lost rose significantly. This reversed the post-Covid employment drive that coincided with the increase in home working.One of the more obvious effects of the downturn is seen in the profit warnings delivered in the past couple of weeks by recruitment firms. The warnings made by the likes of Hays, Indeed and Robert Walters are being seen as the first signs of a substantial slowdown in the employment market in general.This has raised concerns regarding the strength, or otherwise, of today’s publication of the December employment report. There could be a major surprise in the number of claimants, as it is estimated that 60k finance jobs were lost in 2023.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The publication of GDP data for November as well as industrial production figures showed that a recession will have been avoided in the fourth quarter.A contraction in the third quarter had led the market to believe that the economy would fall into recession when the data for the period between October and December was released. However, a contraction of 0.3% in October was followed by growth of 0.3% in November, leaving the outlook for the entire quarter in the balance.While the fact that the economy is flatlining is no cause for celebration, avoiding a recession would be seen as a victory of sorts by the Government.Preliminary PMI statistics for December have pointed to a pickup in activity in December, despite the storms that threatened to wreak havoc. Public sector activity is not part of PMI data, which may be a “saving grace” for Q4 GDPThe strikes that were called by junior doctors in December that have continued into the new year and led to 100k patient appointments being cancelled may see public sector activity dip again in the final month of 2023. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
It has emerged that the UK economy is currently around £140 billion smaller than it would have been had Brexit not taken place. A study by Cambridge Econometrics shows that by 2035, the “cost” of Brexit will have reached £300 billion. The study also shows that there are close to 300k fewer jobs in London than there otherwise would have been.Although the Government has paid a great deal of lip service to “levelling up” during this Parliament, the truth is that there continues to be a widening productivity gap between the Capital and the rest of the country. The largest impact has been in the employment market has been in the Construction sector, while most of the economic impact is being felt in the finance sector as major banks and finance houses are relocating their corporate head offices to European capitals like Paris, Frankfurt, or Brussels.On a brighter note, economists at Deutsche Bank estimate that headline inflation will fall to the Bank of England’s target of 2% this spring. This will supply further impetus to the growing calls for interest rates to be cut, which will in turn drive growth and encourage the jobs market.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Government of Rishi Sunak has been “disaster-free” for several months, and while there are still legacy issues around migration and the NHS, overall the public is beginning to see the potential in a Conservative Government that can plan for the future of the economy as inflation falls and Brexit and the Pandemic become “rearview mirror issues”.There is even a growing sense of optimism in the City that when the data for the fourth quarter is published, the country may have escaped being in a recession.There is still a long way to go before the country is on a path to sustainable growth, but if the election is to be fought with the economy as the main issue, the Conservatives would appear to have given themselves a “fighting chance.”The focus of financial markets criticism has firmly switched to the Bank of England, with economists being heavily critical of the role Andrew Bailey played in allowing inflation to rise above double figures, while the rest of the permanent members of the Monetary Policy Committee have been accused of “groupthink”.Going forward, the MPC will need to be more proactive in agreeing on rate cuts to ensure that a developing improvement in output continues and employment data is still positive. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
There is a growing feeling that inflation may be close to the lowest level that is achievable given current monetary policy. The rate hikes that have taken place can only reduce demand to a finite degree before they drive the economy into recession.The Bank of England is acutely aware that the economy will also be relying on a “global effect” from energy and food prices to bring price increases back close to the Government’s 2% target.While the fall in inflation over the past few months has been encouraging for those who want rate cuts to begin sooner rather than later, just as rate the final one or two hikes were critical in the fight against inflation, so the timing of cuts is just as vital. Too soon and inflation may reignite, too late and the economy will fall into a more prolonged recession.Former MPC member DeAnne Julius, who was a member of the rate-setting committee in calmer times, voted to maintain rates at more than half of her forty-five meetings, spoke yesterday of her opinion that the Bank of England may not be in a position to cut rates at all this year given the possibility of a fresh energy shock in response to any escalation of the conflicts in Ukraine and Gaza.The tensions that exist, particularly in Gaza, make a fresh energy shock a significant possibility. If that were to happen, it would leave the Bank of England’s plans in tatters and have a major effect on the Government’s ability to lower taxes both pre- and post-election as they have promised recently.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
A group of Government MPs have signed a letter to the Chancellor of the Exchequer which is fiercely critical of the role that the Office for Budget Responsibility plays in forecasting the economy, which has played a significant role in shaping Government policy.Even if the forecasts for 2019 and 2020 are removed, given the unforeseen circumstances around the COVID-19 pandemic, the Way Forward Group estimates that the OBR has made forecasting errors which have totalled more than £120 billion.Jeremy Hunt is under pressure to consider scrapping the Think Tank, which was set up by George Osborn to provide a central source of “scoring” for the effect of policy on the economy.Former Home Secretary Suella Braverman gave an example of the flaws in the OBR’s forecasts recently when she spoke of the positive effect of migration policy noted in the data, but it doesn’t include the effect of such policies on education and health, two areas where the Government, based upon the OBR’s figures have been accused of underinvestment.The forecasts for public sector borrowing have also been “wildly inaccurate” which has led to discrepancies in the amount of investment the Government can make in public services.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Prime Minister appears to have decided against calling an early election, commenting yesterday that he is working on the assumption that the election will be held in the second half of the year.These comments coincided with a growing belief that even if the country is shown to be in recession when Q4 GDP is published, the contraction will be shallow and won't last beyond the first quarter of this year.A report issued yesterday by Bloomberg Economics showed that inflation should reach the Bank of England’s 2% target by the Spring. This will allow the Bank to cut interest rates, providing a boost to an economy that had been in danger of stagnating.The Leader of the Opposition, Sir Keir Starmer, made the first of what is sure to be several speeches in which he plans to outline the differences between the two main Parties. He believes that the country is “crying out for change” and vowed to fight the election with the economy as a central topic. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The likelihood that the economy slipped into recession last month has led to the Institute of Directors calling for the Bank of England to cut interest rates. The IoD’s business confidence index fell to a low of -28 in December, with just over fifty percent of “Bosses Union” members feeling pessimistic about the future against under twenty-five percent feeling optimistic.The number of bosses who are confident in their own firm’s prospects surprisingly rose to +36 from +30 in November.Sentiment amongst the IoD’s members has been depressed since the summer, according to the group’s director of policy, although there has been some improvement over the past couple of months due to the fall in inflation.Brexit is still considered one of the major impediments to businesses' ability to grow, with several businesses commenting that the red tape and bureaucracy that still exists when trying to export to the European Union is a significant factor.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Andrew Bailey, the Governor of the Bank of England, jealously protects the Central Bank’s independence. Over the past two years, the performance of the Monetary Policy Committee has drawn criticism from the financial markets and MPs alike. There is no question that the market expects the Central Bank to “jog along” during periods such as have been seen over the previous eight or so years where intervention is kept to a minimum due to a period of tame inflation, but be prepared to perform heroics when called upon as it has been over the past two or three years.The question of the makeup of the Committee is now being openly questioned.There appears to be no benefit to having five permanent members and four independents, when the permanent members vote “en bloc,” leaving the four independents “toothless.”It is expected that whoever wins the forthcoming General Election there will be changes to the makeup of the MPC. Some have suggested that in line with levelling up commitments, regional representation would be beneficial. In contrast, others favour a member to be appointed from the Treasury to represent the Government's view.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The most recent data for growth and economic output showed the continued effect that rate increases are having, even after the Bank of England called a halt to its cycle of rate hikes following the August meeting of the Monetary Policy Committee.The first few weeks of the New Year will see the market remaining in “2023 mode” as a new set of drivers are yet to begin to take effect. The first half of the year is expected to be characterised by speculation about when Rishi Sunak will call a General Election and when the Bank of England will decide to cut interest rates.No Central Bank likes to be forced by events to change monetary policy, much preferring to be in control, or at least portray the illusion that it is in control. For that to happen this year, the MPC must appear to be far more proactive and show the market that it is on top of the decline in output.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The UK is continuing to make progress in the advancement of post-Brexit trade deals on several fronts.It was announced that a deal with Switzerland over cooperation in the financial services sector has been agreed. The treaty will make deals in the areas of wealth management and corporate finance simpler and means that the two countries will mutually recognize each other's domestic laws and regulations.Chancellor of the Exchequer, Jeremy Hunt, hailed the agreement as a global first that will allow frictionless cross-border provision of world-class financial services.The deal will provide a blueprint for such agreements to be advanced with important financial services providers.The UK also announced a significant advance in a deal to delay post-Brexit tariffs on the sale of electric vehicles that had been threatened by Brussels.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The latest new addition to the Monetary Policy Committee, Sarah Breedon, made her first public speech yesterday, and quickly settled into her role of “toeing the party line”.Breedon warned that rates will need to remain higher for an extended period to bring down wage growth that is still running at over 7%.She commented that the current level of wages growth is several percentage points from where it needs to be for inflation to fall close to the Bank of England’s target of 2%.In a speech which could have been made by any one of her permanent colleagues on the MPC, Breedon trotted out several of the standard phrases that have become synonymous with the role over the past year.“Too early to claim victory over inflation, the Committee remains driven by the data, and the market's view of when rate cuts will happen differs from our own,” have become standard.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Following the latest meeting of the Monetary Policy Committee, the Bank of England Governor, Andrew Bailey, reaffirmed the Bank’s commitment to lowering inflation closer to the Government’s 2% target.The latest employment data showed that wages are still rising at a faster rate than inflation, which is a major concern for the MPC and is likely to deter any discussion about cuts in rates for some time. With the economy barely registering any growth over the past two quarters and headline inflation still close to 5% the outcome of the next few meetings of the MPC will be on a knife edge. The element of “groupthink” that has been evident at recent meetings, where permanent members all vote in the same way, has led to its decision-making process being distilled down to the opinion of one man.Bailey has been confusing markets recently by, on the one hand, saying that it is far too early for rate cuts to be discussed, then, on the other, commenting that the conditions for growth are currently the worst he has seen in his entire career.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The economy failed to build on its expansion at the end of the third quarter by contracting by 0.3% in October. The monthly growth figures, which were published yesterday, disappointed the market and set the economy firmly on a path towards a recession.With interest rates at a fifteen-year high designed to dampen demand and bring inflation under control, any growth will be hard to come by in the coming quarters. The monetary policy committee meets today and is almost certain to leave interest rates unchanged. Although the latest GDP data was worse than expected, it is unlikely to influence the Committee, which is committed to bringing inflation back close to the Government’s 2% target.Having paused its cycle of rate hikes at its September and November meetings, there has been nothing yet to indicate the major change in policy that would be necessary for rates to be amended.The vote at the most recent meeting was 6-3 in favour of a pause with Sarah Breeden, replacing Jon Cunliffe, voting for the status quo, where Cunliffe voted for a hike at his final meeting in September.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The latest employment report shows that pay growth slowed by the most it has in two years in October, while the claimant count rose significantly in November. Despite the fall, pay growth is still rising too much for the Bank of England to consider cutting interest rates, even though the economy is beginning to slow.Under the stewardship of Andrew Bailey, the Bank has failed to act proactively, even though it was the first in the G7 to begin to hike rates. Bailey is not enough of a forward thinker to be able to convince his colleagues on the MPC on a course of action that they will consider “alien”. When one considers that the rate-setting committee is split across several fault lines, a radical approach will be impossible to achieve.While the permanent members indulge in “groupthink”, almost allowing Bailey to use their votes as he sees fit, the independent members believe that either inflation is not yet under control and therefore rates need to rise again, or that a recession is imminent, in which case a cut should be seriously considered. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The economy is going through yet another period of uncertainty as data showed that it remains just above the line between expansion and contraction that is the best that can be expected in the short term.Although there was a marginal improvement from the previous quarter, where the economy contracted by 0.1% the outlook remains disappointing. The irony of this is that the economy is not sufficiently weak to bring either headline or core inflation down rapidly.Following Andrew Bailey’s stinging recent critique, in which he said the potential for growth is the least he can remember in his entire working life, the Bank of England’s Monetary Policy Committee meets this Thursday.The outcome of the vote is overwhelmingly expected to be for another pause in the cycle of interest rate hikes, which will be the third, following fourteen consecutive hikes which took short-term interest rates from 0.10% to 5.25%.As well as the MPC meeting, there is a great deal of data due for release this week, starting with the November Employment Report tomorrow. It is expected that the claimant count will have risen marginally, while the unemployment rate remains steady at 4.2%.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
There are still several hundred thousand mortgage payers who were on fixed rate deals that predated the tightening cycle that the Bank of England began two years ago. The effect of this is that there is a constant flow of families who are still seeing their monthly outgoings rise considerably, even though the Bank has now, to all intents and purposes, ended that cycle.This is one reason changes in monetary policy take an inordinate amount of time to work their way through the entire economy, and as such means that rates will be having their least effect on the economy when the bank begins to lower them.Most predictions are now that the first rate cut will take place around the middle of the second quarter of next year. Over the past few weeks, that date has been brought forward. Only a month ago, Huw Pill was agreeing with the market's view that the first cut would be made in the third quarter.It is odd to note that the Bank of England Governor’s impression of the economy is significantly worse than that of the Government and to a large extent, the market, yet he doesn’t see the merit in lowering interest rates, even though inflation is now firmly on a downward path.Given the lag mentioned above, even if rates were cut today, it would be several months before their full effect on demand is seen.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Initial reports from the property market point towards the gloom that began when mortgage rates began to rise will continue for several more months. Despite the marginal increase in the average price of homes in November that was reported earlier this week, there is unlikely to me any significant increase in either activity or prices until rates are falling consistently.The level of sales in the market generally has a knock-on effect across the board. The number of new homes being constructed, even projects which have several units earmarked for social housing, continues to fall. This means that there is less work available for trades people like bricklayers, carpenters and electricians. Mortgage lenders are beginning to offer loans that are fixed for two and five years, and that will add to a gradual improvement, but progress is slow since the savings, apart from the peace of mind of having a constant monthly mortgage payment, are less than they were in recent times. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The comment made recently by Bank of England Governor, Andrew Bailey, where he suggested that the UK economy had the least potential for growth that he had known during his working life, betrays a belief that has been held by many observers for some time. It seems that the permanent members of the Monetary Policy Committee do not understand that the committee has a dual role, to not only use interest rates to keep inflation at or close to the 2% target which has been set by the Treasury, but to also promote growth and employment.For some time, possibly since it gained independence, the Bank has not really had a part to play in promoting growth and in the ten or so years prior to the Pandemic when inflation was low it became almost redundant.Now, when the market is looking to the Bank to contribute, it is left almost entirely to the independent members of the committee to show concern for the economy.Huw Pill, the Bank’s Chief Economist, speaks of his view on inflation when considering when the first rate cut may take place, without taking into consideration the lowering of growth expectations that have been published by the OBR, and latterly the OECD.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
A new forecast from the Organization for Economic Cooperation and Development (OECD) was published yesterday, and it revealed that it predicts that the economy will grow by only 0.5% this year and just 0.7% in 2024.The OECD urged Jeremy Hunt to revisit his decision to keep the triple lock and the state pension and other benefits. This is an undertaking from the Government that guarantees a rise of the highest of average wages, the rate of inflation in September of the year prior to the increase that takes place in April each year, and 2.5%.This means that a rise of 8.5% is “locked-in” for next year, a cost that the OECD claims the country simply cannot afford.Meanwhile, GDP growth will continue to be “sketchy” only forecast to rise by 1.5% in 2025.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
There is an argument brewing between the Governor of the Bank of England and the Treasury. Andrew Bailey’s comment last week that the potential for growth in the UK economy is at its lowest point during his lifetime was unusually forthright for a man who generally keeps his emotions under close control.Both the Treasury and the Prime Minister’s office refuted Bailey's concerns, commenting that in their view the economy has turned a “corner”.It is tricky to say which view is correct. Clearly, the economy is struggling to find an acceptable level of activity given the burdens placed upon it by changes to both fiscal and monetary policy.The press has savaged Bailey for his comments that they interpret as an attack on last week’s Budget Statement from Jeremy Hunt, in which he lowered the amount people pay in national insurance contributions and confirmed tax breaks for firms to invest in plant, machinery and tech.Hunt has been fulsome in his praise for the Central Bank, but Bailey may have been upset that the Government took the credit for the fall in inflation to half the level it was when Rishi Sunak came to power a little over a year ago.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Yesterday, Andrew Bailey was scathing in his view of the prospect of the UK finding a path to sustainable low-inflation growth any time soon.Bailey suggested that the outlook for growth is currently the weakest in his lifetime. The Office for Budget Responsibility also took a swipe at the economy yesterday, suggesting the inflation would be more persistent over the next twelve months than had previously been expected.Following the Autumn Statement last week, there had been an air of optimism beginning to flow through Westminster, that now looks to have been short-lived.The Prime Minister, hosting a conference designed to encourage overseas investment in “UK PLC” was far more upbeat in his assessment. Sunak capitalized upon the degree of positivity that the Autumn Statement supplied to suggest that further tax cuts were on the way.He used typically “Conservative” phrases to underline his view that investors should be allowed to keep more of the return on their capital, since this would make the UK a competitive place in which to invest and promote growth and new jobs.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Nissan car company has been producing vehicles in Sunderland for more than forty years. Last week, it gave a massive boost to not only its workforce and the north-east of England in general, but the Government as well.The company will build two new all-electric models in Sunderland, as well as contributing to the development of the batteries that will power them.Sixty thousand people who either work for Nissan directly or are employed in the supply chain now have the ability to plan for the future, safe in the knowledge that the jobs are secure.There had been a cloud over future investment due to the seemingly insurmountable issues created by Brexit, but with compromise on both sides, a deal has been done.As well as good news from Nissan last week, the delivery of the Autumn statement by the Chancellor of the Exchequer was reasonably well received. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
It is still exceedingly difficult to gain an accurate impression of the UK economy, given that many accounts are driven by a political element. The IMF, which should be considered an independent arbiter given its international standing, said recently that following the upheaval that was driven by the ill-considered actions of the Truss administration, that the Government has got the country on the right path to sustainable growth and that the Bank of England had acted judiciously to bring down inflation.The IMF did also say in the Summer that it was too early economically for the Government to be considering cuts in personal taxation. It will be interesting to hear what the Fund has to say about Jeremy Hunt’s actions this week.One would hope that the cuts in business taxes and the cut in personal National Insurance contributions could be “forgiven”, given the fact that the Government will shortly have an election to fight in which, prior to Wednesday’s Autumn Statement, it was trailing far behind the Opposition in opinion polls.The latest numbers that were taken at once following Hunt’s speech showed that the conservatives had gained 4%, which is a sign that his actions were a step in the right direction.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
As Jeremy Hunt was commending his Autumn Statement to the House of Commons yesterday, saying that the Government’s plan was working, but there is still a long way to go, the Office for Budget Responsibility was pouring cold water on his optimism by slashing its forecast for the economy.The OBR halved its estimate for GDP over the next two years to 0.7% next year and 1.4% in 2025 from 1.8% and 2.5% in its earlier report delivered in March.The fall in inflation is predicted to slow, only reaching the Government’s target of 2% in sometime in the first half of 2025, while interest rates will stay higher for longer, echoing the sentiments of the Bank of England Although he cut national insurance contributions from 12% to 10%, providing around twenty-five million workers with an increase of approximately £450 per year, the overall tax burden will rise to 38% by 2028, its highest level since the second world war.He supported the triple lock on pensions and benefits, meaning that pensioners will see an increase of 8.5% from next April while other benefits will rise by 6.7%.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Today is likely to see the beginning of the lead up to the General Election as Jeremy Hunt, the Chancellor of the Exchequer, delivers his long-awaited Autumn Statement to Parliament.It was summer when the date for the statement was added to the Parliamentary calendar, and at that time Hunt stated that it was too early for cuts in taxation to be considered, given the state that the country’s fiscal affairs were in at the time.Now, barely a few months later, the picture appears to have changed completely and Hunt has gone from agreeing that business taxes need to take priority to an apparent willingness to cut taxes across the board.While lower taxes will be welcomed by the City, there is a concern about what compromises will need to take place to provide the funding necessary for the cuts to be made.The country is crying out for investment in business to grow. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
There is growing speculation at Westminster that Jeremy Hunt has bowed to pressure from his colleagues and will announce cuts to personal taxation when he delivers his Autumn Statement tomorrow. The feeling that he is going to not only cut corporation tax and increase the inheritance tax threshold, but also raising the level at which the minimum income tax band begins and even possibly cutting national insurance contributions.Since Rishi Sunak unceremoniously dismissed Suella Braverman, his outspoken Home Secretary, he seems to have decided to go all out in preparing for the General Election, appearing to be less concerned about his critics and abandoning some of his principles to allow his Party to at least compete.It may all be too little too late as the Labour Party maintains a healthy twenty-five-point lead in the polls, which is only receiving a boost from the ongoing Covid enquiry in which senior Government figures are receiving severe criticism.While it is easy to say that the Conservative Party was “unfortunate” to be in power at the time of the Pandemic, they are being shown as both unable to oversee the basic requirements correctly and had an air of superiority when dealing with science.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
History may show that this was the week in which the Conservatives began to fight back to try to narrow the yawning twenty-five-point gap between it and the Labour Party in the polls.The market’s focus will be on fiscal policy rather than monetary policy, with which it has been obsessed for several months. Chancellor of the Exchequer, Jeremy Hunt, will present his Autumn Statement to Parliament. He has been under pressure from his back bench colleagues to deliver tax cuts, and it seems likely that he will acquiesce to their demands, at least partially.He is expected to cut taxes for businesses and reduce inheritance tax, but any change to the basic rate of personal taxation will have to wait until the Spring.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Bank of England’s Deputy Governor for markets and banking, and Chief Economist, spoke yesterday of their views on the short-term path for interest rates.Dave Ramsden, who was recently re-appointed for a second term as a member of the Monetary Policy Committee, believes that interest rates will need to remain elevated for an extended period. His colleague, Huw Pill, who recently agreed with the market’s view of when the first cut in interest rates will take place, spoke of inflation remaining “sticky” and the possibility that rates may need to rise again in the short term before the longer-term path lower begins.Both voted for rates to remain on hold at the most recent MPC meeting.Ramsden's comments followed the recent rhetoric that permanent members have adopted, while Pill appears to be more “fluid” in his opinions, reacting to the situation as it changes. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
In every developed economy, the responsibility for monetary policy is the sole duty of the Central Bank and, in those economies, the Central Bank is independent of Government. It was therefore difficult to understand how Prime Minister Rishi Sunak pledged to halve inflation by the end of this year when he came to power a little over a year ago, and even more curious that he felt able to claim any responsibility for having fulfilled his pledge.The headline rate of inflation, which reached a high of 11.1% in October of last year, fell to a low of 4.6% when the latest figures were published yesterday. One of the most prominent reasons for the fall was the fact that the meteoric rise in energy prices at this time last year is no longer a factor in the data. Headline inflation is now at its lowest level for two years.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Bank of England Monetary Policy Committee member, Catherine Mann outlined her opinion that inflation is set to remain an issue for G7 economies due to a variety of reasons including climate change.The structure of the global economy is constantly evolving and the low inflation/low interest rates era that began as a reaction to the downturn created by the 2008 financial crisis was ended in spectacular fashion by nations’ need to pour support into their economies following the Pandemic.Mann believes that climate change policies that in the past have been considered an issue for insurers and banks will become an issue for the wider economy. She believes that carbon taxes and emission trading could potentially have a similar effect to oil price shocks in the future.Although this is a long-term issue it is becoming an issue in the two to three year “window” that the Bank of England concentrates on.To some this will seem to be little more than a continuation of Mann’s apparent infatuation with inflation which has seen her become far and away the most hawkish member of the MPC. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
In an interview on Friday, Chancellor of the Exchequer, Jeremy Hunt, supplied some insight into the autumn statement that he will present to Parliament later this month.He stressed that the economy has immense potential to grow at a rate which will allow him to cut taxes and his plans are to unlock that growth.He intimated that he would cut taxes on businesses, while any changes to personal taxation will have to wait until next Spring.There is speciation that the cuts to business taxes could be as much as ten billion pounds. He has, however, been warned by his back bench colleagues that squeezing benefits paid to individuals and families to fund the tax cuts will be a retrograde step which will jeopardize any hope that MPs with marginal seats have of being re-elected in next year’s election.Hunt will need to be aware of the inflationary effect of any cuts to taxation, since headline inflation is slated to possibly fall below 5% when the October data is published on Wednesday since he won’t want to be the cause of any further rate increases while the Bank of England is committed to bringing down prices.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Bank of England has had a credibility issue almost since it began its cycle of interest rate hike in December 2021.Such is the market’s impression of Governor, Andrew Bailey, that City economists regularly challenge his comments about the economy and future path of interest rates. Over the past eighteen months Bailey has appeared to lack the decisiveness of his predecessor, often appearing apologetic when announcing the outcome of Monetary Policy Committee meetings.Currently, the Bank is trying to negotiate a difficult path between lowering inflation and contributing to a recession. Bailey has said this week that it is too early to be considering cuts in interest rates despite his Chief Economist recently saying that in his opinion the market’s view that a cut will take place by August next year is “reasonable”.Huw Pill has not covered himself in glory this year with his comment, subsequently withdrawn, that people in the UK need to get used to a lower standard of living, but he gave an honest appraisal of the difficulties facing the Bank of England by describing the way MPC members need to be reactive to current conditions which are ever-changing.When he said that it was reasonable that a rate cut would be expected to take place by next August if conditions stay as they are, but that is very unlikely to be the case.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Andrew Bailey, The Governor of the Bank of England contradicted the recent comments of Business and Trade Minister, Kemi Badenoch when he said yesterday that Brexit has severely weakened trading opportunities for the UK.Speaking last week, Badenoch, one of the rising stars of the Conservative Party, called the UK a “trading powerhouse” thanks to Brexit which had made the country nimbler and more able to react to opportunities.Bailey agreed that although there have been a series of global shocks, the UK lacks the degree of openness that requires a commitment to free trade.Trade deals have recently been concluded with, among others, Australia, New Zealand, Norway, and Iceland, but the progress made in completing deals with two major potential partners, America and India has been agonizingly slow.Research has shown that close to sixty percent of businesses believe that free trade deals will have no material effect on their business, and it would be better to concentrate on sectors rather than individual nations. This would enable firms to capitalize on the traditional strengths that the country has in the service sector as well as the scientific and computing spheres.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Huw Pill, the chief economist at the Bank of England, provided what he clearly believed was a degree of clarity on the Central Bank's intentions about monetary policy.Pill said that he believes the market’s expectation that the first cut in interest rates may take place next August was not “unreasonable”. He went on today that he feels that the MPC will be able to reassess at that time if nothing has happened, however, he also feels that given the current market volatility that it is unlikely that nothing will have happened.So, concisely Pill believes that rates may be cut next August but also believes that it is unlikely that the Bank of England won’t have been forced to act, one way or another, before that.The rate of inflation is still three times the Bank’s target, although Pill’s boss, Bank of England Governor Andrew Bailey, believes that there will be a substantial fall in the headline rate of inflation reported when the data for October is published next week.In general, the Bank is still leaning towards inflation staying higher than it is comfortable with and keeps a bias towards another hike, although that still doesn’t rule out a cut next August not before.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Although the Bank of England has in all probability ended its cycle of interest rate hikes, the market is still infatuated with monetary policy.The Bank’s Governor faced a barrage of questions at his press conference last week about when the Bank will begin to bring interest rates lower. Especially given his assertion that inflation will begin to recede markedly beginning with the data for October wish is due to be published on October 15th.However, while several major bank economists believe that the Bank should be considering a cut in rates to provide a boost to the economy, the minutes of last week’s meeting indicate that last week’s decision amounted to a “hawkish hold”.Even though the vote was 6-3 in favour of a pause the minutes showed that the majority while voting for a pause agreed that rates should remain “elevated “for a significant period. One member of the committee, presumably Swati Dhingra, who has never voted for an increase in over a year of membership, believes that the effects of earlier tightening are still coming through due to the lag in the delayed impact on the economy.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Following last week's decision from the Monetary Policy Committee to leave interest rates on hold, the Governor of the Bank of England provided a daily downbeat assessment of the UK economy.Andrew Bailey spoke of two years when the economy will basically stagnate, while there remains a possibility that the Bank may be forced to hike rates again as the economy suffers from an extended period of high inflation.He went on to say that the likelihood that interest rates will have to remain higher for longer, increasing the possibility of the country falling into recession.Overall, the base case for the Central Bank is for inflation to continue to fall sharply over the next few months, but the MPC will need to continue to be aware of the possibility for “inflationary shocks”, given the current state of the global economy.Despite this gloomy outlook, Kemi Badenoch, the trade minister gave a surprisingly upbeat view of the country’s efforts to increase its trading position post-Brexit.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Bank of England’s Monetary Policy Committee voted to leave rates unchanged at its latest meeting that ended yesterday. Andrew Bailey, The Bank’s Governor, told reporters that he doesn’t expect to see meaningful growth in the economy until 2025.The economy is teetering on the edge of a recession but despite this gloomy outlook, Bailey said that it is far too early to be considering rate cuts given the elevated level of inflation. He expects rates to remain high for an extended period, an outlook that he shares with the Central Bank heads of other G7 members. However, both the U.S. and Eurozone have seen their headline rates of inflation fall significantly recently while the UK enjoys no such luxury.The market now sees the chance of a recession by the middle of next year as 50/50. This will not please Rishi Sunak as he prepares for a General Election with his Government trailing so far behind the Opposition that it is almost out of sight.The weakening outlook for the economy has been highlighted by the economic data that has been published recently, with employment seemingly now being affected by the elevated level of the base rate of interest.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Andrew Bailey’s recent comment that inflation fell “markedly” in October may well be proved to be correct given the significant fall that was seen in Eurozone inflation and the probability that rate increases have reached a level where they are restricting demand.Although the ECB and Federal Reserve were preceded by the Bank of England by several months their cycles of rate hike will end almost together.Following the ECB’s end to hikes announced last week and last evening’s further pause by the FOMC, economic growth will be the focus of G7 Central Bank actions until the end of the year and beyond.Today’s meeting of the Monetary Policy committee is now predicted to continue the trend as the Bank tries to strike a balance between lowering inflation and promoting growth.With interest rates at their highest level for fifteen years as the era of low interest rates has end the money markets are placing a more than 90% chance that rates will remain in hold following today’s meeting.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Prime Minister laid out his plans for the King’s Speech and the State Opening of Parliament yesterday as the Conservative Party prepares for the upcoming General Election.The Economy and public safety will be at the centre of his plans, but following the revelations from former government adviser, Dominic Cummings, at the Covid Enquiry it is even more certain that there will be a change of Government sometime in the next twelve months.Figures released yesterday revealed that insolvencies amongst companies are likely to reach their highest level since the height of the financial crisis fifteen years ago.More than six thousand businesses have gone under with many still “teetering on the brink.”Energy costs, rising salary expectations and, inevitably, rising interest rates have made it simply too costly to run small to medium enterprises, while the environment for start-ups is as bad as it has been in a generation.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
This week’s meeting of the Monetary Policy Committee is unlikely to confirm that the almost two-year cycle of interest rate hikes is at an end, but if there is another pause announced on Thursday lunchtime, Andrew Bailey and his colleagues may not have the “wiggle room” to hike again for fear of damaging the fragile balance that has been achieved between demand and inflation.HSBC announced yesterday that it has upgraded its forecast for the UK economy next year. It is now forecasting growth of 0.4% following an earlier prediction that the economy would shrink by 0.6% in 2024.It based its forecast on renewed resilience to inflation and the fact that rates are close to their peak. HSBC followed Lloyds Bank in showing a higher degree of confidence in the economy.One area of the economy that still concerns HSBC is the housing market, which it forecasts to see an overall loss of 11% from its highs. It also believes that inflation will remain high averaging 4% next year and believes that the Government’s inflation target will be adjusted upwards no matter who wins the General Election.Mortgage approvals fell to 43.3k in September, their lowest level since January, while the remortgage market which was previously very buoyant despite rising short-term interest rates has seen its lowest activity since 1999.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
In three weeks' time, Jeremy Hunt will deliver his Autumn Statement to Parliament. He had been expected to deliver an upbeat budget which should have been the launch pad for the Conservative Party’s attempt to win the General Election that must be held during the next year or so.However, Hunt and his boss, Prime Minister Rishi Sunak are still suffering for the effect of four year of almost total mismanagement of almost every aspect of the Government, from the completely unexpected arrival of a global Pandemic, through the country’s departure from the European Union to the almost farcical scenes that accompanied the appointment of an inexperienced Prime Minister who almost wrecked the country’s economy and reputation in less than fifty days.Several international bodies, including the IMF and the World Bank have praised Hunt and Sunak’s efforts to “steady the ship” given the complete mess that ensued following Kwasi Kwarteng’s “rush for growth” at around this time last year.Sunak promised that the rate of inflation would be halved and according to Bank of England Governor, Andrew Bailey, that looks likely to be achieved. The Bank’s decision to pause the cycle of interest rates that it began in December 2021 may have saved the economy from entering a recession, and the signs are that that pause will be continued when the MPC meets later this week.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
There is a growing view amongst City Economists that the outcome of the data that has been published recently is that not only will the Bank of England's Monetary Policy Committee pause its cycle of interest rates hikes at its next meeting, but it will “bring the curtain down” on the entire programme.There is clear evidence that rates have reached the point where they are restricting demand and activity, and with Governor Andrew Bailey announcing that he believes that there will be a “substantial” fall in the headline rate of inflation when data for this month is published, the “writing is on the wall”.The reduction of the Bank's stock of Government Bond Purchases by £100 billion pounds over the next twelve months that was agreed at the September meeting will continue to have the effect of tightening monetary policy.Although the rate of inflation didn’t fall as much as was expected in September, Bailey is confident that it will be made up for this month. Furthermore, there are indications that the employment market is becoming “easier”, which is a significant indicator of the effect of interest rate rises.The revised fall in the claimant count in August was more than made up for by an increase of almost 21k in new claimants in September. This has the double effect of lowering tax receipts for the Treasury while at the same time increasing the amount that is paid out in benefits.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
While the focus of the Bank of England stays heavily skewed towards inflation, there are clear concerns that with interest rates at or close to being restrictive on growth that another rise may tip the economy into a recession.With several indicators already in negative territory Andrew Bailey added weight to the argument for a continuation of the pause in rate hikes, commenting recently that he expects inflation to fall “markedly” this month.The question now is can the MPC act preemptively without confirmation of the drop in inflation and pause despite the country still having the highest rate of inflation in the G7.The Market believes they will. Several commentators now feel that rates are at the point where, as their effect works its way through into the economy, inflation will begin to fall “naturally”.Today sees the release of the September employment report with data for wages having already been published, the expectation is for the claimant count to rise by around 2.5k, although the unemployment rate is expected to remain at 4.3% for the three months to August.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
No matter who wins the next General Election, the UK needs to embark on a major programme of infrastructure renewal. The country’s transport network is creating multiple concerns ranging from a poorly maintained motorway system to a railway network that has suffered from underinvestment since privatization.The scrapping of the northern leg of HS2 has been the headline maker but is considered just the “tip of the iceberg” in the considerable urban decay that is currently taking place according to a rapport published last week.The fall in public spending has seen investment fall to its lowest level in more than ten years, and if it is allowed to continue, the damage may become irreparable.The Next meeting of the Bank of England’s Monetary Policy Committee takes place next week and with the Bank’s Governor, Andrew Bailey, speaking last week of his confidence that inflation will have fallen this month by a “substantial amount” there are hopes that the Committee will vote to leave rates unchanged.Following last month’s surprising pause in the recent falls in consumer prices, Bailey is confident that his forecast of a headline rate of inflation of 4.9% by the end of the year will be reached. He sees no reason for one month’s data to divert the Bank from its plans to continue to be data driven.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The rate of inflation was unchanged in September with the headline rate remaining at 6.7%, while the core rate with volatile items like food and energy stripped out stood at 6.1%, a fall of 0.1%.Given the fact that the current cycle of interest rate increases has now lasted seven quarters, the current data is expected to provide the Bank of England with sufficient leeway to continue the pause in rate increases that began last month.History will tell whether the course of action adopted by the MPC in raising rates by twenty-five basis points over an extended period was sufficiently aggressive to combat rising inflation, but at the time there was genuine concern that any larger incremental increase would drive the economy into recession.With hindsight and considering where the economy is now, it may have been more practical to combat rising inflation with a more aggressive approach.Now the situation essentially remains the same. The current level of inflation is well above the average over the past twenty-five years, and while it may be considered glib to believe that inflation is falling with the current rate of interest that the risk of causing a deep recession, is too great for any further hikes to be considered.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Average earnings fell to 8.1% in the three months to August but were above prices for the first time in two years. This suggests that the squeeze on the cost of living is beginning to ease.The rate of increase was slightly lower than economist’s expectations suggesting that interest rates may have peaked.Huw Pill, the Bank of England’s Chief Economist and a member of the Monetary Policy Committee spoke yesterday of his fear that wage increases are still too high, and this means that it will be difficult to bring inflation under control. However, the fall in the pace of wage increases despite being smaller than Pill would have expected is welcome and is likely to accelerate going forward as the public sector pay round is concluded for this year and there is a sense in the private sector that inflation is beginning to fall.Pill’s MPC colleague, Swati Dhingra spoke yesterday, and expects price pressures and wages to moderate further. She is considered more dovish than her more aggressive colleagues having voted for an end to rate increases at every meeting she has attended. She joined the MPC in September last year!Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Chancellor of the Exchequer, Jeremy Hunt, is working on his Autumn Statement that will be delivered to Parliament next month. It is becoming increasingly certain that any thought of tax cuts can no longer be considered while further cuts in public spending remain a real possibility.This is not the position that the Government expected to find itself in as it prepares to fight a general election that will be contested against a backdrop of almost zero growth and persistently high inflation.The Bank of England is fighting a losing battle to bring inflation down close to its target of 2%, and it is looking unlikely that the halving of the rate of inflation that Rishi Sunak promised when he became Prime Minister is unlikely to be achieved.The Bank of England will not be able to begin lowering interest rates until the second half of 2024 according to a report published yesterday by the influential think tank, the Institute for Fiscal Studies (IFS).The continuation of high interest rates is likely to lead to a recession early next year, although it is impossible to say how deep the contraction will be.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Huw Pill, the Bank of England’s Chief Economist believes that the risks to the economy are currently delicately balanced between fighting inflation and promoting growth. That means the decision of the MPC about whether to return to the cycle of interest rate hikes that was paused in September is likely to be driven by the members' interpretation of the situation rather than data which still is mixed and doesn’t supply a hard and fast conclusion.Last month there was the first sign of the departure from “groupthink” in which the permanent members of the Committee vote as a block as the Bank’s Deputy Governor for Financial Stability, Jon Cunliffe “broke ranks” and voted for a hike which most members of the Committee disagreed with. The next meeting may show the benefit of having independent members who are drawn from both academia and the financial markets.Catherine Mann has remained hawkish about the need to not only fight inflation but be prepared to “overshoot” by raising rates to such an extent that inflation is driving lower even than the 2% target. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Now that the Party Conference “season” is at an end the aims of the two main political parties will be geared towards the General Election that must be held by the end of next year.Rishi Sunak will begin by considering the optimum time to dissolve Parliament in discussion with his senior advisors. The number of opportunities to have a significant effect on voters’ opinions are diminishing rapidly.The Chancellor of the Exchequer, Jeremy Hunt, will deliver his Autumn Statement to Parliament on 22nd November, and its content will be pored over for tell-tale signs of “sweeteners” that will place the Conservatives in a good light with the electorate. The most obvious of those will be around taxation, both direct and indirect. While Hunt has already said that it is too soon to be considering cutting taxes, were he to reconsider that would increase speculation that the election will take place sooner rather than later. Any positives that are to be gleaned will need time to work their way into the voter's psyche for them to influence their voting intentions.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The IMF has “flip-flopped” over the prospects for the economy over the past year, first predicting a recession this year as the Bank of England raised interest rates to combat rising inflation, then praising the efforts of the Treasury and Jeremy Hunt in avoiding the temptation to cut taxes to provide a much-needed boost to the economy and setting the nation on a more solid path.Now they have again decided that the country is likely to face little or no growth over the next year as the Bank is again forced to hike interest rates to battle what it calls persistent inflation.In the latest edition of its World Economic Outlook the Fund predicts that the UK economy will fall behind its G7 partners in terms of growth which will form a “painful backdrop” to the General Election.Headline inflation is predicted to average 7.7% this year before falling to average 3.7% next year, it won’t return to the Bank’s target of 2% until 2025 at the earliest and even then a lot will depend on the global economic situation which has become a great deal more volatile as economies have emerged from the Pandemic at differing rates.Jeremy Hunt intimated his mistrust of the continual changing of predicted performance since little has changed in the Government’s plans since he was praised for the changes, he started in the Spring Budget.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Rachel Reeves who will be Chancellor of the Exchequer if the Labour Party wins the forthcoming General Election made a keynote address at the Party’s Annual Conference.As expected, she set out several wholly policies illustrating how her party would do things differently from the present Government. As is usual with the Opposition when facing an Election, Reeves was given a “free hit”, talking about vote winning policies like the provision of one and a half million social houses in the Party’s first term in Government and other policies that will lead to social regeneration.Labour intends to fight the election with the economy at the centre of its campaign. Not having had to deal with “distractions” like Brexit and the Pandemic, allows them a “free run” at a utopian scenario, free from the issues that a government faces daily.The Conference which ends today will hear from the Leader of the Party, Sir Keir Starmer, who will set out a broad range of initiatives that will show voters what they can broadly expect from a Labour Government.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Opposition Labour Party began its annual conference yesterday with its leader, Sir Keir Starmer confident that its plans will see voters abandon the Conservatives and return the Party to power for the first time in more than a decade.It is likely that one of the key battlegrounds will be the National Health Service which has seen waiting lists grow every year since the present Government took office.Starmer said that he will pay for staff to work overtime and weekends to improve service provision, with the increased funding provided by the withdrawal of “non-dom status” status for tax purposes. This allows British people to not be taxed on any earnings they make abroad.Rishi Sunak’s wife, Akshata Murthy, is a prominent holder of non-dom status.Starmer went on to say in an interview yesterday that he is confident that economic growth during the Party’s first year in power will be such that two million appointments will be possible , although he did admit that his plans rely on the goodwill of NHS staff who still won’t have earnings comparable with the private sector.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The recent pause in the cycle of interest rates was in reaction to a gradually slowing economy, according to Ben Broadbent, the Bank of England’s Deputy Governor for Monetary Policy.Broadbent has slavishly followed the Governor’s lead as rates have risen since December 2021. However, he opened up more about the economy in general in a speech yesterday giving some insight into the ongoing discussions about tighter monetary policy.In Broadbent’s opinion, interest rates have reached their peak since there are obvious signs that higher rates are beginning to bite, not just in the fight against inflation but slowing demand.Households that had managed to save during the periods of lockdown caused by the Pandemic have seen those savings dwindle down to nothing as the country has gone through a cost-of-living crisis the likes of which hasn’t been seen for a generation.The fact that headline inflation has fallen while core inflation has remained stubbornly high is of little to no consequence for families who are still struggling to put food on the table and pay their energy bills.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Prime Minister shocked no one yesterday by announcing that he has decided to axe the Birmingham to Manchester phase of HS2. Against a growing backlash from former Prime Ministers, politicians and business leaders Rishi Sunak made a vow to invest the thirty-six billion pounds that will be saved in infrastructure projects specifically tailored for the north.In trying to explain the unexplainable Sunak said that the facts of the project had simply changed.He announced several other initiatives that are potential vote winners, but they will all be overshadowed by the latest and possibly most decisive “volte-face” from a government that has become synonymous with such actions.Ironically, the conference that was held in Manchester, was the first Sunak addressed as the leader and given the level of criticism over what has been termed as “abandoning the people of the north” by Manchester Mayor Andy Burnham and “simply wrong” by former Prime Minister David Cameron.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Consensus will be hard to find for at least the rest of 2023 as monetary policy reaches a restrictive state. There are those, like Catherine Mann, who believe that interest rate rises should continue, even to the extent that they become “overly restrictive” bringing the economy closer to a recession, while Swati Dhingra has the polar opposite view.Dhingra believes that there is a significant degree of tightening still to be fully realized that is an overhang from previous rate hikes. The permanent members of the MPC were split for the first time at the most recent meeting when John Cunliffe, the Deputy Governor for Financial Stability “broke ranks” and voted for a hike.Given the increased likelihood of the country falling into recession in the coming quarters, it is increasingly likely that the cycle of rate hikes has ended.The latest inflation report will be published on October 18th. With the oil price levelling off it is likely that it will continue its downward trajectory. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Monetary Policy Committee’s resident hawk, Catherine Mann spoke yesterday of her view that it is unlikely that interest rates will ever return to the levels that they were at before the Bank of England embarked on its cycle of interest rates hikes which began almost two years ago, unless there is a “perfect storm” of exceptional circumstances like happened over the past ten years to fifteen years.The conditions that brought about the lowering of rates close to zero began with the financial crisis of 2008 and the Sovereign Debt issues of 2012. Latterly, as inflation was continuing to fall as global growth stuttered, the Pandemic and Brexit, which was unique to the UK caused rates to stay low.Central Banks took a back seat once they had put in place conditions for recovery and monetary policy was left exceptionally loose.In Mann’s view the Central Banks were negligent in not noticing that the amount of liquidity that was “sloshing around” in the global economy, together with issues with supply chains would lead to a significant rise in inflation. So, it has proved and Central Bank’s, now forewarned, are unlikely to make the same mistakes again.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Conservative Party Conference gets under way this morning in Manchester. It is likely to be the last one before a General Election is called. While a majority of the Party faithful will want to talk tax cuts which Chancellor Jeremy Hunt has hinted recently may be possible either in his Autumn statement, or in the Budget next Spring, Prime Minister Rishi Sunak speaking on TV yesterday wanted to concentrate on bringing inflation down.The recent changes to the Government’s green agenda and to “motorist friendly” policy amendments that have been announced are clearly the first of many initiatives designed to woo voters. New figures released by the Office for National Statistics reveal that the economy grew by far more in 2020 and 2021, showing that the recovery from the pandemic was far stronger than previously thought. The rate of growth over the past eighteen months has been as previously announced, with the second quarter remaining at 0.2%, although GDP for the first quarter was revised marginally from 0.1% to 0.3%. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
A report published this week showed that proprietors of small and medium enterprises believe that they would be better supported under a Labour Government than under the current administration.The report by Bibby Financial Services found that overall confidence in all the political parties is currently low but Labour have more business-friendly policies. The Government hasn't delivered a Brexit deal that allows exporters to explore new markets, while red tape and bureaucracy remain significant obstacles to growth and profitability.Inflation and spiralling interest rates have been the most significant challenges identified in the survey that went with the report, while overall businesses feel that the Conservatives have become “used” to being in power and Finance Directors believe that under Labour an original approach will create greater opportunities.Another report, this time by Lloyds Bank showed that business confidence slipped further in September, to complete a dismal quarter. There are now genuine signs of a real slowdown in activity and the rise in unemployment is causing concern that the Bank of England acted too late in pausing its programme of interest rate hikes.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Government is gradually preparing for an election by both building a war chest that will allow it to provide tax cuts and making policy changes that are clear vote winners.Yesterday’s announcement of a change of heart by Rishi Sunak that will allow the largest remaining oil field in the North Sea to be reopened is a perfect example of the changes that are taking place. The Prime Minister faces as big a challenge in getting his own back benchers “onside,” as he does in the electorate to allow the Conservative five more years in office.The extra revenue generated by the reopening of the Rosebank field will provide the windfall that Jeremy Hunt has been searching for to provide tax cuts that he is likely to announce in either his Autumn Statement or next year’s budget that will be delivered in the Spring. The changes that have been made recently to the country’s net-zero policy are easily justified on economic grounds but will widen the rift between the Cabinet and the Green Lobby.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Bank of England sees no cause to celebrate the pause in its cycle of rate hikes that was agreed at last week’s MPC meeting because while it is considered good news for borrowers, the Bank has not completed the task of bringing inflation down close to the Government’s 2% target.In fact, to a certain extent, the pause is counterproductive since it is likely that rates will need to be raised at least once more before the end of the year.The market’s attention will be diverted in the coming weeks by the Government’s preparation of the Autumn statement which is due to be delivered by the Chancellor of the Exchequer, Jeremy Hunt on 22nd November.Before that, the Prime Minister and Chancellor will doubtless prepare the country for what will be the final Autumn Statement before the election which is now looming large.It is still impossible to see past a Labour Party victory at the election which must take place by December of next year, not simply due to the poor in which the Conservative Party has dealt with successive crises that would have tested even the most popular of Government’s, but the public is suffering from a kind of fatigue that will only be satisfied by a complete change of direction.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Members of the Monetary Policy Committee are facing criticism for continuing to hike interest rates, potentially causing damage to the economy, when a pause should, or could, have been agreed earlier in the year.It is agreed that changes to monetary policy take up to three months to work their way through the economy. Therefore, a pause earlier in the year would have been effective in allowing the economy to “catch up” and would have provided some relief to people struggling with the cost-of-living crisis without seriously damaging the fight against inflation.Publicly, Jeremy Hunt and his colleagues at the Treasury have supported Andrew Bailey in his battle to bring inflation down, and it remains possible that the Government's pledge to halve the rate of inflation by the end of the year may still be fulfilled.However, the cost to the economy may have been too high a price to pay, particularly if the country falls into a damaging recession either later this year or early next.It is believed that irrespective of the pause that was announced last week in the Bank’s cycle of interest rate hikes the economy is likely to grow at an even slower pace in the second half of the year if it registers any growth at all.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Following last week's watering down of the Government’s green agenda, the Prime Minister is believed to be considering looking at other long-standing initiatives to save money, possibly with the motive of being able to provide the funds for Jeremy Hunt to deliver tax cuts in his Autumn Statement that will be delivered to Parliament in a little more than a month’s time.There are believed to be changes to the incredibly expensive HS2 project that will save several billion pounds. It is understood that the extension to the line that was planned to take place linking Birmingham and Manchester as well as making its terminal in West London, rather than Euston, are under threat.Andy Burnham, the Labour Mayor of Manchester spoke yesterday of his belief that the Government’s levelling up agenda is on the verge of being abandoned as it realises that it is unlikely to win seats in the “red wall” constituencies that turned the tide for Boris Johnson in 2019.With the election looming, Rishi Sunak still feels that his Party has a chance of retaining power, although that still looks to be a forlorn hope.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
At the meeting of its latest Monetary Policy Committee meeting which concluded yesterday, the Bank of England paused its cycle of rate hikes that has lasted since December 2021.In his press conference which followed the decision, Andrew Bailey the Bank’s Governor spoke of the committee's desire to stamp down on inflation while still being aware of the consequences for the economy of continual rate hikes.The vote reflected the marginal nature of the decision. Jon Cunliffe, the Deputy Governor for Financial Stability broke from the “groupthink” of his colleagues and voted for a hike, but his vote was offset by independent member Swati Dhingra who voted for a pause. The three other independent members voted for a hike. Recent weak PMI data along with a stalling housing market are believed to sway the dovish result, as well as the fall in inflation that was reported this week.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The August inflation report was published yesterday, and it showed that both core and headline inflation fell unexpectedly last month. The significant rise in fuel prices over the past six weeks or so has been offset by falls in other areas, primarily foodstuffs.It is unclear whether the fall in inflation will influence the Monetary Policy Committee which will announce its decision on any change to the base rate of interest later this morning.Interest rates are at or close to the level at which they are restricting demand, so the MPC will need to “tread carefully” in its decision-making.There have been calls from both within the committee and from outside observers for rates to continue to rise since inflation remains the highest in the G7 Group of Industrial Nations, despite the economy beginning to falter.Year-on-year the headline rate of inflation fell to 6.7% from 6.8% a month earlier, while the core rate with volatile items stripped out fell to 6.2% from 6.9%.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Nouriel Roubini, is a prominent economist who is by the market well known for making statements that are both outrageous and correct in equal measure.In an interview on U.S. television yesterday, Roubini spoke of his view that it would be a mistake for the Bank of England to pause its cycle of interest rate hikes after just one further twenty-five-point hike which he believes will be agreed this week.Roubini is credited with predicting the financial crisis of 2008 and believes that in order to avoid “true stagflation” the Central Bank must continue to hike rates after this week’s meeting.While contracting economic activity may make the MPC believe that they shall call a halt following this week’s rate increase, if inflation remains above the Government’s 2% target, then rate hikes need to continue. The damage done by inflation will be far longer lasting than the mild recession that further rate hikes are likely to cause.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Monetary Policy Committee meets later this week to decide whether another hike in interest rate is needed, or if the fourteen that have taken place in this cycle have slowed demand sufficiently for inflation to follow.Over the past two weeks there have been a series of mixed signals, none more so than the employment report for August.Wage inflation has now exceeded consumer price increases, which points to a wage/price spiral continuing, but the unemployment rate is starting to increase which is a clear indication that interest rates are now at a level where they are restricting demand.While it is certain that the five permanent members will vote in unison, there have been some interesting comments from the independent group recently.Swati Dhingra is of the opinion that not only is a hike not justified at this time, but the cycle would have been halted before now. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
It was expected that the economy would have failed to post any growth in July as the poor weather and a series of strikes led the economy to shrink by 0.5%. Another hike in interest rates also contributed to falling demand and led to fears that the good news that has been seen recently about the UK’s prospects has ended.It had been predicted that the economy would have shrunk by 0.2%, but construction projects and retailers saw activity fall by significantly more than expected.The country has been walking a tightrope for several months teetering on the edge of a lowdown which has been averted by a series of one-offs. It is possible that the country is already experiencing a mild recession that has been masked.A recession, in which the economy contracts for two consecutive quarters cannot be ruled out as economists have already been expecting the economy to flatline between now and the end of the year. If the issues that have provided positives now turn negative, they could easily result in contraction. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
There has been a remarkable turnaround in the fortunes of the country in the past three months. The country was headed for a damaging recession as a “doom loop” of negative economic developments looked likely to engulf it. Then the IMF produced a report in which it predicted that the UK would not fall into recession this year and the ONS updated its data on the country’s post-Pandemic performance and suddenly confidence is beginning to flow again.Yesterday’s employment report for August showed that wages have finally caught up with prices and both should now begin to increase in unison.Average wages rose by 8% annually which is likely to be the highest of the three measures which determines the level of the increase in the state pension and other benefits from next April. The “Triple Lock” under which benefits increase each year by the highest of average wages, inflation and 2.5%, was introduced in 2010 by the coalition government as a method of ensuring that the state pension “kept up” with overall wage growth.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Catherine Mann is far and away the most hawkish member of the Monetary Policy Committee. She spoke yesterday of her view that interest rates should continue to rise if inflation remains above the Government's 2% target.She went on to say that in her opinion, it would be better in the long run if the Bank erred on the side of over-tightening rather than bring the cycle of hikes to an end only to be forced to begin again should inflation flare up again over the winter.Mann accepted that her opinion may be wrong but if the Bank had continued to raise rates and inflation decelerates at a faster rate than she expected she wouldn’t hesitate to introduce rate cuts sooner than expected.While her views are considered radical, she is showing the kind of proactivity that has been found wanting during Andrew Bailey’s term as Governor.Of the nine members of the MPC, five are permanent, the Governor, the deputy Governors responsible for monetary policy, financial stability, markets and banking, and the Chief Economist. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The data that is due to be published this week will go a long way towards determining the path for Sterling for the rest of the year.Tomorrow, the August employment report will be released. It is expected that the claimant count will have increased marginally while earnings have exceeded inflation, meaning that in real terms, people will begin to feel better off.Inflation is likely to have moved slightly higher since the rising cost of a barrel of oil is reflected in the forecourt price of petrol and diesel. The data will show that the inflation is well on the way to meeting Rishi Sunak’s pledge to halve the rate of inflation by the end of the year.The economy will have shrunk by up to 0.3% in August but the Q3 results due next month are expected to show marginal positive results. With inflation falling and the economy “bumping along the bottom,” the conditions that will lead to an end to interest rate hikes are slowly appearing on the horizon.Several economists believe that the next meeting of the MPC will agree to a hike of twenty-five basis points in the base rate, but that could be the last in this cycle.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Huw Pill, the Chief Economist at the Bank of England spoke yesterday of the determination of the Bank to “see through to the end” its fight against inflation. Many observers took that as a hint that there will be another twenty-five-basis point hike in interest rates when the MPC meets again in three weeks’ time.Pill went on to say he and his colleagues are aware of the unnecessary damage that could be inflicted on the economy if rates are raised too much, but the Bank feels it must concentrate primarily on tackling inflation. Interest rates are likely to stay elevated for some time. Inflation fell to 6.8% in July and while it can be considered to be moving in the right direction, the base rate needs to be at a level where it is restricting demand, but not severely affecting employment and growth unnecessarily.The most recent employment data shows that there is still capacity since the claimant count is constant, while he feels that the country can avoid a recession in the coming months.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
There continue to be more mixed signals this week for the UK economy as a measure of business optimism rose to its highest level since before the Russian invasion of Ukraine, but housing market activity was shown to be 20% lower than it was a year ago.As has been the case in most stories about the economy this year, the Bank of England is behind both headlines. The rises in interest rates that have been taking place for close to twenty months have not just had a significant effect on the headline number of home sales this year, but related trades and services have also been hit.The optimism being shown by businesses is because there is a growing feeling that although inflation remains well above the Government’s target an end to the cycle of hikes may be in sight.So far there are none of the telltale signs of an economy on the verge of a recession, like business failures or a significant drop in money supply, but despite the optimism there is also a degree of caution.A prominent economist and journalist spoke yesterday of his disappointment at the collective weakness of the Monetary Policy Committee who he likened to a flock of sheep blindly following their shepherd.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The UK continues to delay additional food safety checks on imports from the European Union since they fear that the additional delays created by performing the checks will create shortages and drive up inflation.This is yet another demonstration of the lack of foresight that accompanied the UK’s departure from the EU which has piled additional red tape and additional costs onto firms still wanting to trade with the EU or operate within its boundaries,It is estimated that Brexit has been directly responsible for around 30% of food price inflation since 2020. The necessary border checks to ensure that the origin of products have again been delayed as the Government fears such checks could choke off supplies.The EU supplies 28% of the food consumed in Britain. It is now clear that Brexit was an ill-conceived notion that gained momentum due to over-zealous jingoism Which in the cold light of day, has set the country back at least ten years and is partly responsible for it being unable to shake off high inflation.Several industry groups have welcomed the latest delays to the implementation of further checks since they are likely to make them less competitive and create further issues in supply chains.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
It is expected that inflation will have fallen again when the data for August is published. While that will be welcomed by the Bank of England, it is unlikely to encourage the Monetary Policy Committee to pause the cycle of increases in the base lending rate.Inflation remains a concern, although the focus of the City of London has switched and despite the welcome news that the IMF does not believe that the country is facing an imminent recession, the feeling “on the ground” is different.The output data that was released last week showed that the service sector is beginning to slow and can no longer be relied upon to raise the composite figure above the watershed figure of 50 which divides expansion and contraction.Ben Broadbent, a current member of the MPC and Deputy Governor for Monetary Policy, spoke last week of his expectations, which are also the views of his colleagues, that interest rates are unlikely to begin a downward trajectory for some considerable time.Naturally, Broadbent was unwilling to be any more specific, but market analysts were happy to “fill in the blanks.”Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Although some progress has been made in the fight against inflation, interest rate futures markets are still discounting two further hikes this year. There is also a long-held view amongst economists and market commentators that the base rate will top out between 5.25% and 5.75%, although it would take a significant rise in headline inflation for another fifty basis points in hikes to receive support from the MPC.This week’s output figures were “disappointing,” but do show that the Bank of England, despite the market’s opinions, is closer to stopping rate hikes than it was previously believed.There is no fixed rule or standard by which to judge when rates have become restrictive upon demand. It is a judgment call which will be made by the MPC. Again, it is unlikely that any decision will be unanimous since at least one independent member who already believes that rates are sufficiently restrictive and need to be allowed to “do their work.”The Bank of England was the first G7 Central Bank to commence rate hikes and the odds now are that it will be the last to call a halt. There is hope but truly little expectation from traders that any hint will be given at next month's rate-setting meeting that a pause will be considered, let alone an end to the cycle.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Bank of England, in common with other global Central Banks, looks at trends in the economy and tends to consider “outliers” as just that, issues that are due to a specific event or issue.Examples of this are the boost to GDP likely to happen due to the England women’s football team reaching the World Cup final, or the opposite effect of the additional Bank Holiday that was granted to the country to celebrate the King’s Coronation.Yesterday's release of preliminary output data for this month so far is likely to be treated similarly, but it is important to be able to discern the reason that data was out of line and not the beginning of a new trend.The earlier the start of a new trend can be spotted the better for monetary policy, since it allows the Central Bank to get “ahead of the game.”Services output has virtually collapsed, falling from a relatively healthy 51.5 in July to a severe contraction to 48.7 this month. This dragged the composite figure down into contraction territory at 47.9 from 50.8 last month.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The outcome of next month’s MPC meeting, the sixth this year, is still on a knife edge. Although inflation has finally begun to see a meaningful fall, Andrew Bailey and his colleagues are “glorying” in keeping the markets guessing.While the level of any advance guidance is a balancing act between pre-empting the committee’s vote and being accused of providing mixed signals, the markets should have been provided by now with a set of parameters by which rate decisions are made.Right now, there are three outcomes of the September meeting, a fifty-point hike, a twenty-five-point hike and a pause. Considering that the Central Bank should try to avoid volatility, let alone be the cause of it, Bailey has failed comprehensively to keep the traders, investors and analysts sufficiently informed to a level at which the meeting's outcome is fairly certain barring any unforeseen occurrences.At its meetings, the Governor suggests any proposed change to policy to the committee, they discuss their own personal views and the rationale behind them before a vote is taken that will determine the level of interest rates for the next six weeks. Each members’ vote is a matter of public note but given that most of the committee report to Bailey, it feels like the independent members are little more than window-dressing.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The mid to late eighties were a time of momentous change in UK financial services. In 1986, Big Bank took place which revolutionised the way equities were traded which allowed easier access to the market to the “man in the Street.”This was also the time of privatisation, when the country's publicly owned utility companies were sold off, apparently to allow greater competition in the marketplace. However, to most of us all it meant was an opportunity to make a “quick buck” the individual companies were “attractively priced” to ensure the float would be successful.At a stroke, gas, electricity, telecoms, railways, and water providers became the largest privately owned businesses on the newly formed stock market.This was hailed at the time as Margaret Thatcher’s great masterstroke. It was designed to increase people’s choice but has ended up making the rich richer.Now, thirty-five to forty years later, it is accepted that the entire process was a massive mistake. Rather than providing greater choice, the utility companies have consolidated to form controlling interests in the hands of big business whose main driver is profit not service. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
“Twas always thus.” Despite grand plans to “level up” the country economically by trying to make investment more attractive to business, London and the South East are still propping up the rest of the country.Having shattered the “Red Wall” which divides the country when winning the 2019 election, the Conservative Party set about consolidating their position but delivering change to areas that had been socialist for decades has proven far easier on paper than in practice.Big business has invested heavily in the South East, the infrastructure is already in place, even the geography is against change, with proximity to the Channel Tunnel and another significant driving the status quo.Conservative candidates who were elected in s 2019 are beginning to see the reality of the future as “one term” MPs as two major hub projects, one in Newcastle, the other in Birmingham have been dumped, after years of postponements.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
England’s qualification for the women’s world cup final which will take place in Sydney on Sunday is expected to provide a £185 million boost to the economy. At the current time when the economy is teetering between positive and negative GDP results, such an event could further disguise the underlying weakness in the economy.To see significant growth in the coming months, the government and Bank of England will need to come together to provide the stimulus to see GDP return to trend.There are two actions which may trigger this. The first would be when Andrew Bailey announces when the MPC considers it to be time to stop the cycle of interest rate hikes. Given this week’s inflation data that may come sooner than had been expected, but there is still a hawkish undercurrent to the committee’s thinking which may see rate hikes continue until the end of the year.After the meeting which will take place on September 21st, there will be only two further meetings this year. The other action may come in the Chancellor’s autumn statement which will take place in November. Despite having constantly said that it is too soon for a reduction of taxes in the UK, it is becoming more and more likely that Jeremy Hunt will decide to use the “nuclear option” since his Party is trailing so far behind in the opinion polls that if they don’t take drastic action they will be sent into opposition sometime in the second half of next year for the first time in fourteen years.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Good news about inflation has been in short supply for quite some time, but yesterday the Government and Bank of England will have been buoyed by the news that headline price increases fell by more than one percent in July.While the data had been expected to show a significant improvement, the news was nonetheless gratefully received.Headline inflation that had been at 7.9% in June, came in at 6.8%, while the core, which has the more volatile items like food and energy stripped out, was unchanged at 6.9%.Despite inflation seeing a considerable improvement, it is still far too high for the Bank of England’s liking and a further hike in short term interest rates is expected to be agreed at the next meeting of the MPC which takes place on September 21st.The fall in inflation brought the headline to its lowest level since February 2022 and was due to falls in energy prices. The wholesale price of gas has been falling continuously since it made a record high last August, so the fall in inflation had been expected.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The publication yesterday of the July employment report focussed the market’s attention, as predicted, more on the possibility of a price/wage spiral than the number of people in work.Average earnings rose by a record 7.8% in the three months to June which will encourage the Bank of England to continue the chain of interest rate increases that began in December 2021.The largest increase in average earnings since records began means that for the first time in a year, wages grew faster than prices. One spin-off of the rise is that the Government’s triple-lock on pensions and other state benefits will be in effect for 2024 with a rise like this year’s 10% probable.The claimant count rose by 29k, up from 16.2k in June. This is an indicator that the Bank of England’s monetary policy tightening is beginning to influence employment, with jobs becoming less plentiful as the economy continues to adjust to Brexit.The level of redundancies is growing as well as the workforce looks more to job security than “job-skipping.”Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
From the mid-seventies to the mid-eighties’ redundancy became a significant factor of working life as more firms rationalized their workforce to deal with the slowing economy. It is possible that the same effect is taking place now, with the number of redundancies growing larger month-by-month as firms first reconsider their investment plans and then abandon them altogether.While it was sensible to “stockpile” workers given the cost of rehiring them if the economy rapidly recovered, given the wage demands and shortage of both skilled and unskilled workers, today’s employment report for July could deliver the first definitive evidence of the effect that the long-running cycle of rate hikes is having on the economy.The claimant count has been on an upwards trajectory over the past few months, and that is expected to continue, while wage increases may be levelling off.The data that has been released over the current quarter has not really demonstrated any significant slowdown, but the seventy-five basis points of hikes at the past two meetings of the MPC may see tighter monetary policy begin to bite.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Inflation is expected to have fallen last month by more than one per cent, which will provide some encouragement to the MPC for it to consider when to pause or halt entirely the current cycle of interest rate hikes. However, wholesale price increases already in the system may see some of that fall reversed in September. This will be a double-edged sword for one section of the community. The “triple lock” on state pensions and other benefits will be applied next April and is expected to be well above the rate of inflation at that time.At its most recent meeting, the MPC showed a three-way split, with the independent members all having differing views of what the Bank of England should do with monetary policy.Swati Dhingra voted for no change, while Megan Greene voted in line with the permanent members of the committee for the twenty-five-point hike, which was eventually agreed upon, while Catherine Man and Jonathan Haskell voted for another fifty points.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Bank of England surprised no one with its decision to hike interest rates again yesterday, for the fourteenth consecutive time. In the end, it was something of a surprise, however, that a hike of only twenty-five basis points was agreed, considering a fifty-point hike was considered necessary at the last meeting.The Bank of England’s Governor, Andrew Bailey, commented at his press conference that the MPC expects headline inflation to fall to 5% by October. He went on to say that the reason inflation is currently higher in the UK than in the Eurozone is due to a more gradual “pass-through” of energy price falls in the UK.It is unclear at what rate energy prices will continue to fall, but he did say that he believes that the price of food and drink has peaked. This was a little odd given the effect of the withdrawal of Russia from its agreement to allow free movement of grain through Ukraine’s Black Sea Ports and changes to taxation the UK government introduced this week that will see the price of beers, wines, and spirits rise.Services inflation has risen since May, which is an unwelcome development. Pay growth in this sector has been stronger than the models that the Bank’s economists use predicted. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Since he came to power, it has been an obvious policy of Prime Minister Rishi Sunak to be seen to be “getting on with the job.” Naturally far less flamboyant than his predecessor, Boris Johnson, Sunak has not made many significant policy speeches, but that is beginning to change.His only major success has been the delivery of the Windsor Framework, which allowed Brexit to be completed. This was achieved without the bluster and threats that had accompanied the end of the UK’s relationship with the European Union, and that has become the “Sunak way.”However, over the past few weeks, the beast appears to have “awoken from his slumber”, seemingly realizing that he won’t stand a chance of winning the election by trying to appease every voter, so he has decided to try to win back voters who have voted Conservative, possibly for the first time, in 2019. He, first, risked aggravating the environmental lobby by granting licenses to drill for oil and gas in the North Sea and, just yesterday, deciding to stop treating the NHS as a “Sacred Cow” and expecting it to take the blame for lengthening waiting lists, which are due to “internal protocols” and poor management.He hopes that this new “can’t please all the people all the time attitude” will galvanize backbenchers into rallying around, particularly those who are still smarting from the way the Party and Parliament treated Johnson.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
House prices in the UK fell by almost 4% last month as interest rate increases made passing an affordability test more difficult, particularly for first-time buyers.This was the largest fall since 2009, the height of the financial crisis. The fall coincides with mortgage rates rising to their highest level in fifteen years. Currently, a two-year fixed-rate home loan costs, on average, 6.85%.The average price of a house has fallen by 13k since the peak that was reached last August. Currently, a first-time buyer who has a deposit of 20% will see that mortgage payments account for 43% of their salary. This is an increase of 10% over this time last year. The rate of inflation fell to 7.9% last month, and a survey of food production showed that food price inflation has peaked in the past couple of months as the cost of grains and vegetable oils fell significantly.However, food price inflation may be hit by Russia’s decision to pull out of the treaty it had agreed to allow the safe passage of grain carriers using Black Sea ports.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The UK yesterday challenged the accepted logic over global warming and climate change by agreeing to issue hundreds of new licenses for exploration and drilling for oil and gas in the North Sea. It had been agreed that for countries to meet zero carbon targets by their agreed time that existing supplies should be mothballed, and a greater concentration would be given to sustainable sources of power.Rishi Sunak, who had already invited the ire of the environmental lobby by pushing back against the Mayor of London’s plan to extend the ultra-low-emissions-zone around London, has been accused of a “desperate vote-winning policy” to kick-start the Government’s campaign to win the next General Election for which they are trailing far behind the Opposition the opinion polls.Data released yesterday showed that consumer lending rose to a five-year high last month. However, while this would be a sign of a growing economy in normal circumstances, it appears that rather than buying new cars or consumer goods, households are borrowing to supplement their funding of household budgets in the face of a continuing cost-of-living crisis. The continued hiking of rates by the Bank of England, coupled with continued high inflation, is seeing monthly payments on loans, overdrafts and credit cards reach their highest level in a generation.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
HSBC and Nationwide led the way last week in reducing their standard rate for floating rate mortgages as interest rates stabilized. However, the rate for a two-fixed loan was still higher than it was at the start of the month. The peak was at 6.89% earlier.The pressure on the Monetary Policy Committee is expected over the next year as inflation begins to fall, but in the short term, it is expected that there will be another seventy-five basis points of hikes before a pause is announced.During the prolonged period over which the Bank of England has continued its cycle of rate hikes, its Governor, Andrew Bailey, has faced criticism for ignoring the signs, which, with hindsight, has proven to be fairly obvious that inflation was rising, close to out of control.The belief is that if the Central Bank had been more aggressive in its hikes at the start of the cycle, that may not have had to be still hiking now.To defuse that criticism, it has decided to commission a review of its economic forecasting. The man chosen to lead that review is Ben Bernanke, a former Chair of the Federal Reserve.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
A position on the Chancellor’s Economic Council is akin to being appointed to the Bank of England’s Monetary Policy Committee but without the responsibility.The role of the Council is to “second guess” the MPC and make theoretical judgements on monetary policy, but without the responsibility that those decisions have in the “real world"".”At its latest meeting, the Council, which is made up of seven members including former Bank of England Committee and Karen Ward, Chief Economic Strategist at Investment Bank J.P. Morgan, counselled against further rate hikes for fear that they will push the economy into recession.Ward was also quoted recently as saying she believes that the MPC may be using a mild recession as a deliberate strategy to bring down inflation. However, that was coupled with another comment that no blame can be attached to the Bank for “simply doing its job.”Those two comments illustrate the futility of appointing a shadow MPC which can make pronouncements, often with the benefit of hindsight, without the responsibility of how they affect the lives of real people.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
When the IMF produced its last global review, the Government pushed back against its findings believing that the economy would not contract for the requisite two consecutive quarters this year that constitute a recession.In its latest review, the Fund reversed its prediction and agreed with the Government’s view that although it would be “nothing to write home about”, the UK economy would grow in 2023. The IMF believes that the UK economy will grow by 0.4% this year, up from a prediction of a 0.3% contraction in its last global review.While any growth is welcome in the current environment, the economy will remain in the “slow lane” when compared to most other G7 economies. Way out ahead in the “growth race” is the United States, where 1.8% growth is predicted. While the right-wing English press gloried the fact that the German economy will underperform and be the only economy in the group that grow more slowly than the UK, the fact is that with an election on the horizon, Rishi Sunak will need to perform a miracle or rely on the Opposition, completely blowing their substantial lead in the opinion polls to be re-elected.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Chief Economist at the IMF, in delivering the Funds’ latest review, made a wide-ranging speech yesterday in which he outlined the Fund’s view of the world economy as well as his expectations for growth and inflation.His most significant predictions were around Europe, where he believes that the UK economy, although still struggling to make any headway, only growing by 0.4% this year, will outperform Germany, which is stuck between stagnation and recession.Pierre-Olivier Gourinchas told his audience that the UK's upgrade from a 0.3% contraction in its earlier report was due to stronger-than-expected consumption figures and the confidence that has been derived from the fall in energy prices.The Windsor Protocol has reduced the level of uncertainty surrounding Brexit, but only Germany will perform worse than the UK among the G7 nations.The UK’s financial sector has shown “surprising resilience” following the collapse of Credit Suisse and is not showing any signs of a significant issue with bad or doubtful loans.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
There has been outrage over the Bank of England’s decisions to award its staff bonuses totalling twenty-five million pounds despite its demand that the rest of the country exercise restraint in pay awards and bonuses.Andrew Bailey’s assertion that unsustainable wage rises are in part responsible for stoking inflation appears not to apply “close to home.” While the awards are not necessarily excessive in themselves and are in line with what has been paid in previous years, the revelation will embarrass the Bank’s Governor at a time when his and his teams’ credibility is low after a series of ill-judged comments.The soaring cost of mortgages that are being reset after their fixed rate period expires is leading to borrowers facing deficits in their monthly outgoings, leaving them facing either “dipping into” savings or using expensive credit cards or short-term loans to pay their household bills.This will undoubtedly lead to a significant downturn in retail sales which will, in turn, feed into a continued downturn in overall economic activity.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Last month's fifty-point hike in the base rate of interest is being considered a “rush of blood to the head” that came because of the headline rate of inflation in May remaining unchanged.Using the same logic, the market expects the MPC to revert to its staid policy of twenty-five-point hikes that have become its “staple offering” for almost the entire period of its current rate hike cycle.The meeting, which takes place next Thursday will be the first since Silvana Tenreyro completed her stint as a member, and it is unlikely that her “ultra-hawkish” views on inflation will be continued by her replacement, Megan Greene.Greene who will bring a wealth of international economic experience to the role will take time to bed into the role just as her predecessors have. With Michael Saunders having left almost a year ago and Tenreyro having just left, the MPC has been shorn of two economists who believed that rates would have risen faster in response to the factors that were driving inflation.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
This week’s publication of inflation data for June illustrated how much more the Bank of England could have done had it not been timid about the effect its actions could have had on the economy.The Bank and the Treasury have not worked in tandem to bring inflation lower, and it is as if the two agencies do not talk to each other. There is little question that the actions of the Chancellor, Rishi Sunak, planted the seeds that eventually grew into the highest rate of inflation in a generation, but the Bank of England has lacked the courage seen in other G7 nations to “take the bull by the horns” and tighten monetary policy significantly faster than it has. Now, with inflation beginning to retreat, due in part to their most recent action in hiking rates by fifty basis points, they are left wondering if they could have been more aggressive.In the seventies and early eighties, it was said of the economy, which was plagued by industrial action which made union leaders into TV celebrities, that the UK suffered from a malaise which emanated from a nation living in the past and trying to repeat the energy created by the post-war years.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The headline rate of inflation fell to 7.9% in June, the lowest it has been in more than a year. Inflation had been predicted to fall from the rate of 8.7% seen in May to 8.2%. The market immediately divested itself of long Sterling positions, believing that the fall in the rate of inflation means that the Bank of England is less likely to feel the need to add a further fifty basis points to the base rate of interest. While this is one scenario, the Bank may also consider that having seen the effect of a larger-than-expected hike last month, they may feel empowered to “repeat the dose.”The Chancellor welcomed the news, saying that the Government understands that high price increases are still a huge worry for households and businesses.The fall in the rate of inflation has seen forecasts for the peak in the base rate drop from 6% to 5.75%. It is going to be difficult to predict the further seventy-five basis points that are predicted to be added will be in the twenty-five-point hikes or another fifty, followed by twenty-five a little later in the year.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Rishi Sunak has invited business leaders from several sectors of commerce to join a new initiative he has started to “turbocharge” economic growth. CEOs from companies such as AstraZeneca, Sainsbury, and BAE Systems are among those joining the Business Council.The fourteen members of the council are considered leaders in their field and represent some of the country’s largest employers. Sunak was “at pains” to say that this will not be just another talking shop, and the issues that are raised, and the proposals that are considered will be fed directly into Government policy.The Prime Minister is keen to demonstrate that there is room for a joint initiative between the public and private sectors.The CEO of BAE Systems, Charles Woodburn, spoke of his belief that now more than ever, it is important that the Government work closely with industry to ensure that every opportunity is carefully considered to drive economic prosperity forward.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
In times of high inflation, the delicate balance between fiscal and monetary policy needs to be tightly controlled because if they become unbalanced, it can prolong the “economic agony” being experienced by the country.It was not very long ago that the Government was saying that public sector pay awards above 5% would add to inflation and cause the Bank of England to tighten monetary policy as a pay/price spiral developed.In the past few days, pay increases of between five and seven per cent have been announced while the Bank of England recently raised interest rates by fifty basis points, in a departure from the twenty-five that had become the “norm” over the past eighteen months or so.The level of Government borrowing is already at 100% of GDP and is set to rise even further in the coming years as high-interest rates increase the debt servicing burden while the government is still trying to pay for the support that was provided during the Pandemic. Add to that an ageing population where there are fewer tax receipts and the “triple lock” on the state pension where an annual increase guarantees that pensions will not lose value in real terms, and the dilemma facing the treasury becomes apparent.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Andrew Bailey has, rightly or wrongly, become the face of unacceptable high inflation.In his annual Mansion Speech at a dinner hosted by the Lord Mayor of London, Bailey spoke of the resilience of the UK economy and the fact that, in his opinion, it can stand further hikes in interest rates.The Bank surprised the Market last month by raising interest rates by fifty basis points as inflation remains stubbornly high. Bailey believes that since food inflation has peaked that the overall rate of inflation will fall quickly, and Rishi Sunak’s pledge to halve the rate of inflation by the end of the year remains attainable. Since December 2021, interest rates have been hiked from 0.1% to their current level of 5%, yet they still don’t yet appear to have reached a level at which they are restricting demand which remains strong.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Bank of England has been hiking interest rates for almost twenty months to reduce inflation which rose into double figures earlier this year. They have been completely transparent about their intentions, with the Governor providing the market with a reasonable amount of advance guidance.The Bank’s actions have signalled the end of an era of low inflation and low interest rates, which stretches back to the financial crisis of 2008. Over roughly the same period, the mortgage market in the UK has evolved to such an extent that now, around 80% of home loans are fixed. It is common for loans to be fixed for a period of two or five and occasionally ten.As short-term interest rates have risen over the past twenty months or so, borrowers have been insulated, that is until their loans are reset using the current higher interest rates, and now they face seeing their repayments often double or, in extreme cases, treble.This is concerning and, in many cases, catastrophic, but who is really to blame? Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Catherine Mann is the most hawkish of the independent members of the MPC. She has been voicing her concerns about the effect of high inflation on the economy for some time and voted for the fifty-basis point hike in interest rates at the most recent meeting of the rate-setting committee.In a recent speech, she spoke of her belief that inflation is becoming embedded in the economy and very soon the Bank of England will be powerless to eradicate it using “conventional” methods.She agrees with the Governor that there is unambiguous evidence that firms are using the current crisis to maintain, and in some cases, increase their margins. She believes such practices are a prime cause of how inflation will become a “fact of life” again, and must be dealt with as a matter of priority,It is easy to see obvious examples, like the forecourt price of fuel, but beneath the surface, the practice is becoming so widespread that it is becoming easier to name the sectors of the economy where it is not happening.Last week the Treasury sold £4bn in Government debt at a price that equated to 5.6% per annum. That is higher than the cost at the height of the Liz Truss inspired crisis that threatened to swamp the economy last Autumn.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Government, already a considerable distance behind in opinion polls, has decided that it won't try to “bribe” the electorate by cutting taxes in the run-up to the General election that has to take place before January 2025.The Chancellor of the Exchequer, Jeremy Hunt, has admitted that the current economic conditions in the country make any pre-election cuts in his Autumn statement “unlikely.”Following Rishi Sunak’s pledge to halve the rate of inflation by the end of the year to around 5%, Hunt will not add billions to demand while the Bank of England is tightening monetary policy to reduce it.Hunt has already said that achieving the Cabinet pledge on inflation will be difficult to achieve.The Conservative Party, which has appeared to be on the brink of civil war constantly since David Cameron’s departure as Prime Minister seven years ago, will need to use the summer recess of Parliament to regroup and try to find a way to eat into Labour’s lead in the polls. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Governor of the Bank of England spoke yesterday of the need for regulators to act against retailers who are taking advantage of the current situation to keep the price of their products high to protect their margins and increase their bottom line. Andrew Bailey’s comments come after it was revealed that drivers had paid over a billion pounds more for fuel at supermarkets over the past year as retailers tried to increase their profit margins.Jeremy Hunt held talks recently with a wide range of retail bodies to discuss ways in which those struggling with the cost of living are not being unfairly targeted.There have been complaints recently that two highly emotive sectors are taking advantage of the situation. The price of fuel is one, while banks are also being accused of raising rates to borrowers as soon as, or in some cases before, official rates are increased, while the rates paid to savers are still low.Bailey believes that the headline rate of inflation that remained at 8.7% will begin to fall rapidly towards the Bank’s 2% target towards the end of the year.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The risk of a hard landing for the economy has been heightened by the recent actions of the MPC in hiking interest rates by fifty basis points. Economists at the OECD believe that the base rate of interest could now reach 7% as the Bank of England appears determined to stamp down hard on the rate of inflation, which has remained stubbornly high.It is expected that the base rate will rise to 6% by the end of the year, and depending upon the path of inflation in the New Year, they are able to envisage a scenario where rates now touch 7%.The rise in interest rates throughout the first and second quarters has not had the effect of dampening demand as they come closer to restrictive territory. The “neutral rate” has become something of a “moveable feast” with no one at the Bank prepared to commit. With the highest headline rate of inflation in the G7, the possibility of a further fifty basis points being added and either the next MPC meeting or the one following the likelihood of there being a hard landing where the economy falls into a recession has increased.Neither Jeremy Hunt nor Andrew Bailey appears to be particularly perturbed by the prospect of a mild recession, although both have been at pains to say that it is not their goal to see the economy contract as a method of containing rising prices.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
There was some good news and some bad for the Bank of England and the economy yesterday. The average interest rate on a five-year fixed mortgage reached 6% as the home loan market continued to react to the prospect of the Bank adding further hikes to the base rate. This will reverberate throughout the entire housing market and the wider economy.The good news came from J.P. Morgan, who published a report in which it exonerated the Bank from the blame for the increases that have taken place over the past eighteen months. The U.S. Bank which has its European headquarters in the City, argued it had “little or no choice” but to continually raise interest rates since a failure to do so would have led to a deeper downturn, even though it believes that the country faces a mild recession in the Autumn/Winter.It is hard to blame the Bank of England for “simply doing its job,” the report went on to say, particularly since neither politicians nor analysts have not offered any viable alternatives.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The decision taken by the MPC last month, in response to the May inflation data, has brought the prospect of a recession close according to a renowned investment manager in the City.The fact that the Bank was forced to change tack on its cycle of interest rate hikes after so long shows that it is far from being on top of the problem. The data releases for May and the current level of inflation have led Schroders Investment Managers to believe that the base rate will reach 6.5% later in the year. It is probable that a further fifty-point hike will be agreed in August before the Bank feels comfortable returning to two twenty-five-point hikes later in the year.Megan Greene, who joins the MPC this week, spoke in an article published yesterday by the Financial Times of her view that Central Banks would do well to be cautious about expecting inflation and therefore interest rates would settle back down to their now long-established level.There are too many imponderables within the global economy currently to be certain that “normal service will be resumed.”Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Silvana Tenreyro has been an independent member of the Bank of England’s Monetary Policy Committee since August 2017. Over that time, she has “grown into” her role as its most dovish member. In her final speech as a member of the committee, she spoke of her concern that if the Central Bank continues to hike rates, it will drive inflation to below the Government’s target of 2%. She believes that the economy has suffered an external shock as energy prices climbed over the past eighteen months, and while it was correct to hike rates through 2022, the hikes that have taken place over the past few months run the risk of being “counterproductive”.This is the type of radical thinking that looks beyond the “norm,” that several MPs believe should be encouraged by having fewer Bank of England employees on the MPC and more independents. Members of Parliament believe that the current makeup of the committee runs the risk of adopting “groupthink,” in which they vote as a bloc, thus negating the role of the independent members.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Andrew Bailey has defended the fifty point rate hike agreed by the MPC last week, while at the same time tried to explain to the market that it is not the Central Bank’s goal to see unemployment rise, although the committee is well aware that firms will need to “rationalize” their workforce as they experience a drop-off in demand.Headline inflation is still “far too high”, and the Bank believed that it had to make a statement of serious intent when the May price data was released.Having voted for a twenty-five pointy hike last week, Silvana Tenreyro, speaking at the ECB annual conference in Portugal, shared the belief that she holds with another independent member of the MPC, that pay growth and core inflation are set to slow considerably and rather than further hikes, the Bank of England may be forced to cut rates later in the year to stimulate the economy.That is, however, not a view held by a majority of the MPC, who acknowledge that their actions will slow the economy, but not to such an extent that it will contract over an extended period.Interest rates may have now reached a “neutral position” where they are neither supportive nor restricting demand.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Speaking at an event hosted by the ECB yesterday, Andrew Bailey continued the hawkish rhetoric he used when announcing the fifty-basis point increase in interest rates last week.He told the assembled journalists that having studied the surprisingly bad May inflation report that a strong message needed to be sent to the market.There was discussion about hiking by fifty basis points over two meetings, but, on balance, the MPC felt that a single rise would hold a more effective message.The effect of the employment and inflation reports made it clear that if the Bank was to be considered serious about the need to bring inflation under control, a strong message needed to be delivered.The Treasury is believed to be concerned about the comments attributed to Bailey recently in which he was sanguine about rate hikes raising unemployment as demand in the economy.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Backbench members of the ruling Conservative Party are very used to trying to find a scapegoat to deflect the blame for their often-poor performance. This was particularly clear during the Pandemic, and it is happening again as the economy stumbles along. It is more due to luck than judgment that the country looks likely to just about avoid falling into recession.The scapegoat this time around is Bank of England Governor, Andrew Bailey, who is a solid technocrat who lacks the charisma of his predecessor, Canadian, Mark Carney.Carney was struck in the mould of earlier Chairmen of the Federal Reserve and commanded the respect of politicians and businesspeople alike, while Bailey appears to be a little “lightweight” for the role.Therefore, he appears to be an easy target to blame for the current cost of living crisis and is facing pressure to resign from the aforementioned MPs.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
In his speech following last week’s rate increase announcement, The Governor of the Bank of England, Andrew Bailey, spoke of his concern that at least part of the continued rise in inflation is being caused by what he called unsustainable wage increases.There is no reliable data for the level of pay settlements that have been agreed, but in the public sector, the Government has tried to stick to the pay award that has been recommended by the independent pay arbiters.Bailey has used this reasoning in the past but fails to abide by his words closer to home. Each of his colleagues who make up the Monetary Policy Committee earns more than £300k a year, with Bailey himself taking home around £600k in pay and bonuses last year.It is felt that pay and, more particularly, bonuses should be linked to productivity, output, and performance, but with inflation remaining uncomfortably high, it is hard to make a case for anyone on the MPC to have performed at, or above, expectation.At last week’s MPC meeting, the hike was agreed by a majority of 7-2. In the past, the two less hawkish members, Swati Dhingra and Silvana Tenreyro, have voted to leave rates unchanged, this time, both voted for a twenty-five-point hike.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Prime Minister, in a TV interview yesterday, said that the people of the UK must “hold their collective nerve” in the face of continued high inflation. He went on to say that fighting inflation is the priority for the Bank of England, and the Government can do little to influence it other than supplying all the support it can.Following its surprise fifty basis point hike in short-term interest rates last week, the market now believes that the Central Bank is taking rising prices seriously, having adopted a relatively low-key stance to the situation despite hiking rates consistently since December 2021.Analysts believe that the peak for interest rates will now be 6%, and this will be reached by the end of the year, by way of two or three further hikes.Kwasi Kwarteng, the Chancellor under Liz Truss’ disastrous, albeit belief spell as Prime Minister last year, spoke out at the weekend, criticizing his replacement, Jeremy Hunt, for almost welcoming the possibility of the country being plunged into a recession as the Bank continues to hike interest rates. While a recession is considered the “nuclear option”, to drive inflation down towards the Government’s target, both Hunt and Andrew Bailey have considered the possibility publicly, although neither is likely to welcome a contraction, particularly since the economy is still below the level it was at the start of the Pandemic.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Bank of England raised interest rates for the thirteenth consecutive meeting yesterday as the entire market expected they would. However, they surprised almost everyone by hiking by fifty basis points. This was most likely in reaction to the May inflation report, which was released the previous day and showed that headline inflation was unchanged at 8.7% while the core actually rose to 7.1% after a reading of 6.8% in April.The base rate of interest is now at 5%, its highest level for fifteen years.The market, although taken aback by the newly hawkish stance of the Bank, appreciated that it was taking the lead in the fight against rising prices after an extended period in which it made a series of almost grudging “dovish hikes” each of twenty-five basis points.This contrasted with the more proactive stance taken by the ECB and FOMC, each of which have hiked rates in larger increments over a similar period.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
If there were any lingering doubts over whether the Bank of England would raise interest rates when the vote takes place at its meeting which concludes later this morning, they were dispelled by the publication of the May inflation report.Headline inflation was unchanged last month at 8.7% as the continued fall in energy prices was offset by the continued excessive cost of foodstuffs. While a twenty-five-basis point hike in short-term interest rates was virtually certain before the data was released, it is now “baked in”.The Office for National Statistics, when considering the data and the lack of any change, particularly given that the Bank of England has been raising rates constantly since December 2021, believes that there is little option but to allow the economy to fall into recession as the “nuclear option” to curbing inflation.While prices are rising across the board, it’s the repricing of fixed-rate mortgages that is having the most effect on the public consciousness. During Prime Minister’s questions in Parliament yesterday, the opposition leader, Sir Kier Starmer, clashed with Rishi Sunak over the Government’s handling of the cost-of-living crisis. However, he was particularly careful to put forward suggestions for what the Labour Party would do if, or more likely when, it comes to power.When compared to the last time there was a series of concerted interest rate hikes, over two decades ago, there were significantly fewer fixed-rate mortgages than exist today. Therefore, the ability of the Central Bank to affect inflation is “diluted” as the effect of rate hikes is spread over time.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
An eminent consumer affairs expert in the UK spoke yesterday of how he had warned his clients of the impending mortgage “ticking bomb” as long ago as last Autumn. He also expressed surprise that mortgage advisors who are now scrambling to find new fixed rate deals didn’t act more proactively at the time.The Chancellor told Parliament yesterday that the Government was not about to provide support for those who have seen the interest rate on the two-year fixed rate mortgages more than treble in the past three months. A number of City analysts believe that an unwelcome side effect of the Pandemic has been that there has been a growing reliance on Government support. The public has become used to schemes like “eat out to help out” and seeing the property market supported by stamp duty holidays.Unfortunately, the current mortgage crisis is little more than a tough fact of economic life. Interest rates do go up as well as down, a detail that has become lost on members of the public who have travelled through half of their “mortgage journey” never having experienced a single rate hike, let alone a series of them.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Government confirmed yesterday that having provided support for businesses trying to cope with Brexit and families dealing with the issues created by the Pandemic, there will not be any backing provided for those currently struggling or facing significantly higher mortgage payments soon.While lenders have removed hundreds of mortgage products from their “shelves” as uncertainty dominates the market, interest rates continue to rise.Although there is a link to the Bank of England’s continual hiking of interest rates, the reason that the mortgage market is so affected is due to the lack of clarity over when rates stabilize.The cost of a typical two-year fixed mortgage is now above 6% when eighteen months ago when thousands of fixed-rate loans were repriced, they were at, or below 2%.There will be no support offered to borrowers in the form of stamp duty “holidays”, or other measures as were seen during the pandemic. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Bank of England’s mandate is to promote growth in the United Kingdom economy, while keeping inflation under the Government’s target.While looking like it has spectacularly failed on both counts since the Pandemic, neither fiscal policy, nor the global economy have been on their side.Andrew Bailey, the Bank’s Governor has been accused of being too cautious in delivering tighter monetary policy even though they were the first Central Bank among G7 nations to begin to hike rates.Other Banks, notably both the Federal Reserve and European Central Bank started hiking rates significantly after the Bank of England but have managed to exercise a degree of control over rising inflation that has not been clear from the MPC’s actions.The Fed’s success is shown in that they are the first G7 Bank that was able to pause the cycle of interest rates due to the significant fall in inflation recently.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The UK economy returned to moderate growth in April as services activity bounced back. Consumer activity was the strongest that has been seen so far this year.A positive first quarter was marred by a contraction of 0.3% in March, but the economy made up for that with growth of 0.2% in the first month of the second quarter.As fears of a recession this year recede, the Bank of England received support from the Chancellor of the Exchequer, Jeremy Hunt, who commented that the Monetary Policy Committee faces little choice but to continue to raise interest rates in the face of stubborn inflation.He went on to say that the Government would be “unstinting” in its support for the Central Bank to do what it takes to defeat inflation. With the base rate of interest already at 4.5% and another meeting scheduled for next week, there is speculation that it could reach 5.5% before the end of the year.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Bank of England appears certain to hike rates when the MPC meets next week. Andrew Bailey, the Bank’s Governor virtually confirmed the need for still higher rates during his testimony to the House of Lords.He confirmed his view that inflation will eventually fall back close to the Government’s target of 2%, despite it taking significantly longer than anyone at the Central Bank had first imagined.Bailey has received criticism from MPs in the past for being too timid in dealing with rising inflation. While other G7 Central Banks have increased the size of the increments of their own tightening of monetary policy, the MPC has “plodded along” hiking by twenty-five basis points at each of its last twelve meetings dating back to December 2021.Yesterday he quoted data that had just been released showing that private sector wage growth continues to show an extremely tight labour market.In the three months to April, wages in the private sector rose by 7.6%. He was asked if the Bank of England could have done more in the early days of the current cycle to prevent the current situation. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Jonathan Haskel, an independent member of The Bank of England’s Monetary Policy Committee spoke yesterday of his view that interest rates will have to rise from their current level of 4.5% if inflation is to be brought under control.Haskel went on to say that his personal view is that the risks to the economy are skewed towards inflation. It is likely that he was influenced by recent predictions that the country will just about avoid a recession this year, while the prices have failed to stabilize completely.“Although our present circumstances are far from ideal, embedded inflation would be far worse”, Haskel went on to say.His MPC colleagues Swati Dhingra and the Bank’s Governor, Andrew Bailey will speak later. Bailey will appear before the Parliamentary Economic Affairs Committee, while Dhingra will be speaking to students at the Manchester Metropolitan University.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The political landscape in the UK incontrovertibly changed at the end of last week as former Prime Minister, Boris Johnson, resigned in the wake of the publication of the report into “Partygate” which he labelled little more than a “witch-hunt”.There were further departures confirmed by some of his supporters while Johnson himself hinted that he would be back, possibly standing for the seat vacated by former minister Nadine Dorries.Prime Minister Rishi Sunak returned from his trip to Washington, having made little progress over a free-trade agreement with the U.S. which is now unlikely to happen before elections take place on both sides of the Atlantic.Sunak now faces three by-elections, two of which will be held in constituencies that can hardly be called safe.While staying well ahead in opinion polls, Labour will also face a serious test of its electability, having abandoned a significant part of their investment policies.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Rishi Sunak and his Conservative Cabinet are set to miss one of the main promises from their 2019 election manifesto by not agreeing on a free-trade-agreement with the United States.Sunak, on a fleeting visit to Washington, met with President Biden yesterday and signed the “Atlantic Declaration”. This set out a greater degree of economic security. The agreement includes a specific trade pact that includes deals over the vital minerals used in electric car batteries, closer cooperation over defence industry issues and new data protection protocols.It falls well short of the free trade agreement that was promised as part of the Government’s Brexit strategy. With both leaders facing re-election, Sunak brushed aside criticisms and concentrated on the positives which provide UK manufacturers access to around three-hundred and seventy billion dollars of green subsidies, which form part of Biden’s initiative to boost green investment in the U.S.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The UK is expected to have the highest rate of inflation and the second-lowest rate of growth in 2023, according to a report published by the OECD yesterday.Inflation is expected to average 6.9% this year, while growth is expected to be 0.3%, which is an upgrade on the earlier estimate where a contraction of 0.2% was predicted.Although neither the OECD nor the IMF predict a recession this year, a lot will depend on the actions of the Bank of England. Interest rates that have been increased at every meeting of the Monetary Policy Committee for the past eighteen months most likely stand on the cusp of becoming restrictive on demand and possibly contributing to a recession. It is the base case of the OECD that the Bank will end its cycle of hikes following the meeting that is due to take place two weeks from today, or if they feel that core inflation is unlikely to fall, one further meeting.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Government’s 2% target for headline inflation is looking increasingly impossible to reach. Given the lack of growth expected over the balance of 2023, many analysts and commentators believe that if the Bank of England is unable to drive it lower in the current environment, then as growth begins to pick up interest rates would need to be raised significantly further, and even then making the UK a “low inflation economy” is neither in the Bank’s nor the Government’s best interests.Rishi Sunak has apparently floated the idea of “considerable” tax cuts to drive the economy forward despite them being seen as little more than a sop to win votes in the upcoming General Election.The inflationary effect of such a tactic would push any thought of achieving the 2% target even further away.The country is falling further and further behind its G7 partners over an entire range of public services so supplying less money by way of tax receipts to bolster the NHS, the courts and public transport, among others, will threaten their complete collapse.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Services and composite output data for May were released, and both remained around the same level that was seen in April.The Services PMI showed that the sector is still well into an expansive phase at 55.2 which pushed the composite number for services and manufacturing combined to 54, from 53.9 previously.As part of the data, services firms noted strong input costs from wages which have been growing for the past three months. This will continue to add pressure to core inflation and will likely lead the Bank of England to continue to hike interest rates.The nature of wage increases is that once workers, or their representatives, claim a wage increase, based upon headline inflation at the time that negotiations begin, there is a lag before that increase is paid. In the meantime, as is the case currently, headline inflation has begun to fall making the pay award appear to be more generous.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The UK economy as expected avoided a contraction in the first quarter despite an unexpectedly large fall in growth in March. The economy shrunk by 0.3% in March which highlighted its fragility.With the Bank of England under pressure to continue to hike short-term interest rates, it has little “wiggle room” to play with which could see monetary policy take the economy into a recession.Although there was a collective “sigh of relief” from the market, the Government, and the Central Bank when the IMF concluded that the country is unlikely to suffer a recession this year, there is a growing concern that the economy may struggle to avoid a contraction in 2025.Rishi Sunak and his Cabinet are clearly relying on an improving economic performance to provide them with a slim chance of remaining in Government following the General Election which must take place before January 2025, but is slated to happen in the Autumn of next year.The BBC interviewed Larry Summers, the eminent economist, and Treasury Secretary during the Presidency of Bill Clinton last week and painted a particularly dark picture of the country’s prospects. He believes that it is “highly unlikely” that there will be no recession during the life of this Parliament, also commenting that Brexit is the single factor that marks the UK from its G7 partners when it comes to inflation, which will in time be seen as a “historic error”.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The UK economy suffered a pair of blows yesterday after a month of generally good news since the IMF announced its “volte-face” over the nation’s performance over the rest of 2023.The Nationwide survey of house prices was published, and it showed that across the entire country, prices fell by 3.4% in May, its largest fall in close to fourteen years.Then Larry Summers, the influential economist and former U.S. Treasury Secretary commented in an interview that it would be a major surprise if the UK didn’t suffer a recession in the next two years and that even this year, it is not out of the question that the economy could slip into a mild recession this year.The Nationwide Building Society in a report that accompanied the data warned that further interest rate rises could see the market fall by even more.This may be good news for first-time buyers who have seen house prices continue to rise in the past few years, even during the Pandemic, although then Chancellor, Rishi Sunak provided significant support in the shape of cuts to stamp duty.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The MPC’s most hawkish member Catherine Mann made a speech yesterday in which she again raised concerns about the potential for inflation to become ingrained in the UK economy.Mann believes that the UK has a more significant issue with core inflation than most of its G7 partners. She said that it was a structural issue where companies, both public and private, are so desperate to protect their profit margins that they pass wage increases directly to their customers by increasing the price of their products.One classic example of this is the railways, which are supposedly privatized but the Government is currently engaged in a tough series of negotiations with several sectors of the industry. The UK has the highest train fares in Europe or the U.S., while its service is mediocre at best.The cost of a ticket bears little relationship to the distance travelled, the frequency of the service, or the condition of the rolling stock or infrastructure.Inflation in the UK reached a high of 11.2% in October last year and in April was still at 8.7% making the UK the joint highest, with Italy, in the developed world.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The UK economy is facing some major issues in the long term as the Government tries to put in place a strategy that will leverage Brexit while the Bank of England tries to extinguish the threat of inflation.While it is now generally agreed that the country will now face a recession this year, thoughts are turning to the long-term prospects which may include a leap into the unknown as the people decide it is time for a change of Government.The last time this happened was in the nineties when Conservative Party “shot itself in the foot” and ushered in the Blair/Brown years. It may be that the country needs a fresh approach, but the current Labour leadership is hard to understand. Yes, they ” make noises” about the need for change and how they will cut debt, while at the same time investing in the future of the country.Without being sceptical, whenever Shadow Ministers are asked the how of their policies, they do little more than make hopeful noises, critical of the current situation but fail to add any “meat to the bones”. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
High inflation is going to remain a global economic factor for at least the rest of 2023 and possibly well into next year as Central Banks review plans to begin to pause the cycle of rate hikes.Inflation has fallen but not as fast as global bodies like the World Bank and the IMF had expected, and it is likely that they will have to again revise their predictions for the major, as well as developing economies.Although the ECB remains committed to defeating inflation by a seemingly continuous cycle of rate hikes, both the Federal Reserve and the Bank of England had been considering a pause perhaps starting at their June meetings.Although headline inflation has fallen back into single figures in the United Kingdom according to the data for April, it has not fallen as quickly as had been expected, due mainly to continuing price rises in basic foodstuffs. Core inflation has become stuck at between 6% and 7% having risen from 6.2% to 6.8% last month.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Andrew Bailey the Governor of the Bank of England has had a difficult time since the Bank began to raise interest, after several years of benign inflation, combat rising prices that, with the benefit of hindsight, bound to rise as the effect of the massive fiscal support throughout the Pandemic, the Russian invasion of Ukraine and rapidly increasing demand had a significant effect on the economy.Bailey was not alone in being caught off guard, Jerome Powell and Christine Lagarde have also suffered criticism for not taking the threat of rising inflation seriously.However, Bailey alone has been almost apologetic every time he has announced yet another rate hike, while his G7 colleagues, the Federal Reserve in particular, have been far more dynamic and committed to tighter monetary policy.The Bank of England started to tighten monetary policy first among G7 nations, using a series of twenty-five basis point hikes, possibly underestimating for a second time the seriousness of the threat that rapidly rising inflation could be to the economy.While the country’s G7 partners were undertaking fifty and even seventy-five basis point hikes, the Bank of England continued to hike rates by twenty-five points for fear of tipping the economy into a recession.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The latest data for inflation was published yesterday, and it showed that although headline inflation fell back into single figures, the fall was less than expected at an annual rate of 8.7% versus 10.1% previously.The market was expecting the fall to be even greater at 8.1%. This means the likelihood of the Bank of England hiking interest rates again at its next rate-setting meeting is more likely than previously expected.Core inflation, the rate with more volatile items like energy and foodstuffs stripped away, rose in April to 6.8%, up from 6.2%.This was the outcome that Andrew Bailey, the Bank’s Governor had warned about last, when the spike about a wage/price spiral, where headline inflation begins to fall, but the core is propped up by the lag in wage settlements that were negotiated while inflation was far higher and only now are coming into force, beginning.The data chimed with the IMF report published the previous day which predicted that the UK would avoid a recession this year, but that inflation would remain stubbornly high.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Bank of England Governor, Andrew Bailey, attended a conference in the U.S. in which the amount of advance guidance that is given to the markets of Central Bank monetary policy intentions was discussed. Over several years, and even up until very recently. There was little market interest in what the Bank was doing since inflation was low for several years, so interest rates were allowed to fall, then over the past eighteen months, as prices of energy and foodstuffs have skyrocketed, tightening of policy has been both necessary and obvious.At the margin of policy changes, as the Bank is either beginning or ending policy changes, is when the advance guidance to the market needs to be considered.During the cycle of rate increases, only the increments are of interest to analysts and investors, since as inflation continues to rise, a hike becomes a foregone conclusion.The G7 nations which met in Japan last week, are all arriving at an inflection point in policy changes where the markets are expecting them to call a halt to further increases.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Bank of England must guard against “painting itself into a corner” by providing guidance to the markets about its intentions regarding monetary policy. That was the conclusion of a conference hosted by the Federal Reserve of Atlanta earlier this week. By providing guidance to the markets in advance the Bank faces the prospect of either being accused of misleading traders and analysts should subsequent data releases mean it has to change its mind or pre-empting the votes of committee members who are entitled to have sufficient time to consider all options before casting their vote.It becomes far harder to pivot on interest rates when the market has already been appraised of the Bank’s intentions.Over the past year or so, the intentions of the Monetary Policy Committee were fairly clear, so advance guidance was acceptable, but as rates reach neutral territory or become restrictive on demand, the actions of the MPC become a little less clear.Maybe having signalled a pause in rate hikes, data on, say, inflation, output or employment may unexpectedly spike, which would leave the Bank open to criticism were it to then hike rates again.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Andrew Bailey spoke yesterday of his concerns that inflation is becoming embedded in the economy since the core is not falling as expected following eighteen months of rate increases.While the markets continue to speculate about when the Bank will pause the cycle of hikes, Bailey confirmed that it will continue to hike rates until inflation falls to its two per cent target.Bailey talked of his concern over two specific issues; the continued rise of food price inflation, which remains close to twenty per cent, and the tightness of the labour market, although the latest employment report showed that that pressure eased very slightly last month.He assured his audience of Chambers of Conference members that the Bank will continue to hike rates until the medium-term outlook is in line with the Bank’s remit.There were signs in the latest employment report that despite unemployment remaining at historic lows, it is slowly beginning to rise. In the first three months of the year, the unemployment rate surprisingly ticked up to 3.9%, despite evidence that more workers are returning following extended absences due to long covid.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The April employment report was published yesterday, and it showed that average earnings are still well above where the Bank of England needs to be to see inflation fall back close to its target of 2%. The headline figure, excluding bonuses, grew year-on-year to 6.7%, up from 6.6% a month earlier. The data shows that the economy is at something of an inflection point, with momentum beginning to turn, but that will likely come too late for the next Monetary Policy Committee Meeting. The data has remained in the same “ballpark” for a few months now and this will concern the Central Bank since it is a sure sign that inflation is becoming imbedded in the economy.The peak in wages may be close should the unemployment rate, which unexpectedly rose to 3.9% from 3.8% last month, continue to creep higher. Workers tend to become more satisfied with their lot as they become aware that new jobs are becoming scarcer. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Bank of England is getting closer to being able to pause its cycle of interest rate hikes that have been running since December 2021 as food inflation has peaked according to several major supermarkets.Having reached close to twenty per cent, and threatening to force the Central Bank into raising rates to a potentially dangerous level where they raise concerns over their effect on demand and therefore growth, prices of essential foodstuffs are showing signs of abating.In a call with Bank of England Governor, Andrew Bailey, the heads of the major supermarket chains confirmed that prices are beginning to fall and are now at a stage where the lag between wholesale prices beginning to fall and retail prices steadying is taking place.Given the need for supermarkets to fix prices for fresh items well in advance, the supermarkets face a challenge to balance what they are paying their suppliers and growers against what they are charging shoppers.It is unlikely that the Government or Central Bank will feel comfortable and want to declare victory over inflation until there is tangible evidence that there is a significant fall in inflation which is still close to double figures.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Although the UK’s economic performance in the first quarter was nothing to write home about, it was still far better than was forecast just a few months ago.Q1 GDP grew overall by 0.1%. Construction, which has seen a significant rebound recently grew by 0.7% while the services sector, the major engine for growth in the country grew by 0.5%. Despite this improvement, the economy is still 0.55% smaller than it was pre-Covid, making it the only country in G7 that is yet to achieve its pre-Pandemic peak.Month-on-month the economy grew in January and February but fell back in March as strikes by railway workers and NHS staff bit into performance.Even the launch of the new registration in March failed to provide its usual annual boost to the automotive market, with new car registrations at historic lows.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The composite Purchasing Managers Index which shows the output for the manufacturing and services sectors combined climbed further away from contraction last month, reaching 54.9 after a reading of 53.9 in March.This places the threat of a recession firmly in the rearview mirror for the Government and should allow the Bank of England to continue to concentrate on bringing inflation down, closer to its target of 2%.The Monetary Policy Committee meets next week with a decision on short-term interest rates to be announced on Thursday.The PMIs are becoming a further economic indicator for analysts and the data for the construction sector will be published later this morning.The expectation is for the sector to stay in expansive territory, but the data reflect the difficulties in this sector which is a vital component of the nascent recovery that the economy is experiencing.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The fight against inflation that the Bank of England has been waging since December 2021 is likely to reach a crucial stage next week when it is expected that the Monetary Policy Committee will hike short term interest rates by twenty-five basis points.There is no longer any mystery to the Bank’s actions as it set out its stall many months ago confirming that it will use tighter monetary policy as the instrument that it will use to dampen demand and by doing that reduce price pressures in the economy.While commentators and analysts try to drive some interest in the MPC meeting, it has been obvious for a considerable time that interest rates were headed into restrictive territory. Traders have become immune to the rise in rates having any effect on the strength or otherwise of the pound, particularly as the tightening of policy has been a common theme throughout the G7 since the middle of last year.However, following the Fed’s rate hike and somewhat dovish statement on future actions we may see some differential develop in Central Bank actions.While journalists continue to present theories as fact, based on their own interpretation of the data, it now seems likely that rates have reached the level that is considered optimum. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
With inflation falling albeit too slowly for Andrew Bailey’s liking there is a growing belief that Rishi Sunak is the right man to lead the country’s recovery from the issues that to a certain extent have been self-inflicted.Having achieved a workable agreement with Brussels that could see closer ties between the UK and EU, Sunak is trying hard to erase the circumstances that brought him to power.He has put in place, in concert with Jeremy Hunt an economic policy that is expected, if given time to work, should lead the country back to some semblance of normality if not prosperity.It is true to say that he contributed to the raging inflation that has gripped the country over the past eighteen months or so, by providing the support which, at the end of the day, saw the country get through the Pandemic. He also was the first member of Boris Johnson’s Cabinet to resign in protest at his leadership.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Bank of England again finds its independence under threat as the Government apparently wanted the new member of the Monetary Policy Committee to be from the Treasury.Governor Andrew Bailey held firm in discussions with the Prime Minister and Chancellor of the Exchequer after it was agreed that Silvana Tenreyro would leave her role in two months' time.It was agreed that the new member of the Committee should be Megan Greene, a candidate who is well known in the City as the Chief Global Economist of U.S. private investigations and advisory firm Kroll.Bailey disagreed in principle with Jeremy Hunt over the appointment of Tenreyro’s replacement since he believed that it would send the wrong message to the markets. It was felt that his reporting of MPC decisions and his responsibility for testifying before the Treasury Select Committee could be second guessed by a member who has dual loyalties.While the domestic housing market continues to falter, there was more bad news for the sector from commercial real estate which has seen a slump in activity as the economy continues to weaken. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Bank of England has been raising short-term interest rates for close to eighteen months in an effort to slow demand and by doing that lower inflation.It is only now that the base rate has reached a level that is restrictive on economic activity having been accommodative for many years. It is impossible to know without doubt when interest rates become restrictive, since it is as much about attitude as any economic data.The Bank’s intention when it began its current programme of hikes in December 2021, was for rates to become neutral, where they are neither restrictive nor accommodative, as quickly as possible, without causing undue damage to the economy.The question now for the MPC is how long do they wish for rates to be restrictive, while risking damage to the economyIt is now moot whether they could have been more aggressive in the size of hikes since there were several imponderables in play that drove their decision-making.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
It is generally accepted that if a vote on Brexit were conducted now there would be an overwhelming win for remain. This is more a testimony to the aggressive tactics used by leave campaigners at the time, compared to the underwhelming performance of remain.Of course, there have been factors outside Brexit that have affected the economy since the country left the European Union, not least the pandemic, which to be fair, notwithstanding partygate, and other Boris Johnson related issues, the country handled fairly well.The Pandemic should be viewed like a war. No one in Government had experienced anything like it before and decisions were made semi-blind, with little or no guarantee of success.Brexiteers used jingoistic language, playing on people’s mistrust of European characteristics, which were an overhang of long since ended views.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Bank of England Chief Economist Huw Pill, speaking on a podcast in the U.S. yesterday expressed his belief that the people of the UK need to wake up to the reality that they have no divine right to relative wealth.He believes that workers and firms should stop trying to pass on higher costs by raising prices or demanding higher wages.Until people accept that rising inflation has made them poorer, inflation will continue to rise. Simple economics shows that the UK as a significant importer of natural gas has seen its expense base rise exponentially, while its income from exports, mostly of services, has not risen as quickly.If the cost of what you're buying is rising faster than what you are selling, you are going to be worse off.This is causing the current flare up in inflation which is causing the Bank of England to continually hike short-term interest rates. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The inflation rate is still above 10% despite the Bank of England having hiked short-term interest rates eleven times in succession and is set to hike again at its next meeting on May 11th. While the headline is still far too high for the Central Bank’s liking. Component parts are also alarming. Food price inflation is at its highest in 45 years, reaching 19.2% in the twelve months to March, up from 18.2 a year earlier.The Monetary Policy Committee is being accused of showing a significant lack of imagination in using tried and, to date, tested methods to try to counter rising prices despite them having no visible impact thus far.There seems to be an almost fatalistic view being taken over inflation although the policy of little and often over rate hikes clearly fails to work.Both the Federal Reserve and European Central Bank have had a degree of success by using jumbo rate hikes to bring inflation down, while the Bank has used its current tactic for fear of crashing the economy.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The modest return to growth signalled by Q1 GDP was bolstered by the release of flash PMI data on Friday which showed the largest increase in almost a year.The UK economy is heavily tilted towards services output which makes up about 80% of total output.In April services output rose to a level of 54.9 after a march figure of 52.9, while manufacturing continued to languish falling to 46.6 from 47.9 last month.Inflationary pressures continue to wane in manufacturing, but demand for services will see prices continue to rise in that sector.Demand for financial services was one of the main contributors to overall services growth. One issue is that financial services are often susceptible to rising interest rates. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
This week's release of employment and inflation data has painted a different picture to the optimistic noises emanating from the Government and more recently the Institute of Directors. Following an unexpected rise in jobless numbers, the figures for inflation in March showed that despite the Bank of England having raised interest rates, albeit in modest increments, at every meeting of the MPC since December 2021, at an annual rate in excess of ten percent.Chancellor of the Exchequer, Jeremy Hunt, and his colleagues at the Treasury were disappointed recently by the IMF report which placed the UK at the bottom of the league table for GDP this year in the G20.While the Government likes to speak in terms of potential and future performance the IMF is using a completely different set of models and tends to disregard current output as a measure of future performance.It is different to put a positive spin on a monthly employment report which shows that jobless claims went from a fall of 18.8k to a rise of 28.2k. In fact there was very little official comment on the data at all.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Government’s recent campaign to try to convince people that the economy is on the right path hit the buffers yesterday as the March employment report showed that claims for unemployment benefit rose by a little over 28k and the unemployment rate, despite being close to all-time lows, ticked up a little to stand at 3.8%.Another blow to the economy showed that insolvencies have risen to their highest level since monthly records were produced three years ago.2,457 companies were liquidated last month, up from 1,784 in February. Companies are facing rising costs, especially energy, which in many cases has seen two or three-fold increases.Higher interest rates have also had a significant impact. While the Bank of England has been using monetary policy to slow demand, it is likely that rates have reached a point where they are restricting growth. This is expected to have an effect on the MPC’s decision on whether to increase rates at their meeting next month. With headline inflation in March to have possibly fallen to below 10% when the data is released later this morning, the time may have come to pause the hikes which have taken place at every meeting since December 2021.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The UK is set to rebound strongly in the second half of the year according to separate reports released by two of the country’s most prominent accounting firms.The fact that the country managed to dodge a recession last year is a significant indicator that better times are, although the cost of living crisis is holding back consumers from loosening the self-imposed shackles that have been imposed by rising energy and food prices.Reaction to the IMF's rather gloomy prediction that the economy would be the worst performing in the G20 this year fails to note that the miniscule increase in GDP this year needs very little to see it improve to a level which puts it on a par with the U.S. and Eurozone. Both are predicted to suffer recessions this year. The Bank of England may have stumbled onto the most effective method of tightening monetary policy since it began to hike rates in December 2021.Little and often has been the watchword of the Central Bank, while both the Fed and ECB have been far more aggressive.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Bank of England Governor Andrew Bailey speaking at the IMF last Friday, played down the risk of further disruption to the UK banking sector. Turmoil created by the collapse of two U.S. regional banks and the issues that led to Credit Suisse having to accept a forced takeover by Union Bank of Switzerland, Bailey is fading, and believes that the reforms that have taken place since 2008 have reinforced the sector.However, he still acknowledged the risk inherent in the overall financial sector due to the growth of non-bank institutions such as hedge funds and pension companies.He believes that there will need to be fresh legislation brought in by the Financial Conduct Authority and approved by the Government in order to better control their affairs. Bailey acknowledged that this is a difficult path to negotiate since these funds contribute a significant amount to the UK economy in tax.Last week, Sterling continued its recent rise against a weakening dollar. The overall situation created by G7 Central Banks considering bringing to an end their recent cycles of tiger monetary policy is the overriding driver of the currency market currently.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The UK economy stagnated in February as the country had zero growth for the month which led to a rise of just 0.1% in the year to date. The reason for this lack of growth is mostly due to the strikes which have been called in several public sectors of the economy.The latest strike by junior doctors which has seen a four-day walkout this week looks to be the most contentious. Nurses and train drivers have accepted offers recently.After monthly growth of 0.4% in January, the economy had been expected to post further growth and the zero number disappointed the markets.Chancellor of the Exchequer, Jeremy Hunt has been accused of painting an overly optimistic view of the economy recently. He commented recently that the economy is faring better than expected, continuing weak data. Andrew Bailey, the Governor of the Bank of England, speaking at the meeting of the IMF in Washington, asserted that the UK financial system is robust, and he is not expecting any further contagion from the recent turmoil. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The IMF reiterated its view that the UK economy will be one of the worst performing major economies. It expects the country to experience a contraction of 0.3% during 2023, although this is a slight improvement over its previous outlook.It expects a marginal rebound in 2024 when it believes that the economy will grow by 1%. The continuing high price of gas, although it is now receding, the rise in interest rates and trade performance still affected by Brexit are cited as the main reasons for the decline.The Office for Budget Responsibility agrees that the economy will contract by but by slightly less than the IMF prediction. It estimates that there will be a contraction of 0.2% but no recession.The Chancellor of the Exchequer, Jeremy Hunt, struggling to find any positives in the IMF report, commented that the UK has upgraded its own forecasts for this year as well as 2024 and 2025. He pointed out that the IMF has praised the Government for its current economic policies that will eventually lead to sustainable growth.Hunt also announced a change to the makeup of the Bank of England’s Monetary policy Committee yesterday. Silvana Tenreyro will leave in early July. She will be replaced by Megan Greene. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The hike in utility prices that came into force on April 1st has had the effect of slowing retail activity, even though the wholesale cost of energy has fallen since last Summer.Should this continue rather than being a knee-jerk reaction, the Bank of England will be faced with an awkward decision when it next meets early next month.Inflation is falling, and while that is expected to continue by the markets, there are two imponderables. The first is core inflation, which doesn’t include energy and foodstuffs, is not reacting to rate hikes as much as the headline. Furthermore, there is disagreement between members of the Monetary Policy Committee about how much the effect of recent rate hikes are still to be seen in economic activity have interest rates reached the point where they are restricting activity.It could be, as argued by MPC member Silvana Tenreyro, that rate increases that have taken place since the turn of the year have not yet had their desired effect. This may be in the course of moving rates into restrictive territory, and may cause inflation to fall too quickly, and have the knock-on effect of driving the economy into a recession.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The apparent disagreement that has surfaced between members of the MPC has raised the level of uncertainty about what the Bank of England will do next.Silvana Tenreyro believes that even one more rate hike may cause inflation to fall too far and drive deflation as demand collapses.Huw Pill, the Bank’s chief economist on the other hand, believes that the current policy is correct since, having travelled so far down the road, it would be foolish to stop now.It will be dangerous for the credibility of the MPC if factions develop, particularly if the various department heads at the Bank appear split on what action needs to be taken next.The UK services sector produced another encouraging performance to offset the continued decline of Manufacturing.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Silvana Tenreyro is the most dovish independent member of the Bank of England’s Monetary Policy Committee. She has voted for interest rates to remain unchanged at the last two meetings of the committee.Yesterday, she spoke of her view that the Central Bank may need to cut interest rates earlier than has been previously forecast in order to avoid what she called a significant inflation overshoot.She believes that as the full effect of previous rate hikes are fully felt, they will drag down the economy, raising the spectre of a recession. Last month, the MPC voted to raise rates for the 11th consecutive meeting, raising the base rate to 4.25%.It is widely felt that the Bank will raise interest rates by a quarter of a percent at its next meeting on May11th, and then announce a pause in hikes.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The release of GDP data recently, which showed that the economy grew by 0.1% in the final quarter of 2022 is expected to have a positive effect on the growth figures for this year.According to a note to investors published by the London office of Deutsche Bank yesterday, the data released by the Office for National Statistics last week confirmed that the final figure for GDP in 2022 was 4.1% up from 4% previously. The positive carry-over of the data has, according to the German bank’s economic models, improves the chances that the UK economy won’t see a recession this year, but that is where the good news ends as the economy will almost certainly stagnate with whole year GDP of 0%.Despite no upgrades to its quarterly projections, Deutsche sees an improvement of 0.2% overall on its overall data for the year.With the economy on a tightrope this year, even the slightest adjustment to forecasts will create an overall change in the data. The Bank of England appears to still be considering its next move. Arch-hawk Catherine Mann tempered her tendencies last month, and voted for a twenty-five basis point rise in base rates, in line with most of her colleagues.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Bank of England is expected to bring to an end its series of rate hikes in May after it agrees on one final hike. The view of the market is that rates are either at a restrictive level now, or will be following another hike and there is a danger, given the perceived fragility of the economy, that there is a danger that the Central Bank may tip the economy into recession. This is especially true given that, in its own words, the Bank expects the economy to be flat this year. Any further tightening of monetary policy runs the risk of being the final straw.Former Chief Economist at the Bank, Andrew Haldane, spoke last week of his fear that any further hikes would set aside the progress that has been made in the balancing act between growth and inflation.The fifteen-month-long sequence of rate hikes hasn’t completely fed through into the economy yet, and the Monetary Policy Committee would do well to pause to allow the total effect to be seen. If after a pause inflation remains uncomfortably high, there is no reason that further tightening could take place if it was deemed necessary.With the base rate of interest now at 4.25, its highest since 2008 when rates were cut to provide a significant amount of support to the market following the financial crisis, Haldane believes that the MPC has an opportunity to view the effect of a natural fall in inflation without placing the economy in further jeopardy.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Bank of England will face a difficult decision at its next monetary policy committee meeting. Although headline inflation is moving in the right direction, the core remains uncomfortably high and is showing less inclination to be driven by tighter monetary policy.Catherine Mann, commented in a speech yesterday that the Central Bank will need to find other ways to affect underlying inflation and that will make it difficult to decide monetary policy as the year progresses.With energy prices on a downward slope, headline inflation is continuing to fall, and the between headline and core prices is narrowing. The prices of services and goods remain in an uptrend, which could be an issue going forward.The mild winter in Europe has seen demand for energy decrease. Although the high cost of energy fed through into almost every area of consumer spending, that pressure is now decreasing. The 2% target for inflation is set in relation to the headline figure, and this will be extremely difficult to meet given a persistent and unmoving core.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The popular view in the markets currently is that the Bank of England will call a halt to its long-running programme of rate hikes in May after raising short term rates once more.There is a degree of optimism about the economy which is leading commentators to believe that the bank won’t need to cut interest rates to stimulate the economy unless there is any further fallout from the recent collapse of two U.S. banks which has precipitated a liquidity crisis.The Central Bank is trying to encourage companies to invest in their businesses. The level of purchases of new machinery and plant by businesses of all sizes has not really recovered from the near collapse that was seen during the Pandemic.No matter how much confidence grows that the Government is now on the right track, with inflation falling which will lead to an increase in real wages, there is still the political uncertainty generated by opinion polls which still put the Labour Party well ahead and therefore barring some unforeseen disaster likely to be elected to power after thirteen years in opposition early 2025.Following the somewhat bizarre events of last summer that followed the election of Liz Truss to succeed Boris Johnson as Conservative Party leader and Prime Minister, the country is gradually returning to its more traditional beliefs. The first is that under a Labour Government, public sector borrowing rises considerably as investment increases in services and social care.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Prime Minister spoke yesterday of his confidence that the economy will see a return to a level of growth that is at, or above, trend next year. Rishi Sunak acknowledged that Brexit and the shocks created by the Coronavirus Pandemic had set the country back. He went on to say that while all developed economies have faced their own unique challenges, the global increase in inflation has been a common theme. He praised the Bank of England for the manner in which it has tightened monetary policy over a period of eighteen months. Raining interest rates at eleven consecutive meetings.The challenges that Andrew Bailey and his colleagues have faced have underlined the importance of having an independent Central Bank.Bailey himself and his colleague, Deputy Governor, David Ramsden, testified before the Treasury Select committee yesterday. They were providing MPs with their views on the collapse of the Silicon Valley bank in the United States and any possible effect there may be to the financial markets in the UK and Europe.Bailey said that the collapse of the band, primarily set up to cater to the financial needs of tech startups, was the fastest seen since the Barings Bank crisis in February 1995. He went on to say that it was unlikely that the issues that led to the sale of Credit Suisse to Union Bank of Switzerland were company specific.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
At last week’s meeting of the Bank of England’s Monetary Policy Committee, there was a significant shift in the Bank’s view of inflation. While they still hiked interest rates, for the eleventh consecutive time, to 4.25%, the highest they have been in fourteen years, there was a lowering of expectations for inflation that will be reflected in its Quarterly Economic review that will be published later today.While in the recent past the bank has hoped that inflation will be falling by Autumn, members of the MPC now believe that it will have fallen to close to its target of 2% by the end of the third quarter.Interest rates are expected to peak at 4.50% with a hike at the next meeting due to be held on May 11th expected to be the last in the current cycle. It remains to be seen whether Andrew Bailey will announce this as a policy change, or whether he will remain cautious by continuing to say that the committee is driven by the data.Committee members have for several meetings expressed their individual reasons for why they voted as they have. The most definitive views have been provided by the independent members. There was a danger that Catherine Mann, Silvana Tenreyro, and Swati Dhingra were going to use the MPC as an exercise in economic theory, since the fourth independent member, Jonathan Haskell tends to be seen as in step with the Bank of England’s in-house views.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Analysts at the Office for Budget Responsibility have predicted that the Bank of England will most likely hike short-term interest rates once or twice more before calling a halt to their programme of tightening monetary policy, which has lasted for fifteen months and seen rates climb to their highest level for fourteen years.Rates are therefore unlikely to reach the 5% level which was predicted by market commentators three months ago. With the base rate of interest currently at 4.25%, it is now likely that the Bank will stop at either 4.25% or 4.75%. It is now considered unlikely that, unless the current turmoil in the financial markets continues or sees further banks face severe liquidity problems, that rates will remain unchanged for the rest of the year,Catherine Mann, far and away the most hawkish of the four independent members of the Monetary Policy Committee, spoke over the weekend of her view that inflation will recede over the summer and that is why she voted for a smaller hike than she has done over the past few meetings.She feels that the effect of the recent rate hike is now being seen in the inflation data, and that provided some motivation for her to vote for the twenty-five point hike that was eventually agreed.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
One of the most telling statistics from the housing market and the effect of fifteen months of rate hikes has been the fall in stamp duty receipts. There has been a 27% fall compared with the same month a year ago. The fall from £1.3 billion in February 2022 to £900 million last month is a product of the severe squeeze that has been placed on household budgets by rising inflation. With real wages continuing to fall there is little prospect of any revival in activity before the end of the year.Following the mayhem caused by the mini budget during Liz Truss’ premiership when home loan rates blew out causing a number of lenders to withdraw mortgage products, the market has calmed down somewhat although it has not yet returned to pre-Truss levels yet.With short term interest rates already at a fourteen year high, borrowers are anxiously awaiting the result of tomorrow’s MPC meeting. It is likely that another twenty-five basis points will be added to the base rate bringing it to 4.25%.Given Andrew Bailey’s penchant for being almost apologetic for the continuation of the tightening of monetary policy, it is hard to predict when the Bank will call a halt.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The current situation in the banking sector is such that the Bank of England will need to consider its options very carefully when it meets tomorrow to decide about whether or not to raise short term interest rates.David Blanchflower, a member of the Monetary Policy Committee during the 2008 financial crisis, believes that the Bank should consider radical action at this week's meeting in order to get ahead of the issue.While the markets see either a further hike taking the base rate to 4.25%, Blanchflower believes that a cut of around 1.5% would send a positive signal that the Central Bank is not prepared to passively wait for the situation to escalate before taking action. He also believes that the sale of bonds that were purchased during the coronavirus pandemic should also be reversed to boost money supply. This so-called quantitative tightening would increase the size of the Bank’s balance sheet again, but during a time of crisis it needs to be as proactive as possible to boost the markets' confidence.He labelled the the current action in which the Bank plans to reduce its holdings of bonds by eighty billion pounds over a twelve-month period as lacking imagination. The Bank has few tools with which to affect money supply, and it is not making use of this one. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The current turmoil in the banking sector brought about by the collapse of Silicon Valley bank in the U.S. could affect up to two hundred firms in the UK in the tech sector.Rishi Sunak and Jeremy Hunt met with the Bank of England Governor, Andrew Bailey, to both put in place measures to shore up the banking sector and provide any necessary assistance to any suitors who wish to buy the UK arm of the failed lender.HSBC remains the most likely buyer of the bank’s UK operations, although it is thought that both J.P. Morgan and Goldman Sachs are also interested.A survey conducted over the weekend found that around 350 UK companies have accounts with the bank while, of those, 200 consider the bank their primary financial partner.This means that those firms will either struggle to gain access to their funds or will be unable to use working capital facilities. It is believed that two and a half billion pounds of capital is tied up in accounts of UK tech firms.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
After a highly contentious few months of industrial action, it seems that the Government and representatives of nurses and ambulance crews have reached an agreement on pay for the current financial teat and the next, which starts in a couple of weeks.It has been agreed that a one-off payment of a minimum of £1,655 will be made to supplement the pay award in the current year, with a 5% pay rise to follow from April.Both sides agree that this was the best possible offer that was available. It will go a long way to satisfy the nurse's demands, while the Government believes that this is the most the taxpayer could readily afford.The budget remains the topic of severe debate in Westminster, as the Chancellor has been heavily criticized for his comments that there will be no recession this year. Despite the Office of Budget Responsibility confirming that it also believes that the UK will just about manage to avoid a technical recession, several bank’s economists disagree. They feel that Jeremy Hunt has taken advantage of the fact that the country may not see the regulation of two consecutive quarters of economic contraction that means the country is technically in recession, but conditions will be such that in every measurable way, there it will feel like a recession.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Jeremy Hunt delivered a Budget yesterday in which he lent heavily on outside agencies opinions on the UK economy for validation of the Government’s strategy for a revival of growth post-pandemic and post Brexit.The IMF, which had been severely critical of the plans put forward by Liz Truss during her brief term as Prime Minister, commented recently that the strategy that the country is following will, in time, reap the rewards of steady, if not spectacular growth and controlled inflation.The Chancellor made two bold statements that formed the cornerstones of the entire presentation. Again leaning heavily on the views of outside agencies, this time the Office for Budget Responsibility, He predicted that the UK economy will not face a recession this year, and by year-end inflation will be below 3%.In what he labelled a back to work budget, Hunt, as expected, provided four billion pounds in additional support for childcare in order to encourage parents to be able to consider a return to the workplace. One move that drew heavy criticism for the opposition benches was the scrapping of the upper limit on private pension pots before they attract tax.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The year since the last budget has seen major upheavals in the economy and political landscape. There have been three Prime Ministers, while the 2022 budget was delivered by the current one.There is always speculation about what the budget will contain, and this year is no expectation. With talks continuing over public sector pay, Jeremy Hunt has already indicated that there will be no fresh funds allocated to that sector.It appears that the biggest additional funding will come in the area of childcare, where around an additional four billion pounds will be allocated to provide free childcare to one and two-year-olds.Yesterday’s release of employment data showed that the claimant count fell for the eighth consecutive month, although wages are still failing to keep pace with inflation.Having seen an exodus of EU workers following Brexit, the plan is to plug that gap to a certain extent, by encouraging a return to the jobs market for those who have been providing care for their own children. It is estimated that 90% of those are women.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
In another blow to the already fragile UK housing market, concerns are growing that borrowers will be unable to afford their mortgage repayments if interest rates continue to rise. Although there isn’t a great deal of evidence that households have overleveraged in the manner seen a few years ago when lenders were happy to advance 110% of the value of the security offered, confident that property values would soon catch up, mortgage payments are set to continue to rise with lenders unwilling to allow borrowers to lock-in a fixed rate given the volatility of the market.The Bank of England is widely expected to raise interest rates again at the March meeting, which will take place next week. While the three independent members of the MPC have been vociferous in expressing their voting intentions, it is unclear if the Bank of England officials who make up the bulk of the committee will vote for a twenty-five or fifty basis point hike.The British Chambers of Commerce published a review of the UK economy yesterday, in which it reported that its members believe that there is a possibility that over the first two quarters of 2023 there will be a technical recession with GDP contracting moderately, but seeing growth returning in the second half of the year.This is not a widely held view given the data that has been delivered since the turn of the year.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Jeremy Hunt will deliver his first budget this week. He clearly recognizes one area that can deliver the level of growth that the economy needs if it is to avoid recession.Data published last week show that, potentially, the economy is missing out on around twenty-seven billion pounds in additional growth due to the current cost of childcare, which means that it often isn’t viable for one parent to return to work after maternity leave.This black hole is ninety percent made up by women.Hunt has promised that he will address this issue in the budget.The recent successes that have been achieved by Rishi Sunak over Brexit agreements and illegal immigration have, Gary Lineker notwithstanding, have noticeably improved both the Prime Minister's standing, his approval rating to such an extent that he is gaining significantly on Sir Keir Starmer the leader of the Opposition.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The economy is losing around twenty-five billion pounds annually from the number of (mostly) women who are unable to return to work due to the cost of childcare. The Chancellor is under mounting pressure from his own MPs to provide further support to this sector of the economy in his forthcoming Budget, which he will deliver to the House of Commons next week.Another area of the economy that is failing, according to Andrew Bailey, is the number of workers who have opted to take early retirement rather than return to work following the recession. According to Bailey, the UK is unique among its G7 partners in experiencing this phenomenon, which is potentially a further source of both lack of output and rising inflation due to the lack of genuine skills that have disappeared from the jobs marketThis situation is exacerbated by the exodus of foreign workers that has happened since Brexit.The Bank of England has been accused of not being fully committed to using monetary policy to bring inflation under control, as it has steadily raised interest rates close to the level when they will become restrictive on demand.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Monetary Policy Committee member, Swati Dhingra, nailed her colours firmly to the dovish mast, yesterday as she called for an immediate end to rate increases.She believes that any further hikes present a material risk to the economy in the medium term. In her opinion, interest rate increases take about a year to see their full effect on inflation, and with rates having risen by 390 basis points over the last fifteen months, there should be a pause to fully evaluate their effect.She voted against hikes at both the December and February meetings. Which leads to a conclusion that she feels that the rise in interest rates should have been halted at 3%, instead further increases have seen the base rate rise by another 100 points.She doesn't feel that there is sufficient evidence to hand that inflation is becoming embedded in either wages or margins.Dhingra believes that consumption remains weak even without the full effect of a significant tightening of monetary policy being seen.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
In past periods of high inflation, the Bank of England has not had to sustain interest rate hikes for any length of time in order to bring it under control because the UK has a history of having relatively high interest rates, which meant that the point at which rates became restrictive is reached relatively quickly.That has not been the case during the latest rise in inflation, since rates had been allowed to fall close to zero as price rises had become benign as the developed nations of the world recovered from several crises.However, during and just following the Pandemic, there was a huge increase in fiscal support which saw the public encouraged to spend. A classic example of this was then Chancellor Rishi Sunak eat out to help out scheme.Because rates had been cut to almost zero. It has taken a significant length of time for them to begin to restrict demand. In fact, even after hiking at every meeting for fifteen months, short-term rates are only now reaching a neutral point.This means that small and medium size businesses are facing rising costs due to as yet untamed inflation, as well as paying increased rates on their overdrafts and other working capital facilities.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Bank of England Governor Andrew Bailey remains unconvincing in his commitment to bring inflation under control, as he appears more concerned to avoid being accused of tipping the country into a recession that may be difficult to escape.Despite the Central bank having hiked rates at every Monetary Policy Committee meeting since December 2021, Bailey has been lukewarm in his determination, appearing to place more emphasis on avoiding the economy contracting.With inflation beginning to fall as energy prices, at least, continue to fall, and some stability is being seen at lower levels, Bailey won’t continue to sanction higher short-term rates for a moment longer than is necessary.He is able to call on the support of his colleague from the Bank at MPC meetings, but the three independent members have very different views on what needs to be done.Catherine Mann has voted for larger rate increases at the last three meetings, while Silvana Tenreyro believes that economic growth should be more protected by taking a breather and pausing rate hikes. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Jeremy Hunt, the chancellor of the Exchequer and Prime Minister, Rishi Sunak are finalizing the preparations for the Budget that Hunt will present to Parliament in a couple of weeks time. Considering that there will only be one more chance to provide the giveaway Budget, that often precedes a General Election, Hunt is unlikely to provide backbench Conservative MPs who fear for their seats in the Election with anything that lifts their confidence.Rishi Sunak has been extremely workmanlike since he took over as Prime Minister, reaching an agreement over the treatment of Northern Ireland as part of the overall Brexit solution and will announce fresh legislation to deal with the constant flow of arrival of refugees crossing the English Channel.However, one the the major planks of the Conservative manifesto from 2019 is the levelling up agenda. This was the idea that less emphasis would be placed on the South East of England, with investment being delivered to the North and other regions. The centrepiece of this process was set to be HS2, the high speed rail link that is intended to cut journey times between London and the major cities of Birmingham, Manchester and Leeds. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The makeup of the UK economy is such that when the Bank of England is faced by the need to change its monetary policy to either stimulate, or restrict activity, the property market is normally the first sector to be affected.The reason for this is the knock on effect of the decision to either move or stay put, has on the rest of the economy. What starts with a decision to upgrade the family home leads to increased activity in several different areas. The services sector is stimulated with estate agents, banks, insurance companies and the legal profession all seeing an increase in activity as well as more artisanal areas like movers, decorators and landscapers.This activity generally begins with existing home sales but quickly spreads to new builds, where first time buyers often denude their savings to provide a deposit. This reduction in the savings rate also stimulates economic activity.While a cut in interest rates stimulates the economy, the opposite is true for a scenario where rates are rising. It starts with a decision to maybe stay put as mortgage rates rise and householders see an increase in their monthly payments. This is also true of making any alterations to an existing property, and knocks-on all through the economy. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Andrew Bailey, the Governor of the Bank of England spoke yesterday of the possible need for the Bank to continue to raise interest rates although nothing is decided in advance of the next Monetary Policy Committee meeting.While he is relieved to see the cost of living crisis begin to ease, there is still work to be done to ensure that inflation does not become ingrained in the economy as it has in the past.There has been a significant improvement in economic activity since the turn of the year but the rise in wages is a concern although he can understand that workers, especially in the public sector, want to see their salaries keep up with the cost of living. Making demands for inflation busting increases will create a wages/prices spiral which will not benefit anyone.There is no easy way to bring down inflation and the bank of England is cooperating with the treasury to ease the burden of sky high inflation. The Bank Of England will continue to raise interest rates as long as it deems it necessary to do so, although it is forecast that it will fall naturally this year as the global economy develops.Bailey was at pains to suggest that nothing is cast in stone and the Central Bank is driven by the incoming data although it is in no one's interests to make policy decisions based upon a single month’s data but rather studying the trend. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Bank of England’s Chief Economist Huw Pill spoke yesterday of his belief that the Central Bank may consider slowing the pace of rate hikes in the coming months. He fears that there is a risk of the MPC having an adverse effect on the economy if it continues to hike rates at its current rate.The Bank’s goal is to slow demand sufficiently to lower inflation without going so far that it leads to a contraction in growth. Given that short term interest rates are a blunt instrument with which to try to bring an element of control over the economy, the size of any hike becomes more important the closer rates come to the neutral point at which they are neither accommodative nor restrictive.Having raised rates at every meeting since December 2021, the MPC as a whole are cognisant of the fact that rates are now at, or close to, the neutral point. One of the independent members of the MPC, Catherine Mann also commented yesterday on the state of the economy. She believes that the fall in energy prices may have the effect of stoking inflation, as households will have more disposable income than they had when energy prices were soaring last summer.As households become more comfortable with the level of their energy bills, the temptation is for them to spend on less basic items. There, is however, a fine line due to the fact that households don’t spend their windfall and instead replenish savings, which will also be bad for economic growth. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Rishi Sunak met with EU Commission President Ursula von der Leyen yesterday to finalize the agreement on how trade between the UK and Northern Ireland would be treated.Finally, this was the final piece in the Brexit jigsaw that was in danger of dragging on indefinitely. The Northern Ireland protocol, which had governed the movement of goods across the Irish Sea, has now been replaced with the permanent Windsor Framework. The main change will be in the customs treatment of goods either bound for Northern Ireland or bound for the Republic of Ireland. A new green lane will be created which will allow goods remaining in the North to flow through without any customs checks while goods in transit to the South will face less stringent checks than are seen now.While the Framework is unlikely to be acceptable to everyone, Labour have already confirmed that they will vote in favour in Parliament, so even if there is a wholesale rebellion by backbench conservative MPs the bill will pass through the House of Commons with little difficulty.The other interested group who may dissent are the Unionist Party, the DUP in Belfast. There has been a sweetener included in the deal named the Stormont Brake, that will allow the Northern Ireland Assembly to veto, under certain conditions, any laws put in place by the EU that they disagree with.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
There is a growing level of anticipation that Chancellor Jeremy Hunt will be able to be significantly more expansive in the budget that he will present to Parliament on 15th March.He will have far more wiggle room and will now have several choices to make, where recently he was expected to have little choice to do anything other than stave off the country’s likely fall into recession.The sum of money that Hunt will have at his disposal following the almost miraculous recovery since the start of the year is reported as being ten billion pounds, although there are some in the press who put the figure at twenty-five billion.It will be a major bonus for Hunt to have choices when he sets out the fiscal policy for the next year. Having already committed to retaining the triple lock on state pensions which means that they will rise by the highest of inflation, average wages, and 2.5%.Following the significant rise in inflation, pensioners will receive a 10% increase in their pension in April.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The turnaround in the UK economy in the first two months of the New Year has been nothing short of miraculous. Both manufacturing and services output have returned to expansion, while the Government has found some spare cash with which it can do some good.There is speculation that Rishi Sunak intervened personally to offer salary increases of 3.5% to millions of public sector workers. He remains adamant that any increase of above 5% would drive further inflation, but 3.5% is doable.The Royal College of Nursing has called off its latest industrial action, which was due to take place next week and last for 48 hours. While this is positive, there is no guarantee that the latest offer, that has already been rejected by the union representing ambulance crews, will be accepted.From the release of GDP data for the fourth quarter to the PSBR and encouraging output data, there is a genuine feeling that the country is finally on the right track. While a threatened return to the political front line for Boris Johnson in the summer is being predicted, if confidence is growing in Rishi Sunak’s performance any comeback will be that much more difficult, no matter the level of support he enjoys from the Conservative back benches.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
There is a distinct and significant difference of opinion beginning to emerge about the strength, or otherwise, of the British economy going forward, economists rarely agree about the future direction of an economy but to see such fundamental differences is unusual.Given that the Government is so far behind the opposition in opinion polls, some feel that the change of direction that an election would bring is just the shot in the arm the country needs, while others believe that and election victory for a Labour Party that is so clearly devoid of fresh ideas would simply bring more of the same.For example, there has been no clear indication about how a Labour Government would deal with the wave of industrial unrest that threatens to engulf the incumbent Government. Past Labour leaders would have supported low paid public sector employees in their quest to receive what the Left considers to be a fair living wage.However, as the Labour Party leader continues to purge hard core left wing members from the Party, the latest example of which is the confirmation that former leader, Jeremy Corby, will not be allowed to stand at the next General Election as an official Labour Party candidate.It appears that the identity crisis that has grown in the ranks of opposition MPs means that the old-fashioned ideals of socialism, if retained, mean that the Labour Party has become unelectable. Trying to regain the middle ground that was so successfully nurtured by Tony Blair twenty years ago will bring a socialist lite form of Government that will retain several of the more moderate policies of the current Government.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
At some point in the not-too-distant future, the Bank of England will bring to a close its programme of interest rates increases. At that time, the financial market will need to decide on the underlying strength of the economy, and whether that is sufficient to allow it to support the currency.There is a growing concern that there are very few reasons to buy sterling outside the continued tightening of monetary policy. When that crutch is withdrawn, the pound could see a significant tumble. Although the Federal Reserve is also possibly close to ending its own tightening, the ECB is still considered to have at least one hundred points of rate increases still up its sleeve, and this could see the pound test at least the 1.10 level versus the single currency.In financial market terms, it has been a considerable time since the pound has found itself stripped of any support outside the basic economic fundamentals.The Central bank has not exactly covered itself with glory over the past fifteen months or so as it has continued to perform a series of dovish hikes, where the Governor’s press conference following the announcement of yet another rate rise has had an almost apologetic air.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Bank of England is facing criticism from small business owners, who see plenty of support being offered to individuals to help them cope with rising interest rates and the cost of living crisis but little being done to support their businesses that are suffering from significantly higher operating costs.Having watched the Central Bank hike interest rates consistently since the end of 2021, Small and Medium Enterprises have had to deal with not just the effects on their markets of Brexit, but a cost of living crisis that hits them equally hard as individual households.They made representations to Downing Street to ask the Prime Minister to intervene on their behalf when the Budget is delivered next month to provide some well needed support.The January inflation report was published yesterday, and it showed despite the stabilization of energy costs, headline inflation only fell marginally from 10.5% to 10.1% while core inflation fell from 6.3% to 5.8%. The price of staple food stuffs like low fat milk, eggs and pasta rose significantly, while the cost of olive oil alone rose by 40% compared with a year ago.Despite headline inflation only falling by 0.4% year-on-year, the financial markets believe that it was sufficient to cause the Bank of England to slow or even bring a halt to the current cycle of interest rate rises.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
While the wave of industrial action that is blighting the outlook for the public sector shows little sign of abating, the Bank of England is likely to be concerned by the inflationary nature of pay deals in the private sector.The January employment report was published yesterday and while the jobless rate remains close to a historic low at 3.9%, it is the average earnings figure that will contribute to another hike at the next rate setting meeting.Average earnings not including bonuses rose by 6.7% in the three months to December, and another 12.9k workers left the claimant count. The previously published claimant count figure was revised from -19.7k to -3.2k.In the Budget due next month, Chancellor Jeremy Hunt is expected to do away with the cap on Bankers bonuses that was an EU initiative made law in 2014.Another possible change in taxation that is expected in the Budget is a reduction in VAT. It is unlikely that it will be an across the board cut, fuel and public transport are two areas apparently being looked at.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Brexit has cost the UK £28 billion, according to Bank of England official and MPC member Jonathan Haskell. That equates to roughly £1,000 per household. The majority of that figure relates to a fall in private sector investment in the country, which has slowed to a trickle and is a significant contributor to the significant fall in productivity and output.The vote to leave the EU has resulted in severe scarring to the economy and according to Haskell, the Government can only hope that the damage inflicted is not permanent, although it will take a generation for the country to return to its place at the top table.It is apparent that small business groups want to be involved in discussions about the future relationship with the European Union. Rishi Sunak recently ruled out a deal similar to that of Switzerland, where the country has access to the single market in exchange for a reduced contribution to Brussels’ budget.There has been a lot of noise recently about the UK becoming a high taxation economy, and that is partly why global brands like AstraZeneca are leaving for lower taxation regimes. Two of the largest Eurozone economies, France and Germany, have tax receipts roughly equal to half the size of their economies. For the UK, that figure is about 40%. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The UK economy failed to expand at all in the fourth quarter of 2022, but the fact that it didn’t contract either can be seen as a positive, as it means that the country didn’t suffer the ignominy of being the only G7 economy to actually suffer a recession.There have been doubts raised regarding the whole two quarters of negative growth denoting a technical recession and while it may be practical to provide the financial markets with a guide to a nation’s performance, in reality it has no practical meaning.Judging a country’s performance over a period of two months to decide if it is contracting is an impractical notion. There are so many moving parts that contribute to a recession that simply to say the accepted two quarters of contraction means nothing in the real world. Two half yeast of negative growth would be a more suitable period over which to judge a country’s performance, but for now, the Government can breathe a sigh of relief that it was enough of a close call to mean that it got away with it.The Chancellor of the Exchequer commented that while the fact that the country did not suffer a recession in 2022 is welcome, it is not out of the woods yet. There are still hard decisions to be made, inflation is still too high, government borrowing needs to be brought under tighter control, public sector pay deals need to be struck, and output from both manufacturing and services is not where it needs to be.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Governor of the Bank of England, Andrew Bailey, clashed with members of the Parliamentary Treasury Select Committee when they were critical of the Bank’s actions in tightening monetary policy to drive down inflation.With headline inflation still well into double figures, some committee members accused Bailey and the MPC of damaging confidence in the Central Bank.While providing his half-yearly testimony before Parliament, Bailey was asked how he can expect the public to be confident that the right decisions have been made over the past eighteen months given the continued high level of inflation in the economy.Bailey clashed with committee chairman Harriet Baldwin over the Bank’s delay in raising interest rates until the furlough scheme had come to an end. Inflation has remained above the Bank’s 2% target every month since December 2021. Bailey countered by commenting that since the scheme was considered vital to drive the economy forward as the country was emerging from the Pandemic and was inflationary by its very nature, inflicting higher interest rates on borrowers would have been counterproductive in the MPC’s opinion.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
There is a growing possibility that the UK could avoid a technical recession this year, according to a survey published by the National Institute of Economic and Social Research published yesterday.However, the Institute still predicts that the country will see a prolonged and significant fall in living standards, while it also reduced its expectation for GDP this year to 0.2% from 0.7% previously. It also reduced its prediction for 2024 from 1.7% to 1%.The Institute’s Managing director commented that its report paints a particularly downbeat picture of the UK, which will be slow to recover from the energy price shock that it saw in 2022.One-in-four will be unable to afford heating and food without dipping into savings, or seeking government support.One of the Prime Minister's goals for 2023 is to see inflation halved and the Bank of England is acting cautiously, but judiciously in trying to drive inflation lower, although the natural fall in prices will see that goal take a little longer to achieve.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The actions of the Bank of England over the past years or so have been occasionally difficult to understand. The presence of three independent voices on the Monetary Policy Committee means that there are times when policy is driven by a theoretical view of monetary policy which differs from the practicality of dealing with the bank’s mandate to provide a platform for price stability and economic growth.This has led to Andrew Bailey delivering what have been termed dovish hikes, being almost apologetic for having to tighten monetary policy. The presence of Catherine Mann, Silvana Tenreyro, and Swati Dhingra bring the air of an intellectual discussion to committee meetings, which lessens their impact.The Comments from Catherine Mann this week added a significantly hawkish voice to the MPC process and being only one of nine voices, her opinions are often far more influential than is actually the case.The six Bank of England officials who sit on the Committee have both executive responsibility for their roles at the Bank and the task of creating an environment for stability. For example, Bailey and Sir Jon Cunliffe had to calm markets following the potentially disastrous mini budget that followed Liz Truss’ election as Conservative Party leader and Prime Minister.Looking ahead and past the theoretical views of the independent members of the MPC, it is likely that the Banks will continue to tweak monetary policy at the next two or three meetings rather than decisively creating an environment where inflation is driven lower by interest rates that are actively dampening demand. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
MPC member Catherine Mann spoke yesterday of her fears that a more dovish view on inflation that she is seeing from her colleagues could see the Bank of England pause the current cycle of interest rate hikes, only to be forced to begin them again as inflation remains at its current high level.She believes that the tried and tested method of using data to spot turning points in the economy is being ignored due to the pressure being exerted on the Committee by the continuing cost of living crisis.She feels that rather than seeing the cost of living fall if short-term interest rate increases are paused, or halted altogether, the economy will still see a significant recession in the next year to fifteen months, but the high level of inflation will remain and drive further demands for inflation busting pay demands in the public sector.Furthermore, she went on to say that she remains mindful of the interest rates decisions being made by the country’s G7 partners and the fact that rising inflation is an issue for the global economy that has arisen primarily as the world has exited the Pandemic.Mann acknowledged that there is a degree of interconnectedness between economies, particularly in the developed world, due primarily to the growth of digital communication and instant money transfers.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
There is still no definitive answer to the questions about the length and depth of the recession, which the UK is probably already seeing. There is no question that the economy is slowing, but there are too many imponderables to be able to say that the country will be in recession at the end of 2023 or how bad the telltale signs of a recession will be.Unemployment remains at a historic low, and although business liquidations are beginning to rise, they are still not rising to a level which raises significant concerns.The property market is one of the more obvious areas where the continuous interest rates rises that have taken place over the last year or so are beginning to see and effect. House prices are 3.2% lower than they were last August and high street bank, Santander, believes that they will fall by 10% this year.Despite the gloom, the mortgage lenders are returning to market with a wider rate of products offering protection against higher rates.The single most important reason for the disarray that enveloped the mortgage market in 2022 was Liz Truss, who almost completely destroyed confidence with a misguided policy of cutting taxes and funding them with significantly higher borrowing.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Governor of the Bank of England, Andrew Bailey, having presided over the latest Monetary Policy Committee meeting, spoke of his confidence that the worst of the downturn has passed and the recession that has been forecast and has probably already started will be both shorter and shallower than is being forecast elsewhere.Not being prone to over exaggeration during his close to three years as Governor, Bailey is considered by the markets to be a pragmatic and cautious Governor. For this reason, the financial markets place a great deal of confidence in his comments.Although the IMF reported this week that it sees the UK suffering from a downturn that is unmatched by any other developed economy, Bailey studiously avoided referencing their report in his own statement.The MPC saw fit to hike rates by fifty basis points, the tenth consecutive meeting at which they have tightened monetary policy.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
UK consumers are seeing their confidence to be able to perform the tasks that until recently seemed perfectly normal to them; put food on the table, provide a warm, family home and go to work for a wage which allows them to once in a while enjoy one or two luxuries, drain awayLonger term, buying a house or a car are no longer considered within reach, and this disenchantment is manifesting itself in industrial action as real wages continue to fall. While not every reason for the current cost of living crisis can be laid at its door, the current government must shoulder a large part of the blame for first allowing the situation to become so grave and then failing to act other than to put in place temporary measures to help in the short term.The NHS and virtually every other part of the public sector from teachers to border control staff to driving test examiners and civil servants, took industrial action yesterday, and the message to Rishi Sunak and his Cabinet is becoming clearer by the day, if the present government continues to deny them a living wage then they will elect a more sympathetic Party.While the government continues to stand firm, the edifice of public services is crumbling around them. Productivity is falling rapidly, as workers believe that if they are being paid breadline wages, they will do the bare minimum.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Britain will grind to a halt today as industrial action by teachers, train crews, civil servants, nurses, and ambulance crews down tools to protest in favour of higher pay rises. The Government has so far stood its ground, saying that the offers made are in line with the recommendations of independent reviews and any additional money would simply begin a vicious circle which would feed inflation.Real wages have been falling, which means that the cost of living crisis is being prolonged. There have been a number of support schemes provided by the Government, but pay itself has fallen so far behind that workers are looking for new jobs because it is simply no longer viable to do jobs which in the past have been considered a vocation.There is a great deal of public support for the nurses and ambulance crews, especially given the awful toll taken by Coronavirus. However, teachers are facing a difficult time, with pupils who have already fallen behind following the Pandemic barely able to be away from school any longer.The Government has asked that schools remain open today if at all possible. Special arrangements are being made to ensure that the children of essential workers are catered for, but if action continues, the disruption caused to exam timetables could contribute further to claims of a lost generation.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The IMF in a report published yesterday commented that it believes that the ongoing cost of living crisis will hit the UK harder than other major economies, and it will be the only country that ends the year with a smaller economy than it started with.The cautious optimism that was seen over the past couple of weeks has evaporated. The IMF expects the economy to contract by 0.6% this year rather than grow very slightly.Although these are not the words Jeremy Hunt wanted to hear, the Fund did also comment that following the Autumn Statement that the country is now on the right track to recover next year.The Chancellor's response to the report was to say that the UK had outperformed several forecasts made last year, and he remains optimistic.The economy is not helped by the level of industrial action that is affecting the public sector. Yesterday, firefighters voted overwhelmingly in favour of strike action, while tomorrow sees the largest action for decades, with teachers and civil servants joining nurses and ambulance crews on strike.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Andrew Bailey, the Governor of the Bank of England, believes that flexibility is the most important feature of monetary policy going forward.The Monetary Policy Committee is due to announce the latest change in short term interest rates on Thursday following its meeting this week. While observers expect there to be a further hike of fifty basis points, they also expect the end to the current cycle of hikes to end quite soon, possibly by the end of the currency quarter.Bailey is on record as saying that he doesn’t expect rates to begin to fall until the fourth quarter, but he has commented recently that he believes that the Bank needs to be more flexible on policy and look at ways in which the level of demand can be altered in the short term.Having begun a programme of interest rates rises over a year ago when they were at historic lows, they have taken an inordinate amount of time to reach a level where they are beginning to restrict activity.In the Governor's opinion, this is far too long a time while inflation was rising exponentially. One answer would have been to increase the increments of the increase, but there was concern that given the precarious state of the economy at the time, that it could easily have led to a deeply damaging recession.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Following Andrew Bailey’s assertion that inflation is about to begin to fall more rapidly, the market has begun to speculate on how many more interest rate hikes the MPC will deliver before they pause.The UK has a higher average level of interest rates historically than several of its competitors, so the level at which rates become restrictive is likely to be higher and certainly higher than it is at present despite over a years’ worth of interest rates.Since rates have been at historic lows in order to combat various crises that have affected not only the UK but the global economy as well, borrowers have got used to a new paradigm that didn’t exist in the last three decades of the last century.The gradual increase of interest rates over the past fourteen months has allowed borrowers to avoid the level of pain usually associated with tighter monetary policy. Given the circumstances that have surrounded the country politically, socially and financially, rising interest rates have not provided the shock that would usually be expected to the economy.Brexit has been delivered, but following the jingoistic leave campaign orchestrated by Boris Johnson and Nigel Farage, there is the real probability that a majority of voters feel that it was the wrong decision.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
In spite of a continuing cost of living crisis, rising interest rates and industrial action across the public sector, Andrew Bailey the Governor of the Bank of England is optimistic that the contraction in the economy, which may have already started, will not be the devastating recession that he feared when he gave his last update on the economy last Autumn.Although economic forecasts are based on more than gut feelings, and Bailey doesn't command the level of respect in the markets commanded by some of his predecessors, he is confident that inflation which remains at the root of the country’s issues and is still in double figures despite a tightening of monetary policy which has lasted over a year, is about fall rapidly.Scarcity of workers brought about by Brexit and the unwillingness of workers to do the same jobs for the same money following the Pandemic as well as pent-up consumer demand meant that prices rose at a rate not seen in a generation.Throw into the mix an energy crisis and the war in Ukraine and you have all the ingredients for a rapid decline in the economy.One of the reasons for Baileys optimism is the fact that significantly lower energy prices, have fed through into official day yet, will lead to lower inflation.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The level of UK borrowing has risen to frighteningly high levels as the cost of support provided to counter the effect of the Pandemic is added to the new energy cap.The capo is set to be raised again in April, which will add to the pressure being felt by households struggling to cope with the cost of living crisis.The Public Sector Borrowing Requirement (PSBR) rose to £27.4 billion in December, up from a little over £21 billion in November. This is almost double the single month amount from December 2021. The Chancellor is reportedly looking at ways to both reduce the level of borrowing and how to service existing debt in the upcoming budget.He is already committed to a 10% increase in state pensions and certain benefits following his decision to comply with the triple lock.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Top accounting firm Ernst and Young dispute the Governor of the Bank of England’s assertion that while the coming recession may last longer than has been the norm over recent contractions, it will be shallower.However, they still see the economy beginning to grow again from the middle of this year, which is earlier than Andrew Bailey has previously forecast. While the country will emerge from the recession, it will not see the level of growth it has seen in recent years. In 2023 the economy is expected to shrink overall by 0.7%, in 2024, 1.9% and in 2025 2.3%.Overall, in 2022 the economy is expected to have grown by 2.3%. The likelihood of a change of Government early in 2025 clouds the picture, but the Labour Party is unlikely to be able to have either the policies nor the wherewithal to change the outlook substantially, although it will have something of a free ride for a year being able to blame the previous Government for any problems it encounters.One of the major contributors to the upturn expected in the second half of the year will be falling inflation. While the significant number of rate hikes that the Central Bank has put in place have begun to have an effect, it is only now that interest rates have entered a neutral phase and may turn restrictive as early next week that their effect will be magnified.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Government is close to agreeing a funding package for the UK steel industry in order to avoid its complete collapse. While it is dwarfed by the number of workers employed by Germany, British Steel remains a cornerstone of the UK industrial output.The package, expected to be valued at around £300 million, is a bridge with the Chinese Jingye Group, the new owners, promising an investment of £1.2 billion over the next ten years.While China has built up its internal capacity in the heavy industry sector, it has created difficulties for several nations who are unable to compete on output or price but employs a significant number of workers not just directly but across the entire supply chain.Last week, Andrew Bailey, the Governor of the Bank of England, spoke of his expectations for the economy. The last speech he made on the subject, was following the resignation of Liz Truss and was extremely downbeat and referenced the lack of confidence in the UK created by the growth strategy of Rishi Sunak’s predecessor as Prime Minister.While the situation is far from ideal, he was a little more upbeat in his comments. He believes that the UK will enter a recession in this quarter, but he feels that it will be shallow compared to previous downturns, but it will last for longer than before.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Governor of the Bank of England, speaking on a visit to South Wales, spoke yesterday of his belief that inflation will have fallen significantly from the Spring, although he feels that the continued tightness of the labour market will lead to the Central bank needing to continue to hike the base rate which currently stands at 3.5%.He refused to speculate on where rates will be when the Bank feels confident to pause the current cycle of interest rates rises.The feeling in the financial markets is that rates will reach at least 4.5% before the bank ends the current phase. As in the U.S. and the Eurozone, rates have been at historically low levels for a considerable time, and this means that finding the neutral level may be difficult.There is no scientific method of predicting when rates have reached a point where they are no longer accommodative. However, a combination of falling inflation and rising unemployment, coupled with a downturn in economic activity, will guide the Bank.Bailey went on to say that he expects the economy to suffer a recession from the current quarter. He feels that it will be shallower than on previous occasions, but will last longer than is what is considered normal.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Opposition Labour Party has labelled the collapse of the UK’s only domestically owned manufacturer of batteries to power electric cars as a disaster for the UK automotive sector.They believe that the collapse of Britishvolt could potentially see the demise of car manufacture in the UK. The sector currently employs in excess of 750k people. Petrol and diesel vans will no longer be manufactured after 2030, so a reliable and efficient source of power is essential to the future production of electric cars. With the lead in time to going from concept to production of batteries around five years, the clock is now genuinely ticking.Since the announcement earlier in the week that Britishvolt had run out of money, there have been two expressions of interest from firms interested in taking on the building of the plant on the site that has already been allocated for production.The most prominent of these is Tata Motors which already owns the Jaguar and Land Rover brands, The other is from the venture capital company which was an investor in the original undertaking.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The UK faces a race against time to be able to compete with the rest of Europe when petrol and diesel vehicles are phased out beginning in 2030.The ability of the country to compete over the production of electric vehicles was handed a potentially fatal blow as Britishvolt, a start-up which carried British hopes to be at the forefront of European battery technology, collapsed into administration with its entire workforce made redundant.The UK now only has one factory producing the power units for electric cars, and that is Chinese owned and is in partnership with the Nissan factory in Sunderland.Battery manufacturing facilities are springing up all over Europe, and the UK is far behind it. Industry sources were voicing their concerns yesterday that with it taking five years from concept to manufacture, the country realistically has a two-year window before it loses the ability to compete in the automotive sector.This sector employs around a quarter of a million people across the entire spectrum of vehicle production and spare parts.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The long-predicted recession in the UK economy is still considered likely, even after the growth that was recorded in November. All that has happened is that it has been deferred for a single quarter. In order for a recession to have begun in the fourth quarter of last year, activity would have had to virtually collapse in December. Although there will have been a hit for the industrial action that has been widespread across the public sector, its effect will be seen more in the current period.It was reported yesterday that despite interest rates rising at every MPC meeting since December 2021, there is a significant disparity in how much borrowers are being charged by major lenders and credit card companies, compared to how much savers are being paid on deposits.Since depositors have not seen a return on their savings in a decade, they are no longer savvy in searching out the best deals and have simply left funds in non-interest bearing accounts.At the next MPC meeting which takes place on February 2nd, there is unlikely to be any change in monetary policy unless there is a major surprise in the December inflation report which is being delivered tomorrow. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The data for GDP that was released late last week confounded markets that had seen very little cause for redemption for the UK economy following a year that was characterized by negativity at just about every turn.Political upheaval, industrial action, inflation and Brexit each conspired to provide an expectation of weakness and recession for the economy. However, there was one bright spark in the final quarter of the year, provided by the FIFA Men’s World Cup, which took place in Qatar. While the performance of the England team was fairly predictable, the tournament gave a healthy boost to the economy and allowed it to show a surprising level of growth and activity at a time of year that often disappoints.The UK economy grew by 0.1% in October, boosted by significant activity in the hospitality sector and video game sales. It had been expected to contract by 0.2%.While the country is far from out of the woods yet, the data reduces the chance that a recession has already arrived in the final quarter of the year. The surprising level of growth seen in December means that the economy will need to have shrunk by 0.5% to record a technical recession, in which the economy contracts for two consecutive quarters.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Bank of England, its hands full dealing with rising prices while trying to stave off the worst effects of the coming recession, is not in a position nor does it have the mandate to create any policies that are specifically designed to create greener financial markets.Andrew Bailey is in accord with the Chairman of the Financial Reserve in believing that Central Banks are not arbiters of their own destiny, despite their desire to be given the independence and autonomy to work within broad guidelines.The Managing Director of the IMF, Kristalina Georgieva welcomed the plans put in place by Chancellor Jeremy Hunt having been greatly concerned by the approach of his predecessor Kwasi Kwarteng. However, Ms Georgieva believes that the UK is going to face a sobering 2023 as it faces potential crises on several fronts.In a statement that was delivered by the Parliamentary Treasury Select Committee, she told MPs that she believes that the fiscal plan is adequate to deal with the effects of battling inflation while protecting household incomes during a recession that in the main has been created by the energy crisis that is ongoing.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Data released this week has shown that productivity in the UK economy is the lowest in the entire G7. The wave of strikes that took place throughout the fourth quarter of 2022 and are ongoing will do nothing to improve that statistic.One of the most important sectors of the private sector of the economy is housing. House building as well as sales of existing property makes up around 7% of GDP. The sector is also an accurate barometer of the health of the economy.Over the past ten years or so, existing house prices have seen an unprecedented period of steady growth as inflation has remained low along with interest rates. Mortgage providers were able to offer very generous deals, and the vast majority of home loans were of fixed terms for extended periods.Suddenly, following Brexit and the Pandemic, the picture has changed. Virtually an entire generation has had to come to terms with turmoil in the market. As their fixed rate deals expire, suddenly the Building Societies and other lenders have withdrawn the majority of the products they were offering, leaving them borrowers high and dry having to pay significantly higher floating higher rates.This has had the effect of deterring existing borrowers from deterred from moving, while first time buyers have suddenly seen lenders demanding larger deposits and other less favourable terms.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The long-predicted recession in the UK economy appears to have started in the fourth quarter of 2022. Data released so far, consumer spending in the country in December rose by an average of around 5% while inflation remains apparently anchored above 10%.While bricks and mortar outlets performed adequately over the period between Black Friday and the Holiday period, it was online purchases that took the biggest hit.Uncertainties created by the strike by postal workers discouraged people from buying online, although major courier firms only reported a marginal fall in activity.The Bank of England has predicted that the recession will continue for the entire year and given the potential crisis facing the public sector there are those that see very little growth before the General Election which is scheduled for no later than two years from now.Over the past fifty years, there have now been three Parliaments that have lasted in excess of more than ten years.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
In an interview yesterday, Huw Pill, the Chief Economist of the Bank of England, reiterated his belief that short-term interest rates in the UK will continue to rise as the Central Bank remains committed to bringing inflation under control. He went on to say that he and his colleagues on the Monetary Policy Committee see inflation as potentially the most serious danger facing the economy and although fuel and energy prices appear to be moderating which will see headline inflation fall, there remain a number of areas, like accommodation rents that are rising at a record pace. This will see core inflation continue to raise concerns.Pill affirmed the commitment of the MPC to fulfilling its mandate to return inflation to its 2% target. This is the core commitment of the Central Bank, and it is prepared to do whatever is necessary to achieve this.The global economy is coming out of a long period of supportive monetary policy and all G7 Central Banks have a shared commitment to fight inflation, although the causes of higher prices vary as do the methods other than monetary policy used to reduce it.There are common themes like the war in Ukraine that have driven prices higher over the past year that have conceded with the end of the Pandemic, although the infection rate in China and its withdrawal of travel restrictions are still a concern.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Prime Minister, appearing on weekend TV, provided what the head of the Royal College of Nursing called a chink of optimism, by confirming that the Government will meet with the representatives of nurses and ambulance crews to talk about pay. There remains some confusion about whether Sunak was referring to the pay award for this financial year, which has already been put to, and agreed, by the independent pay and rewards body or the next financial year which begins in April.Representatives of nurses confirmed that strike action would only be suspended if the talks include this year’s award.The Government is clearly on the back foot as waves of industrial action sweep through the public sector, with junior doctors and teachers currently going through the balloting process.There are no signs of a thaw in relations with railway workers, who have caused misery and havoc with their strikes, which look set to continue for several weeks and possibly months.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Jeremy Hunt, the Chancellor of the Exchequer, announced the additional payments that will be available to the lowest paid and recipients of certain benefits in the new financial year, this week.The cost-of-living element will be one thousand pounds paid in three installments spread throughout the year. The subsidy to assist with the cost of energy will also remain in place. This has cost close to eighteen billion pounds in this financial year, but is likely to cost less in the next as although the energy cap is being raised, meaning that the average household bill will rise from the thousand five hundred pounds to three thousand pounds, the wholesale cost of gas has fallen, and it is estimated that the average bill will be two thousand eight hundred pounds.Sir Keir Starmer, the Leader of the Opposition, set out his alternative plan for the country yesterday and while it was generally well received it fell short of announcing what the Labour Party would do to repair the economy were it to be elected in the next General Election.Starmer tried to show that his Labour Party is electable and can provide a genuine alternative to the Conservatives, who will have been in power for fifteen years by the time of the next election. Gone are the internal squabbles of the Corbyn leadership and the dominance of the left-wing trades unions.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Prime Minister provided a keynote New Year speech yesterday in which he made three promises but felt unable to place a time limit on any of them.He vowed to cut the inflation rate in half, reduce NHS waiting lists and grow the economy. This is obviously a wish list for any Prime Minister, but he was painfully devoid of any details as to how his goals will be achieved.To reduce NHS waiting times, he will need to produce more doctors, nurses and hospital beds. Currently, the NHS is losing staff despite a pledge to recruit 30k more, while in order to deliver the 7k new beds that have been promised by his health minister, they will need to expand the recruitment exponentially. This could take a revision of his refusal to consider a Swiss style agreement with the European Union that could allow health workers to be recruited.In order to grow the economy, tax cuts will be needed, but there has been no indication of this happening from his Chancellor. Jeremy Hunt met with business leaders yesterday to explains the Government's plans to provide support to them during the next financial year. This sounds more like a package of emergency measures rather than a plan for growth. There is little prospect of a positive quarter of GDP before the final quarter of this year, and that is only a very remote chance.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Several reports have been released by NGOs, financial institutions and investment houses providing their prognosis for the UK economy over the next twelve months.The verdict is consistently dire, with no one seeing any reason to doubt the Governor of the Bank of England’s forecast that the economy will fall into a fairly deep and long recession which will last at least five quarters beginning in the fourth quarter of 2022.The economy is clearly facing a number of factors that are difficult to ignore. First, inflation continues to appear to be out of control despite two of the main contributors to headline inflation; Forecourt fuel prices and the wholesale cost of gas beginning to fall.The price of gas has fallen to a level not seen since the war in Ukraine started, while the forecourt price of a litre of petrol has dropped to around 150p as the oil price hovers around $80 per barrel. However, as the Bank of England continues to hike interest rates, mortgage payments will continue to rise, while the new financial year will bring increases in council tax driving core inflation higher.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
One of the major issues of the Pandemic and Brexit has been the gradual demise of the High Street. It is estimated that 450 shops per day, of all sizes, closed during 2022. Another reason for the closures has been the rise of online shopping.The British Retail Consortium has complained to the Government that they are not competing on a level playing field with online retailers, although there has been a great deal of if you can’t beat them join them from medium-sized retailers.Quite often, the bricks and mortar shops are not beaten on price, but convenience and the ancillary costs of visiting high streets or shopping malls.As we enter a new year, this is a phenomenon that looks irreversible as local authorities continue to increase business rates and costs of parking and public transport.The Government has failed abysmally in agreeing free trade deals with its major partners since Brexit. They report that agreements in place with 63.1% of the country’s partners. However, no trade deal is in place with the U.S. despite an application being made in 2021.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Brexit was never about economic independence. Voters were swept along on a tidal wave of jingoism and promises of how much better life would be if the country was free of the shackles of Brussels. Now, coming up to seven years after those shackles were broken, even the most ardent Brexiteer must be doubting the benefits of leaving. For the man in the street, there has been no discernible benefit. Yes, it is true that the United Kingdom would have faced increasing pressure to join monetary union, but in reality, it was only a misplaced sense of historical significance that precluded the country from adopting the single currency. Now, that ship has sailed, and it is only a matter of conjecture whether from an economic perspective it was the right decision. There is already some consideration being given to closer ties and even having a Swiss style relationship, where in exchange for a contribution to the budget, Britain would become members of the single market.Although such a suggestion has been dismissed out of hand, by the current administration, it may be a policy that is looked at more closely further down the road.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The fate of Sterling in 2023 doesn’t rest entirely in the hands of the Bank of England.Despite further interest rate hikes being made by the Central Bank, Sterling is expected to fall as the economy slips into a recession and possibly sees stagflation as the rate of inflation levels off but fails to fall in any meaningful way.There have been very few benefits that have been apparent from the country’s decision to leave the European Union, with small and medium businesses still tied up in the red tape that has, if anything, been worsened by the mish mash of agreements that place them at a severe disadvantage to their EU domiciled competitors.That is unlikely to change much in the coming year, as the Government remains unclear about how it handles the flow of goods into Northern Ireland.One of the reasons inflation has continued to rise is the continued lack of workers. This is partly due to Brexit as EU nationals who used to work in agriculture and leisure have departed for their home countries, but also due to an exodus of employees from the workforce who have decided to take up offers of early retirement.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
A leading firm of accountants has predicted that the UK economy will contract by 1.3% in 2023. Given the current situation, this appears to be a relatively conservative estimate. 2022 has been characterized by the return of three issues that haven't been seen in a generation, although there is no feeling of nostalgia.Inflation, political turmoil and strikes have been at the centre, while a downturn of economy and rising interest rates have been the predictable outcome.After more than a decade when the Bank of England’s independence was barely tested, this year there have been nine interest rate hikes as the performance of the Central Bank has been under scrutiny.Brexit has not provided businesses with the level of freedom that was expected. The Bank of England has expressed concern about the intended deregulation of the City of London, in particular the ring fencing of bank's commercial and investment banking operations. The restrictions were put in place to ensure that riskier investment banking operations were funded by capital and not customer funds. Now, in order to promote the City as a centre for innovation in a post-Brexit environment, the Government is seriously considering removal of the regulation, allowing the blurring of the edges of what is investment and what are commercial operations.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The UK is facing an unprecedented period of industrial unrest as striking railway workers, nurses and ambulance crews as well as airport staff and teachers create havoc that is going to last well into the New Year and beyond.Striking workers do not accept the Government’s stance over pay and conditions. The Chancellor of the Exchequer, Jeremy Hunt, has told the leaders of worker’s unions that their demands for inflation busting wage settlements are simply unrealistic and unaffordable. On the whole, the public are adopting a Stoic attitude towards the industrial action, showing great sympathy towards health workers since their performance during the Pandemic is still fresh in their minds, although the degree of militancy being shown by rail workers, who are among the best paid of public service employees is starting to wear thin.The Bank of England Monetary Policy Committee raised short Term interest rates for the ninth meeting in a row last week. The base rate is now at 3.50%, a year ago it was standing at just 0.10%.While the recession that has most likely already arrived has been exacerbated by the rate hikes, they have been deemed necessary to combat rising inflation, although their effect has been minimal. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Bank of England raised short-term interest rates by fifty-basis-points yesterday, bringing the base lending rate to 3.50%. From the votes cast, it is clear that there is a diverse range of views among committee members. Catherine Mann sees inflation as the most significant threat to the financial stability of the economy and voted for a seventy-five-basis point increase. Silvana Tenreyro and the newest member of the MPC, Swati Dhingra both saw a recession being made worse by higher interest rates and voted to leave rates unchanged.Analysts believe that it is healthy to have a variety of views on the committee, provided they remain relative to the current situation and are not synonymous with a hardened view of economic policy.In her three meetings to date. Dhingra has now voted for a lower hike than was agreed on every occasion. Her ballot may now be considered as a protest vote, and be disregarded by the market as she is considered out of step.The nature of Governor Andrew Bailey's statement following the announcement was more dovish than has been seen recently. He is clearly concerned about the rate of inflation which is showing no signs of materially slowing yet, and he believes that it is vital that the Government remains firm in negotiations with public sector workers pay demands, but feels that inflation will begin to fall gradually, while the economy has entered a potentially damaging recession.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Bank of England’s Monetary Policy Committee will conclude its final meeting of the year later this morning, having raised short-term interest rates at every meeting in a year that has seen inflation continue to rise to a level that has not been seen in a generation.The Economy has been hit with a perfect storm of factors that have often been out of the control of the Central Bank, but history will decide if the actions that have been taken have been sufficient.The exponential increase in the wholesale price of gas, the war in Ukraine and shortages of several basic foodstuffs have seen inflation test the mettle of the committee members, some of whom, in spite of raging inflation, have shown misplaced concern about the effect of higher rates on economic growth.The replacement of arch inflation-hawk Michael Saunders with the clearly more dovish Swati Dhingra, has changed the market’s perception of the seriousness of the Committee’s inflation fighting credentials. In the two meetings that have been held that she has participated in, she has voted for a hike in rates that is lower than what has finally been agreed. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The employment report for November was released yesterday. The claimant count rose from a downwardly revised -6.4k to 30.5k. This is a definite indicator of a slowdown in the economy. As the claimant count rises, fewer people are in work paying taxes while more people are claiming benefits, which reverses the flow of funds into the Treasury.Average earnings, both including and excluding bonuses, rose but remain below the headline rate of inflation. This means that real wages are continuing to fall and adding to the cost of living crisis.The economy is being hit by a wave of industrial action across several sectors as workers reject wage rises that are below the rate of inflation.Train drivers are holding a pair of two day strikes this week, but they insist that their action is about working conditions, although they are also demanding an increase that is close to the rate of inflation.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The monthly GDP data that was published yesterday showed that the economy bounced back to grow at 0.5% following a 0.6% contraction in September. Despite the positive data, the economy is still facing a recession that will probably start in the current quarter.The country faces a significant weakening of its economy this month due to the freezing weather that is engulfing the country, as well as strikes by workers from numerous sectors. Nurses, firemen, ambulance crews, and train drivers are among those who will walk off the job during this month and early next. The Government has drafted in the army to drive ambulances during the strike, while fleets of taxis will ferry people to and from hospital,Rishi Sunak and his ministers are standing firm as the pressure mounts on them to cave in and accede to the demands of the unions.The Chancellor of the Exchequer, Jeremy Hunt has said that the size of the claims are unaffordable and if the Government were to agree pay deals in excess of the rate that inflation is rising currently, it would simply add fuel to the fire and start and wages/prices spiral that would be extremely difficult to break.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The purpose of creating the Monetary Policy Committee was to ensure that the widest range of views possible were obtained to make rate changing decisions both considered and realistic.Over the years that the MPC has been in operation, by and large, it has worked as expected and the balance of members has worked to ensure that monetary policy reflects its mandate.The majority of the committee are made up of officials from the Bank of England; the Governor and his deputies, and the Chief Economist. Over the years, there has been a balance struck among the external members between hawks and doves.The meeting being held this week will highlight those different ideals as monetary policy is approaching a level of neutrality that has not been in place for more than a decade as policy has been accommodative since the financial crisis.Rates have remained at historically low levels, but now for a variety of reasons, some avoidable and some unavoidable, inflation is rising, and the economy is faltering. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Government is about to announce the largest shake-up in the regulation of banking and finance since Big Bang more than thirty years ago. One of Mrs Thatcher’s flagship policies, Big Bang, was designed to radically change the way in which trading was done by opening financial markets for all. It heralded the arrival of electronic trading in stock and shares.Banks took full advantage of the new, liberalized markets, but their thirst for profits created several dangerous practices which led either directly or indirectly to the financial crisis which started with the collapse of Lehman Brothers in 2008 and ended in 2012.The most significant new measures that will be announced are the abandoning of the requirement for banks to keep totally separate their commercial banking business from their far riskier investment banking operations.This effectively means that rather than risking their own capital to increase profits based on investment decisions, they will be free to use their customers' funds. It is expected that there will be a limit to the percentage of their clients’ funds that can be used to reduce the risk, and it is likely that the Bank of England will be given new oversight powers to regulate the markets.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The UK economy is more significantly affected by the current downturn in activity, since businesses don’t have access to long-established markets that they are able to access during tough times that their overseas competitors do.Brexit saw the UK Government close the door on several time-honoured relationships with traditional allies, and that is filtering down to businesses who need access to those associations to help them when times are hard.One ally that remains constant, although it is not, currently, prioritizing a new trade deal, is the U.S. An agreement has been reached for the U.S.to continue to maintain high levels of liquified natural gas which will guarantee supplies throughout a winter which is shaping up to be both long and tough.The two nations have agreed an energy partnership to enable the UK to reduce its reliance on Russian energy and accelerate the push to net-zero.Although the U.S. has a similar arrangement with the European Union, the UK was in danger of being left out in the cold, both figuratively and literally, since it was not part of the negotiations held between Brussels and Washington since Brexit.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
One of the keys to the potential depth of the recession that may have already begun is the weakness of the housing market and how much average house prices will fall across the entire country.Every sector of the economy feeds into the housing market; employment, productivity, output, manufacturing, import of goods and lending. It is a key barometer of the health, or otherwise, of the economy. The latest data shows that although prices are continuing to rise, the size of the increase, reported monthly, is falling. Last month it fell from 8.6% to 7.4%.That fall is likely to fall into negative territory as activity slows, and interest rates continue to rise. In normal circumstances, the Central Bank would be loosening monetary policy to encourage activity in the market. As interest rates fall, those considering moving house or even remortgaging the property they occupy presently, are more likely to enter the market.In the current situation, the Bank of England is continuing to tighten monetary policy by hiking interest rates, this is usually done to flatten demand and slow activity, but with the economy failing, and inflation rising it is in a difficult situation.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Confederation of British Industry, nicknamed the Bosses Union, yesterday condemned the Government for the lack of support industry has received while Brexit regulations have caused chaos for businesses trying to continue to do business in Europe.It called the Conservatives ten years in power the lost decade, as it predicted that the economy would shrink by 0.4% in 2023.Inflation is likely to continue to rise and investment by businesses in their own development, already down, would dry up entirely.This grim outlook has been attributed to a decade of missed opportunities, the most telling of which has undoubtedly been the UK’s departure from the safety net that is the European Union.Stagflation has arrived in the UK economy, with rising inflation, an economy that is contracting and already in recession, low productivity, and business investment.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
MPC member Swati Dhingra spoke recently of her view that although inflation still needs to be taken seriously by the Bank of England, it is not yet at the stage when a prices/wages spiral has begun. Several sectors are threatening industrial action, but even their demands are for wage increases that are close to but not in excess of the rate of inflation. In his Autumn statement, the Chancellor, Jeremy Hunt, confirmed that the triple lock on state pensions and certain means tested benefits would increase in line with the rate of inflation. The indicator used to measure the increase is headline CPI from September. If inflation has begun to fall by April, when the increase takes place, it will inevitably add to the overall rate of inflation.Dhingra is the newest member of the MPC, having joined in September. She certainly has a different attitude to monetary policy to the member she replaced. Michael Saunders was a confirmed hawk, often voting for interest rate increases in excess of the rate that was eventually agreed.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Conservative Party has been in Government, either solely or in coalition, for well over a decade but have failed in to bring their values to bear on the economy of the country due to a single decision brought about in 2014 by then Prime Minister Cameron’s fear of the rise of the UK Independence Party and the rabble-rousing about the effect of their single policy, which was to cause the UK to leave the European Union.Their leader, Nigel Farage, has long since departed the UK political scene, but the havoc he wrought, lives on. As recently as yesterday, Brexit was being blamed for the current instability in the economy, which will probably last a generation.Having taken over a decade to get into the current mess, the Government has no more than two years to turn it around. Unfortunately, they have neither the expertise nor political nous to do so. The eighty seat majority that was gained in 2019 has been squandered by an incredible degree of arrogance, coupled with failure to deal effectively with either Brexit or the aftermath of the Coronavirus Pandemic. TThe Bank of England’s Governor who took over from the highly effective Mark Carney around the time that the Pandemic was beginning to take hold has been unable to get to grips with the level of inflation that has brought in its wake, a level of industrial unrest not seen in this country since the eighties, and a recession that is likely to see the economy shrink by at least four per cent over the next five quarters as well as lose the Conservatives the next election.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Catherine Mann has been a member of the Bank of England’s Monetary Policy Committee for over a year now and has begun to flex her hawkish muscles. Over the past few meetings, she has voted for interest rates rises more than what has eventually been agreed.Yesterday, she spoke of her fear that the Central Bank is losing its fight to bring down inflation to its 2% target. She spoke of her concern that the target that is set by the Government could become unattainable as the global moves into a new phase as the era of accommodative interest rates ended.She sees that inflation is now becoming embedded in the UK economy, with the increasing level of industrial action threatening both fiscal and monetary stability.There has been a significant increase in the level of inflation in the services sector. Pre-Covid, inflation in this area of the economy was running at well below 2%. It is now above 3%.Mann was at the forefront of the call to initially front-load rate increases to get ahead of the threat of rising inflation. This was not considered a workable proposition since it could drive the economy into recession. Mann believed at the time that this was a risk worth taking, but her colleagues disagreed.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
There are growing fears that the UK political system is rapidly becoming outdated and unfit for purpose. The Conservative Party have been in power for more than a decade despite a catalogue of missteps, the largest of all being their ownership of the Brexit debate.In the lead up to the vote on the UK’s membership of the European Union, both sides of the argument, with the opposition powerless to intercede due mainly to their failure to agree a policy on the subject. Once the decision to leave was taken, they seem to have gravitated towards the remain cause, simply because it hampers Government decision-making.There has been very little movement on the Government's pledge that the country would seek game changing trade deals with several nations, including the U.S. and China. Yesterday, Rishi Sunak spoke of his commitment to building on the UK’s reputation in several growing areas and highlighted the country’s success in developing the Coronavirus vaccine.However, he also admitted that the golden age of the relationship with China has ended, and any deals will need to be done on a purely commercial basis. The country has failed to take any decisive advantage of its freedom to make deals with nations outside the EU, while its relationship with its largest trading partner has been virtually consigned to the dustbin.Sunak can bemoan the number of crises that have occurred since Brexit, but the fact is that the Government rushed into leaving without laying the groundwork for its departure first.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Bank of England Governor, Andrew Bailey, has sought urgent talks with the Chancellor and Treasury officials to discuss his concerns about new regulations that the Government is proposing that will give it veto powers over post-Brexit Financial rules proposed by independent authorities including the Central Bank.Bailey believes that the new powers will undermine the Bank’s independence, since it will no longer be able to have the final say on several regulatory issues.Brexit has become headline news again as the Government strives for every possible advantage in its fight against an economic slowdown.Rumours that the Government has been considering proposing a Swiss-style arrangement with Brussels that would allow access to the EU's single market have been roundly criticized by leave campaigners and denied by the Prime Minister.The fact is that in modern globalized markets, countries must seek partnerships. Isolation from its largest market while it tries to forge new supplies will leave the UK years behind and open to further disadvantage.
The rise in inflation and the threat of recession has been made worse by the country’s attempt to sever links with the EU via Brexit.Many had assumed that lessening the bureaucratic red tape that Brussels considers vital for frictionless movement of goods and labour would help make the UK economy more efficient, but it seems the opposite is true.The Prime Minister is embroiled in a row with a broad alliance of business interests, which is set to challenge Rishi Sunak over the planned bonfire of EU-inspired rules and regulations from the UK’s statute books by the end of next year.The Institute of Directors, the Trades Union Congress and other bodies say that doing away with regulations will make a tough situation worse,The wholesale scrapping of the rules and replacing them with yet-to-be-prepared regulations will make dealing with companies working under EU regulations impossible.
In a report published yesterday, the OECD speculated that the UK is one of the few members that are certain to face a recession in 2023. It also confirmed that it believes that of those facing recession, the UK will be among the hardest hit.The first tell-tale sign of a contraction in the economy is expected to be a slowdown in employment, which will turn negative in 2023 and culminate in between seven hundred and fifty thousand and a million jobs lost.Employment continues to be one of the major litmus tests of growing weakness in the economy. The OECD believes that one issue that marks the UK from the rest of the G20 is the effect of Brexit on both the supply of cheap labour and supply chains.Agriculture and hospitality are the worst hit, with labour shortages pushing wages significantly higher.
Brexit has again become part of the Government's thinking as it considers ways in which to lessen the effect of the recession that is expected to grip the economy.A Swiss-style arrangement has been discounted by the Conservatives and labelled a non-starter by Brussels. One of Boris Johnson's only achievements as Prime Minister was to engineer a Brexit deal that satisfied the right wing of his Party, even though it is now considered unworkable.The most demanding effect of Brexit has been the shortage of cheap, dependable workers to undertake roles that traditionally have been low-paid, repetitive and physically demanding.To persuade British nationals to fulfil these roles, the salaries have had to increase, sometimes by double. This has contributed to inflation, and even then, the shortages remain.The Labour Party leader Sir Keir Starmer spoke yesterday of the need to wean the country off its reliance on cheap foreign labour, but in true Labour style, he omitted to say how he believed this could or should be done.
In Parliament, the Opposition Parties continue to criticize Jeremy Hunt's Autumn Statement, saying that it will worsen the economic situation and is little more than a stealth raid on working people.It is the role of the Opposition to hold the Government to account and offer alternative policies. They seem to be succeeding in the former task but failing in the latter.The Leader of the Labour Party, Sir Keir Starmer and his Shadow Chancellor, Rachel Reeves, have been fiercely critical of the Conservatives, whom they accuse of driving the economy into the ground during twelve years in Government. Still, neither has offered any workable alternative to the tax rises and spending cuts announced last week.There is a row brewing between the Government and business leaders about a proposal that the UK adopt a Swiss-Style arrangement with the EU as part of Brexit.Switzerland has access to the single market and there is free movement of people. In exchange, Switzerland pays into the EU budget.
Jeremy Hunt delivered his Autumn statement to the House of Commons yesterday. It contained the predicted mix of tax increases and spending cuts, and a fall in living standards of around 4% nationally.Twenty-five billion pounds worth of tax increases were delivered by way of the freezing of any increase in the thresholds for income tax until 2028. This means that as wages rise over the next five years, six million people will enter higher tax brackets.The highest rate of income tax was cut from one hundred and fifty thousand pounds to a little over one hundred and twenty-five thousand. Hunt announced that the triple lock on state pensions and means tested benefits will be maintained meaning that both will rise by September’s rate of inflation next April.While this announcement was cheered by Conservative MPs, it was little more than a confirmation of a manifesto pledge that was agreed by Boris Johnson last Spring. The minimum wage was also increased by close to 10%
Jeremy Hunt will make the big reveal later today as he announces the results of the government's spending review, which is sure to hold a series of tax increases and cuts to public spending.He has already revealed that taxes will rise for all and that his plans will be fair for all, with everyone sharing the burden of higher taxation.One measure that has already been revealed is that the amount of help with energy payments will be scaled back as the energy price cap, the subject of so much public angst earlier in the year will be scaled back.The entire package is expected to be split 55%/45% between spending cuts and higher taxation.The usual scramble that happens when Government spending is under review, where each Ministry is tasked with looking at where budget cuts can be made, has been taking place since Hunt took up the role.
Yesterday's October employment report showed that core wages, not including bonuses, rose at their fastest level for twenty years.Despite the pace of the increase, real wages fell at a record rate as they still failed to keep pace with inflation.Prime Minister, Rishi Sunak, speaking at the G20 gathering of world leaders in Bali, urged bosses to curb their pay, which, while it would not have any material effect on overall wage inflation, would show a degree of solidarity with employees.Sunak went on to be critical of nurses' demands for a double-digit pay award which, if not met, could see nurses take strike action for the first time in history. He feels that the demand for seventeen percent is both unrealistic and unaffordable and will simply contribute to a wage spiral, evidence of which is already beginning to manifest itself in the data.In the recent past, the demands of supermarkets have seen the price of milk to farmers tumble, which the retailers themselves have been accused of profiteering. Now it is egg producers who are under pressure due to the dual demands placed on the industry and the rise of avian flu, which is seeing entire flocks slaughtered.
Yesterday's October employment report showed that core wages, not including bonuses, rose at their fastest level for twenty years.Despite the pace of the increase, real wages fell at a record rate as they still failed to keep pace with inflation.Prime Minister, Rishi Sunak, speaking at the G20 gathering of world leaders in Bali, urged bosses to curb their pay, which, while it would not have any material effect on overall wage inflation, would show a degree of solidarity with employees.Sunak went on to be critical of nurses' demands for a double-digit pay award which, if not met, could see nurses take strike action for the first time in history. He feels that the demand for seventeen percent is both unrealistic and unaffordable and will simply contribute to a wage spiral, evidence of which is already beginning to manifest itself in the data.In the recent past, the demands of supermarkets have seen the price of milk to farmers tumble, which the retailers themselves have been accused of profiteering. Now it is egg producers who are under pressure due to the dual demands placed on the industry and the rise of avian flu, which is seeing entire flocks slaughtered.
Sunak has been building foreign policy bridges as he criss-crosses the globe before facing the arduous task of rebuilding confidence in the UK’s finances in concert with his chancellor, Jeremy Hunt.Having renewed the country’s commitment to climate goals at the COP27 conference before jetting to Bali for G20. He strikes a far more business-like figure than Boris Johnson, whose amiable bonhomie never truly resonated with world leaders.His primary goal in Bali will be to be part of a united front to condemn Russia and label it a rogue state.When he arrives back in London on Thursday morning, Sunak will go straight to the House of Commons to support Hunt as he delivers the blueprint for the UK’s recovery from the recession and establishes measures to drive the economy forward in the post-Brexit period.Various points from the plan are drip fed to friendly journalists to prepare people for the tax rises and spending cuts that are bound to be included.
Jeremy Hunt will present the Government’s financial statement to Parliament this Thursday. Appearing on current affairs programmes at the weekend. Hunt spoke of his belief that the entire nation must share the burden of closing the hole in the country’s finances. He believes that he and the Prime Minister must make some tough decisions, and provide support for families most affected by the cost-of-living crisis.Everyone will have to pay more in taxes, according to Hunt, but observers will want to see the detail of the package before they pass judgement on how fair it is.It is rumoured that the 50p top rate of income tax will be reintroduced, which affects the highest earners.The cut in the basic rate of tax will be pushed back for another year which will allow the Conservatives to introduce it as a sweetener, in the run-up to the next General Election.
Kwasi Kwarteng appeared from self-imposed exile yesterday to reveal that he warned Liz Truss that she was moving too fast with reform that she wanted to introduce in the immediate wake of her election as Conservative Party leader.He said his policies tried to drive the economy forward and warned Rishi Sunak over the likely rise in taxes.Kwarteng appears to have failed to grasp the severity of the situation facing the UK economy, and still has no answer to questions about how his plans were to be funded. The single lack of understanding came close to derailing the entire financial system, as pension funds came close to being forced to sell off longer-term assets which are the cornerstone of their portfolios.It was a veiled criticism of Kwarteng's inexperience when Andrew Bailey spoke recently of how much harder it is to regain the market's confidence than lose it in the first place.Jeremy Hunt will deliver his plans for repairing the hole in the UK's finances to Parliament next Thursday. Although he may provide a mixture of spending cuts and rises in taxation, it is believed that he plans a freeze on public spending, which the Opposition will challenge as a return to austerity.
The Bank of England is expected to turn more dovish in its attempts to bring inflation under control in the New Year. Various think tanks have reviewed the Central Bank's Monetary Policy Committee member's voting performance at meetings held since rates began to be raised last December. The conclusion is that they are reluctant to hike rates and will either vote for smaller hikes or abandon the policy entirely.Bailey's comments at news conferences following meetings have been almost apologetic. Technocrats working for the Bank of England have been tasked with finding when inflation will begin to fall naturally if interest rate hikes are tapered or ended altogether.Many feel the rise in inflation is due to circumstances beyond the Bank of England's control, and a tightening of fiscal policy will have a far greater effect.A lot will depend on next week's budget delivered by Chancellor Jeremy Hunt as it is generally accepted that the country will start a long and painful recession this quarter.
Latest projections indicate the impending recession may cause an economic contraction as great as 10%.In its latest forecast, the Bank of England that the economy will shrink over the course of eight quarters beginning with the current period. The projection is based on a forecast that short-term interest rates will reach 5.25%.The vote at last week’s MPC meeting was 7-2 in favour of a seventy-five-basis point increase. The two who voted against it were Silvana Tenreyro, who voted for a twenty-five-point hike and Swati Dhingra, who voted for fifty points.The appointment of Dhingra has made the overall position of the Monetary Policy Committee marginally more Dovish. This was her second meeting, and she has now voted for hikes below the agreed level on both occasions.Tenreyro, appointed in 2017, is considered a bit of a dove, having voted for small hikes at two of the past four meetings. But she appears to be more considerate about her view considering several factors when casting her vote.
The continuing tightening of monetary policy is beginning to slow activity in the housing market. With mortgage lenders having withdrawn close to a thousand products from the market due to uncertainty over the path of long-term interest rates following the mayhem created by the recent mini-budget, borrowers are facing difficulty securing finances. The cost of building land reached its highest-ever level as limited supply, and increasing demand drove builders to reduce the stock levels in their land banks.Recent data showed that builders are slowing down housing starts, which will have a knock-on effect throughout the market.This is a significant factor in the slowdown in the economy, which will ultimately lead the country into recession.
When Liz Truss and her Chancellor Kwasi Kwarteng announced their mini-budget containing a series of unfunded tax cuts, it caused such alarm in the markets, especially amongst pension funds, that the Bank of England was forced to step in. Andrew Bailey, the Bank's Governor, held talks with representatives from the hours of having to implement emergency plans for a market meltdown. Treasury, Bank Chairmen, and the Office for Budget Responsibility to try to have the measures reversed, considering what they could see happening in real-time,Representatives of the OBR, whose report on the effect of the measures was ignored and remained unpublished, met with Kwarteng as they tried to impress on him the gravity of the situation.Although the UK economy is now sailing in calmer waters, the issue of balancing the books remains and is due to be addressed by Chancellor Jeremy Hunt next week when he presents a full budget that has been produced with full input from the OBR.It is expected that the £60 billion hole in the Government's finances will be closed by making cuts to public services and a series of tax increases. The split is believed to be £25 billion of tax increases and £35 billion of spending cuts.
The Bank of England hiked short-term interest rates by seventy-five basis points as it continues to battle inflation. In his press conference following the announcement, Andrew Bailey spoke of the UK facing the prospect of its longest recession in history. While it won’t rival the recession caused by the Pandemic for depth, it will continue well into 2024.Following its biggest hike since 1989, the eventual high may reach 5.25%. Bailey believes that rising inflation will moderate quite soon and begin to fall in the second quarter of 2023. Meanwhile, the country faces the prospect of a significant economic contraction, with unemployment doubling from its current level of 3.5%, its lowest level since 1974.Bailey was unabashed about the Bank of England continuing to hike interest rates despite the country facing a tough couple of years, saying that the situation would be far worse if prices continued to rise unchecked.
With the Bank of England set to agree to the biggest hike in short-term interest rates in more than thirty years later today, analysts are beginning to consider how much further the Central Bank is willing to go in its fight against inflation.With consumer prices hitting 10.1% in September, the tactic of hiking by bigger increments is still open to question. The widespread belief is that once rates reach neutral and move into restrictive territory, their effect on demand will become exponentially greater.However, that idea is not universally accepted as the cause of the rise in inflation is not driven purely by supply and demand or any particular asset bubble.The amount of money in the system following the relief provided to households during the Pandemic is one factor that rate hikes won’t affect, as is the rise in energy prices.While it is the demand for gas that is driving inflation higher, that level of demand has been limited by the rise in prices that is driven by outside influences.
The Bank of England has begun to reverse its programme of quantitative easing, which began in 2009 when the country faced a deep recession and banks were not lending to each other. Under the programme, they purchased Government Bonds from financial institutions which provided liquidity to the market.This drove interest rates to historic lows and encouraged businesses to continue to borrow money to fund expansion and speed recovery.The BoE sold a relatively small number of bonds, valued at around £750 million, out of its stock of around £850 billion.The UK is the first G7 nation to begin to withdraw support.There have been calls for Sunak to extend the windfall tax on energy companies that he introduced when he was Chancellor of the Exchequer, as BP announced its third quarter profits yesterday.
The Bank of England’s MPC will begin its latest meeting today, culminating possibly its largest hike in interest rates in more than thirty years.Speculation is growing that rates will increase by seventy-five basis points to try to lower inflation. This will bring short-term rates to 3%, with another hike likely in December.There has been severe criticism of the Bank’s policy of gradual rate increases that have taken place at every meeting since last December.The Central Bank has been increasing rates gradually to not slow growth to such an extent that it drives the economy into recession.The Bank’s Governor has already acknowledged that the country is heading for a period of contraction growth in any event, so it is curious that they are only planning to increase the size of hikes now.
In a couple of weeks, Jeremy Hunt will present MPs with what it is hoped will be a carefully crafted plan to combat the gaping hole in the country's finances. Whatever he does, it is bound to be unpopular. Presenting a budget at a time when the economy is struggling always is, and introducing plans that give the financial market confidence that the economy will recover and grow always costs the man in the street, whether through reduced services or by higher taxation.One issue yet to be decided is the triple lock on the state pension and whether the country can afford to increase benefits such as universal credit.Increasing the State Pension in line with inflation will cost an extra five billion pounds, which Hunt must find elsewhere. One plan that is being discussed is a freeze on foreign aid. The UK provides almost fourteen and a half billion pounds in foreign annually, with Ethiopia, Nigeria, Somalia, Afghanistan and Yemen receiving the most, according to 2020 statistics.
The UK has its first Prime Minister of South Asian descent and its first Hindu Prime Minister. But perhaps most critically for the economy, it has a Prime Minister with a background in investment banking.His experience means he can speak to City of London bankers in a language they understand and hopefully promote confidence in his policies.The contrast with the previous Prime Minister and Chancellor of the Exchequer could not be starker. The performance of Sterling this week was an obvious sign that Sunak had restored the City’s confidence.Another think tank that has lost credibility during the mayhem of the past eight weeks or so is the Institute of Economic Affairs, which originally planted the seed of trickle-down economics in her mind.When Sunak spoke of mistakes being made by the earlier administration, he stopped short of naming and shaming the institute, who he used to use as a sounding board.
Successive Prime Ministers and Chancellors have all feared the publication of the Office for Budget Responsibility’s economic forecasts, which were due to be delivered next week. Instead of the OBR report, Chancellor Jeremy Hunt will deliver a full budget statement on November 17th, accompanied by fresh economic forecasts from the OBR.Rishi Sunak and Jeremy Hunt will bear the responsibility for repairing the damage caused by Liz Truss in the final days of her Premiership. But Sunak has promised to tackle the daunting prospect of more austerity with the utmost care. It is hard to see how the Prime Minister can afford to provide the NHS with anything close to the amount of funding it will need but there may be some movement immigration, as Sunak is known to favor more liberal regulations.Sunak rejected the Opposition calls for an immediate General Election. The rationale for an election is that since no one voted for the current Prime Minister, he does not have a mandate to govern. Such an argument is deliberately obtuse. It lends itself to American electoral rules rather than British.
Rishi Sunak made his first speech as Prime Minister yesterday. He admitted that ‘mistakes had been made’ by Truss’s administration, even if they were driven by good intentions.Nevertheless, Sunak faces a challenge which makes the support he delivered during the first weeks of the lockdown look like child's play.Interestingly, he has left Jeremy Hunt as Chancellor of the Exchequer, but Sunak will certainly have far more to say in the decision-making process than his predecessor.According to the Bank of England, the economy will fall into recession either late this year or early next, while inflation continues to be a significant issue.Yesterday’s data shows that the price of several household staples have risen by more than fifty percent over the past year – a direct result of the conflict in Ukraine which has seen crops wiped out and shipping routes disrupted.
One thing the Conservative Party can learn from the past eight weeks is that their membership is hopelessly out of touch with reality and can no longer be trusted to choose a leader who stands for modern Conservative values. Liz Truss’s winning margin, which was less than that gained by either Boris Johnson or David Cameron, reflected the changing values of the membership.It was entirely proper that Sunak should win the leadership unopposed, but now the tough task of restoring unity and confidence within the party begins.There is a concern that Sunak’s victory will herald a return to the programme of austerity seen following the 2008 monetary crisis, although it is unclear whether the rise in National Insurance contributions reversed by Truss will be reinstated.It is a sign of the times that Sunak has been chosen on both his reputation and personality rather than any one set of policies.
The battle to become leader of the Conservative Party should become clearer this week. Although, even if a leader is elected, there is no guarantee that they will command the full support of the parliamentary party.Anyone considered for election must have the support of at least 100 MPs by 14:00 today. Only former Chancellor of the Exchequer Rishi Sunak has reached that level. Former Prime Minister Boris Johnson has decided not to run, saying that he had the numbers, but it's not the time to split the party.While the country is gripped by political confusion, the Bank of England is preparing to decide whether to hike interest rates and by how much.The extended period of tightening is expected to continue. However, the Monetary Policy Committee still needs to decide whether the hike will be fifty or seventy-five basis points, given that headline inflation is now above 10%.
Rishi Sunak, who was defeated by Liz Truss in the ballot to be Conservative Party leader, is the hot favourite to replace her following her resignation yesterday.Truss became the shortest-lived Prime Minister in history, lasting just 44 days. It is hard to understand how Conservative MPs could have got it so wrong. They elected someone patently out of their depth to lead them into the next General Election.The rules of the ballot to elect a replacement were announced yesterday. Any candidate wishing to stand must garner the support of 100 MPs by this Monday. Voting will take place next week and the result will be announced a week from today.There is a rumour that Boris Johnson will throw his hat in the ring, but that would be a retrograde step despite the former Prime Minister’s record of wooing voters.The past 44 days have seemed like something from the pages of a fantasy, as Liz Truss brought in the most diverse Cabinet ever to deal with an issue that didn’t really exist. Her plans to grow the economy out of the current downturn by using a policy of trickle-down economics was doomed to fail.
It is difficult to imagine a scenario in which Liz Truss still is Prime Minister for more than another week. Her support is crumbling, and she is now being forced to adopt policies that she does not support just to stay in power.When she won the ballot to be named leader, one of her staunchest allies was Suella Braverman who she made Home Secretary. It is a sign of just how far Truss has fallen that not only did Braverman use a technical indiscretion as an opportunity to tender her resignation, but she also felt the need to voice her feelings over the mistake that have been made in the past few weeks.Grant Schapps grabbed the opportunity to fill one of the most senior roles in the cabinet with both hands.While she never actually confirmed that she intended to remove the triple lock on state pensions, which was a Conservative Party manifesto commitment, it had become clear over the past few days that the pledge was under severe threat.Truss confirmed yesterday, that the rate of state pensions would rise by an amount equal to the rate of inflation, which is clearly higher than either of the other two options which were average earnings and 2.5%.
Andrew Bailey, the Governor of the Bank of England, is not yet two years into his eight-year term in office. He was appointed a week before the first coronavirus lockdown started, which meant that from day one in the role he was faced with unprecedented market conditions. As the markets were being battered by Covid, and the response to the Pandemic was being headed then Chancellor Rishi Sunak, Bailey initially flew under the radar. He didn’t build the same relationships with the market that his predecessor, Mark Carney had done.As the Pandemic eased and inflation began to rise, Bailey found himself in the spotlight and was caught off guard by the pace at which prices began to rise and had to make unpopular decisions regarding interest rates. He didn’t expect to be presiding over the end of an era of low interest rates, so was slow to react. Although the MPC began its current cycle of interest rate hikes last December, the initial move was unpopular despite being just fifteen basis points, since it came immediately before Christmas.
Jeremy Hunt, the new Chancellor of The Exchequer, announced a mini budget of his own yesterday in which he reversed many of the tax cuts announced by his predecessor. It must be presumed that Kwasi Kwarteng’s plans were approved by the Prime Minister, which led MPs to ask: who is running the country?The issue was worsened by the fact that Liz Truss was initially absent from the House of Commons yesterday, although she did appear just as Hunt rose to deliver his plans.The £64 billion hole in the country’s finances has been reduced by Hunt's measures and the long-term interest markets rallied, signaling their approval. However, the reduction of the basic rate of income tax has been indefinitely shelved, and the much-vaunted reduction in the energy cap will now only last until the spring of next year.
Along with the total loss of credibility, Liz Truss has also ceded authority to the new Chancellor of the Exchequer, Jeremy Hunt. Hunt, who was defeated early in the Conservative Party Leadership campaign, chose to back Rishi Sunak in the contest rather than Truss.Having thrown her first choice for Chancellor under the bus, the Prime Minister named the most experienced member of the Cabinet as the fourth Chancellor this year.As he faced the press on Friday for the first time, Hunt admitted that mistakes had been made and distanced both himself and the Government from the recent mini budget.Truss appears to have almost completely handed over the reins of Government while she tries to regroup.
The IMF has reacted to the management of the UK economy by the new Governments as incoherent and described fiscal and monetary policy as pulling in opposite operations. They agree with the Office of Budget Responsibility that spending cuts are needed to balance the books but have not published any figures to back this up, although the OBR puts the number at around sixty billion pounds.It’s rumoured that Truss has considered ripping up the mini budget due to its unpopularity with backbench Conservative MPs and the effect it has had on the markets.There is a genuine possibility that if the presentation of the next financial plan goes poorly, Truss will find her position untenable.It is a long time, if ever, that a Prime Minister has lost control of the Party so quickly. The lack of planning and understanding following the resignation of Boris Johnson, is bordering on breath-taking.
Prime Minister Liz Truss has somehow found Theresa May’s magic money tree as she claims that there will be no cut to public spending to balance the books following the recent announcement of tax cuts. She may simply be so drunk on power that she believes that she has an unlimited mandate.So far, the latter has been proved untrue as she has been forced to U-turn over the abolishment of the top rates of income tax, faces a rebellion over a rise in the rate of benefits and is accused of a lack of basic economic skills.Yesterday’s announcement that there will be no reduction in public spending despite the Office for Budget Responsibility’s report of a £60 billion deficit should planned tax cuts go unfunded.Jacob Rees-Mogg, every Labour MPs favourite pantomime villain, seems to glory in being the archetypical Tory. He was fierce in his criticism of Andrew Bailey, blaming him for the chaos in the financial markets recently.He appears to have confused the current programme of short-term interest increases with the rises in long-term rates as the Central Bank defended the prospect of gilt fire sales.
Bank of England Governor Andrew Bailey spoke yesterday of the turmoil that the Government's new policies have brought to the gilts market and confirmed that additional support provided by the Central Bank must end this Friday.The fear that pension funds will begin a fire sale of UK government assets, driving long term interest rates higher, could complete the total breakdown of the market’s confidence in the Treasury.The Governor went on to say that any intervention in markets is simply to stabilize the situation, and market users cannot become reliant on official support. Therefore, any action taken by the Bank of England will be temporary and must end on Friday.There is a clear fracture between the fiscal actions of the Treasury and the monetary actions of the Bank of England. The Office for Budget Responsibility in a preliminary report that will be fleshed out on 31st October spoke of its expectation that it will take around sixty billion pounds worth of reduction in Government spending to balance the books.The Prime Minister appears to have again been forced into a U-turn by Conservative backbenchers. In April, then Prime Minister Boris Johnson pledged to increase certain benefits in line with inflation. Truss was asked about this when she took up the role, and she refused to commit to Johnson’s promise.
The market’s confidence in the UK financial system has been suffering for a considerable amount of time. It began with the Bank of England’s indecisiveness over tightening monetary policy, as Monetary Policy Committee members were unsure of the effect of higher interest rates on economic growth.Faced with concerns over rising prices coupled with the prospect of lower growth, they tried to manage both, which has proved impossible. Ten months after they first raised rates, the country is still facing a recession and a rate of inflation that is continuing to rise.Under Rishi Sunak, the Treasury may not have been correct in every decision it made, but he was clear and decisive in his processes, wasn’t afraid of making tough decisions and inspired the confidence of the Cabinet and the Country.When Sunak hiked National Insurance rates last April, it was an unpopular decision, but he explained that the rise was needed to supply added funding to the National Health Service. The current Chancellor did away with the hike, but apparently remains committed to the NHS. Kwasi Kwarteng has been Chancellor of the Exchequer for about six weeks now. He came in all guns blazing, making promises he couldn’t possibly keep, and was quickly found out.
The spate of strikes seen recently by postal workers and rail staff and a proposed ballot by nurses are a major threat to the economy, a report published at the weekend warns.It says that Britain is as close to a general strike than at any time for the past fifty years as Government policies drive militancy to a level not seen since the early seventies.Workers in more sectors of the economy are seeing offers of pay rises fall short of their expectations.Liz Truss has been criticized for trying to blind side workers who are seeing real wages decline and those on benefits threaten with the largest decline ever in the real level of what they receive with the reduction of the level of the energy cap.The cap on energy bills is now set at £2,500 annually for the average household. This is a substantial increase from the average of £1,900 seen prior to October 1st.
Opposition leaders plan to keep up the pressure on new Prime Minister Liz Truss by forcing her to publicly confirm whether she is about to honour a pledge made by her predecessor Boris Johnson, to increase benefit payments in line with inflation or if she intends to save five billion pounds by going for the cheaper alternative of raising them in line with average wages.There seems to be little alternative for Truss other than to come clean on what she is thinking as until the decision is made public, she will be hounded from all sides. Backbench Conservative Members of Parliament will find it difficult to commit their full support if they still feel that Truss will renege a pledge made only last Spring, while Labour Leader Sir Keir Starmer will keep up the pressure in the House of Commons if he gets even a sniff of a feeling that he has Truss on the run.Ofgem, the Energy regulator, revealed in a document that was leaked to the press yesterday, that the country faces the possibility of rolling power cuts if it is a particularly harsh winter.Britain gets ninety per cent of its energy from secure supplies either domestic or from Norway, while the balance is bought on the open market.In normal times and even in the current climate, that ten percent should be secure, but if Europe runs into supply issues in the peak period of January and February, contingency plans are being looked at to have a series of rolling blackouts lasting three hours at a time in periods of peak daily usage.
Her speech yesterday at the Conservative Party Conference was supposed to be a victory parade. which confirmed the beginning of a new era for the Party and consolidated its position as a safe pair of hands to deal with the economy.Instead, the Prime Minister Liz Truss was faced with chaos and calamity as she fought to keep her premiership alive.While there has been no official decision made about how benefits will rise by next Spring, it is understood that Truss strongly favours the lower increase linked to average wages. If that were to become policy, it is believed that it will be the greatest reduction in real terms to benefits ever.With the Party close to rebellion and at least two Cabinet Ministers openly breaking ranks, Truss needs to reassert her authority before the situation deteriorates to such an extent that she is left with just two alternatives; comply or resign.
Kwasi Kwarteng, Chancellor of the Exchequer, was forced into a second U-turn yesterday as he brought forward the publication of the Government's financial statement from mid-November to the end of the month. At the time of the mini-budget, he was questioned why he was not presenting full financial figures to back his arguments regarding growth and taxation,The Conservative Party’s annual conference has been anything but a victory parade for the new leader.Former Party Chairman, Grant Schapps, was the first of the old guard to break ranks and criticise the first month of Liz Truss’ policies. There is another row brewing about benefits: Rumour has it that benefits paid to low income households and the unemployed would only be raised by the level of average earnings and not by the rate of inflation, despite a pledge by Boris Johnson last spring that they would keep pace with inflation.
Kwasi Kwarteng, the Chancellor of the Exchequer, will deliver a mini-budget on September 23rd in which he will not only deliver the Government’s ideas on how it plans to deal with the cost-of-living crisis, but equally importantly, how it will fund them.This will be something of a baptism of fire for the new Chancellor, who has been rewarded for his unstinting support of new Prime Minister Liz Truss by being promoted into one of the top three jobs in the Cabinet.It is understood that the dual focus of the Budget will be on energy and tax cuts.He has also been in the news in the past twenty-four hours as it is rumoured that he is considering removing the cap on bankers’ bonuses which was introduced as part of a post-Brexit shake up in governance of the City of London.Several banks have relocated to the mainland, and this is designed to lure them back. It won’t be universally popular, since a number of banks are said to be considering cutting overall staff numbers to cut costs.
Unemployment fell again in August to its lowest level since 1975. However, the rate of decline slowed considerably. It is likely that the post-Pandemic boom that was exacerbated by the lack of EU migrants who returned home following Brexit is coming to an end.The phenomenon of job-hopping, where workers change jobs more regularly to take advantage of higher wages on offer due to shortages in certain sectors is beginning to slow.This is something that has been seen in the United States and has found its way into the UK jobs market.The unemployment rate fell to 3.6% in the three months to August, down from 3.8% the previous month.Average earnings jumped above 5% rising to 5.2% up from 4.7% in July.
The economy grew in July according to figures released yesterday but is still seen as contracting overall in the third quarter. The period of mourning, whether official or unofficial, will almost certainly mean that there will be contraction this month and there is nothing to suggest that August was anything other than average. The Bank of England believes the economy will fall into a technical recession, where there are two consecutive quarters of contraction, or negative growth as economists prefer to call it. This will be followed by an ever-increasing slowdown that will last for the whole of next year. The country will truly experience stagflation as a recession will be coupled by a level of inflation which is already considerable but will become significantly worse. There is likely to be large scale industrial action as the workforce demand wage increases that are keeping pace with rising inflation but employers struggling to keep costs down as the recession starts to bite will be unable to comply.Liz Truss has been rather overtaken by events during her first week as Prime Minister. She has been forced to abandon her desire to hit the ground running, although she has found the time to provide support to help with the cost-of-living cruises.
The Monetary Policy Committee meeting that was scheduled to take place this week has been postponed and put back a week as the nation mourns the death of Queen Elizabeth II.The meeting now due to take place on September 22nd is expected to hike rates possibly by seventy-five basis points as inflation continues to rise. The latest figures for CPI will be released on Wednesday, with headline inflation likely to have reached 10.5%. It is hoped that the announcement by the government of its plans to provide support for consumers by limiting the rise in the energy price cap to £2,500 for an average family will see inflation top out sooner than has been predicted recently.The rise next month in the energy cap has been halved which will come as a major relief to the lowest paid, while any proposed increase in 2023 has been shelved. It is unclear if this package has been fully costed by it is expected that the cost will be around £90 billion pounds.It was a momentous week in the UK with the end of the second Elizabethan era with the passing of the Queen. On Tuesday, she had welcomed her fifteenth Prime Minister and the third female.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The new Prime Minister remained true to her word and introduced a support plan for domestic consumers. The plan means that no one will pay more than £2,500 a year for their energy for the next two years.The plan, which will cost between ninety and a hundred billion pound to implement, is expected to add to pressure for higher interest rates. The new Chancellor of the Exchequer, Kwasi Kwarteng signalled a change to the relationship the Government has with the Bank of England.Governor Andrew Bailey had expressed his concern recently about the continuing independence of the Central Bank. Although that independence will be supported, there will be greater oversight from the Treasury.The Chancellor and Governor will meet twice a week to ensure that they still are on the same page and there is more coordination between monetary and fiscal policy.
Bank of England Governor Andrew Bailey, making his quarterly report to MPs yesterday, said that there is nothing that the Central Bank can do to avoid the country slipping into recession in the fourth quarter of this year and not seeing any growth in 2023.He claimed that it is not the Bank of England’s monetary policy decisions that have created the crisis, but Russian President Vladimir Putin’s invasion of Ukraine which has driven up the price of basic foodstuffs together with his actions over energy supply.While the UK isn’t dependent on Russian gas to the same extent as, say, Germany, the economy is still energy dependent.The new Prime Minister, Liz Truss, will today flesh out the Government’s plans to deal with the rising cost of energy. It is expected that the energy cap will be frozen and around £2,500 for the next eighteen months for domestic suppliers. Little has been said about businesses, whose energy bills have risen by a multiple of three or even four over the past year.
Liz Truss took office yesterday as the country’s new Prime Minister, with the rallying cry of together we can ride out the storm.She announced the most senior roles in her Cabinet, and it was clear that she intends to reward those who have supported her in the campaign, Boris Johnson stalwarts like former Deputy Prime Minister Dominic Raab and Party Chairman Grant Schapps have been discarded while there are significant promotions for Kwasi Kwarteng and James Cleverly, who become Chancellor of the Exchequer and foreign Secretary respectively.In her first speech as Prime Minister, she promised to tackle the cost-of-living crisis precipitated by the rising energy bills, head on and rebuild Britain from the ground up.Her three main priorities will be cutting taxes, a permanent solution to the energy crisis and sorting out hospital waiting lists as part of an overhaul of the National Health Service.She starts work today with a baptism of fire as she faces Keir Starmer across the dispatch box in Prime Minister’s questions. It will then be back to working on the plans to supply help for those most affected by the energy crisis.
Liz Truss was voted in as the new Leader of the Conservative Party when the result of the poll was announced yesterday. She received 57% of the vote, comfortably beating her rival Rishi Sunak.Despite her margin of victory being decisive, the race was close that had been predicted by opinion polls. In fact, it was less decisive than either Boris Johnson’s or David Cameron’s.Today, Boris Johnson will officially resign as Prime Minister and Truss will be invited by the Queen to form a government. The announcement of her Cabinet will then begin, with the most senior posts announced later this afternoon.One person who will not be a member of Truss’ first Cabinet will be Johnson Loyalist, Priti Patel, who resigned yesterday and decided to return to the back benches. She wouldn’t have been retained in her role as Home Secretary, so in fact jumped before she was pushed.Once her ceremonial duties are out of the way, she will immediately begin to tackle an economy which is overflowing with issues that require her immediate attention, as well as that of her new Ministers.
Members of the Conservative Party have chosen their new leader. The result of the Ballot will be announced at lunchtime. There will be little time for celebration for the winner as they get straight down to work on the issues facing the country.Inflation is currently at 10.1% and is expected to reach 20% as the energy crisis worsens. Rishi Sunak or Liz Truss will be expected to put measures in place to alleviate the suffering, with several charities seeing a choice for some families between heating their homes and feeding themselves,It is expected that whoever is chosen as leader will announce a package of measures within two weeks of taking office, Truss, the overwhelming favourite to become the next Prime Minister, showed a degree of naivety recently when she commented that it is the job of the Bank of England to control inflation.
A combination of stronger yields in the U.S. risk aversion and the prospect that inflation could reach 23% early next year saw Sterling fall to a fresh two-year low.Boris Johnson goes into his final weekend as Pr4ime Minister convinced that there are sufficient reasons to believe that the country can survive and thrive, despite the pressures that are building within the economy.It has been a feature of Johnson’s Premiership that he has been infected by an almost blind optimism, when forward-thinking and planning would have served him far better.If the voting members of the Conservative Party want forward-thinking, they will, or at least should, cast their vote for Rishi Sunak. The former Chancellor is pragmatic about the current situation and is honest enough to say that the country faces serious concerns in the short term. He accepts that there is no quick fix nor is there, to quote Johnson’s predecessor, Theresa May, a magic money tree.
Sterling is suffering from the country’s economic prospects, as traders see the Bank of England being helpless to halt the seemingly endless rise in inflation. It feels like almost every day there is a further prediction of a quite incredible rise in inflation, with the latest being 25% early next year.With activity, particularly in the manufacturing and industrial sectors, slowing alarmingly, the new Prime Minister will take over at what could be a historically critical time. Liz Truss or Rishi Sunak will be expected to announce new policies to ease the cost-of-living crisis, with figures published yesterday showing that the latest increase in the cost of living will push a further three million families into poverty.Parliament returns from its summer break next Monday, the day on which the result of the Conservative Party leadership contest will also be announced. Without having confirmed whether she will agree to further direct help for consumers, It is rumoured that Truss wants to pass targeted payments to those most in need, while Sunak believes that help should be available to all to get on top of the issue at once before winter arrives.
U.S. investment bank Goldman Sachs has gone even further than its Wall Street rival Citibank in predicting that inflation in the UK could reach 22% next year. Last week, Citibank made a prediction that price rises in the UK could top 17% but Goldman believes that the energy crisis could push inflation even higher with the Bank of England helpless to bring it back under control.The hospitality sector, which is only now recovering from the battering it took during the Pandemic, is facing further devastation with its trade body writing an open letter to the Government yesterday pleading for assistance with the warning that pubs and restaurants could be forced out of business as they face up to 400% increases in utility bills.There is no energy price cap for commercial enterprises, so the sector faces the full force of the continued rise in gas prices.The letter went on to say that owners are now unable to pass on increases to their customers, as they will lose up to 80% of their business. Already faced with their own fears over energy cost, consumers are unlikely to spend an evening in a pub or restaurant if prices rise out of hand.
Conservative Party leadership front-runner Liz Truss has cancelled a televised interview with the BBC this week, citing time constraints. This has prompted her rival for the role to label her campaign as being without substance and insufficiently robust to stand up to scrutiny.Truss has been under pressure to confirm that should she win the election, the result of which will be revealed next Monday, she will consider blanket support for the entire country to relieve the concerns over the cost-of-living crisis.It is understood that Truss favours tax cuts as the most suitable method of reviving the economy, a method that Sunak has labelled as unaffordable.With less than a week to go before the result is announced, Truss appears to have adopted a defensive position believing that the policies that she has set out have placed her in a winning position.Sunak will use the time to attack the viability of her proposals, since he has continually been portrayed by his supporters as a safe pair of hands as far as the economy is concerned.
There is an emerging theory that targeting inflation by tightening domestic monetary policy may be becoming less effective as globalisation creates pressures in economies which cannot be cured by dampening demand.Across the developed world, Central banks have been tightening monetary policy for most of this year, but there has been no noticeable effect on inflation.The UK is a case in point.The Bank of England began to hike interest rates last December, but inflation has continued to rise and is predicted to continue to do so, possibly reaching 18% by the end of this year or the beginning of 2023.There have been factors at play which have worsened rising inflation, the most obvious of which is the war in Ukraine, which has driven the wholesale price of gas to extraordinarily elevated levels.
Outgoing Prime Minister Boris Johnson visited Ukraine yesterday in what will be one of his last official engagements in office. He called upon the UK and the rest of Europe to endure the current energy emergency to defeat Russian leader Vladimir Putin, who is using his country’s gas reserves as a weapon of war.The man who is tipped to be the new Chancellor of the Exchequer should Liz Truss win the Conservative Party leadership contest, current Business Secretary Kwasi Karteng, has been holding talks with energy sector bosses to find a solution to the rising cost of energy, in particular the wholesale price of gas. One solution that has been suggested has been a freeze being placed on the energy cap for two years. The plan which has been put forward by the CEO of Scottish Power would cost up to £100 billion over the twenty-four-month period.The plan involves government guarantees for loans that would enable energy companies to borrow from commercial lenders at competitive rates to buy gas from suppliers at the historically inflated cost without having to pass on the cost to consumers.The so-called deficit fund would help both the cost-of-living crisis and the continued rise in inflation that was tipped to reach 18% earlier this week.
The Bank of England is continuing to shrink the size of its balance sheet by selling off assets bought as part of its support for the economy during the Pandemic.It will sell off £200 million in corporate bonds per week starting next month. As part of its programme of quantitative easing, the Bank bought around £20 billion of bonds from non-financial entities following the Brexit referendum and the Pandemic. These sales are dwarfed by the ongoing divestment of Government Bond holdings, which are currently being reduced by £40 billion a month. This is being achieved by not reinvesting the proceeds of maturing paper. The draining of liquidity from the market will add to the tightening of monetary policy which is happening in conjunction with rate increases which have been happening since last December and have been gradually increased in size.The most recent increase of fifty basis points is expected to be matched at the bank’s next meeting, which will take place on September 15th. The Central bank is still committed to using monetary policy to bring down inflation, despite the lack of evidence so far that the policy is working.
The continued rise in the cost of energy could see inflation reach 18% in the coming months, according to global banking giant Citibank. With the wholesale gas price rising by 25% in the past week alone, inflation would rival the levels last seen in the mid-1970s.Were workers to demand wage increases to keep pace with inflation, it is also forecast that the Bank of England would be forced to hike interest rates to 7.5%, more than four times the current level.A few months ago, as the country was optimistically looking forward to emerging stronger from the Pandemic and reaping the benefits of Brexit, such a Doomsday scenario was no more than the stuff of economist’s nightmares. However, with industrial action spreading from criminal court Barristers to dockworkers, there seems little that the Government can do to halt the spiral into higher wage demand that will fuel inflation even more.With the central bank already acknowledging that there is a recession on the way, all that can be done is to limit its effect.
When Boris Johnson announced his Resignation on July 5th, he refused to step down immediately and hand over control to his deputy Dominic Raab, citing the need for a seamless transition to his successor and the serious issues that the country is facing.However, since Johnson’s resignation the country has appeared to be rudderless with the Prime Minister taking not one but two holidays during this time as the two candidates to replace him spend time promising tax cuts and additional support payments to woo voters. By the time Johnson’s successor is voted in and been able to create a new Cabinet, the third quarter of the year will be at an end, and the country will in all probability be in recession.With inflation now above 10% and looking increasingly likely to top Andrew Bailey’s estimate of 13%, urgent action is needed to provide support to the lowest paid to avert the rising level of industrial action that is not only already taking place but also further strikes through the public sector.The country’s largest container port at Felixstowe has been hit by a strike which started on Friday, and this will add to the continuing issues with supply chains that have only just returned to normal following the Pandemic.
Following this week’s publication of inflation data for July, there is a view growing among analysts that the Bank of England may be forced to raise interest rates to a level above 3% to bring rising prices back under control. It is expected that at its next meeting, the Central bank will add another fifty basis points to bring the base rate to 2.25%, with another two further fifty basis point hikes to follow.Such a move will certainly contribute to a recession which Governor Andrew Bailey has predicted will arrive in the fourth quarter and could last through the whole of 2023.If inflation can be brought under control, the bank may be able to begin to lower rates to provide a degree of support for the economy by the third quarter of next year.With the Conservative party leadership contest to be completed in a little over two weeks, the current underdog, Rishi Sunak, who has trailed in the polls since the race was reduced to two contenders, still believes he can become Prime Minister on September 5th.
Increases in the cost of several staple foodstuffs more than offset the fall in the price of petrol, as the UK recorded a headline rate of inflation of 10.1% in July.The country now has the highest rate of inflation in the G7. The core rate of inflation, which records price rises with volatile items such as food and energy stripped out also rose, from 5.8% to 6.2%.With the price of petrol now averaging around 168p per litre, having reached 200p earlier in the year, the cost of the shortages created by the ongoing conflict in Ukraine hit home.As the outlook for the economy worsens with a consequent downwards revision to tax receipts, the Institute for Fiscal Studies warned that any permanent tax cuts that have been promised by Liz Truss should she win the Conservative Leadership Ballot could cause serious harm to the public purse.Truss’ rival in the race, former Chancellor, has campaigned on the back of a more prudent attitude to taxation. Having raised the level of National Insurance in his last budget as Chancellor, Sunak believes that the inflationary effect of a cut in taxes should wait until price rises have been brought under control by the Bank of England.
The opposition Labour Party has stolen a march on the Government by announcing that were it to be in power, it would freeze the energy cap for six months. While the two candidates to replace Boris Johnson as Prime Minister have spoken in very general terms about plans to help consumers as the cost-of-living crisis escalates, this is the first solid and practical solution that has been suggested. The opposition leader, Sir Keir Starmer, has suggested that the freezing of the cap could be funded by a windfall tax on energy firms who have made record profits as prices have risen. Now, whoever wins the Conservative Party leadership election is facing a dilemma, since if they adopt such a scheme, they will face accusations of not having sufficient imagination to produce such a proposal. This week will see both employment data and the inflation report for July published.
As expected, the UK economy contracted in the period between April and June, but by less than had been expected. GDP was 0.1% lower than in the previous quarter, leading to a year-on-year increase of 2.9% following an 8.9% rise previously. Data for professionals’ services showed a significant increase, with both the accountancy and legal sectors reporting increases in turnover as revenues swelled. Since Andrew Bailey confirmed the Bank of England’s view that the economy was going to head into a technical recession, it will not be a surprise if the figures for the current quarter are worse.With the Bank of England unlikely to follow the Federal Reserve in denying that the economy is contracting, it will begin to face pressure to add support, particularly with headline inflation expected to fall this month given the current price of petrol.
The Bank of England’s Monetary Policy Committee has been meeting and will announce its decision on short term interest rates at lunchtime today. It is probable, but by no means certain, that the decision will be to hike by fifty basis points.Almost as important as the decision on interest rates will be the release of the Bank’s projections for the economy. This will provide advance guidance to the markets about the Bank’s expectations for growth and inflation over the rest of the third quarter. The most recent monetary policy summary predicted that inflation could reach 11%, but there is a real possibility that that will be revised upwards, possibly to as high as 15%.Were that to be the case, the Bank would be certain to continue to raise rates.That does seem to be an extreme view, particularly with the price of petrol having fallen recently. However, with Ofgem, the energy regulator, stating recently that the estimates for the rise in the energy cap in October are likely to be revised upwards, a further significant rise in inflation should not be discounted.
There are growing signs that the country is heading for a recession. Insolvencies are growing at a rate not seen since 2009, while output in the SME sector has fallen by 20%.SME businesses are disproportionately affected by the fuel crisis, so this may be a temporary issue since forecourt petrol prices are beginning to fall.There are the major supermarket chains driving a price war, and this should see headline inflation moderate. This will add another layer to the Bank of England’s interest rate decision, which will be announced at lunchtime tomorrow.Andrew Bailey and his colleagues are split about whether a further 50 basis points is justified. So far in the current cycle, the Bank has been reactive to data and over the past month inflation has had less of an impact while globally, slowing economies have been making headlines.The financial markets are still pricing in 50 basis points, but it is likely that Bailey will make this another dovish hike and provide advance guidance regarding the bank’s possible reaction to a slowing economy.
The UK has long been a magnet for foreign investment. Following Brexit and the Pandemic, funds are beginning to flow into the country again. Several banks are looking to reinstate real estate investment trusts that had become dormant when investors shied away due to Brexit uncertainty.London is seeing renewed interest. Birmingham, which is undergoing regeneration as the host of the Commonwealth Games is in the spotlight. Manchester is also being seen as a significant investment opportunity.As the race to be the new Prime Minister continues, Liz Truss continues to attract the support of former candidates. Nadeem Zahawi and Penny Morduant have now come off the fence and pledged their support for Truss.A cynic may believe that they have now seen which way the wind is blowing and see their path to Cabinet post as being more certain under Truss.Although recent forums have been undecided about whether the Bank of England should hike rates this week, it remains likely that the Monetary Policy Committee will raise short-term interest rates by fifty basis points to 1.75%.
Falling headline inflation sees the forecourt price of fuel fall by 10% in some parts of the country. The Bank of England may reconsider its plans to hike rates by fifty basis points at its meeting this week.The fall in petrol prices has gone unheralded, as the gaze of market commentators was fixed upon the prospect of a recession. Surveys show there is little likelihood of any growth in the economy in the next three months. If the Bank of England presses on with its plan to hike by fifty basis points, then a recession becomes even more probable.The MPC has become more hawkish in general in recent weeks, with Catherine Mann taking up the campaign for tighter monetary policy as her colleague Michael Saunders leaves the Committee. He has fought a lone battle for interest rates to rise faster and more aggressively ever since inflation began to rise.In hindsight, Saunders’ campaign may have been justified. If the Bank had been more aggressive when it started to hike rates last December, it might have begun to moderate or even pause hikes by now, providing a degree of support to the economy.
One of the cornerstones of the British economy is set to suffer a significant downturn. The housing market has so far been fairly immune to rising interest rates, but that is about to change as the effect of rising interest rates as well as the cost-of-living crisis combine to make homeowners think again about selling up and moving on.Lloyds Bank, Britain's largest mortgage lender, has reported that its mortgage book rose by just 1% in the three months to June. The Bank’s Chief Executive reported that if it hadn’t been for clients rushing to lock-in lower rates by mortgaging existing properties, activity would have fallen significantly.Despite there having been no major data releases this week, sentiment around the UK economy and its ability to avoid a recession. With the Bank of England meeting next week to decide on a further hike in interest rates, Andrew Bailey has signalled that a further fifty-point increase is likely.Although it began to hike rates last December, the Central bank has fallen behind the U.S. where the FOMC has adopted a far more aggressive set of policies.The drip feed of monthly hikes of twenty-five basis points were intended to tighten monetary policy while also allowing the economy to maintain an, albeit lower, level of activity.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The contest to be the next Prime Minister continues to move further away from policy and looks like being fought more on personality. It is unclear whether either candidate is comfortable with the way in which their teams are portraying them, but they are allowing the mudslinging to continue.With Rishi Sunak continuing to trail Liz Truss in polls of Conservative Party members, the best they were able to come up with yesterday was to label her economic programme as fantasy.It is true that Truss’s promise of tax cuts and where the funding for them will come from does appear to be based some distance from reality, but it would be more beneficial to attack the policy rather than the person.Truss’s plans to channel her inner Thatcher and face striking unions head on has drawn stinging criticism of deliberately creating confrontation with rail workers leaders and the threat of General Strike. There was another one-day strike by rail workers yesterday and a vote that action will continue for as long as it takes. Even though the rail network has been privatized, the Government is still pulling the strings with funding and support linked to not just performance but control of expenditure.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
It now seems certain that the Bank of England will raise short term interest rates by fifty basis points when its Monetary Policy Committee meets next week.The Bank’s Governor, Andrew Bailey, has spoken recently of prioritizing the Bank's reaction to the various threats to the economy.In keeping with other G7 Central Banks, the Bank of England sees inflation, whatever its cause, as being the most pressing issue. Rising energy prices continue to be a significant contributor to the cost-of-living crisis, with the price cap on gas prices set to be increased again in the autumn.It has been a feature of the cost-of-living crisis that is sweeping the nation that consumers are looking to the Government for assistance, which has traditionally not been the case.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Bank of England’s Chief Economist Huw Pill summed up the dilemma facing not just the Bank of England, but other G7 Central Banks as well. He warned of larger interest rate hikes being needed but is also concerned about a slowing economy.His message was that high and rising inflation needs to be tackled by tighter monetary policy, but that will see the economy produce no increase in growth. He agrees with the Bank’s Governor that bringing inflation down is and indeed should be the most important focus of its current policy.An increase in the size of hike at the next meeting, compared to those that have come before since the Bank started tightening policy last December, is certain for next week’s MPC meeting.Andrew Bailey has been providing advance guidance that a fifty-point hike is on the cards, with core inflation continuing to rise as the headline begins to level off.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The six-week battle to be the new Prime minister has now begun, with both Liz Truss and Rishi Sunak traversing the country meeting as many Conservative Party members as possible.It is as likely that this election will be decided on personality as it will on policy.Truss is the more traditionally Conservative candidate, while Sunak will lean heavily on his record as Chancellor through one of the most difficult economic climates in a generation.Former Johnson adviser Dominic Cummings took a swipe at Truss on Friday, taking to Twitter to label her a truly useless remainer, who has done nothing in Government other than gabble with hacks.Output in the UK services sector which makes up around 80% of GDP fell in July, but managed to remain in expansion. UK services PMI came in at 53.3 which was above most analysts’ expectations. Manufacturing also managed to stay above the 50 level which separates contraction and expansion, coming in at 52.2.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
It is a rather typical outcome of election campaigns in the UK that the candidates spend more time trying to discredit their opponent’s plans than they do promoting their own.The race to be the new leader of the Conservative Party and therefore Prime Minister of the UK is beginning to take an all too familiar tone.Both Rishi Sunak and Liz Truss plan to cut taxes. This is likely to be a vote winner, but it is the timing of the cuts that is the bone of contention.Truss is of the opinion that there is room for tax cuts to be initiated immediately. She commented yesterday that the policies of the Johnson Cabinet, of which she was a member and her opponent was Chancellor, held back economic growth in the country and contributed to the current slowdown in output and activity.Her remarks have been ridiculed by Sunak supporters who believe that if Truss was the principled politician she claims to be, she should have resigned rather than accept policies which were against her expectations.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The battle to become the Prime Minister has entered its long final straight as Rishi Sunak and Liz Truss have become the last two candidates standing.Both believe that they have a strong case with Sunak pointing to his record as Chancellor of the exchequer, his first Cabinet post to prove his credentials, while Truss believes that she has the strong support of the right wing of the Conservative Party.The newspapers are building a degree of antipathy between the two into their rivalry, mostly driven by their performance at the second of the televised debates and their apparent refusal to take part in a third, apparently each fearing the other’s ability to draw them into a dogfight.Current Prime Minister Boris Johnson attended his final Prime Minister’s questions in Parliament yesterday as he returned to the persona he had when he was first voted into the role.Members of the Conservative Party will now be balloted and the decision on a winner will be announced on September 5th.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Bank of England Governor Andrew Bailey, speaking at a dinner on Monday evening, gave the clearest indication yet of the Bank’s intention to hike interest rates by fifty basis points at its next meeting, which will take place on August 4th.This will be the biggest move in twenty-seven years, but Bailey is determined to show how serious he is in trying to bring inflation back to the Government’s two percent target.He believes that it is the absolute priority to bring it under control, and that this is the largest challenge since the Bank was granted independence by then Chancellor of the Exchequer, Gordon Brown.The bank is facing the same dilemma as the ECB and to a certain extent the FOMC. While raising rates will quell demand, which is the traditional manner in which Inflation is tackled, it is only in the supply side of the economy that headline inflation is being mostly seen.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Michael Saunders' parting shot as he leaves his position on the Monetary Policy Committee has been to call for interest rates to be hikes to reach 2% within a year.Saunders was calling for interest rates to rise long before his colleagues agreed with him and he has constantly voted for the size of hikes to be increased.Saunders believes that rates still have some way to go to reach the neutral point where they are neither stimulating or restricting the economy.The current wave of inflation which has become a global phenomenon over the course of 2022 is based upon demand for energy as the Chinese machine returns to full output and the war in Ukraine that has had a significant effect on the price of several foodstuffs.With the oil price beginning to show signs of levelling off, there is a chance that inflation itself will also begin to level off, although it is probably too soon for tomorrow's release of data to do anything but show a further increase in the headline. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Surging inflation and rising interest rates didn’t manage to completely douse economic growth as the economy grew by 0.5% in May, compared to a 0.3% contraction a month earlier.This unexpected improvement may be explained as an anomaly, but the reason for it has so far not been explained.With the Government closing, for all intents and purposes, a month early to allow the race for the Leadership of the Conservative Party to take place, Westminster is doing nothing than cheering on its Candidate on one side or promising that no matter who is elected, they will be slaughtered at the next General Election by the Labour Party.Several candidates have been pressured over how they intend to fund the rather extravagant tax cuts they are proposing. The only one without that pressure is current favourite, Rishi Sunak.The former chancellor has no need to fund proposed tax cuts as he is not promising any…. yet.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
It now seems likely that the prediction of Rishi Sunak plus one other contesting the final ballot to be Conservative Party Leader will come to fruition next week.A third ballot will take place on Monday and it is probable that the second candidate will be between Foreign Secretary Liz Truss and the Minister of Trade, Penny Morduant.The level of backbiting and innuendo between candidates has, so far, been fairly low, but as the prize comes closer, so the fierceness of the competition will rise.Truss spoke yesterday of her determination to ensure that the economy is back on track, by the time of the next election. She injected a degree of realism by accepting that things will get worse before they get better with this winter expected to be especially tough as the cap on fuel prices will be adjusted upwards again in the Autumn, bringing the average family’s energy bill close to £3,500 per annum.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The first vote in the process to elect a new leader of the Conservative took place yesterday, and it meant the end of the road for the campaigns of current Chancellor of the Exchequer, Nadhim Zahawi, and the runner to Boris Johnson in 2019, Jeremy Hunt.Hunt immediately backed yesterday’s winner Rishi Sunak while Zahawi said he wanted his supporters to make up their own minds.Sunak polled the most votes, 88. He was followed by the three female candidates, with Penny Morduant second.Sunak’s support within the Parliamentary Party looks to be sufficiently solid, for him to be one of the two candidates who will proceed to the vote by Party members.The other spot in the national vote looks to w be a straight fight between Morduant and Foreign Secretary Liz Truss.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The race to be Conservative Party Leader has got under way in earnest, with eight candidates passing the first test of gaining the support of at least twenty Members of Parliament.The two most significant fallers at the first hurdle were Transport Secretary Grant Schapps and one of the two Cabinet Ministers who are seen as the instigators of Boris Johnson’s position becoming untenable, Sajid Javid. The leaders in the race are former Chancellor, Rishi Sunak, and current Foreign Secretary Liz Truss. Schapps and current Deputy Prime Minister Dominic Raab have declared their support for Sunak while Leader of the House, Jacob Rees-Mogg, favours Truss. The first vote will take place at 1.30pm today, candidates required to receive a minimum of thirty votes to be able to remain in the race, although the one placed last will be dropped. A similar vote will take place tomorrow, with a third, if necessary, taking place on Monday.The new Prime Minister will have a full slate of issues to deal with from day one when he or she takes over in September. Brexit and the Northern Ireland Protocol are still in need of clarity, while the cost-of-living crisis is unlikely to have abated, especially since the Chairman of Ofwat the electricity regulator spoke recently of the fact that the expected increase of £850 that was expected in the energy cap in the Autumn is likely to be nearer £1,200.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The UK will have a new Prime Minister on September 5th. The rules of the contest to be the leader of the Conservative Party were revealed last evening. There will be two votes this week and a third if needed will take place next Monday. The deadline for the Parliamentary Party to select the final two Candidates is July 21st which coincides with the Parliamentary Summer recess and a vote of the wider membership will then take place, with the winner announced on 5th September.There are currently eleven candidates, with a twelfth, Home Secretary Priti Patel, having until later today to declare her candidacy.The major focus of the early hustings has been taxation with several candidates having announced hope they will lower the tax burden on both businesses and individuals.The exception to this is former Chancellor and current favourite to win the vote, Rishi Sunak. He has said that he is against an immediate tax cut until inflation is brought under control.The Bank of England Governor has been critical of the promises being made by leadership candidates, believing that the independence of the Central Bank is threatened by announcing tax cuts at any time other than a formally discussed budget at which the Bank’s input is requested. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The race to succeed Boris Johnson as Leader of the Conservative Party and Prime Minister will begin in earnest this week as the rules of the contest are set out by the backbench 1922 committee. At the last count, eleven MPs had thrown their hats in the ring. Former Chancellor of the Exchequer Rishi Sunak is the clear favourite to win the race, with today’s newspapers proclaiming that the poll of the last two standing will consist of Sunak and one of the other ten.One of the most significant debates is over taxation, with Sunak implying that those candidates promising tax are simply playing to the crowd, since the funding for such a policy will need to be found from somewhere.The opposition parties continue to criticize Boris Johnson for clinging to power by insisting that he remain in office until his replacement is elected. There have even been suggestions that a number of the replacements announced by Johnson, in the wake of last week’s mutiny, have been selected to make the new leader’s job more difficult.The economy continues to falter as inflation shows little sign of abating. Price rises, particularly in foodstuffs, have become so stark that shoppers notice many items increasing in price week by week.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Prime Minister Boris Johnson finally bowed to the wishes of many of his colleagues in Westminster and announced his resignation from the post.He said that he intends to stay on until a successor is confirmed, which could take until the Autumn.This decision has received further criticism from both sides of the House of Commons, with Opposition Leader Sir Keir Starmer threatening to call a vote of no confidence to ensure that Johnson leaves immediately.In the end, Johnson was forced to admit that his position had become untenable, something that had become obvious to his Cabinet colleagues days ago and was perfectly illustrated by sixty of them feeling obliged to resign their own positions.Johnson swiftly reshuffled his Cabinet replacing those who have recently departed. Nominations for the role leader have already begun with candidates needing to have the support of eight MPs in order to stand."Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Prime Minister Boris Johnson appears to be reaching the end of the road as support for him to stay in the role collapses.Previously loyal supporters like Transport Secretary Grant Shapps and Home Secretary Priti Patel joined many of their colleagues in calling for him to step down. Even the new Chancellor of the Exchequer, Nadhim Zahawi, only appointed twenty-four hours earlier, has agreed that it is time for Johnson to leave.The 1922 Committee, which decides the rules under which the Parliamentary Conservative Members act, has hinted that at its next meeting it may consider changing its rules to allow for more than one vote of confidence a year to take place as is the case currently.Johnson remains defiant, commenting that he will still be leader at the time of the next General Election, a claim which now appears ludicrous given his crumbling support.Michael Gove, the levelling up minister, was dismissed from his post yesterday for disloyalty. Gove was one of the most senior members of the cabinet, and his departure will further weaken Johnson’s position.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
There were comments made from both sides of the political spectrum that support the UK’s departure from the EU and confirm that neither future Conservative or Labour Governments would seek to rejoin.The leader of the opposition, Sir Keir Starmer, spoke of the need for the UK to move on from the arguments of the past, that the country would remain outside the single market, customs union and the free movement rules.Starmer received stinging criticism from members of his own Party, who favour an attempt by any future Labour Government to rejoin. While there is little doubt that Brexit has contributed to the current economic slowdown, it is not the dominant feature. The inability of supply to keep up with demand comes from further afield than Brussels.Jacob Rees-Mogg, the Brexit Opportunities Minister, spoke on radio yesterday of the missed opportunities for the country to benefit from its departure from the European Union. It is obvious that dealing with the Pandemic had to receive top priority as the Government dealt with the effect of Covid-19.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
While the Fed acknowledges that Jerome Powell may have been a little flippant about rising inflation, the FOMC have actually taken significant steps to rectify his error.This in contrast to the Bank of England, which has agreed that it underestimated the rate at which inflation would accelerate, but has made no significant effort to rectify its error.To many observers, the MPC appear to remain unsure about how it can tighten monetary policy without tipping the economy into recession.Its series of dovish hikes have had no significant effect on the rise in inflation and while it is clear that the supply side of the economy cannot be dealt with by hikes in interest rates, the demand side certainly can. However, the drip drip of twenty-five basis points coupled with dire warnings from the Bank’s Chief Economist are unlikely to have the desired effect. This is particularly true when Huw Pill holds his hands up to being the person who didn’t see inflation rising as fast or as far, and he and his department told the MPC so.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The pace at which prices of essential foodstuffs are rising has reached unprecedented levels as demand continues to outstrip supply. Having emerged from the Pandemic, no one in authority had any idea just how seismic the effect on supply chains would be. It was obvious that during the Pandemic there would be severe difficulties, but there has been a perfect storm of events that have left the UK weak and open to a downturn that could see a bona fide recession that will see the Central Bank’s hands tied as inflation continues to rise.No one, outside a few Government departments, will have been aware of the incredible reliance that has grown on the supply of several staples produced by Ukraine, while Russia has been slowly building a reliance on its energy supplies almost under the radar. There have been concerns raised about how Russia has been playing the long game, building its influence across Europe. The build-up of troops along its border with Ukraine was dismissed as little more than a show of strength, until it advanced into its former satellite a little over four months ago.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The rather unedifying sight of Criminal Barristers taking strike action in support of a pay-claim illustrates perfectly the pace at which inflation has risen and how wages have been left behind.It is becoming clearer every day that the UK is becoming stuck in a vicious circle of rising inflation being chased by rising wages. Once this becomes embedded in a society, it becomes difficult, almost impossible to turn around.Every day recently, newspaper headlines have shouted about another sector of the economy taking action to try to not only catch up, but try to get ahead of raging inflation.There is an entire generation that has never experienced prices rising at such a rate. Even those who lived through the 1970s are surprised how visible rising prices in shops are. Everyday items, bought regularly, are seeing prices increase at every visit to the supermarket.The most significant difference which was touched upon yesterday is the fact that the labour market is tight and getting tighter. Having said that, while Brexit is not the most significant contributor to the slowing economy, it clearly is having an effect on the labour market.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
It has become very convenient for Brexiteers, now renamed Rejoiners, to blame the current slowdown in the economy on Brexit.That position doesn’t consider that first the EU economy is suffering at least as much as the UK currently and, in any event, two of the most serious issues, energy shortages and supply chain issues that include transport of foodstuffs from Ukraine have no basis in Brexit.Furthermore, it is only a matter of time before the European Union begins to pressure EU members who are not Eurozone members to either join or leave.Catherine Mann, a member of the Bank of England’s Monetary Policy Committee, decided to use a speech she made last week. To broach the subject of inflation becoming embedded in the economy.With Railway workers striking to support wage demands and other industries also considering industrial action, Mann may be right that inflation fuelling wage increases are set to be a significant factor in the Bank’s considerations going forward.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
It is said that one of the reasons that Boris Johnson was able to cling onto power following a recent vote of confidence was the fact that MPs believed he had a golden touch when fighting elections.That appears to have now deserted him as well, as the Government lost the two by-elections which were held yesterday.The first to declare was Wakefield in Yorkshire, where the seat was won back by the opposition Labour Party, who lost it in the general Election. While this defeat will have stung, it is the kind of result that happens in mid-Parliament and wouldn’t normally have caused too much of a stir given that the turnout was just 39%.The far more significant result was the Liberal democrat victory in Tiverton and Honiton in Devon. Turning over a 24k majority to lose by a little over six thousand votes will send shockwaves through Westminster. The Liberal Democrats have now taken three seats from the Government in the past six months.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Data published yesterday confirmed that headline inflation in the UK continues to rise, but the rate of increase may be slowing. The consumer price index rose by 9.1% year-on-year in May, following a rise of 9% in April.In her speech earlier this week MPC member Catherine Mann argued that every one percent rise in U.S. interest rates will see the pound devalued by 4.5% over a two-year period, and add 0.5% to UK inflation.Given that the Federal Reserve is committed to continuing to hike rates in ever larger increments, the Bank may need to keep pace unless it decides that any support for the pound would be futile given the still painful memories of 1992.In what looks like becoming an ongoing discussion, the Bank of England’s Chief Economist disputed Mann’s claim, commenting that raising interest rates at a faster rate wouldn’t help Sterling. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Yesterday saw the largest strike take place in the UK since the 1970s. Boris Johnson, who is a great admirer of Margaret Thatcher and her policies, will get the chance over the next few weeks or possibly months to emulate her as the country looks like it could easily erupt into a class war of industrial action.Rail workers have agreed to return to talks today as the first of three days of official action took place. The strike brought the country to a virtual standstill and the public face further disruption when the second and third days of action take place tomorrow and Saturday.Strikes by rail workers may be the thin end of the wedge for industrial action, with rumblings coming from teachers, while the health unions are also considering a vote on strike action.When the current Government was elected two and a half years ago, it seemed to have policies that could unite the country, as it promised to level up the geographical and social landscape to make the country a fairer place to live. In contrast to its promises, the UK is now more divided than it has been since the miners strikes of the early 1980s. From the disregard for the rules illustrated by the partygate scandal, the Thatcherite policy of allowing the sale of council houses, and the deportation of illegal immigrants to Rwanda, the Government is in danger of becoming totally detached and wasting the opportunity it was given by achieving an eighty-plus majority.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Bank of England has admitted that it got its call on inflation woefully wrong at the turn of the year and should have reacted faster in tightening monetary policy as the country began to emerge from the Pandemic.It was natural to assume that a spike in inflation would happen as demand hugely outstripped supply, but it was expected that this would level out as supply chains became untangled.Catherine Mann, one of the independent members of the Monetary Policy Committee, spoke yesterday of her fear that inflation is becoming embedded in the economy as rising inflation is causing wage claims to increase, which in turn creates further price increases as real incomes deteriorate.Mann is particularly concerned about the effect on Sterling should the Bank fail to keep pace with the rate increases that are taking place in other G7 economies. Were the currency to come under pressure, that would add another factor to rising inflation.In order to avoid a rise in what she terms, domestic inflation, Mann favours a fifty basis-point increase in short term interest rates at the next MPC meeting.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Following last week’s hike in interest rates, this week we will see the first evidence if the series of hikes is having any effect on inflation.In May, headline inflation rose to 9%, and it is expected that a small increase to between 9.1% and 9.3% will have been seen in June. The wholesale price of fuel has moderated, and this has only just started funnelling through into forecourt prices. The Bank of England has been reticent in providing any idea about how quickly they expect their tightening of monetary policy to begin to have an effect. The constant drip feed of hikes contrasts with both the FOMC which is using a method of far larger hikes and also possibly the ECB which may still hike by fifty basis points next month.Andrew Bailey, the bank’s Governor, when pressed by journalists in his press conference following last week’s announcement, commented that he believes that inflation could reach 11%.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Bank of England duly complied with the view of just about every commentator, analyst and economist in the financial market yesterday by hiking interest rates by 0.25% to 1.25%. This is the highest level rates have been since 2008.Those with floating mortgages will see their repayments rise straight away while those on a fixed rate/fixed term will enjoy the luxury of a lower rate for a little longer.Andrew Bailey, the Bank’s Governor, commented in his post decision press conference that inflation could reach 11% this year. That set off a fury in the press, which believes every word he says.While the situation in the country is likely to get worse before it gets better, there was a little good news. The wholesale price of both petrol and diesel fell by two pence, although this hasn’t yet been reflected in the pump price.No one is predicting the end of fuel price inflation, but it is the first move in the right direction for quite some time.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The expected interest rate hike of twenty-five basis that will be announced by the Bank of England Governor later this morning, while being something of a disappointment to those who see the economy falling into recession in the coming months, will still leave interest rates at a supportive level.The neutral rate in the UK is between 1.5% and 2.5%. That is double the level that the base rate will be at, at the end of the day.Hawkish MPC member Michael Saunders, who will leave his role as an external member of the MPC in September, commented recently that he believes the neutral rate to be a little over 2%.Given that today’s hike will take interest rates to their highest level in fourteen years, and the economy has changed immeasurably since rates were averaging around 5%, any estimate of the neutral rate is little more than a guess. It is difficult, and unprovable at what point interest rates stop stimulating growth and start to restrain demand.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
This week’s Bank of England will hike interest rates, by twenty-five basis points, despite data being released yesterday that showed that the economy has officially begun to contract. GDP contracted by 0.3% in April, while both manufacturing and industrial output also fell.While it is too early to say that the economy is in free fall, there is little doubt now that Q3 may mark the beginning of a recession. Given the headwinds that the country still faces, it is possible that the slowdown in output could last until at least the end of the year.There was a drag on economic activity created by the phasing out of Coronavirus vaccination programmes, but even if they still existed, GDP would only have been 0.1%. This shows that the real economy is slowing at a considerable rate.With the Bank of England still committed to the fight to reduce inflation and the country seeing fuel prices rise every day, they will be faced with the unenviable task of throwing petrol on the fire.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
There have been two beneficiaries of the rise in fuel prices so far this year.The first was the fuel companies, but they have received a demand for windfall tax from the Treasury. The other is the Government itself. Last November, when Rishi Sunak delivered his budget to parliament, his team of economists provided estimates on what the average price of various forms of energy would be and based expected tax income upon those estimates.Since there is no expectation that any of the Treasury’s team would have predicted the pace, or eventual top, of the rise in the forecourt price of petrol and diesel. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Prime Minister Boris Johnson has emerged from yet another near-catastrophe wounded but not yet mortally and has regurgitated a former vote winning policy in an effort to relight voter confidence in his Government.Having survived a vote of confidence in which 148 of his MPs polled in favour of him being removed from office, it now seems to be a long way back.As the economy begins to slow into what looks like stagnation, Johnson faces a major job to repair the damage of Brexit and the Pandemic while also trying to repair his own scandal hit reputation.He will be unsure of the support of his senior colleagues who may see him as a useful stopgap while the economy goes through a cost of living crisis that may well worsen before any recovery begins.There is an air of MPs biding their time, allowing Johnson even more rope to hang himself, in the knowledge that he will surely oblige.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
A further outcome of the Bank of England’s current policy to raise interest rates to try to bring inflation back under control has been its effect on the housing market. There is an entire generation of homeowners who have never had to contend with their mortgage repayments increasing as is being seen currently.With inflation unlikely to begin to fall in the short term and the current cost of living crisis, households are being forced to cut back in several areas. The knock-on effect of this is a fall in levels of activity on the High Street, which, in turn, drives retail sales lower.This then ripples through the economy and eventually contributes to a slowdown. The one difference from the current situation is that a slowing economy generally leads to a fall in inflation as activity drops but that is not the case currently, with several factors combining to push prices higher.Energy remains the major contributor to inflation in the UK. The forecourt price of a litre of unleaded petrol is now approaching two pounds. This means that it now casts almost £100 to fill the tank of a regular family car.When Chancellor of the Exchequer, Rishi Sunak, was pondering a windfall tax of energy companies recently, one of the main downsides of such a policy was economists’ belief that every tax eventually becomes a burden for the individual. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Boris Johnson, having survived a vote of confidence in which 148 of his Party’s MPs voted to oust him from office, has promised to refocus on getting the job done.One of the pillars of the Conservative victory at the General election was the commitment to levelling up. This was the main reason why the red wall, the area of traditional socialist voters from the formerly industrial wasteland in the North of England where Johnson made massive inroads based on the promise that investment would from south to north providing new infrastructure, transport links, and most importantly, employment.Now, having gone through Brexit and the Pandemic, the Treasury is struggling to find the funds to make good on those promises. While reasons for the Government being behind on several of its pledges are easy to find, the electorate is prone to ignoring excuses when it comes to their vote in an election and ask what did changing my vote actually done for me?There is an idealistic value to switching a vote from Labour to Conservative that harks back to the Thatcher years. The parents of those young voters who paved the way for Jonson to return to Downing Street would have been horrified that their children voted for the bosses Party.This change may be short-lived unless Johnson can conjure up a miracle before 23rd January 2025. This Government has been characterised by scandal when it had the size of majority that only comes once in a generation. Instead of using that for good, Senior Members of the Government, Johnson included, have taken advantage of the inability of the opposition to affect policy decisions. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Prime Minister survived a vote of no confidence last evening, as his critics were unable to garner sufficient support to oust him from office. Boris Johnson will know that his critics have gone away, and although he cannot now be challenged again for a year, his performance will remain under intense scrutiny.That having been said, for all his faults, Johnson is considered to be the Conservative’s trump card in elections. It would now be considered foolhardy for rebel MPs to challenge him again, unless there is another scandal of the magnitude of Partygate between now and this time next year, given the fact that the next General election will be less than 18 months away.The Chancellor, Rishi Sunak, testified before the Treasury Select Committee yesterday. Sunak remains an important figure in any leadership debate. His popularity soared when he arranged payments to those being furloughed during the Pandemic, but he was then heavily criticized for raising taxes in his budget last November, and was considered to be slow in arranging help for the lowest paid as the cost-of-living crisis began to bite.Having had a meteoric rise in stature within the Party, Sunak would be considered favourite were there to be a leadership ballot.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The UK economy looks likely to slowly slip between the waves, as multiple headwinds combine to contribute to a recession which may arrive by the end of the next quarter.Activity, particularly in the services sector, is expected to drop into contraction, while the actions of the Bank of England at its next meeting, which takes place next week, could be the final straw. Any delay in hiking rates again, would mean that Andrew Bailey would probably be accused of ignoring his duty.Questions are being asked about the ability of the Prime Minister to remain in power, as rebels within his own party appear to be lining up to challenge.The Chairman of the Parliamentary Conservative Party will need to receive 54 letters or emails from Government MPs demanding a vote of confidence, in order for such a ballot to take place. in order to force a vote of confidence.Battle lines are already being drawn, with rebel MPs calling on Boris Johnson to resign to avoid the ignominy both personally and for the Government of their leader being forced from power.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Bank of England is facing mounting criticism over its handling of the economy since the country emerged from the Pandemic. Critics are pointing to the fact that the Bank’s Governor, Andrew Bailey, failed to recognize the warning signs of rising prices when he first had an opportunity to act last summer.While the Chancellor was praised over his actions in providing support for businesses and their workers, the Monetary Policy Committee became mired in its concerns over whether the nascent recovery would be blown off course, by a rate hike to nip rising prices in the bud.It would, of course, have been a bold decision and one that no other G7 Central bank was prepared to take, particularly since the UK also had Brexit to contend with. Nevertheless, the reason that the MPC was created was to provide as wide a range of views on the state of the economy as possible and to act in a manner that reduced the burden on a single person. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
It is considered likely that the Government will need to provide a second round of support, as the cost-of-living crisis is expected to continue well into 2023.A survey conducted by Citibank has shown that the expectation is that inflation will remain above 6% for at least another year. With a rise in the energy cap confirmed for October, they could easily be another in early 2023 taking the average family’s bill above £3,500.The end of the low interest rate, low inflation era is well and truly over. Savers will face the dilemma of making sure that their investments are now able to keep up with inflation.Although interest rates will rise and stay at levels not seen for a considerable time, they will remain below the level of inflation.Overall, the housing market will also suffer with capital gains hard to come by as mortgage rates rise, encouraging homeowners to stay put and consider other options.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The UK economy is facing severe storm clouds over the next few months as the Government continues to bury its head in the sand over the weakening economy.The package of emergency measures introduced last week are a band over a bullet hole, and pay no heed to the additional increase in the energy cap that is set to be increased again in October.Currently, the fuel cap is set just short of £2,000 but is set to be increased to £2,800 in early Autumn.With a majority of close to 80 seats, Boris Johnson is bulletproof as long as he retains the support of his Parliamentary Party.There have been some rumours of his losing some of that support as two further MPs declined the whip, leaving them to vote as they wish. If 54 MPs out of 360 submit letters expressing that they have no confidence in the Prime Minister, a vote will be held, with a simple majority upholding the decision.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Government announced yesterday that it would introduce a package of measures to help with the cost-of-living crisis that is threatening to engulf the economy.Chancellor Rishi Sunak announced that every household will receive a £400 payment to contribute towards their energy bill. That is replacing the £200 payment that had already been announced. Furthermore, the £400 will not need to be repaid over five years as the £200 payment had been.Eight million of the lowest income families will receive a one-off payment of £650. Additionally, the disabled will receive a payment of £150. This means that the worst-off households will benefit from these measures to the tune of £1,200.Having seen the Chairman of Ofgem, the fuel and energy regulator, announce this week that the energy cap will rise by a further £800 in the Autumn, these measures have been welcomed by all sides of the House of Commons.The additional payments that will total approximately £15 billion will be partly funded by an additional levy on the profits of energy companies. That will amount to £5 billion. The Chancellor refused to call it a windfall tax when interviewed following the announcement. Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Boris Johnson looks likely to survive the publication of senior civil servant Sue Gray's report on parties in Downing Street, which, he says, vindicates him and shows that he didn’t lie to Parliament.There is a significant degree of ambiguity in the report, given that the leader of the opposition believes that the opposite is true and Johnson should resign to spare his Party any further embarrassment. It is likely that Johnson will sign off on plans to support the lowest paid families who are struggling as the cost of living continues to soar.The Chancellor is expected to act in the next few days to provide support with energy bills in particular as the announcement of a further hike in the domestic energy price cap in October will be confirmed. The cap was raised to just below £2,000 last month and will rise again to around £2,800 in October.The economy is slowly grinding to a halt following the release of data on activity in the economy earlier this week. Fears are returning that the economy could face a period of stagflation and may actually already be experiencing it as inflation has reached 9% while data is predicting the beginning of a contraction.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Output in the services sector of the UK economy collapsed this month, according to preliminary data from PMI surveys that was published yesterday. It fell from 58.9 last month to 51.8 in the current period. A reading of below 50 signals contraction, and it appears that output is heading in that direction, according to forward-looking indicators. Manufacturing output also fell, but by a less significant amount than services, which makes up around 80% of GDP.Companies' costs hit another all-time high as energy bills skyrocketed. There is no cap on commercial fuel bills, so they face the full impact of the current crisis.The survey points to the economy virtually grinding to a halt. The data will also have an effect on the Bank of England's plans to tighten monetary policy further after hikes at four consecutive meetings. Activity has slumped to a fifteen-month low, which was a direct result of the Covid lockdowns at the time.It now looks likely that the Government will introduce measures to help the poorest families cope with the rising cost of energy as the energy cap is set to rise to £2,800 a year in October from its current level just shy of £2,000.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Andrew Bailey admitted when speaking at a conference in Vienna yesterday that the cost-of-living crisis is driving the UK into recession.He agreed with a questioner who commented that the effect on real wages of rising inflation is bound to hit demand.However, he refused to believe that the fact that the Central bank failed to respond quickly enough initially drove demand higher and therefore stoked inflation. He went on to say that one of the primary discussions at the Monetary Policy Committee when agreeing the necessary level of tightening revolves around demand and balancing that with bringing inflation lower.A tight labour market is another issue that is stoking inflation with wages now a significant contributor to inflation, while post-Covid, the workforce has fallen by a little over 1%.External shocks are playing a significant part in the volatility of the economy. The rise in energy prices and the conflict in Ukraine have created headwinds that could still blow it off course.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
There is a growing sense of inevitability about the slowdown in the activity in the economy, despite the strength of the employment market.Data released last week showed that the claimant count fell by 56.9k, far more than analysts had expected. However, with inflation reaching 9% and leading indicators of output slowing, there are growing fears that a recession will be almost impossible to avoid.The cost-of-living crisis that had been feared since the Chancellor announced tax rises last November and rise in the cap on energy prices in response to the exponential rise in the cost of wholesale energy has exacerbated the issue.It displays a worrying lack of forward-thinking on the part of Rishi Sunak that he was unable to foresee the issues created by the country’s emergence for the Pandemic, although, clearly, he was taken by surprise by the ferocity of the conflict in Ukraine and the effect it has had ion supply chains of several foodstuffs.The Prime Minister has promised to use fiscal firepower to mitigate the cost-of-living crisis, He likened the support the lowest paid need to the support that was provided during the furloughs as lockdowns bit into wage packets.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Ever since the Bank of England began to hike interest rates, there has been an air of reluctance among MPC members. This is excluding Michael Saunders, who would see a reason to hike rates no matter how deep a recession the economy had fallen into.It will be interesting to see if any current members of the MPC or even Saunders’ replacement, Dr Swati Dhingra, will be a hawk, although given her credentials, that is unlikely.The term dovish hike appears to have been coined specially to describe how the Committee votes. Comments made before MPC meetings are often accompanied by figurative hand wringing, and once the announcement a shrug and a sense of inevitability appear to suffice.There is an expression that is attributed to the rail authorities in the UK, who, in winter, often refer to the wrong kind of snow which defeats their efforts to keep the service running punctually. To be fair to the Bank of England, what it is currently experiencing is the wrong kind of inflation.Currently, inflation is rising due to several factors, none of which are directly attributable to any activity in the UK economy.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Headline inflation rose, as predicted, to 9% in April, that is a full 2% higher than it was in March.The main culprits, over and above energy, were lamb, milk and sugar. Shortages are continuing to push prices higher. The Office for National Statistics saw 78 of the 80 prices it monitors rise in April. Many products that are traditionally produced domestically saw significant rises, even more than headline. Butter and milk soared by 11.8% and 13.2% respectively. However, the 54% increase in the energy price cap was by far the most significant increase.The rise in the cap together with wholesale gas and fuel costs means that energy contributes more than 33% of inflation.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The April employment report came in stronger than expected as the number of benefit claimants fell by close to 60k while wages rose although adjusted for inflation disposable incomes are being hit hard.As consumer prices continue to rise, the headline rate that will be released later this morning is expected to climb above 90%, businesses are being hit by slowing sales and increased costs.The unemployment rate is at its lowest since 1974 at 3.7%. Basic wages grew by 4.2% and when bonuses are included that figure jumps to 7%.The Government is certain to jump on this data briefly, concluding that jobs remain plentiful. However, today's inflation data will take the shine off economic performance. There are fewer people in work than before the Pandemic, and costs are rising appreciably faster than pay.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Despite the imminent departure of its most prominent hawk, the Bank of England will continue to honour the legacy of Michael Saunders by hiking rates even as the economy begins to slide into recession. Forecasts are beginning to point towards a significant recession lasting at least three quarters, with the first quarterly contraction to come either in the second or third quarter.Tomorrow’s inflation data will confirm the trajectory of price rises towards 10% as the headline rises above 9%.Data for employment will be released this morning with the claimant count expected to fall again but not by as much as has been seen recently.Less than 40k workers will have come off the register, while last month it was closer to 50k.While it is clear that the global economy is suffering post Coronavirus, with many countries in the grip of the virus, it is the UK that seems to be starting to suffer more than other G20 nations.Beyond Currency Market Commentary:Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The UK economy shrank by 0.1% in March as consumers slashed their spending as the price of energy rose. Even though the price cap had not yet been raised.
The data is seen as a prelude to a far bigger fall when data for April is released. Chancellor of the Exchequer Rishi Sunak confirmed that he has always said that he is ready to support households.
While not strictly true, this comment will be welcomed in households across the country that are struggling to pay their bills as the level of disposable income continues to fall. Sunak went on to say that he is not attracted to the idea of windfall taxes on energy companies, since it is generally accepted that all taxes eventually find their way back to the individual.
This was true of a similar tax on banking profits a few years ago which resulted in banks starting to charge fees on almost every service they provide, which reduced the net effectiveness of tax.
MPC member and Deputy Governor Dave Ramsden confirmed yesterday that the Bank of England will be forced to continue to hike rates as CPI risk remains to the upside.
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Pressure is building for the Government to act to provide support for those who are suffering from the recent rise in the cost of living.
Earlier this week, the Prime Minister agreed with recent comments from the Chancellor that help with soaring energy bills, in particular, is not possible given the amount of support that was provided in several ways during the Pandemic.
Opposition MPs as well as trade unions and consumer groups are calling for various schemes to be put in place to provide relief to those who, in many cases, are being faced with either warming their homes or putting food on the table for their children.
Boris Johnson has been countering the calls for tangible support by looking into the future and promising that his policies will provide the level of growth that will continue sustainable employment in skilled jobs, while his levelling up agenda remains the mainstay of Government policy.
Although last week’s local elections were extremely poor for the Government, particularly in cities, the message that was delivered during the General Election regarding moving activity to more deprived areas continues to receive support.
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Government spelled out its plans for the next year to Parliament yesterday as in the Queen’s absence, Prince Charles, her heir, set out the legislative agenda.
Boris Johnson then had to defend the programme from the inevitable criticism of the opposition parties.
Johnson freely admits that it is almost impossible for the Government to provide additional support to the families who are beginning to suffer from the continued cost of living crisis.
The emphasis of Parliamentary business for the next year will be on creating conditions for the country to be able to grow its way out of the coming slump which could turn into a recession.
Johnson and his Chancellor Rishi Sunak firmly believe that despite the current conditions with interest rates rising and energy bills soaring, that promoting growth which in turn will lead to the generation of jobs is the way to deal with the cost-of-living crisis.
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Michael Saunders has built a reputation during his time as a member of the Bank of England’s Monetary Policy Committee for being particularly hawkish about tackling inflation.
He was something of a lone voice last summer when he voiced his concern over rising inflation. At that time, he was considered to be akin to the boy who cried wolf given the expectations being promoted around growth.
He was the first to spot the effect that rising energy prices would have on inflation and how emergence from the pandemic may unbalance the economy.
Yesterday, Saunders spoke of his continued concerns over rising inflation and how he believes that the country is not prepared for it to become embedded in the national psyche, a phenomenon that has been absent for close to forty years.
Historically, Inflation is seen as a by-product of wage demands made by militant trade unionists prior to the Thatcher years but the reality of today’s economy is vastly different.
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Bank of England has admitted that there is a recession on the way in the UK as output continues to falter and inflation hits all areas of the economy.
Families are facing an uncertain time as they prepare for a further increase in the energy cap in the Autumn. The Central bank had been clinging to the hope that inflation could be continued, but Andrew Bailey’s acceptance that it could reach double figures in the coming months has introduced a sense of realism that had been sadly lacking recently.
With MPC members still using theoretical examples to explain their view on the economy, the need for action has not been more pressing since the 1970s.
Following the bank’s unanimous vote to hike rates to 1%, there were two warnings that sent a chill through financial markets.
They are better described as predictions rather than warnings. As recently as February, the bank’s economists were saying the inflation could reach 7% by the spring. Their prediction now is for prices to see a 10% increase year-on-year.
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Bank of England raised interest rates for the fourth consecutive time at its meeting which concluded yesterday.
The base rate now stands at one per cent, its highest level since 2009.
Bank of England Governor Andrew Bailey spoke in his post meeting press conference of his belief that inflation will reach a peak of 10% in the summer.
Bailey also warned of a major slowdown in the economy, made worse by the continued conflict in Ukraine and the prospect of further rises in the price of energy as the cap is raised further in the Autumn.
Bailey believes that there is a narrow path to be negotiated between high and rising inflation and a potential recession. Most observers will see that path narrowing almost by the day. The continued effect of lockdowns in China on supply chains is also a contributing factor to the slowing economy.
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Prime Minister Boris Johnson admitted yesterday that being able to help the population deal with the rise of the cost of living is beyond the capabilities of the Government.
Johnson refused to consider a windfall tax on energy companies who are making record profits as the cost of both petrol and gas go through the roof.
BP made a record profit of £6 billion in the first quarter. This has further stoked public indignation amid accusations of profiteering.
In an interview yesterday, Johnson went on to say that using public funds to try to offset the increase in energy prices would be impossible given the size and scale of the problem.
The cap on energy prices was raised on April 1st and already the level of those either already in arrears or being forced to make compromises in other areas of the household budget is already rising exponentially.
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
It is still almost certain that the Bank of England’s Monetary Policy Committee will agree to a fourth hike in the current cycle to curb the rise in inflation when it meets this week. This is despite further warnings of an approaching recession from the institute of Directors.
The cost-of-living crisis is leading to crumbling consumer confidence which, in turn, is hitting retail sales, while uncertainty caused by the conflict in Ukraine is affecting the availability of several products in stores.
The Institute's own measure of economic confidence plummeted from -4 to -36 in the most recent period. This is in measure of the IoD’s members investment intentions over the next year.
One of the major factors in the lead up to any recession in the UK since the 1970s has been a significant fall in the level of business investment as Directors switch from expansive to protective mode.
At this week’s meeting, it is likely that the Bank’s Governor Andrew Bailey will move to dampen market concerns over the level that rates will eventually reach.
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
One sector of the economy that has been particularly hard hit is vehicle production.
Although the days of huge plants supplying the country with all the vehicles it needed are long gone, it is nevertheless still an important sector.
The decimation of the UK vehicle industry tells the story of the rise of manufacturing capability in the far east and the inability of the developed world to compete.
While this is not limited to the UK, other countries like France and Italy do still have significant vehicle sectors, although they have seen the benefit of partnering up.
The global shortage of semiconductors has hit the spare parts manufacturers particularly hard, but car sales in the country, which includes imports as well as vehicles manufactured in the UK, fell by 14.3% to its lowest level since 1998.
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Bank of England’s Monetary policy committee is facing one of the most crucial meetings of its twenty-five-year history when it meets next week.
Accused of being too sanguine about rising inflation last summer when it was still working to protect the economy from the effect of the pandemic on monetary policy, the Central Bank is now stuck between a rock and a hard place.
Its current rate hike cycle, which is expected to see interest rates rise to 1% for the first time since February 2009 while not considered to be wrong given rising inflation, which could reach 10%, but may not be fit for purpose.
The Chancellor of the Exchequer, Rishi Sunak, is sure to be in contact with the Bank’s Governor Andrew Bailey, which may lead to questions about the Bank’s independence.
In Parliament, where there is a culture of blame, there has been very little discussion of the role of the Central Bank in the current issues the economy faces. The evidence still points to inflation continuing to rise, whale talk of a recession is still a little anecdotal.
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Bank of England Governor Andrew Bailey, when questioned about when the Bank would begin to wind down its support for the economy by divesting itself of Government Bonds that were purchased in order to add liquidity to the market during the Pandemic, answered that he imagined it would start when interest rates reached 1%.
Bailey has developed a habit of answering questions about long-term issues without giving them due consideration, and often pre-empting the opinions of his colleagues on the MPC.
While the opinion of the Governor carries significant weight, the Monetary Policy Committee comprises nine individuals and each vote carries the same weight.
Popular opinion suggests that the mood of the MPC is sufficiently hawkish for them to agree to a further rate hike at next week’s meeting, despite clear evidence of a slowing economy.
If the hike takes place, the rate will reach 1% and questions will be asked about the expected reduction in the size of the bank’s balance sheet.
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
There are fears that the UK economy is weakening at such a rate that it will be the first G7 economy to face stagflation.
The Governor of the Bank of England has already expressed his fears that hiking rates too quickly will slow the economy to such an extent that the Central bank will actually contribute to the overall malaise facing the economy, rather than achieving its goal of lowering inflation.
Rising inflation has led to a fall in retail sales as household budgets have been hard hit, causing consumers to be more considerate in making purchases. Online sales have been particularly badly hit, as the country’s emergence from the pandemic also contributes to a slowdown of shopping via the internet.
Despite the drop in retail sales, falling by 1.4% in February, they were still 2.2% above pre-Covid levels according to the Office for National Statistics.
The rising inflation crisis looks set to continue as factory gate prices were cited by manufacturers as a significant contributor to price rises according to flash data released yesterday.
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Data released on Friday illustrated the full potential of the slowdown in the UK economy. Retail sales fell by 1.9% month-on-month, following on from a 0.5% fall in February. This contributed to a year-on-year rise of just 0.9% versus market expectations of a rise of 3%.
Data for services output, the sector which makes up 80% of UK growth, was also released. This had been showing significant strength over the past few months, but in March, output fell back to 58.3 following an exceptionally strong read of 62.6 in February.
In most cases, analysts would have written off a single month’s poor data as a blip or an anomaly, but these figures fuelled concerns that the economy has seen the best of its recovery from the pandemic and the growing cost of living crisis is beginning to affect consumer confidence.
The fall in retail sales was particularly poignant, with fears growing that the raising of the energy cap is forcing people to choose more carefully how household budgets are spent.
The opposition have called for a Parliamentary debate on the crisis, which should include a supplementary budget.
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Central Bank meetings that will be held in the first week of May are each going to be crucial in their own right, but combined will set the tone for the financial markets for the rest of the year.
The Bank of England’s MPC appears to be unable to commit to a fight against inflation given the concerns being expressed by some of its members about contributing to a slowdown in the economy which eventually becomes a recession.
Catherine Mann, one of the newer members of the Committee, spoke yesterday of her concerns that rates will have to rise at an even faster rate than is currently being predicted, since the current pace of tightening may not dampen demand sufficiently to stop wage inflation becoming ingrained in the economy.
At the time of the first increase in interest rates in February, Mann voted for a fifty basis-point increase, believing that front loading the tightening of monetary policy would add to its effect. It turned out she was in the minority, and she fell back into line in March when he voted for the twenty-five-basis point increase that was eventually agreed.
The Bank of England, which has been independent of Government since 1997 when the Monetary policy committee was formed, faces both an opportunity and a challenge to cast off its conservatism and act to bring the economy back under control at its next meeting.
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The medium term fate for Sterling lies in the hands of the Bank of England and its plans to lower the level of inflation, which is currently running at 7%, up from 6.1% a month ago.
The Bank faces a tricky balancing act as it endeavours to tighten monetary policy to drive inflation lower, but remains aware that the economy remains fragile and could easily be tipped into recession if the tightening is too aggressive.
With energy prices having risen as the price cap was raised at the beginning of the month. Gas and electricity prices to domestic users have been the most significant contributor to inflation over the past month.
Yesterday, the six principal energy suppliers called upon the Government to provide some relief to consumers. They called for the energy cap to be abolished in favour of a simpler and fairer system in order to avoid a horrific situation next winter when it is expected that the cap will be raised again.
The Parliamentary Business, Energy and Industrial Committee was told that scrapping the current cap in favour of a more social arrangement would help the lower paid while the better off would pay more.
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
In a report released yesterday, the International Monetary Fund commented that it believes that the UK will have the slowest growth in the G7 in 2023.
The IMF projections are for the country to see more persistent inflation eroding households spending power, and higher interest rates will slow business investment.
The fund has cut its forecast for growth this year from 4.7% to 3.7% and for 2023, it sees whole year GDP at just 1.2%, down from 2.3% previously.
The shock from higher energy prices, while applicable to several countries, will be particularly damaging to the UK given the rate at which household bills are expected to rise.
The Prime Minister faced MPS yesterday for the first time since he was fined for breaking his own Government’s rules over social gatherings during lockdown.
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Chancellor of the Exchequer, Rishi Sunak, is facing mounting pressure to leave his post following a perfect storm of criticism of both his personal and professional behaviour.
Sunak was virtually unknown outside the Parliamentary Conservative Group when he was appointed to his role, his first ministerial post.
He quickly got to grips with providing support to those suffering from the lockdowns put in place to curb the advance of the Coronavirus Pandemic. He received several accolades about the measures he initiated and was credited with almost single-handedly saving the economy.
Now, as the country emerges from the pandemic, Sunak faces three major challenges, any of which could derail his meteoric rise to become favourite to replace the Prime Minister should he face no alternative but to leave his post.
A few weeks ago, rumours began to circulate regarding the tax status of his wife.
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The rise in the cost of living shows no sign of abating as headline inflation hit 7% in March. The cost of fuel was the major factor in the increase, while several foodstuffs linked to Ukraine and Russia also contributed.
Unlike the slowdown seen in the U.S., the rise in core inflation also shows no sign of slowing down.
The rise in the headline figure eclipsed the expectations of analysts, who predicted that the rate would reach 6.7%.
Following the significant increase in household energy bills, inflation is on track to top out at 9% according to global banks Goldman Sachs and J.P. Morgan. That high is expected to be reached either this month or next, although there will be another spike when the energy cap is adjusted again in October.
With the economy slowing as evidenced by data released earlier in the week, stagflation is now being seen as a genuine possibility.
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Unemployment rate in the UK fell again in March as 35k new jobs were created. However, that is where the good news ended, as real wages fell as inflation bit into pay packets. With wages rising by 4% year-on-year, real pay fell by 1% when adjusted for inflation.
While the latest data is encouraging, there were warnings that the end of the trend for more jobs being created could be coming to an end.
The Office for National Statistics warned that it was only the significant increase in bonus payments, mostly linked to the Pandemic, that has meant that wage increases remain relatively close to the level of inflation.
Although the Bank of England is expected to continue to hike rates by twenty-five basis points at each of its next three meetings, the fear is that it will prove too little too late and the country is going to be expected to live with a rate of inflation that is well above the Government's target for the rest of this year, the whole of 2023 and well into 2024.
This will be coupled by an economic slowdown over the rest of this year that could become a recession, although, were the economy to contract sufficiently to bring a recession, the Central bank would be expected to act.
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Industrial and manufacturing output in the UK slumped into negative territory as the headwinds facing the economy began to bite.
Industrial activity fell by -0.6% from 0.7% in February, while manufacturing fell to -0.4% from 0.9%. Year-on-year, industrial production halved to 1.6% from 3%, while manufacturing fell from 52.3% to 3.6%.
While these falls were anticipated and these sectors make up just 20% of total GDP, it is indicative of how the economy is slowing as the headwinds that have been forecast take effect. This sets the start of a trend that will accelerate when increases in the cost of energy and tax payment are factored in.
The data intensifies concerns about the cost-of-living squeeze. Overall, GDP rose by just 0.1% in February, versus market expectations of a 0.4% rise.
The NIESR estimate for GDP in the three months to March was 1%. This is in line with market expectations and illustrates how the economy is slowing even before the rise in the energy cap and the cost of fuel is factored in.
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Bank of England may be forced to pause its current rate hike cycle for fear of tipping the country’s economy into recession.
While it seems that inflation is still limited to the supply side, caused mainly by the remaining bottlenecks in supply chains caused by the Pandemic, so far it has not spilled over into the labour force.
The country is gripped by the fears that have been created by several factors created by an unprecedented fall in the standard of living.
A slowdown in activity is being predicted by nearly every economist and market commentator as the continued rise in inflation collides with the effect of the conflict in Ukraine.
February’s growth figures will be announced later today and it is unlikely that the strong GDP seen in January will be repeated.
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Huw Pill was named the Bank of England’s Chief Economist in September last year. After a significant absence from the bank’s front-line team for a couple of months, for reasons unknown. He returned yesterday to provide a veiled criticism of what had gone before.
In a speech, he commented that he believes that Quantitative Easing may not be the answer to bond market dysfunction.
It is interesting that in his previous life working at global investment bank Goldman Sachs, he never once suggested another policy option to his former colleagues at the bank.
In a clear case of being wise after the event, Pill justified his comments by observing the current level of inflation that his new masters are scrambling to bring down.
Pill, opening a conference of Sovereign Capital Markets Research, Pill didn’t offer any alternative course of action, although he did appear to say that he wouldn’t support any such action were the need to recur.
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Expectations for the economy to recover following the Pandemic remain low, but this won’t stop the Bank of England hiking rates to levels not seen since December 2008.
Inflation is still the focus of the Bank of England, despite growing concerns about the prospect of a collapse in economic activity. The last three MPC meetings have resulted in interest rate hikes and that is expected to continue until rates are double their current level.
It is possible that following the meeting that will be held on 4th August, the Bank will pause to gain a sense of perspective over developments not just in the UK but globally.
Only Deputy-Governor Jon Cunliffe is bucking the trend of interest rate hikes. He voted to leave rates unchanged at the most recent meeting, while every one of his colleagues voted for a hike.
The economic situation in the UK is not as clear as the MPC voting records make it appear. Cunliffe has several supporters who believe that the combination of supply chain concerns and the conflict in Ukraine are driving inflation higher in what he considers to be an unnatural manner.
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The pound failed to find any positivity in the release of a report which showed that services activity surged in March. This is being seen as a useful gauge of the market’s view that the economy will slow considerably once the effect of the withdrawal of Covid related restrictions begins to fade.
Inflation is still rampant, and the likelihood is that the Bank of England will act both judiciously but aggressively to bring it down.
Deputy Bank of England Governor Jon Cunliffe spoke recently of his view that the Bank may be able to moderate its programme of hikes since the rise in inflation hasn’t yet split over into wage demands.
Investors believe that it is only a matter of time before wage demands rise and create a slowdown in the economy.
The current view of Sterling is that the market has been too aggressive in its belief that short-term interest rates will reach 2% this year. The view is that if the economy begins to slow this month, the Bank of England may not be able to go much above 1.50% if at all. This will mean that inflation will remain uncomfortably high well into next year.
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Bank of England Deputy Governor Jon Cunliffe was the only member of the MPC who voted against a hike in interest rates at the latest meeting.
Yesterday he spoke of his doubts that the Bank will have to take sustained action to curb public expectations that high inflation will become ingrained since, so far, those concerns have failed to materialize.
He acknowledged that inflation would need to be tackled, but does not see a comparison with the 1970s, when an energy shock saw inflation rise and stay elevated.
The conflict in Ukraine will lead to a substantial downturn in economic activity. This will be worse than the Central bank predicted in its latest bulletin, released in February, and will last well into the first half of 2023.
Cunliffe warned against the public becoming convinced that high and rising inflation would need to be countered by higher pay awards.
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
This week will mark the beginning of a significant downturn in the UK economy that could see the country in recession by the end of the summer.
It is now considered that the second quarter will see a contraction in GDP or as market analysts like to call it, negative growth.
The most significant factor has been the increase in the cap that is placed upon energy companies to ensure that domestic bills remain reasonable.
It is hard to believe that the first of two increases this year (the second will be in October) will see the average domestic electricity bill rise by £750 a year could be considered reasonable.
The Government loves to draw the attention of the electorate to the performance of the economy in comparison to other G7 nations. Yes, of course the UK is performing better now than the Eurozone. This is almost entirely due to the fact that Europe has a war on its doorstep and has been buying energy from Russia for several years and is now expected to find another supplier.
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Today sees the price pressures on UK consumers rise significantly as energy prices, National insurance contributions, water costs, Council Tax, postage and broadband charges all set to rise.
The average household energy bill will increase by around £700 a year with another increase in the energy cap, the most that energy suppliers can charge consumers, set to rise again in October. Today’s rise in the energy cap is set at 54%.
In addition, the conflict in Ukraine is adding to the cost of basic food supplies.
The first quarter of 2022 has ended, with the economy having grown as the effects of the Pandemic have waned, but infections are at a high, but less serious level.
The Bank of England’s actions to stave off inflation will see interest rates rise to 1.50% by the summer, with banks charging more for mortgages.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Office for National Statistics in a report published yesterday expressed its concerns that the unprecedented upheaval that the country has faced over the past five or six years will bring the return of a level of poverty that was believed to have been eradicated permanently.
Brexit followed by the Pandemic then the ongoing conflict in Ukraine means that the country, the Chancellor and the Central Bank are continually firefighting without being able to set in motion the policies and actions that formed the Government's manifesto following its election victory.
Indeed, it is now more than likely that the current Parliament will not have been able to do anything it set out to do and the standard of living for ordinary people will have dropped considerably.
Bank of England Vice-Governor Ben Broadbent concurred with the findings of the report, adding his belief that it is doubtful that UK households had ever faced such a hit to national income, and it is highly likely that inflation will continue to rise while the economy suffers below average growth.
In separate comments, Broadbent went on to encourage his colleagues on the Monetary Policy Committee to consider their words carefully when making comments about voting intentions or their views on the economy to ensure that they didn’t add to public concerns or spook the market.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"It is tough to find any good news for the UK economy as the country leaves the Pandemic behind and begins the work of recovery. Workers are facing what the Bank of England Governor has called a historic shock to incomes.
The UK economy is primarily led by consumption. Consumers going out and making purchases keeps the country ticking over, so anything that creates stress for that sector quickly permeates through to the rest.
There is little doubt that Andrew Bailey is right in describing current conditions as historic.
The country had barely been able to complete its withdrawal from the European Union before the Pandemic hit, and now it faces an energy crisis not originally due to the conflict in Ukraine, but certainly exacerbated by it.
It is hard to imagine a scenario where an invading nation is so roundly condemned, yet the nations closest to the conflict are forced by circumstance to continue to trade with it. The fact that Russia had managed to skilfully make itself invaluable in supplying energy primarily to Europe had clearly been factored into President Putin’s plans as he considered the fallout from his actions.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"When he first became Chancellor, Rishi Sunak quickly became extremely popular as he oversaw several handouts to those most affected by the Coronavirus Pandemic.
The furlough payments and the eat out to help out scheme saw him cap a meteoric rise to be the Prime Minister’s major rival in any future leadership contest.
However, canny observers predicted a time when Sunak would expect the population to pay for his generosity.
In the year from March 2020, barely a single derogatory word was written about his performance, but suddenly he has become the pantomime villain, holding the country’s purse strings ever more tightly and facing accusations of throwing out crumbs to the people from his ivory tower.
Of course, as with most political stories, the truth lies somewhere in the middle. The handouts provided during the Pandemic were necessary to support the economy and had very little to do with generosity.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Central Banks are not usually noted for their level of innovation, and the current reaction to rising inflation is no exception.
Economics 101 states that in times of rising inflation, monetary policy should be tightened by contracting money supply via increased interest rates.
But this textbook was written to deal with the only type of inflation that had never been seen.
In the current environment, inflation has been created only on one side of the economy, with wages not having risen by any significant degree.
The UK economy has been significantly stimulated, albeit artificially, by the country’s emergence from the Pandemic.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The degree of uncertainty that has crept into the UK economy recently is continuing to grow. Data released yesterday showed that manufacturing output fell from 58 in February to 55 in March. Services, which make up 80% of activity, rose slightly from 60.5 to 61. While both sectors are still well above the line which marks a slowdown, this is expected to change going forward
Following the publication of the Chancellor’s Spring Statement on Wednesday, predictions for growth in 2022 have fallen to 2.2% while inflation, rising at its fastest rate since 1992, could reach 9%.
With the rise in inflation having so far reached 6.2% and living standard expected to fall to the lowest since 1955, the Government faces a tough summer as its popularity already dented by the Partygate scandal struggles to retain credibility.
An issue that has not been seen for some time is the matter of rising interest rates.
The housing market in the UK has been buoyed in recent years by the number of deals available from lenders that have seen prices rise. This along with the schemes made available by Rishi Sunak during the Pandemic has seen prices continue to rise.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Chancellor delivered his Spring Statement to Parliament yesterday. The measures that had been carefully leaked were delivered but despite those, Rishi Sunak tried to prepare the country for worse economic news to come as the standard of living in the UK is set to fall to its lowest level since records began.
Sunak said that the post-Pandemic recovery had been blown off course by the war in Ukraine, although he did hold out the carrot of a tax cut in 2024 when, he says, the economy will be in better shape.
The cut in the basic rate of income tax from 20% to 19% was dismissed by the opposition as little more than an election gimmick.
They went on to condemn Sunak for not reversing the decision to raise the rate of National insurance by 1.5% next month, although he did increase the level of pay at which National Insurance would be paid from £9,600 to £12,570.
While the standard of living for most of the population will plummet, the cost of living continues to rise. Data released yesterday showed that headline inflation rose to 6.2% in February, up from 5.5% in January. The core rate of inflation rose from 4.4% to 5.2% over the same period.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Chancellor will publish his Spring Statement tomorrow. He is facing pressure to do more than he wants to, to help households that face historic rises in the cost of living.
One of the measures that he is apparently considering is a cut of five pence in the duty that is charged on fuel. Duty currently makes up almost fifty-eight pence of the cost of a litre of fuel.
Having been credited with almost single-handedly saving households from disaster when the first Coronavirus lockdowns took place, Sunak is concerned about being seen as the person the country turns to in times of crisis.
Far from having a light touch on the economy, Sunak is being seen as a last resort when a bailout is needed.
It is not his intention that the Government should be looked upon to supply support at times when the economy is in a downturn, irrespective of the reason.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Data showing how much inflation rose by in February will be released on Wednesday, the same day as the Chancellor makes his Spring Budget Report to Parliament.
It is likely that inflation may have reached 6% last month as supply chains continue to creak and the price of energy continues to rise.
Globally, the era of low interest rates has ended, with only the ECB bucking the trend.
The Bank of England having hiked for a third consecutive meeting has sent out a message to the Chancellor that it has done all it can for now, although several observers will disagree, and it is time for the Government to wade into the cost-of-living crisis which could lead to a disaster.
Three rate hikes in a row would usually have had some effect on inflation, but these are far from certain times.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Bank of England’s Monetary Policy Committee voted to raise interest rates by 0.25% at its latest meeting, which concluded yesterday.
The committee voted by a majority of 8-1 in favour of the hike. The only dissenting voice was that of Sir Jon Cunliffe, the Bank’s deputy Governor for financial stability.
The focus of the Central bank has switched latterly to fighting inflation despite the threat that the conflict in Ukraine brings fears of a slowdown in economic activity.
In its latest economic forecasts published last month, the Bank predicted that inflation would peak at 7.25% next month. That expectation has already been changed, and a peak of 8% has become the core expectation.
However, despite the Bank’s view, market analysts are raining their expectations almost weekly and have now reached 10%.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Today’s meeting of the Bank of England’s rate setting Monetary Policy Committee is now expected to hike interest rates for the third time in as many meetings.
The market is in little doubt that the Central bank is serious about trying to bring inflation back under control. However, it doubts its ability to do so, given the issues being faced by the economy.
The meteoric rise in energy prices that began even before Russia invaded Ukraine is one of several issues that need to be considered today.
Bank of England Governor, Andrew Bailey may even be justified in commenting that the oil price rise may be considered temporary unless the war in Ukraine carries on for a considerable time.
He is, however, unlikely to fall into that trap again given the criticism he faced over the way prices were affected by the bottlenecks created by the lockdowns.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Andrew Bailey is about to begin his third year as Bank of England Governor by leading the Central bank along the most complex path it has seen in a considerable time.
Bailey has faced criticism for not being capable of providing the right amount of advance guidance to the markets.
Bailey’s predecessor Mark Carney presided over an interest rate cut just four days before his departure, and then there was another cut in Bailey’s first week in the role. The Bank also raised the level of its asset purchases at the same time.
This earned the Bank plaudits from investors and commentators alike but proved to be something of a high-water mark for Bailey.
Since then, he has faced almost continuous criticism from the market and former colleagues.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Silvana Tenreyro, a member of the Bank of England’s Monetary Policy Committee, spoke yesterday of the collective responsibility of the committee to carefully consider changes to interest rates considering the volatility of the financial markets due primarily but not exclusively to the conflict in Ukraine.
Tenreyro believes that the Central Bank was already facing some tough decisions even before Russian troops crossed the border into Ukraine.
With the economy yet to completely recover from the Coronavirus Pandemic, there is a real chance inflation is set to rise further. The Bank, already having hiked interest rates at its two most recent meetings, is now expected to hike again this week as the MPC reacts to the balance of risks.
Andrew Bailey, the Bank’s Governor, spoke last year of his desire as the economy emerged from the pandemic that the MPC would be able to keep control and not be driven by events. It was on track to achieve that goal with consecutive hikes. However, the conflict has blown that desire off course.
Inflation is still well above target and is expected to rise further, the economy is slowing, and the population faces further pressure on household budgets driven by two major negative factors due to take effect next month.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Bank of England’s Monetary Policy Committee meets this week, and rather unsurprisingly, the meeting has, yet again, been labelled as crucial.
Ask just about any market commentator, and you will receive a different answer about what the Central Bank needs to do this week. On the face of it, there are just two options; hike or pause. That is obvious, but behind the decision is the MPC member's views on what is important to a ensure that the Committee adheres to its goal to support price stability, while boosting growth
If the vote is for another hike this week, it will go some way towards presenting a tough stance on rising inflation but will dent the prospect of GDP recovering and reaching its expected level in 2022.
If the MPC decides to pause, having hiked at the last two meetings, the economy will receive a boost, but inflation will be in danger of getting out of control.
As far as inflation goes, the bank could allow price rises to continue while their source remains on the supply side of the economy. It will only be when a wages/prices spiral begins.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Roman Abramovich is by far the most prominent Russian Oligarch in the UK due to his ownership of Chelsea Football Club. Abramovich has always admitted to his friendship with the Russian President but denies being one of his inner circle.
Yesterday, the UK Government made the decision that it believes that Putin and Abramovich have a close relationship, and along with six other wealthy and influential Oligarchs Abramovich was subjected to stringent sanctions.
Abramovich had already put the football club up for sale, but the sanctions will mean that the sale will be put on hold or, at least, any transfer of ownership will be done on the Government’s terms. The sanctions include a ban of purchases or sales of players, the sale of merchandise and tickets for games only being available if they have already been sold.
While in the grand scheme, this is not an important move, it symbolizes the Government’s determination to make life as difficult as possible for those who benefit either in status or financially from their relationship to the Russian leader.
The Bank of England’s Monetary Policy Committee will meet next week not only to decide on any change in monetary policy, but it will also deliver its latest review of the UK economy. The only question about the review is just how downbeat it is likely to be.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"It is becoming a familiar struggle as Central Banks grapple with inflation while being mindful of the effect that the conflict in Ukraine will have on growth.
The Bank of England’s monetary policy committee meets next week and will face an extremely tough decision that goes well beyond individual members’ view of the economy.
Since the invasion of Ukraine began, there have been very few interviews or even sound bites provided by MPC members, so it is difficult to gauge their mood.
It is unlikely that the unanimous decision to hike rates that was seen at the last meeting will be repeated, particularly since the committee will be aware of the headwinds that will be created next month when the fuel cap is increased, and national insurance contributions are increased.
Mortgage interest rates are now rising, and the deals that banks were able to offer have become ever shorter in tenure. This reflects the view that rates will continue to rise.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Rising fuel prices will add another blow to those being faced by consumers in the UK as Boris Johnson’s Government lurches into another crisis.
Johnson performed another of his trademark U-turns yesterday as he agreed with the European Union and the United States to ban purchases of Russian oil and gas by the end of the year.
Just 24 hours earlier, Johnson had said that he was against limiting the import of Russian oil since there was no alternative available.
The President of Ukraine became the first foreign Head of State to address parliament yesterday.
In a passionate address, Volodymyr Zelensky appealed to MPs to push for a no-fly zone over Ukraine. While this is still unlikely to be agreed to, given the fears in the west of contributing to an escalation of hostilities, Zelensky’s genuine and heartfelt speech drew a standing ovation from his audience.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Even before Russia invaded Ukraine, the UK economy was predicted to slow this year as the Bank of England began a programme of interest rate hikes to try to combat rising inflation.
Now fears of a global recession are rising as the price of energy rises again and discussions over a ban on purchase of Russian oil and gas continue.
Yesterday, Boris Johnson spoke of his belief that the UK should continue to buy Russian oil and gas, due mainly to the fact that there was no alternative.
It is hard to reconcile what is happening now in Ukraine with the willingness of G7 nations to continue to trade with such an aggressor.
In talks with Justin Trudeau and Mark Rutte Prime Ministers of Canada and The Netherlands yesterday, Johnson confirmed the country’s commitment to efforts to isolate Russia by use of sanctions while agreeing that greenifying (Rutte’s word) will take some considerable time.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The UK has faced several challenges since it left the European Union. Brexit itself supplied numerous challenges and continues to do so. The Coronavirus Pandemic threatened to cripple the economy, but the discovery of an effective vaccine provided the country with the means to bounce back.
If the unbelievably poor judgement of many members of the Government, including the Prime Minister, can be put aside for a moment, its performance in coping with such an unprecedented event should be considered to have been as good as could have been expected.
With the benefit of hindsight, the first lockdowns should have been enforced sooner and the first attempt at reopening was a little premature, but overall, only history will tell the story.
Now, with restrictions having been completely removed, there has not been a significant spike in new infections and the NHS is coping.
Inflation has risen significantly since first beginning to rise last summer, and it is now obvious that the Bank of England should have acted sooner to curb its advance rather than glibly labelling it transitory due mainly to the bottlenecks that developed in transport that led to shortages of finished goods, raw materials and spare parts.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The UK has faced several challenges since it left the European Union. Brexit itself supplied numerous challenges and continues to do so. The Coronavirus Pandemic threatened to cripple the economy, but the discovery of an effective vaccine provided the country with the means to bounce back.
If the unbelievably poor judgement of many members of the Government, including the Prime Minister, can be put aside for a moment, its performance in coping with such an unprecedented event should be considered to have been as good as could have been expected.
With the benefit of hindsight, the first lockdowns should have been enforced sooner and the first attempt at reopening was a little premature, but overall, only history will tell the story.
Now, with restrictions having been completely removed, there has not been a significant spike in new infections and the NHS is coping.
Inflation has risen significantly since first beginning to rise last summer, and it is now obvious that the Bank of England should have acted sooner to curb its advance rather than glibly labelling it transitory due mainly to the bottlenecks that developed in transport that led to shortages of finished goods, raw materials and spare parts.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Bank of England, now fully focussed on fighting inflation, may have to risk taking the economy close to a recession if it is to bring price rises under control.
The next MPC meeting is being held the week after next and although it is uncertain if a third consecutive hike will take place, the mood of MPC members has turned decidedly hawkish.
MPC Member Silvana Tenreyro spoke yesterday of her expectation that the latest increase in oil prices will increase inflation and dampen economic activity.
Although there is little evidence currently of a wage/inflation spiral developing, the Bank will need to take the possibility of this emerging in the coming months if it is to remain ahead of the curve.
Tenreyro believes that there was some evidence that bottlenecks in supply chains were beginning to ease before the invasion of Ukraine began.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Prime Minister is on a brief visit to Estonia and Poland to show the support of the UK for those countries' concerns over the Russian invasion of Ukraine. Having left the EU, Johnson wants to reassure fellow NATO members of the UK’s commitment.
In a speech he confirmed that UK troops would stay within the borders of NATO allies and there is no question of them becoming involved in the conflict as it currently stands.
He spoke of his concern that the conflict will lead to a prolonged crisis, and he sees sanctions that are aimed at the Russian economy as being potentially the most telling for Moscow.
Johnson believes that the Russian President’s ambitions for Ukraine will fail as the sanctions begin to bite. The exclusion of Russian banks from the SWIFT payments network will add to concerns about President Putin’s actions at home as it becomes excluded from the international financial community. Johnson wants to ensure that access to the markets is completely removed.
He went on to say that freezing the assets of Putin supporters overseas will begin to turn the tide against Putin locally.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Despite the Bank of England’s new-found determination to bring inflation under control, prices are continuing to rise and will continue to do so for some considerable time to come.
Having hiked rates twice already, it would be normal for the MPC to hold back on a third hike to give the earlier action time to have an effect. However, the pace at which prices have been rising coupled with both the tax increases and increase of the energy cap means that the bank doesn’t have the luxury of time.
The conflict in Ukraine has also added urgency to the situation, as the price of a barrel of oil hovers around $100. Russia’s invasion of Ukraine will be the first global issue that the UK will be reacting to independent of the EU. Since Brexit, the country is now free to establish its own parameters for sanctions, without being guided by Brussels.
London has easily the highest number of Putin allies owning property and businesses, so it is important that the British Government is able to exercise its independence in ensuring they do not slip through the net
While the Russian President clearly took the risk of sanctions into account when planning the invasion, the economy is already feeling their effect. The Rouble has collapsed and there has been a ban on foreign currency transactions being undertaken by individuals. Interest rates were doubled to 20% yesterday in an effort to stave off further speculation.
" Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"In the end, the end of the Pandemic in England came without any fanfare, as the world has moved on from Coronavirus to another perhaps even more worrying event.
With the country still reeling from rising inflation, soaring energy bills and increased taxes, the effect on the country of the Russian invasion of Ukraine is still unquantifiable.
There is little doubt that it will deliver lower growth as the global economy, which will feed through into every developed nation.
BP announced yesterday that it will offload its 19.5% stake in Russian oil firm Rosneft following Russia’s act of aggression. BP commented that the decision had been taken amid unprecedented political pressure.
With a significant range of sanctions being introduced in response to Russia’s invasion, possibly the most significant will be the exclusion of the country from the SWIFT international payments network.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The task facing the Bank of England and other Central Banks has been made much harder by Russia’s invasion of Ukraine.
If the conflict in Eastern Europe continues for a period of months, the effect on the global economy could be catastrophic. As Russian tanks crossed into Ukraine yesterday, the price of a barrel of oil rose above $100 for the first time in seven years and the wholesale price of gas, which has already quadrupled in little over a year, rose by 60%.
With inflation in the UK already at 5.4% and rising. Just as the country is emerging from the Coronavirus Pandemic, another major situation has now arisen.
A further significant rise in the cost of energy will no doubt push inflation even higher than had been predicted, while if the oil price remains above $100, it will hit global growth hard.
The World Bank had already predicted that global growth in 2022 would be 4.1%. This was down from its earlier prediction in October of last year of 5.5%. There is little doubt that it will be revised lower again when the data is updated at the end of next month.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Bank of England Governor Bailey was heavily criticized a few weeks ago for calling on workers not to demand inflation busting pay rises as prices continue to rise.
Yesterday, he continued in the same vein, but this time it was banks that were targeted. He called upon financial institutions to use restraint when deciding on the level of bonus payments.
He went on to say that the need for restraint applies to everyone, from care home workers to city bankers.
Testifying before the House of Commons Treasury Committee Bailey, who earns £575k a year told MPs, who rarely show restraint when awarding themselves inflation busting pay increases, that there is a real danger that inflation will remain at higher levels for far longer than had previously been expected.
Inflation reached 5.5% last month and is expected to peak at between 7.25% and 7.5% when household energy caps are raised in April.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Several nations announced sanctions against Russia yesterday in response to its invasion of Ukraine. On the pretext of peacekeeping, Vladimir Putin ordered personnel and armoured vehicles into the two regions in the east of Ukraine that he recognized as independent states on Monday.
The response from the UK Government was to introduce measures against five Russian Banks in the UK, freezing their assets and three oligarchs known to have close ties to Russian President Vladimir Putin.
These measures have been criticized as being too weak in comparison to actions taken by other G7 nations. The Prime Minister countered those criticisms by saying that these are the first of many measures that are under consideration.
The Deputy Governor of the Bank of England David Ramsden spoke yesterday of the resilience of the UK economy, despite the scarring that has been caused by Brexit and Covid-19.
He believes that the Central Bank will need to increase interest rates further over the next few months, but the long-term path is difficult to predict due to the new uncertainties created by the conflict in Ukraine.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Prime Minister announced in the House of Commons yesterday that from this Thursday, those who receive a positive test for Coronavirus will no longer need to self-isolate. He introduced a package entitled Learning to live with Covid. This will allow the country to return to normal.
This announcement was not received with 100% agreement. There was a lot of doubt expressed by opposition MPs. Scientists are concerned that withdrawing free Covid tests at the current time will affect the old and vulnerable, while support workers already struggling with low wages may be forced to forgo testing themselves.
The only positive note came from the business leaders group the Confederation of British Industry, which welcomed the move to allow businesses to fully recover from two years of real difficulty.
Johnson will chair a COBRA meeting this morning where the current situation in Ukraine will be discussed. With Vladimir Putin moving to recognize the sovereignty of two breakaway regions of Ukraine that are controlled by Russian-backed separatists, Putin now has a legitimate reason to advance his troops into those areas, ostensibly on a peacekeeping mission.
This is a dangerous escalation of the situation and brings armed conflict even closer.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"When the MPC voted against a hike in interest rates last November, it is doubtful that they realized that their decision would lead them to the position they find themselves in now.
Inflation is pretty much out of control now and consumers are facing a further cost of living rise in the coming weeks. The rising wholesale price of gas has its origins in several areas of the global economy and cannot be considered to be due to a single event.
However, the timing of the significant rise in national insurance contributions is the brainchild of the Chancellor and is part of his plan to begin to recoup some of the expenditures that were seen during the Pandemic.
It is also supposed to provide further funding for the NHS, but it is not clear where the funds will end up.
The Prime Minister is making efforts to move on from partygate, despite being hounded by the press to answer whether he will step down should he be found to have broken the law.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Bank of England Governor Andrew Bailey has been blamed for worsening the rise in inflation in the UK by Gerard Lyons, a former economic adviser to Gordon Brown and more recently Boris Johnson.
Lyons believes that the Bank’s failure to act before December in hiking interest rates has set back the recovery from the Pandemic, but, more importantly, placed the country in danger of falling into recession in trying to play catchup.
The rise in the wholesale cost of gas, driven primarily by the Pandemic coupled with the forthcoming rise in national insurance contributions, has placed the country in danger of slipping into recession.
Lyons also took aim at the Bank of England’s forecasting of the rise in inflation, which he says has constantly downplayed the seriousness of the situation. It appears that forecasts have been moulded to fit the shape of the MPC’s predictions, rather than the other way around.
Bailey’s communication with the markets has been ineffective. This has led to accusations of misleading them over a November rate hike.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The number of people claiming unemployment benefit in the UK fell to 31.9K in January, but the number for December was revised up from 43.3k to 51.6k.
The actual number of people claiming benefits is not as important as the trend, which continues to show a degree of tightness in the labour market.
Wages are beginning to pick up but are still well below the rate of inflation. That will have pleased Bank of England Governor Andrew Bailey, but it is expected that demands for greater increases, at least in line with inflation, will begin to be demanded.
Annual pay hit 4.3% in January, but vacancies are still at a record high. Bonus payments in the finance, insurance and property sectors boosted wages.
The rate at which salaries are lagging inflation is now at its highest level since 2014.Real wages, salaries adjusted to consider inflation fell by 0.1%.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Today’s release of employment data for January is unlikely to have any significant effect on the market, since jobs data has now settled into a range that is positive but not dramatically so.
Average earnings remain steady well below 4%, but that may change when public sector bargaining begins.
The release of inflation data tomorrow will more likely see a reaction from traders. It is expected that inflation will have only risen slightly in January as signs that price rises are beginning to moderate are seen.
However, the price of fuel at the pump reached another record high yesterday as the tensions in Ukraine pushed prices higher.
Petrol averages 151.2 pence per litre, while diesel peaked at 151.57. This is marginally higher than the price that was seen last November, immediately before the price began to fall.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The UK economy grew at 7.5% in 2021. This was the fastest rate recorded by any G7 member. However, having contracted at the fastest rate in the G7 the year before, this was to be expected.
Overall, taking the net of the two years, the UK placed fourth, having only just managed to return to the level it was at prior to the Pandemic.
Chancellor Rishi Sunak rejoiced in the pace of growth, while playing down the significant headwinds that the economy is facing.
April is beginning to loom large. It is the month that will see the implementation of the Government’s increase in National Insurance contributions. The Government’s cap in energy bills will also be increased. This means that even without rising inflation, household incomes are about to take a major hit.
The knock-on effect of this is that consumer spending will begin to fall as families make a decision that could be as stark as having to decide whether to eat or stay warm.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The effect of the Pandemic has masked issues that have been continuing to build in UK supply chains caused by Brexit.
As the Government announces the end of remaining restrictions, the UK’s departure from the European Union is set to become the major hurdle to growth and output.
UK exports to Germany fell in 2021 fell by 8.5% due, according to several major businesses, to the level of friction Brexit has brought.
Those same businesses believe that they are not seeing any benefit from Brexit, simply having swapped one set of bureaucratic red tape for another.
Boris Johnson announced at the start of Prime Minister's Questions in Parliament yesterday that the UK is on track to announce the removal of the last of the Coronavirus restrictions in two weeks, at least a month earlier than had been predicted.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"While the country continues to count the social cost of the Pandemic, the financial fallout is just beginning.
The National Institute of Economic and Social Research, the longest established research institute in the United Kingdom, predicts that inflation will reach a peak of 7% in April and go on to average 5.9% throughout 2022, and falling to 3.3% next year.
There are expected to be three more interest rate hikes his year with more to follow in 2023. The risk is skewed heavily towards the possible need for more hikes should inflation prove to be stubborn.
The institute criticized the Bank of England’s policy of remaining reactive to inflation rather than getting ahead of the curve.
It is easier to look back to see mistakes that have been made. In real time, making decisions about the direction and ferocity of the rise in inflation coupled with providing sufficient support to ensure that any nascent recovery is not choked off is more difficult.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The withdrawal of support for the housing market has levels of stock finally begun to see a cooling of prices and stock levels. Although January is traditionally a slow month for the market, data released yesterday showed that a levelling off of prices is taking place.
Last month saw overall house prices rise by just 0.3% versus a 1.1% rise in December and a market expectation of a rise closer to 1%. This left the annual rate unchanged at 9.7%.
The rise in the cost of living that will begin to bite in a couple of months will also have a cooling effect on house prices as potential buyers decide to stay put.
This week will also see the release of a slew of data that falls into both the rear-view mirror and leading indicator categories.
GDP data for December and the fourth quarter will be released. While the annualized figure will most likely be a very healthy 6.4%, on a monthly basis, growth is expected to have slowed by around a half of one percent.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Bank of England Governor Andrew Bailey has suffered from the exposure he has received as Central Banks return to the forefront of economic decision-making.
The post financial crisis period saw Central Banks move into the background as interest rates fell and inflation appeared to have been beaten.
That entire period of the cycle was ended by the Coronavirus Pandemic and the monetary and fiscal support that was needed to protect the economy from lasting damage.
Prior to the pandemic, many members of the public would have been hard-pressed to identify Bailey, such was his lack of publicity.
That has changed gradually, culminating first with his being accused of misleading markets over the possibility of a rate hike last November when he badly misjudged the mood of his Monetary Policy Committee.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Bank of England raised short-term interest rates by twenty-five-basis points. This is the first time it has seen fit to hike at consecutive meetings since 2004.
The MPC also warned that inflation is set to climb above 7% Hiking by 0.25% having raised by 0.10% in December, the bank hopes that it has sent a signal to the markets that it is serious about fighting inflation.
At a number of meetings last year, the sentiment of Governor Andrew Bailey’s comments centred around the expectation that the Central bank wanted to remain in control of its own destiny. In that it wanted to be able to withdraw support for the economy at its own pace.
The basic fact remains that as soon as Central banks start intimating that the time to hike is approaching, in all probability they are already too late.
Bailey’s agreement with Fed Chairman Jerome Powell that inflation was simply transitory and would be limited to the supply side of the economy has now returned to bite him. How he must wish he had been firmer in expressing his wishes for the cycle of higher rates to have started last November.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Although there have been a few Government MPs who have stated their intention to write letters of no confidence in Boris Johnson’s leadership, the open revolt that was feared has not, so far, materialized.
Johnson faced another fiery Prime Minister’s Questions in Parliament yesterday but appears to be weathering the storm with tenacity.
Policy investigations into several events held in Downing Street are ongoing, and the full version of Sue Gray’s report is yet to be seen, but it is now possible that this story may now be overtaken by the next drama with the Prime Minister injured but not fatally so.
To move on from Partygate, the Minister for Levelling up, Michael Gove, announced the release of the Government's plans to ensure investment is more evenly distributed.
A cynic would no doubt agree that the best way to move on from a scandal is to make promises of greater investment
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Having made his second apology to the House of Commons in a week, Prime Minister Boris Johnson’s future is still far from certain.
A number of Government MPs are still considering whether to write letters of no confidence, which are a prerequisite to a vote on his future.
With a General Election still two years away, all the pressure on Johnson comes from within his own Party, with opposition calls for him to resign little more than hot air.
While the political pot continues to simmer, the economy continues to improve. Data released yesterday shows that manufacturing output continues to improve. While this sector only contributes to 20% of the country’s GDP, it is a major employer.
The effect of the Omicron Variant has been shrugged off while global supply chains continue to improve.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"City traders polled about the Bank of England’s intentions at this week’s Monetary Policy Committee meeting are certain that there will be another 25BP hike this Thursday. This will be the first time there have been consecutive increases since 2004.
The hike is now 100 priced into the interest rate markets. This is an increase on last week when the expectation of an increase was 90%.
With inflation at its highest level since 1992 traders are experiencing historic events that are outside the experience of many.
Inflation is currently closing in on 6%. The latest official data put the headline rate at 5.4%, but prices are clearly continuing to rise at a rapid rate. The employment market is also booming with the unemployment rate 4.1% which is close to historic lows.
Speculation is growing about what official rates will be at the end of the year. It is possible that they could have risen as high as 1.75%, but most see a rate of 1.25% at year-end.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Tackling inflation remains the number one priority for the Bank of England’s Monetary Policy Committee, since it was forced to accept that rising prices were unlikely to return to the Bank’s 2% target without changes to monetary policy.
Bank of England Governor Andrew Bailey was one of several central bankers who jumped on the bandwagon of labelling rising inflation as transitory and that it would return to acceptable levels once the logjam in supply chains had abated.
The continued rise in the wholesale price of gas, exacerbated by tensions around Russia’s border with Ukraine, and global shortages of microchips have been major contributors to rising inflation. This week, the MPC will have a decision to make that was expected to be relatively easy before the New Year.
Rate hikes at consecutive meetings were, and in many; observer’s minds, remain the likely outcome of the meeting on Thursday. This would be the first time in eighteen years that the Bank of England has hiked at consecutive meetings.
However, various headwinds are growing that could easily blow the nascent recovery off course.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Bank of England will hold the first meeting this year of its Monetary Policy Committee next week. Until recently, it had been fairly certain that the second rate hike of the new cycle would take place, but the growing headwinds being faced by the economy have put that in jeopardy.
The continued rise in the wholesale price of gas is the single most significant issue. Many household bills are expected to double when the Government’s price cap is adjusted in April
As Boris Johnson awaits his fate to be decided by the report being prepared by Senior Civil Servant Sue Gray into activities in Downing Street during the first lockdown, he caused something of a stir yesterday by refusing to confirm that the rise in National Insurance contributions that is also due to start in April would, in fact, go ahead.
This is vintage Johnson, pulling a rabbit from the hat without having first discussed the notion with his cabinet colleagues.
The Business Secretary, Kwasi Kwarteng, speaking yesterday at the site of a third nuclear power station to be built on the Suffolk coast, confirmed to the press that there was to be no change to the Government’s plans to raise the basic rate of national Insurance contributions.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Inward investment into the UK is still at a very healthy level but is not being matched by direct investment into businesses by the companies themselves.
While 50% of investors believe that the attractiveness of the UK has improved over the past quarter, only 30% of business owners agree.
Supply chain difficulties, rising energy costs, finding suitable employees, and rising wages are all factors that are making businesses hang on to what they have, rather than invest in their futures.
One of the most obvious areas that is being neglected is investment in new machinery. There has been a significant drop in the level of retooling, which is delaying the creative process across several sectors
Prime Minister Boris Johnson appeared to have refined a degree of his bullish bluster at yesterday’s Prime Minister’s questions in the House of Commons.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The air of anticipation that is growing around Parliament has been ramped up further as it was announced yesterday that the Metropolitan police are looking into the events that took place in Downing Street during the first lockdown.
The report that is being written by the country’s senior Civil Servant, Sue Gray, is due for publication in the next few days and the feeling is growing that Boris Johnson’s days may be numbered.
Johnson faces further ridicule from the Opposition Parties as he takes Prime Minister's Questions in the House of Commons later today.
If the internal report is anything like as bad as is being speculated about, the police investigation, even if fines are issued, will be something of an anti-climax.
The IMF produced its latest World Economic Outlook yesterday. It downgraded its prediction for full year growth in the UK from 5% to 4.7%, citing the increase in energy costs and the lingering effect of Omicron as its main reasons.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Data released yesterday for economic activity in January showed that the effect on the economy from the Omicron variant will be moderate. It is predicted that the imposition of Plan B of the Government’s strategy will cost less than 1% of GDP.
The report also showed that costs continue to rise at near record levels. This reinforces the view that the Bank of England will again hike rates at its meeting next week.
One piece of good news is that pressure on supply chains appears to be past its worst. While headline inflation is expected to continue to increase in the first quarter, the report reinforces the view that price pressures will begin to slow from April onwards.
Prime Minister Boris Johnson has adopted a business-as-usual approach while he anxiously awaits the outcome of the investigation into activity in Downing Street during the first lockdown.
Yesterday, it appeared that there was a gathering to celebrate Johnson's birthday, held in June 2020. It is apparent that the event was attended by around thirty staffers and lasted up to an hour.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Bank of England’s Monetary Policy Committee will meet at the end of next week, and it is highly likely that they will decide to hike interest rates for the second time in successive meetings.
The consequences of the committee’s relaxed attitude to ring inflation last year are now being felt throughout the economy. Andrew Bailey when asked about rising inflation was certain that the rise was transitory and would fade as soon as the economy was fully open again.
While Bailey was one of the more sanguine Central Bank Heads, the fact that once he had come to terms with the fact that inflation was not going away but actually continuing to rise, he was then accused of misleading the markets by pre-empting a vote. He was fairly certain that there would be a hike agreed at the November meeting, only for his colleagues to vote to maintain rates at 0.1%.
The fact that the Committee voted in Favour of a hike at the December meeting, the timing of which was unusual in itself underlined the fact that they got it wrong in November.
There is no doubt that the advent of the Omicron Variant of Coronavirus created uncertainty, particularly as the scientific community continually warned about its consequences.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Bank of England Governor Andrew Bailey expressed his concern yesterday about the pace at which inflation continues to rise.
Having already hiked interest rates once, at its meeting in December, the Monetary Policy Committee is expected to agree to three more hikes throughout 2022.
Bailey has two main concerns; first he is worried that energy prices continue to rise, the wholesale price of gas has quadrupled in the past year, and inflation concerns being expressed in wage negotiations.
For now, wage rises are both manageable and fairly limited, but that is certain to change as Trades Unions begin to try to ensure that the pace of wage rises for their members keeps up with rising prices.
In evidence to the Treasury select Committee, Bailey warned that it could easily be the second half of next year before energy prices start to ease back,
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Prime Minister Boris Johnson disappeared from public view yesterday as he licked his wounds following the mauling he received from all sides following his mea culpa on Wednesday.
It was ironic that the reason for Johnson’s withdrawal was that he was self-isolating following news that one of his family has tested positive for the virus.
Even without its main player, this drama is far from over, as the result of an inquiry into activities in Downing Street during the various lockdowns is eagerly awaited by all sides.
While Johnson isn’t exactly hanging on by his fingertips and he received support from several of his Cabinet members yesterday, his position is still tenuous
Retail sales data for the Christmas period were released and several outlets recorded very healthy numbers, over the holiday period. Marks and Spencer fared extremely well, as did Tesco. Both of the retail giants expect to announce strong full-year profits.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Like for Like retail sales data was released yesterday, and it showed that consumers were concerned by the rise in the Omicron variant but more so about rising inflation. Year-on-year, sales rose 0.6% against a rise of 1.8% in November.
Economists at the British retail Consortium believe that the soaring cost of living will have a significant effect on the retail sector. With higher taxation, continual increases in the cost of energy, and rising inflation, the outlook for the first couple of quarters is unlikely to be positive.
There is some good news in that the level of infections is showing signs of having topped out, but household costs will also start to be affected by rising mortgage rates as fixed term deals begin to expire.
Households face a rise in the cost of their mortgages, a phenomenon that hasn’t been seen by many for several years, and in some cases facing a higher cost of financing a property purchase is new.
So far, the housing market has held up well following the withdrawal of support in the shape of a Stamp Duty holiday but as the economy slows and inflation rises, there is sure to be an effect on the volume of sales and this could lead to a lowering of prices.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"With the Government’s Chief Medical Officer making optimistic noises about the peak of the Omicron variant of the Covid-19 virus, Boris Johnson’s decision for England to move to plan B looks like it could be vindicated.
The daily number of new cases while high is levelling off and with the vast majority of hospitalizations being those who have not been vaccinated, the country may be on the cusp of seeing the light at the end of a very long tunnel.
Data showing the performance of the economy in December and January is expected to show only a mild hit from the virus. The call to encourage people to work from home is possible and to go back to wearing masks seems to have been sufficient to slow the pace of infection.
The biggest risk over the next month or so will be the risk of the NHS becoming overwhelmed as it is hit by relatively high numbers of hospitalizations coupled with high levels of staff absences.
The effect of Omicron on GDP is expected to be around one month, that is to say that by early spring, the country’s level of growth will be what it would have been without the variant having emerged.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Cases of the Omicron variant of coronavirus continue to cause concern that the NHS is going to be overwhelmed, while the number of people self-isolating remains a threat to the economy.
Health Secretary Sajid Javid spoke over the weekend of his belief that the peak of infections may have been reached in London, although he expects that in the rest of the country cases will continue to rise.
It is still likely to be a few weeks before Javid’s hopes can be confirmed, while the next cab off the rank as far as issues facing the Government is concerned will be the continued rise in the wholesale price of gas and its effect on the cost of living.
Boris Johnson is already under pressure to approve a reduction in the level of VAT charged on household energy bills while suggestions are being made that the large energy companies are charged a green tax on their profits.
With inflation unlikely to fall back to anywhere close to the Government's target and the bank of England already committed to a cycle of interest rate increases, household bills are expected to rise sharply in the coming year while disposable income is hit by increases in taxation.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Omicron variant Coronavirus is spreading to such an extent that the Government is unable to provide any guarantee that it will not need to introduce tighter restrictions on the public, although following yesterday’s meeting of the Cabinet it is understood that nothing is planned before the Christmas holiday.
Following last week’s interest rate hike with the likelihood that further increases will be needed in the New Year, the focus has switched to the Chancellor of the Exchequer, Rishi Sunak, and what support he can provide for several sectors of the economy that are struggling with both being able to staff their premises and also footfall at their busiest time of the year.
The CEO of one major hospitality company called on Sunak yesterday to provide support for the sector given the fact that several of his outlets are being forced to close.
Sunak will need to be careful not to set a dangerous precedent where Government support becomes a crutch for ailing businesses.
It is clear that the pace at which Omicron has risen over the past month has come as a surprise to both the Government and the scientific community.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Bank of England’s rate setting Monetary Policy committee will vote later this morning on whether to hike interest rates as inflation in the UK hits a ten year high of 5.1%.
Producer prices, the cost of goods at the factory gate, also hit a high in November, reaching 14.3%, up from 13.7%. This data provides a clue to the future path of consumer price inflation.
A month ago, the outcome of today’s meeting would have been an easy decision.
The Bank’s Governor following the previous meeting had commented that the MPC had decided to leave rates unchanged until they saw the effect of the withdrawal of the Government’s furlough support scheme, until considering a rate increase.
Given the encouraging employment report that was published earlier in the week, it would seem that condition had been met, but the rapid increase in the number of cases of the Omicron Variant has again placed a rate hike in doubt.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"If the Monetary Policy Committee was waiting for the employment data before making up its collective mind over tightening monetary policy, yesterday’s November report should have eased any concerns.
The unemployment rate fell to 4.2% from 4.3% in October.
Despite the fall in the unemployment rate, unfilled vacancies also reached a record high. The end of the Government’s furlough scheme appears to have had negligible effect on hiring, with 257k new jobs created, the single biggest monthly rise since 2014.
One of the concerns that had been voiced by members of the MPC was what effect the removal of the furlough scheme would have. It was feared that many firms were retaining staff simply because of the support they were receiving, but those fears now appear to be unfounded.
While market expectations of a rise in interest rates would have increased, the fears of the effect of the Omicron Variant on output lingers.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The UK is again in the midst of another potential Coronavirus crisis. The Prime Minister and Health Minister have both commented that the country faces a tidal wave of infections, while speculation grows that another lockdown may become necessary.
There has been criticism of the decision that was made in the Autumn to relax the restrictions of wearing masks on public transport and in shops.
This is eminently politically driven, since while it was likely that there would be another variant of the virus, at the time the decision was made, the delta variant was under control and those members of the public who had received two doses of the vaccine were well protected.
The country had its first death from the Omicron Variant yesterday, while Sajid Javid announced that the new variant accounts for 40% of new cases in the capital.
The outlook for the economy is again clouded by the prospect of further restrictions. While it remains unlikely for now, that there will be a huge spike in deaths, or even hospitalizations, those infected will have to be isolated and that is sure to have an effect on the economy.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Renowned economist Jim O’Neill spoke last week of his confusion over the path of inflation in the UK. It is simply unclear whether inflation in the UK is temporary or not.
This means that predicting how the Bank of England will manage monetary policy in 2022 is impossible to predict.
O’Neill believes that the era of loose monetary policy that actually preceded the Coronavirus Pandemic has run its course and the time is fast approaching when it needs to be tightened up.
The pace of the recovery in many developed nations, coupled with supply chain shocks, has led to the current inflationary spike, but the generosity of Central banks is no longer applicable.
There is no sign of any concerted cooperation with G20 to ensure that the global economy emerges from the pandemic able to promote activity elsewhere. This was a feature of the policies adopted in the period from 2008-2010.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Bank of England Governor Andrew Bailey is being coy about what will happen at next week’s MPC meeting.
This is firstly due to the fact that he was accused of misleading markets in the run-up to the most recent meeting and more importantly, not only is he unable to gauge the mood of his colleagues, but he is unsure of his own vote.
There are merits to trying to take back control of inflation by raising interest rates, a move that would signal the end of historically dovish monetary policy but could see several areas of the economy suffer.
Equity markets would most likely correct, the property market would experience a significant slowdown, although it has weathered the withdrawal of Government support well. Should the logistics issues and shortages continue well into the first quarter, such a move may now be considered premature.
Prime Minister Boris Johnson is facing further pressure from within his own Party over revelations about last year’s Downing Street Festivities while the country was in full lockdown. The critical issue of whether he knew what went on under his own roof remains unclear.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Next week’s MPC meeting will be impossible to call as the effect of the growing number of cases of the Omicron variant cast doubts in the minds of its members.
The mood was summed up not by the concerns voiced by Deputy Governor Ben Broadbent but by his general mood of helplessness.
His attitude illustrated perfectly the fact that a decision that binds the Bank for any period of time longer than a month will be impossible to make.
There have been differing views expressed by the scientific community globally about the variant. Some say that it is more virulent than the Delta variant, some say less, some say the current vaccines will work, others say they will need to be tweaked.
The reactions that have been seen in several cities across Europe to the return of lockdown measures show just how tired and yet easily incensed the public are becoming.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Deputy Bank of England Governor Ben Broadbent spoke yesterday of his belief that inflation in the UK will reach 5% by the end of the first quarter of next year.
He sees a tightening of the UK labour market as the main cause of the rise. Echoing the thoughts of several FOMC members, Broadbent commented that the bank will need to be agile in its treatment of growth and inflation and be prepared to act at every meeting.
A survey conducted by the Financial Times and published yesterday concluded that the majority of economists and traders do not consider a rate hike to be the outcome of next week’s MPC meeting.
More time needs to be taken to evaluate the risks to the economy of the new Coronavirus Variant.
Indeed, Broadbent spoke yesterday of his uncertainty about how to vote at the meeting for this reason.
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"When the first two lockdowns were introduced, the Government was heavily criticized for dithering and not being decisive in its actions. As concerns grow that the Omicron variant could be more resistant to vaccines than anything that has come before, there are questions about whether the actions that have been taken so far have been driven by panic and fear rather than considered scientific reasons.
The country is still some way away from locking down, as has been seen in several European nations, and it will still be a few weeks before the true situation is known.
The travel sector had just been able to start to look forward to 2022 with some sense of optimism when the requirement for travellers to undertake a PCR test before returning to the UK and there are thousands of Christmas getaways that have already been cancelled.
The Bank of England’s Monetary Policy Committee faces a far trickier task at its meeting next week than it had originally expected. According to the Bank’s Chief Economist, the burden of proof rested with those who want to leave rates unchanged.
Huw Pill voted to leave rates unchanged at last month's meeting but was leaning towards a hike last week. Now that looks less likely. However, if the Omicron variant is proven to be similar in makeup to the Delta variant, there could easily be an intra-meeting hike agreed next week, although the bank is unlikely to confirm such a measure.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Household savings rates have again reached levels that were first seen over a year ago as hopes grow that they will provide a cushion for middle income families who face enduring the most of higher expenditures over the next twelve months.
House prices and pension pots have both risen significantly, despite the economy not yet at its pre-Pandemic Level. A rise of 8.4% last year compares to a rise of 3.3% in 2019. The rise is double the average over the past ten years.
The effect of inflation on savings will moderate the rise in the next twelve months, while asset prices, particularly house prices, level off.
The much-vaunted trade deal between the UK and U.S. is still not agreed, as President Biden is concerned over the situation over the Northern Ireland Protocol and what the outcome of invoking Article Sixteen would have on the peace process.
While Biden doesn’t wish to hold the deal over the heads of the British Government, he is concerned about recent developments.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Any discussion about the prospects for growth in the UK economy going forward must be prefixed by concerns over the effect of the new variant of Coronavirus.
Nonetheless, the OECD published a report yesterday in which it states a belief that the UK economy will grow at the fastest rate of its G7 partners.
It predicts growth of 6.9% this year and 4.2% in 2022. Having fallen by the largest rate in the G7, these fugues may be a little misleading, but they are a positive signal despite this.
Boris Johnson and Rishi Sunak will doubtless welcome the positivity that this news generates, but the cloud that the new variant will produce over potential growth cannot be ignored.
Having withdrawn all the support he had provided to furloughed workers; Sunak will be looking into what may be necessary should Omnicom lead to another lockdown.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"It is expected that the UK will remain under the new set of restrictions until March next year, as the population suffers from a case of deja-vu.
As new cases of the Omicron variant are becoming known, the efficiency of the Covid-19 vaccines is yet to be determined. It is expected to take between two and three weeks for the results of tests to be known, which means that it will be just a few days before Christmas before measures can be put in place if needed.
The Prime Minister, speaking at a press conference last evening, pledged to offer a booster jab to anyone who wants one by the end of next month.
There are genuine concerns within the hospitality sector that if they are placed under new restrictions that the effect will be devastating for the sector.
With the economy beginning to emerge from the ravages of the first lockdowns, any further restrictions would see the country lurch towards stagflation, as the Bank of England is already facing pressure to raise interest rates.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The growing number of cases of the new variant of Coronavirus proves that the country is still a long way from being able to declare an end to the Pandemic. The Government has introduced stricter regulations regarding the wearing of masks from today, while yesterday it announced a change to who is allowed to receive a booster vaccination.
The goal is for as many members of the population as possible to receive a dose of the booster vaccination as possible, in an attempt to ensure that the country is able to enjoy as close to a normal Christmas as possible.
The scientific community believes that it will take up to three weeks to gather sufficient data to understand how effective the vaccinations that are currently available against Omicron are. If there are tweaks necessary, it could take another 100n days for those to be made, so it is becoming vital that any restrictions that are introduced be adhered to.
The economy was starting to show a level of activity that had been threatened by rising inflation, although there was still a degree of uncertainty surrounding the growth versus inflation question.
All through the Pandemic, Central banks have had to learn to be more reactive since predicting first, the full economic effect of lockdowns, and then how strong the recovery would be once the economy began to open up.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"There is a growing belief that the Bank of England will have little option but to hike rates at its next meeting. Throughout this year, Andrew Bailey has appeared determined to be in a position for the MPC to decide the pace of any monetary policy tightening according to its own agenda.
For that reason, Bailey has been at pains to talk down the threat of inflation and even now wants to make sure that a hike is absolutely necessary before he commits.
The Bank’s Chief Economist, who voted against a hike at the most recent meeting, spoke the other day of the burden of proof now being firmly on the shoulders of those who wish to wait and see.
Hugh Pill appears to want to take as much time as possible before making his mind up, although he does appear to be leaning towards a more hawkish stance.
Three of the independent members, Jonathan Haskell, Michael Saunders, and Silvana Tenreyro appear fairly clear in the view already. Saunders will vote for a hike. He has been in favour of tightening monetary policy for a considerable time, while Haskell spoke of the positives of a rate hike,
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Bank of England Governor Andrew Bailey has told the market that the Central Bank may not go back to providing hard guidance. Bailey was clearly stung by the criticism he received following the most recent meeting of the MPC.
He was accused of misleading the market by providing heavy hints that there would be a rate increase, only for the committee to vote 7-2 against raising rates.
It is hard to imagine what Bailey would gain from such a ruse and while he is the Governor, he is one of nine members who each have a view. Their independence is guaranteed by the fact that alongside the members of the bank’s senior management, there are four external members.
One of those external members, Jonathan Haskell, spoke yesterday of his view that a hike will become necessary if the labour market remains tight. In order for inflation to be controlled, higher wages will need to be matched by a commensurate increase in productivity, so the MPC will need to remain vigilant.
He went on to say that the path for interest rates is undoubtedly upwards, although he believes a rise in rates should be viewed as a symptom of economic recovery and not a panic move to control rising prices.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The UK still sees 20% of its total exports finding their way to the EU despite Brexit. The rise in cases of Covid-19 that have led to fears of a new wave with lockdowns already seen in some EU states is likely to have a knock-on effect on the UK economy.
While the country is coping well following the introduction of booster jabs, there may very well be economic fallout even if there is no significant spike in cases.
The bosses' union, the Confederation of British Industry (CBI), is holding its annual conference, with the leaders of both main political parties making speeches.
Prime Minister Boris Johnson fluffed his lines, making a shambolic speech. He lost his place and made a rambling, almost embarrassing attempt to ad-lib, at one point commenting on a trip to a children's theme park.
Sir Keir Starmer managed to stay far more on point, calling for a complete economic reset following Brexit and the Pandemic. He promised that a future Labour Government would ensure that young people are retrained to be ready to be able to find employment as the economy changes its basic identity.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"It seems that every day that passes and every piece of data that is released points to a rate hike at the Monetary policy committee meeting that will be held of December 16th,
The Bank of England’s Chief Economist Hugh Pill voted against a hike at the last meeting, but in an interview on Friday he commented that the weight of evidence favouring a rate hike has shifted.
He said he is still uncertain about how he will vote, but that is more likely playing to the crowd, since it is unlikely that much will change in the direction of prices in the next three weeks or so.
Pill, another ex-Goldman Sachs employee who has found his way to the Central Bank warned against making assumptions about what the MPC is thinking. The reason that the MPC is constructed as it is, is to ensure as broad a set of views as possible. Because of this, there is no certainty that even if there is a hike that it will be within the fifteen to twenty-five basis point range that the market considers likely.
Andrew Bailey, the Governor of the Bank of England, has shown a more subtle tone when discussing inflation after being widely criticized following the most recent MPC meeting. Although he believes that the supply side of the economy is seeing temporary issues, he is also wary of wages beginning to rise.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"A rise in interest rates at the next meeting of the Bank of England’s Monetary Policy Committee moved from Likely to probable yesterday as inflation data for October was released.
Headline inflation rose to a ten-year high of 4.2%. With the wholesale price of gas and other household bills rising, this is not expected to be the end of rising inflation, and the pressure on the bank to act has ramped up.
Household utility prices rose by 6.8% last month, while there were significant increases in most other sectors. Month on month, inflation rose by 1.1%, its highest monthly increase since 1993.
Andrew Bailey, the Bank’s Governor, spoke on Tuesday of the attention being paid to the employment data, but he must now be concerned that the next round of wage negotiations are going to be difficult and could lead to a more generalized increase in inflation.
With the ECB indefinitely on hold and the Federal Reserve unlikely to tighten until it has completed the withdrawal of additional support, the odds on the UK being the first of the major economies to hike interest rates will have fallen dramatically.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The UK Employment Report for October was released yesterday. It showed that vacancies are continuing to rise as the effect of the departure of migrant workers following Brexit remains a significant issue.
Following the end of the Government’s furlough scheme, the economy added 160k new jobs. This will provide a degree of relief for the Bank of England which had cited concerns over jobs as one reason that they had held off on raising interest rates.
The Bank could easily break with the tradition of not raising rates immediately before the Holiday Season by tightening monetary policy at its meeting on December 16th.
Andrew Bailey’s comment that every MPC meeting from now is in play as far as a rise in rates is concerned has sharpened trader’s interest. However, following the surprise that rates weren’t raised at the most recent meeting will add a degree of caution.
The unemployment rate fell from 4.6% to 4.3% as the claimant count also fell. A shortage of workers remains an issue that will exacerbate logistical issues caused by bottlenecks in supply chains.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"There are concerns that Brexit will be of greater long-term harm to the UK economy than the pandemic, and the fact that the negotiations over the Northern Ireland Protocol are continuing shows that the UK’s path to independence will be both long and complicated.
The EU cannot understand that a country would prefer to go it alone rather than remain a member of a group that provides exclusive access to the massive trading potential that the EU provides.
On the other hand, the UK Government believes that the restrictions placed upon member countries mean that the country cannot fulfil its potential to work independently with its traditional trading partners.
The two are still embroiled in a disagreement over what is called the Irish Sea Border, which exists in order to allow the free flow of goods between Unionist Northern Ireland and the Republic in the south.
Fears are growing that the UK will initiate the terms of Article sixteen of the agreement, which is designed to be used if the agreement is causing societal, economic, or environmental difficulties. The fact that goods arriving from the rest of the UK have to be checked at the border is felt by the Northern Irish authorities to be becoming unworkable, While Brussels fears a backdoor into the free trade zone could be created.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Bank of England is planning to add fuel to the mortgage fire as it discusses lifting restrictions on banks' house loan rules.
The property market has been a mainstay of the UK economy for decades and was given a boost during the pandemic as Chancellor Rishi Sunak provided a stamp duty holiday to ensure that activity remained high during the various lockdowns.
That benefit has now been removed, so the Bank of England is looking at ways to increase activity in an attempt to support activity.
The Bank is expected to increase the volume of higher value loans that banks are able to provide.
It is simply being labelled as the Bank keeping up with the market, but underlying that reasoning is a plan to ensure that the property market remains at the forefront of the country’s economic activity.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"When inflation began to rise, the Bank of England, its Governor in particular, was fairly sanguine about the risk, calling it transitory. That may indeed be the case, and it became a convenient reason for a Bank that was unsure what it needed to do as the pandemic raged.
Now, the recovery looks like it may be hitting the buffers, and officials, looking for a new excuse to cover the possibility that they may have got it wrong, see supply chain bottlenecks as a convenient scapegoat.
Now, every issue that is becoming known is met with the supply chain excuse.
It may indeed be the fact that demand is fast outstripping supply, but it is also true that anyone with an ounce of planning knowledge could have foreseen issues for the economy from the departure of thousands of EU citizens who left the country as Brexit became certain and freedom of movement to the UK was about to disappear.
Chancellor of the Exchequer Rishi Sunak tried to put a brave face on the considerable slowdown in growth in the economy yesterday by commenting that the fact the economy is growing at all is a tribute to the fact that the country is moving in the right direction.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"MPC member Silvana Tenreyo spoke yesterday of her belief that monetary policy shouldn’t be a tool to fix short-term shocks to the economy.
She expects the supply chain bottlenecks that are causing a disparity between supply and demand to fade in 2022, but the economy will remain fragile and in need of the support that low rates are providing.
She went on to say that the bigger inflation will become a concern if it spills over into the wider economy. Tenreyro was backed in this view by the Bank’s Governor Andrew Bailey, who spoke of his concern that wage demands will create a spiral that will see inflation become a permanent issue.
Bailey was at pains to say that the Central bank is unable to control fuel and energy prices, and it is clear that a rise in interest rates would have no effect on the soaring wholesale cost of gas.
Bailey is still trying to regain a measure of credibility following the Bank of England’s apparent U-turn over a rate increase., investors were completely wrong-footed when the MPC voted 7-2 to leave interest rates unchanged last week.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The National Institute for Economic and Social Research (NIESR) released a report yesterday that paints a very dark picture of the UK’s economic prospects for 2022.
The country faces lower than average growth and continued high inflation.
While the causes of the rise in inflation may indeed be transitory, in that they are driven by a specific set of issues, that cause is expected to continue for a considerable time, possibly the whole of next year.
While demand is outstripping supply across most areas of the economy, following the country’s emergence from Coronavirus lockdowns, the effects of Brexit are yet to be fully felt.
The economy had come to rely on workers from the EU, despite the message from Brexiteers that they were the cause of high unemployment in the lower paid sector.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Bank of England Governor, Andrew Bailey, intends to continue to provide markets with advance guidance of the Bank’s thinking, despite the fact that that information may not always be reliable.
Bailey believes that any advance guidance given to the market should be considered to be subject to the caveat that such guidance is only valid if the economy is moving in the direction that the Bank expects.
Using that model, to understand last week’s decision to keep interest rates on hold for longer should be interpreted to mean that the economy is not growing as the Bank had expected, and it has therefore decided to prioritize growth over inflation.
Bailey was back on the wires yesterday for the first time since the Bank jolted markets with a notable change of direction.
Although he still believes that inflation remains transitory, he commented that the Bank will have to act by tightening monetary policy should rising inflation begin to spill over into wage demands.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The fallout from the Bank of England’s decision to leave interest rates unchanged at its meeting last Thursday continues.
Governor Andrew Bailey has been accused of misleading markets with his recent comments, to which his response has been weak. We expect to raise interest rates in the coming months, but no one said at which meeting we would start.
Bailey's credibility has been badly affected, and it will take some time for him to be trusted again.
Bailey contends that the decision was based upon a consideration of the latest economic conditions. This led the members of the Monetary Policy Committee to decide by a majority of 7-2 to leave interest rates unchanged.
The failure to act at this point, as inflation continues to climb, will mean that when rates are increased, they may need to rise in a less gradual manner.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Members of the Bank of England’s Monetary Policy Committee voted 7-2 in favour of leaving short-term interest rates at the historically low level of 0.1% at their meeting, which concluded yesterday.
The two members who voted for a hike were David Ramsden, Deputy Governor for Banking and Markets, who is concerned about what he calls rampant wage demands over the next few years and Michael Saunders.
Saunders is a perennial hawk who believes that the level of support being provided to the economy risks fuelling expectations of higher inflation.
The vote to hold fire on any rate increase came despite the Bank’s latest forecast for medium term inflation, showing that price increases could reach 5% by next April.
At his press conference following the meeting, Bank of England Governor, Andrew Bailey commented that it is not the job of the MPC to act in accordance with market expectation. In that regard, Bailey is being compared to his predecessor, Mark Carney, who earned the reputation of being an unreliable boyfriend, often hinting at action by the Committee, only to fail to follow through when the meeting voted.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Monetary Policy Committee will conclude its latest meeting at lunchtime today. While the outcome of the meeting remains too close to call, continued expansion in the economy means that the odds slightly favour a rise in interest rates.
The size of any hike is also in question. It may be ten basis points, or it could be twenty-five. Whatever happens, the outcome of the meeting is sure to have a significant effect on the outlook for the economy in the short to medium term.
Services PMI rose in October from 55.4 to 59.1 beating the flash estimate by a considerable margin. Business costs are rising at what is becoming an alarming rate, and these are being passed on to consumers, resulting in a continued rose in inflation.
The surge in operating costs reported by services companies was the highest since 1996.
Although the vote will be close, a hike in rates now would send a signal to the market that the recent comments regarding inflation being transitory have now been superseded by events.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Brexit has been predicted to have a larger negative effect on the UK economy than the coronavirus Pandemic. While that may be true in terms of the length of time the economy will be affected, in terms of GDP contraction, it won’t be as significant.
That having been said, the supply issues that are concerning the MPC as it meets today, will continue far longer in the UK than they will in the EU for several reasons. The most obvious is the UK’s access, or lack of it, to the EU’s single market. That will be partially balanced by the wider scope that the UK has in sourcing raw materials and negotiating its own deals for their supply.
The petty wrangles that exist with France over fishing quotas and access to ports are slowly diminishing, but unless and until there is an agreement that both sides can adhere to these issues will continue to flare up.
The same is true of the Northern Ireland protocol, where both sides are playing a dangerous game, with the Good Friday Agreement continually in peril.
The members of the Monetary Policy Committee will be agonizing over how they will vote when considering whether short-term interest rates should be raised or not.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The opposition Labour Party have had an easy time in criticizing the Government’s performance since the start of the Pandemic. Boris Johnson and his team have made some high-profile errors in some areas, and not acted fast enough in others.
One Minster who has been fairly secure in his role, and has stood up to some of Johnson’s excesses, is Chancellor Rishi Sunak. While some may say that his role has been fairly simple since he took over from Sajid Javid at the start of the Pandemic, he has targeted the right sectors for support and while generous, cannot be labelled profligate.
Yesterday, Sunak presented his Budget to the House of Commons, although in truth, most of the juicier proposals had been in the public domain as long as six weeks.
One new proposal that the Labour Party will find difficult to criticize when the debate on the Budget begins later today is how the Government is planning to fight hardcore unemployment.
Having faced questions over the withdrawal of £20 per week additional payment of the Universal Credit benefit, Sunak has, in basic terms, used the funds to increase the rate of pay for the lowest paid.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Later today, Chancellor of the Exchequer, Rishi Sunak will present his Budget to Parliament.
However, Sunak has drawn criticism from the Speaker of the House for continuing a recent trend for important announcements to be made at press conferences rather than in Parliament.
Most of the most eye-catching policies have already been leaked. They include an increase in the minimum wage, the removal of the pay freeze in the public sector, a £5.9 billion payment to the NHS to cut waiting times, funding for the Government's levelling-up initiative as well as the creation of new T-Levels in schools that will provide qualification sin more practical subjects.
The more mundane issues of excise duty increases and unpopular rises in taxation will be provided from within Parliament’s protected halls.
Overall, the Budget is expected to usher in the new post-Covid, and to a certain extent, post Brexit world that has been promised.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The minimum wage in the UK is set to rise from £8.91 per hour to £9.50 with the change to be confirmed in tomorrow’s budget.
This means an increase of just over £1.000 a year for a full-time employee.
The rise will, in Chancellor Rishi Sunak’s words, ensure that working pays and goes some way to ensuring that low pay is eliminated in this Parliament.
The rise in the minimum wage could bring the Government a problem when negotiations begin for public sector employees, since it is more than twice the rate of inflation.
A payment of £5.9 billion has also been announced for the NHS to reduce the backlog of operations caused by the lockdown and to improve the current length of waiting lists.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"There is little doubt that the UK economy has slowed considerably since its stellar recovery from recession.
It will be difficult for Chancellor of the Exchequer Rishi Sunak to put in place plans to boost the recovery, since it is almost impossible to know exactly which of the problems are most pressing.
Sunak is facing calls from industrial leaders' federations to leave taxation as it is, since with the current problems facing manufacturing and logistics, a rise in tax could easily blow them off course.
Hauliers are facing the threat of having to pay significantly higher wages to drivers to be both able to employ them and keep them. That will certainly have a knock-on effect.
Sunak clearly didn't reckon with the issues facing the economy like fuel prices, and high and rising inflation when he set out to plan for this Budget.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Prime Minister Boris Johnson is refusing to face the prospect of the country’s recovery stalling as inflation, supply chain issues and rising cases of Coronavirus threaten to derail his plans.
The latest data for Covid-19 infections shows that more than 50k new cases were reported in a day for the first time since July. This marks just the second time since January that the rate has reached that level.
Hospital admissions are rising too, although fatalities remain lower than were seen the last time infections were at the current level.
The Government is refusing to countenance a return to restrictions that were ended a few months ago. It is relying heavily on the booster dose of the vaccine.
The data shows that the majority of those infected are either below twenty or over eighty. With the half-term break taking place next week, this may provide a natural firebreak in the lower category.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Inflation data for September was released yesterday and the headline fell marginally to provide a little relief to the Bank of England.
The consumer price index fell from 3.2% year on year to 3.1%. While a single piece of data won't have too much effect on the Bank's plans, every journey starts with a single step.
Factory gate prices as depicted by producer price data, continue to rise, climbing from 11.2% to 11.4% over the same period.
While the country continues to face major bottlenecks in the logistics sector, exacerbated by the shortage of HGV drivers, inflation is unlikely to fall back below 3% in the short to medium-term.
The country appears to be slipping back towards a fourth Coronavirus lockdown as, yet again, the Government is seen to dither over making the decision.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The UK economy is facing a series of headwinds that could halt the country’s recovery from the Coronavirus Pandemic in its tracks.
First, the number of cases of Covid-19 is beginning to rise again with fatalities at a level not seen for six months, with NHS experts calling for the reinstatement of restrictions to create a firebreak.
Second, the economy is being significantly affected by shortages of both raw materials and spare parts, as well as delivery issues that are holding up distribution of imports from the country’s ports.
Finally, the Bank of England is having to consider the possibility of having to raise interest rates to head off rising inflation that Governor Andrew Bailey has been forced to accept is likely to continue to rise or at least remain at elevated levels well into next year.
The issues being seen in the logistics sector, glibly dismissed as part of the transition away from the country's reliance on cheap labour post-Brexit, by the Prime Minister, could easily remain an issue for a significant period, forcing another U-turn.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Chancellor of the Exchequer Rishi Sunak is preparing his Autumn budget that will be presented to Parliament next week.
He is trying to begin balancing the books but is also facing calls to continue spending. He is receiving requests for funds almost daily from colleagues who believe that the urge to splurge should continue.
When he was doling out support at the height of the pandemic, he was just six months into the job and was fast becoming the darling of his Party.
Now, things have changed almost completely. Far from providing free handouts, he is trying to rein in profligate Ministers.
Sunak sees his role as creating a sustainable path that allows the Government to continue Boris Johnson’s levelling up agenda, while also looking for opportunities to save funds. Every Department is being tasked with contributing to the pot by making savings and efficiencies totalling 5% of their total budget.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"As the recovery from the Coronavirus outbreak has begun, Bank of England Governor, Andrew Bailey, has been confident that the rise in inflation that has gripped most developed economies is simply a reaction to the level of support being provided.
This theory is about to be severely tested as the wholesale price of gas continues to rise. This is fed through into UK households in the shape of higher fuel costs and is also having a knock-on effect on other energy sectors, in particular, the price of oil.
Petrol prices are already significantly higher. The pump price of standard unleaded petrol is now above £1.40 per litre.
Bailey is beginning to feel the pinch and is concerned that the Central Bank will have to act to curtail what could fast become a major crisis for the recovery.
Raising short-term interest rates to curtail rising inflation would be a fairly drastic measure, but the MPC may be left with no choice.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Bank of England has been making every effort to maintain control over the withdrawal of support for the economy. Andrew Bailey, the Bank’s Governor, has been definite in his view that the increase in inflation that is being seen not only in the UK but across the entire developed world is temporary and will fade as supply chains return to normal.
However, each economy is different, facing its own individual issues as well as those common to each.
In the UK, the wholesale price of gas, which has quadrupled this year, will filter through to households and contribute to a more permanent increase in inflation.
The Bank of England has been making every effort to maintain control over the withdrawal of support for the economy. Andrew Bailey, the Bank’s Governor, has been definite in his view that the increase in inflation that is being seen not only in the UK but across the entire developed world is temporary and will fade as supply chains return to normal.
That problem will be shared with the Eurozone. The unique issue that is facing the UK is a major shortage of labour caused by Brexit.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Huw Pill, the new Bank of England Chief Economist, took to the wires for the first time yesterday to provide his view on the prospects for inflation and interest rates in the medium-term.
Pill, another of the Goldman Sachs alumni to find their way to the Central bank was expected to lean towards a hawkish stance given his past comments he has made, He feels that the balance of risks is leaning towards inflation remaining an issue for some time.
He expects higher levels of inflation to last longer than had been hoped for as the scale and magnitude of what he called transient inflation is lasting longer than expected.
Huw Pill, the new Bank of England Chief Economist, took to the wires for the first time yesterday to provide his view on the prospects for inflation and interest rates in the medium-term.
He went on to comment that markets cannot expect interest rates to remain at low levels for the coming years.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Boris Johnson made his first in person keynote speech to the Conservative Party Conference yesterday but failed to win over doubters who see his high wage, high productivity mantra as flawed.
The speech has been described as economically illiterate by some business groups, as he reaches for the unattainable.
The UK economy has historically promoted high employment and low productivity; this has suited the country as promoting an elevated level of employment has meant that the cake is shared around. Fewer people receiving a higher wage for increasing productivity is self-defeating.
Boris Johnson made his first in person keynote speech to the Conservative Party Conference yesterday but failed to win over doubters who see his high wage, high productivity mantra as flawed.
Johnson continues to believe that the shortages of workers in the logistics sector is due to the beginning of the post-Brexit levelling up process that is now beginning in earnest.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Prime Minister is setting out the Government’s agenda at his Party’s annual conference and using the time to try to set in motion the policies that were in the 2019 election manifesto but have been blown off course by the twin issues of first Brexit and then the Pandemic.
Johnson believes in a lower rate of taxation as a way of increasing productivity, but he fails to address the fact that by trying to put in place an economy where innovation and scientific advances are to the fore, he is effectively abandoning a large part of the workforce.
Manufacturing only makes up 20% of the country’s GDP, and that is set to fall further.
The Prime Minister is setting out the Government’s agenda at his Party’s annual conference and using the time to try to set in motion the policies that were in the 2019 election manifesto but have been blown off course by the twin issues of first Brexit and then the Pandemic.
He went on to say that issues with supply chains are due to the pace of the recovery from Covid-19 and admitted that just 127 foreign lorry drivers had applied for emergency visas to return to the UK.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Prime Minister spoke yesterday of his determination that the UK won’t return to being a low-skilled low wage economy, while his Chancellor speaking at the Conservative Party Conference claimed that the country has become drunk on cheap labour.
Ministers, who have been facing criticism of the policies they have introduced recently, have tried to deflect the blame onto businesses, claiming that they were ill-prepared for Brexit.
That is likely to draw a backlash, given that the apparent transition period was mostly taken up with continued negotiation.
The Prime Minister spoke yesterday of his determination that the UK won’t return to being a low-skilled low wage economy, while his Chancellor speaking at the Conservative Party Conference claimed that the country has become drunk on cheap labour.
Sunak went on to say that the country simply cannot afford to continue to add to its debt, having reached a critical point whereby it would be unfair to saddle future generations by putting them at a disadvantage.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Last week, Bank of England Governor Andrew Bailey jokingly compare the troubles facing the economy with the biblical plague of locusts.
As the week wore on, his comment became more prophetic as traders and investors dumped their holdings in Sterling, driving it to new year’s lows versus both the dollar and euro.
Johnson’s Chancellor will be speaking at the Conservative Party Conference, which begins later today in Manchester. It is expected that he will announce a £500 million fund to support the jobs market.
Last week, Bank of England Governor Andrew Bailey jokingly compare the troubles facing the economy with the biblical plague of locusts.
Sunak is expected to say that the Government plans to begin to reshape the economy following the Pandemic, utilizing the country’s strengths in technology and innovation.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The market’s perception of the state of the UK economy has seen a rapid decline over the past couple of weeks. While there were concerns about the recovery slowing down through the third and fourth quarters, following the second quarter where the UK saw GDP growth that was the strongest of any G7 country, the market has seen a series of headwinds develop that are not all Covid related.
The entire G7 is suffering from logistics issues that have been caused by demand outstripping supply as the global economy emerges from the Pandemic. The fact that vaccination programmes in the developed world all started at roughly the same time means that each nation was chasing a finite number of raw materials and spare parts, with inevitable consequences.
In the UK fiscal support via Government initiatives has been a success, but that clearly has to end at some point and with the furlough scheme, additional Universal credit payment and VAT reduction all having ended or are about to end, there is concern about the true state of the economy.
The market’s perception of the state of the UK economy has seen a rapid decline over the past couple of weeks. While there were concerns about the recovery slowing down through the third and fourth quarters, following the second quarter where the UK saw GDP growth that was the strongest of any G7 country, the market has seen a series of headwinds develop that are not all Covid related.
While there is no real fear of the economy slipping back into recession yet, one of the market's greatest fears, that of stagflation, is being mentioned. In order for an economy to suffer from stagflation demand has to slow dramatically and that is not yet evident, while employment falls while inflation rises almost out of control. That is the doomsday scenario, since it is difficult for an economy to escape once it takes hold.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The pound has been hit by a perfect storm of negative drivers over the past few days that has seen it plummet against both the dollar and Euro.
The market’s confidence in the UK’s recovery has been shattered by the crisis that has seen wholesale gas prices continue to rise, causing the collapse of several providers. In addition, a continuing shortage of HGV drivers has led to scenes not seen for many years of drivers queuing to fill their tanks with fuel.
Traders are concerned that the UK’s recovery from the Pandemic will be blown off course by these new issues, especially since the wider shortage of raw materials and spare parts is still unresolved.
The pound has been hit by a perfect storm of negative drivers over the past few days that has seen it plummet against both the dollar and Euro.
Bank of England Governor Andrew Bailey is sticking to his mantra concerning inflation. Bailey believes that the rise in inflation in the UK is temporary, although he did acknowledge that the timing of GDP returning to pre-Pandemic levels has been pushed back by a month or two.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Boris Johnson’s Government, in power since the 2019 General election, is in danger of squandering its record majority by being tentative, confused and seemingly unable to plan,
This began with Brexit negotiations that were ongoing when Johnson took over from Theresa May. Continued through almost every stage of the Pandemic and now, faced with both the wholesale gas price increase and the HGV driver shortage.
In many cases Johnson and his Ministers appear to be quick to comment, almost without either thinking or having all the facts to hand, but slow to decide a course of action.
Boris Johnson’s Government, in power since the 2019 General election, is in danger of squandering its record majority by being tentative, confused and seemingly unable to plan,
The number of changes that have had to be made to policies that have clearly not been thought through is bordering on the farcical.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The accusations that were levelled at the Government at the start of the Pandemic are rising again as the growing crisis over fuel deliveries continues to grow.
It is clear that there is an issue over the number of delivery drivers, but instead of admitting the issue and making plans to solve the problem, Ministers are either blaming the issue on panic buying or denying that there is an issue at all.
The lack of planning and foresight around the issues likely to occur post-Brexit is beginning to bite into the UK’s recovery from the Pandemic, but with driver shortages across the whole of mainland Europe, the UK is unable to compete with Germany or Poland where drivers pay and conditions are better than in the UK.
The accusations that were levelled at the Government at the start of the Pandemic are rising again as the growing crisis over fuel deliveries continues to grow.
It now seems likely that the army will be used to bridge the gap but that is only a temporary solution, and something will need to be done to provide a permanent solution.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"According to various sources, there are close to 100k vacancies for HGV drivers across the UK. The Government’s plans to reduce the shortage look like they will fall well short of what is needed.
The reaction of the transport minister is similar to that of the health minister at the start of the pandemic, trying to ignore the issue until it was clear it wasn’t going away without intervention.
With the shortages in supermarkets slowly worsening and deliveries of fuel to petrol stations also becoming a significant issue, it wasn’t helpful when the only answer the transport minister had when asked for a comment at the weekend was the that the issue is being overplayed and the queues at petrol stations are merely being caused by the British penchant for joining a queue.
According to various sources, there are close to 100k vacancies for HGV drivers across the UK. The Government’s plans to reduce the shortage look like they will fall well short of what is needed.
The Business Secretary issued Government plans specifically aimed at the fuel supply sector yesterday. The plans include provision of short-term visas to drivers coming from abroad and the suspension of competition rules to allow better information sharing to ensure provision to those areas where supplies are particularly low.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The ongoing crisis in the logistics sector reached a new high yesterday as one major supplier began to ration petrol as supplies begin to run low.
Issues over supply as demand has returned following the lockdown have been exacerbated by the scarcity of HGV drivers. This has been caused by two factors that are linked by Brexit.
Since UK haulage firms could employ drivers from within the EU at a low wage in comparison to what was expected by British drivers, the sector failed to employ local workers.
The ongoing crisis in the logistics sector reached a new high yesterday as one major supplier began to ration petrol as supplies begin to run low.
As soon as the EU nationals began to leave the UK due to the changes to employment rules post-Brexit, the shortage began, and costs began to rise due to the demands of locally sourced drivers.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Bank of England’s Monetary Policy Committee meeting will end today with the most likely outcome a slightly more hawkish stance but no change to policy.
There are sure to be votes in favour of a rate hike given the most recent comments of some members of the committee, but they are unlikely to garner sufficient support to elicit a change in policy.
There is no question that the recovery of the economy from the Coronavirus Pandemic is now sufficiently strong for the withdrawal of support to be considered.
The Bank of England’s Monetary Policy Committee meeting will end today with the most likely outcome a slightly more hawkish stance but no change to policy.
However, with the Government withdrawing its furlough scheme completely from the end of this month, there is still sufficient doubt to ensure that a majority of MPC members will want to hang on for at least another month before they vote in favour of any change.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Accusations can be levelled at any group that is put together to mirror the outcomes of a government body that it is easy to be controversial or radical when there are no consequences.
However, the shadow MPC that is supported by the Times newspaper voted 9-0 in favour of ending QE early, with £50 billion of Treasury Bonds still to be purchased as part of the programme.
The committee, which is made up of well renowned economists and former members of the MPC, believes that ending support now would provide adequate notice for the beginning of rate increases that will be needed to keep inflation in check.
Accusations can be levelled at any group that is put together to mirror the outcomes of a government body that it is easy to be controversial or radical when there are no consequences.
Some members went as far as suggesting a 0.25% increase in rates immediately, as well as the end of QE.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"There is a distinct lack of clarity about why there is a global shortage of gas just as the Northern Hemisphere enters its highest demand period.
Last winter was unusually cold in Europe and Asia which increased demand and it seems that Russia has decreased supply leading to accusations of manipulation.
Alternative sources of energy such as wind power have also been suffering from meteorological issues.
There is a distinct lack of clarity about why there is a global shortage of gas just as the Northern Hemisphere enters its highest demand period.
The effect of a prolonged shortage of gas could have devastating consequences for the recovering economies of the Eurozone and the UK.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Bank of England’s Monetary Policy Committee will meet this week. It will be its first opportunity to discuss the economic recovery from the Coronavirus Pandemic since early August.
The committee has undergone something of a move towards a more hawkish stance with the introduction of a new external member in Catherine Mann and the arrival of Huw Pill as Chief Economist, replacing Andrew Haldane.
Haldane was expected to take up a new role as Chief Executive of the Royal Society of Arts, but it was announced at the weekend that he will be the Government’s new levelling up guru.
The Bank of England’s Monetary Policy Committee will meet this week. It will be its first opportunity to discuss the economic recovery from the Coronavirus Pandemic since early August.
Both Pill and Mann are on record as commenting that the Bank of England should begin to withdraw additional support for the economy sooner rather than later.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The recovery of the UK economy is waning slightly as the country faces several headwinds as its struggles to regain where it was pre-Covid.
The UK posted by far the fastest rate of recovery in G20 for Q2, growing at 4.8% in Q2 after a 1.6% contraction in Q1. The next fastest recovery was seen in Italy, which grew by 2.7%.
That rate of growth won’t be repeated in Q3, as the effect of the emergence from lockdown for several sectors of the economy will no longer be present.
The recovery of the UK economy is waning slightly as the country faces several headwinds as its struggles to regain where it was pre-Covid.
The hospitality and tourism sectors saw rates of growth well above the average but the inability to attract staff, which has led to shortages as well as difficulties in the logistics sector, have seen the recovery stutter.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Prime Minister Boris Johnson reshuffled his Cabinet yesterday, although two of the top three jobs remain unchanged.
Despite the suspected disagreement between Johnson and Chancellor Rishi Sunak, he retained his place to continue to drive forward the recovery while working to repair the gaping hole that has been ripped in the UK’s budget.
Often controversial Home Secretary Priti Patel also retained her role in the Cabinet, as Johnson tries to ensure that he is surrounded with colleagues with a reputation for getting the job done.
Prime Minister Boris Johnson reshuffled his Cabinet yesterday, although two of the top three jobs remain unchanged.
The other senior role, that of Foreign Secretary, has changed hands. Dominic Raab has been demoted and replaced by former International Trade Secretary Liz Truss. Raab moves to the Justice Department and becomes Deputy Prime Minister, a position on that has remained empty since 2015
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The recovery of the UK economy continues to be buffeted by the shortages created by the lack of HGV drivers and the global shortage of spare parts and raw materials.
Yesterday’s release of employment data for August showed that more people are finding jobs which brought down both the claimant count, by 58.6k and the unemployment rate from 4.7%in July to 4.6%.
This shows that the economy is still travelling in the right direction, but there is little doubt that the recovery will be weaker in Q3 than it was in Q2.
The recovery of the UK economy continues to be buffeted by the shortages created by the lack of HGV drivers and the global shortage of spare parts and raw materials.
Average earnings fell in August, both pre and post bo9nus. That is a sign that the inflation rate that will be released later this morning will also show prices have risen, but at a slower rate than previously.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The UK economy remains below the level it was before Coronavirus arrived.
The latest monthly data from NIESR show that the economy is still 2.1% smaller and the rate of growth slowed in July. The MoM rise in GDP in July over June was just 0.1%, versus a 1% rise in June.
The currency market is still being held within its recent ranges by expectations that Central Banks will begin to withdraw accommodation on one side, and disappointing data on the other.
The UK economy remains below the level it was before Coronavirus arrived.
The most recent data releases in the UK have not been sufficiently poor to drive the pound lower, and the release of employment and inflation this week will contribute to the overall mood of wait and see.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Andrew Bailey, the Governor of the Bank of England, believes that there are up to two million people who are eligible to find employment who, basically choose not to. In a speech yesterday, Bailey called upon those who are considering their options, to reconsider their choices and re-join the workforce at the earliest opportunity.
Coupled with the withdrawal of the furlough payment by Chancellor Rishi Sunak in the next few weeks, an overall lack of workers is beginning to hamper the recovery.
Bailey commented that the latest data he has seen for payments and mobility suggest that the recovery is levelling off and companies are becoming desperate for workers to fill vacant roles.
Andrew Bailey, the Governor of the Bank of England, believes that there are up to two million people who are eligible to find employment who, basically choose not to. In a speech yesterday, Bailey called upon those who are considering their options, to reconsider their choices and re-join the workforce at the earliest opportunity.
It may be that there is a game of cat and mouse developing where businesses are advertising opportunities, yet the workers who would generally fill those roles are holding out to see if there is a possibility of the rate for the role increasing given the advance being seen in inflation.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Prime Minister has again managed to carry his Party through little more than the force of his personality.
Johnson is in the fortunate position of having beaten the more senior members of the Conservative Party when he won his election as leader, he is not likely to be challenged (yet) by the upland coming generation that will likely take over when he calls it day.
The increase in National Insurance contributions that was announced a couple of days ago will pass through Parliament virtually unchallenged. This is despite the fact that there has been a 180-degree turn from both major political parties.
The Prime Minister has again managed to carry his Party through little more than the force of his personality.
The Conservatives, proud to be the Party of low taxation and austerity have raised taxes to fund services, and Labour the tax the rich Party, will vote against the Bill.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"At first glance, it looks like Boris Johnson has abandoned one of his major election promises. That is to not raise taxes during this Parliament. However, trying to hold a government to its manifesto promises following the Brexit debacle and the Covid-19 is nigh on impossible.
Furthermore, considering that one of his promises was to increase spending on both healthcare and social care, he is stuck between a rock and a hard place.
The announcement of an increase of 1.5% in National Insurance contributions has divided the ruling Conservative Party
At first glance, it looks like Boris Johnson has abandoned one of his major election promises. That is to not raise taxes during this Parliament. However, trying to hold a government to its manifesto promises following the Brexit debacle and the Covid-19 is nigh on impossible.
Michael Saunders, a perennial hawk on the Bank of England’s Monetary Policy Committee, spoke yesterday of his concerns about further asset purchases. He believes that since the economy has now reached close to pre-Pandemic conditions, that it is time to start to taper support.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Concerns that the likely slowdown in the economy in the third quarter compared to Q2 are growing. There are also medium-term fears that the fourth quarter will provide a downside surprise.
Comparisons continue to be made about the actions of the BoE, ECB and FOMC. Prior to the past two weeks or so, a tightening of monetary policy through a reduction of asset purchases in the U.S. was the clear favourite.
The UK economy has been the most consistent performer since the recovery started, that is due in no small part to the fact that the UK stole a march, by starting its vaccination programme first and has been able to maintain its performance.
Concerns that the likely slowdown in the economy in the third quarter compared to Q2 are growing. There are also medium-term fears that the fourth quarter will provide a downside surprise.
Outside the direct result of the Pandemic, there have been several factors that have threatened to derail the recovery, but have, so far, failed.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Prime Minister faces a bumpy ride as discussions begin about what he believes to be one of his major election manifesto pledges. The increase in social care benefits may require a rise in taxes and has been labelled as taxing the young to ensure that the old are able to cling on to their homes.
The cost of social care has rocketed as the population has aged, with relatively few of the population making sufficient allowance for the care they will need once they retire from work.
The current level of National Insurance that is paid will not come close to covering the cost of the care needs of the majority of the population.
The Prime Minister faces a bumpy ride as discussions begin about what he believes to be one of his major election manifesto pledges. The increase in social care benefits may require a rise in taxes and has been labelled as taxing the young to ensure that the old are able to cling on to their homes.
Add to that the backlogs being seen by the National Health Service, with those needing routine procedures at record highs.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Chancellor of the Exchequer Rishi Sunak is looking to hit around half of the working population with a 2% tax rise to fund the Prime Minister’s social care plans.
It is believed that around £10 billion of additional funding is needed to support the NHS as the country returns to normal, with waiting lists for routine procedures at an all-time high.
The alternative to raising taxes is a reduction in services and a return to austerity, a choice the Government has promised not to make.
Chancellor of the Exchequer Rishi Sunak is looking to hit around half of the working population with a 2% tax rise to fund the Prime Minister’s social care plans.
Sunak continues to issue statements that he is committed to keeping public finances on a sustainable footing, with a policy promise that Government debt should return to pre-Pandemic levels by the 2022/23 financial year.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Bank of England’s new Chief Economist comes from a tried and tested background in the City of London.
Huw Pill follows ex-Goldman Sachs colleagues Mark Carney and Ben Broadbent on a well-trodden path to Threadneedle Street.
It had been suggested that the Bank was looking into a more diverse hire. Since Andrew Haldane announced in April that he would be leaving his post, BoE Governor Andrew Bailey had said how keen he is to tackle the lack of racial inequality at the institution, but in the end nothing has really changed.
The Bank of England’s new Chief Economist comes from a tried and tested background in the City of London.
Pill is believed to be on the hawkish side of monetary policy and will start next week. He is a far more conventional economist than his predecessor and will bring a more conservative, less unconventional view to the MPC
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The end of the Government’s furlough scheme at the end of this month is coming under question as the number of workers furloughed remains around 1.75 million.
Most of those still furloughed are working some hours, but there is a growing feeling that the end of the scheme will mean many businesses in the SME sector will be unable to remain viable, since they are still not producing sufficient cash flow to enable them to continue to trade.
The calls are for a more gradual window. There has already been a single cut from 80% of the worker’s wages to 60% and Trades Union Representatives are calling for a further cut to allow businesses to catch up with themselves, before the scheme is removed completely.
The end of the Government’s furlough scheme at the end of this month is coming under question as the number of workers furloughed remains around 1.75 million.
Chancellor of the Exchequer Rishi Sunak will have done his sums based upon an end to the scheme on September 30th and an extension would mean the ONS having to recalculate the effect and Sunak’s budget due for delivery in January would have to be completely recalculated.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The logistics sector of the UK economy is the glue which holds all other parts together.
It is facing a perfect storm of concerns that while not unique to the UK could blow the recovery off course.
First, there are shortages of raw materials due to demand outstripping supply and as an island, actually getting resources to where they are needed is fraught with issues.
The logistics sector of the UK economy is the glue which holds all other parts together.
Second, there is a genuine shortage of qualified lorry drivers that has been exacerbated by the departure of migrant drivers from Europe due to Brexit and a lack of competitive pay and conditions within the industry.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The UK economy, which is primarily driven by the services sector, is likely to embrace the change to a hybrid model as the country emerges from the Coronavirus pandemic.
A report published this week shows that a majority of businesses where home working is possible are positive about a change. There is a degree of scepticism among trades unions about some firms taking advantage of the situation and trying to reap the financial benefits themselves by attempting to negotiate salaries lower.
The switch to home working has clearly been exacerbated by the Pandemic, but the advances in communication which have driven the move were coming in any event.
The UK economy, which is primarily driven by the services sector, is likely to embrace the change to a hybrid model as the country emerges from the Coronavirus pandemic.
The jury is out regarding the benefit to work life balance versus the clear disadvantage to the social development that comes with having staff all in one place.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The shortage of raw materials, spare parts and foodstuffs is worsening almost by the day. It appears there has been something of a perfect storm that is affecting just about every sector of the economy.
Logistics firms are struggling to fill vacancies for transport workers, Brexit red tape adds to delays, there is a global shortage of semiconductors and another rise in Coronavirus infections is seeing hundreds of thousands of workers self-isolating.
The situation has the potential to disrupt Christmas deliveries already, and several major food outlets are closing outlets. The closures are temporary for now, but if the situation continues, an escalation could become unavoidable.
The shortage of raw materials, spare parts and foodstuffs is worsening almost by the day. It appears there has been something of a perfect storm that is affecting just about every sector of the economy.
Supply chains are disrupted to such an extent that it is becoming more and more difficult to fill in the gaps,
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The UK economy will emerge from the Coronavirus Pandemic looks very different to how it looked pre-lockdown.
Historically, it often takes a major event to allow significant changes to take place. Brexit has become lost in the whole upheaval that the Pandemic has brought and going forward the Government will need to resurrect its plans for a more global approach to trade.
The UK’s relationship with the U.S. is currently strained over the decision made yesterday by President Biden not to extend the time limit for the final removal of troops from Afghanistan.
The UK economy will emerge from the Coronavirus Pandemic looks very different to how it looked pre-lockdown.
It means that there is potential for foreign nationals to become stranded when the borders slam shut, and the Taliban begins to take complete control.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The pound was particularly volatile yesterday as traders tried to decipher signals coming from the equity market regarding a potential bid from a U.S. private equity firm for the UK supermarket chain Sainsbury’s.
At times when U.S. firms are bidding for control of a UK entity, there is a mistaken belief that the buyer will need to buy a significant amount of Sterling to complete the purchase. The fact is that these deals, although valued in billions, are almost never cash transactions, and are never completed in a short time frame.
Therefore, any purchase of Sterling is unlikely to be a single transaction, or series of transactions, and even if they were, they would take place over such a long period as to have no effect on the value of Sterling.
The pound was particularly volatile yesterday as traders tried to decipher signals coming from the equity market regarding a potential bid from a U.S. private equity firm for the UK supermarket chain Sainsbury’s.
The next few months will see the pound to be driven by the market’s perception of the strength of the economic recovery from the Coronavirus Pandemic and the timetable for the Bank of England to begin to taper asset purchases.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Brexit could still bring issues for the UK in terms of being able to export to Europe.
Issues over red tape have been hidden amongst the several issues that have faced businesses as the economy has opened up.
The soaring cost of raw materials, shortages of parts, especially semiconductors, issues over migrant labour following Brexit, particularly in the hospitality sector are all unlikely to be solved in the short term.
Brexit could still bring issues for the UK in terms of being able to export to Europe.
Several representative bodies, including the CBI and Federation of Small Businesses, have been lobbying officials on both sides of the Channel to step in to cut the level of bureaucracy that is endangering their member’s very existence.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The boom in the housing market that has taken place in the UK during the lockdown is set to push household expenditures higher as mortgage interest rates are set to rise.
This will be a new phenomenon for those who have entered the market over the past ten years or so who have had the luxury of both low interest rates and lenders competing to attract borrowers with fixed rate products.
The next five to ten years are likely to see a turnaround, with banks and building societies being obliged to scrutinize applications from an affordability perspective in a market which is likely to have topped out.
The boom in the housing market that has taken place in the UK during the lockdown is set to push household expenditures higher as mortgage interest rates are set to rise.
While this will be a relatively slow process, there it will have a significant long-term effect on the housing market, although a scarcity of stock will probably go some way to providing a balance.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Businesses in the UK are yet to find out what their part will be in the fiscal rebalancing that will be necessary as the country recovers from the Covid-19 Pandemic.
For that reason, bosses' union, The Confederation of British Industry is lobbying the Bank of England to hold off on any tightening of monetary policy until the burden on industry is known.
It seems that in common with other nations, UK businesses believe that inflation is the lesser of two evils when compared to the issue of the country’s recovery.
Businesses in the UK are yet to find out what their part will be in the fiscal rebalancing that will be necessary as the country recovers from the Covid-19 Pandemic.
The Bank of England has elevated itself to possibly the most hawkish of the G4 Central Banks following its most recent advance guidance on monetary policy.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Chancellor of the Exchequer Rishi Sunak has suddenly burst back into the political limelight after a few months trying to address the imbalance in the country’s accounts.
Fresh from having upset his boss by writing him a letter demanding a change in Government policy on travel restrictions, he has waded into the debate regarding working from home
It is becoming more prevalent that civil servants are returning to their desks, a move supported by Sunak who believes that the contacts he made in his early years would have been impossible without face-to-face contact.
Chancellor of the Exchequer Rishi Sunak has suddenly burst back into the political limelight after a few months trying to address the imbalance in the country’s accounts.
There is of course an opposite view that a cult of personality is more difficult to build through Zoom or Teams. This is a debate that will run and run through the service sector as the pros and cons are weighed up from both sides.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Chancellor of the Exchequer Rishi Sunak appears to have overstepped his authority, or at least misjudged the depth of his relationship with the Prime Minister.
He seems to have written to Boris Johnson to call for a significant easing of travel restrictions in order to speed the recovery of the economy from Coronavirus. Johnson appears to have taken the letter as both a demand that he should act and a threat that he is undoing Sunak’s work in saving the economy.
According to several weekend newspapers, Johnson was apoplectic with rage even suggesting that it might be time for Sunak to be moved from the powerful Treasury to a lesser role in health, which after recent events has become something of a poison chalice.
Chancellor of the Exchequer Rishi Sunak appears to have overstepped his authority, or at least misjudged the depth of his relationship with the Prime Minister.
While this may be an insight into the personal relationships that exist (or possibly don’t) between Cabinet Ministers, it is unlikely that it will mean anything in the long run and is synonymous with the summer silly season, when reporters have little else to do other than make mischief.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Yesterday’s meeting of the Bank of England’s Monetary Policy Committee confirmed that the process towards a reduction of support for the economy is about to begin.
The decision to leave interest rates unchanged at 0.1% was entirely predictable, while there had been a degree of speculation about the start of a reduction in the asset purchase scheme. In the end, it was left unchanged at £895 billion. There was just one dissenting vote. Inflation hawk Michael Saunders voted for a reduction in the level of asset purchases.
BoE Governor Andrew Bailey spoke at his press conference of the need for a modest tightening should the economy grow as expected. The ambiguity of that remark was not lost on analysts.
Yesterday’s meeting of the Bank of England’s Monetary Policy Committee confirmed that the process towards a reduction of support for the economy is about to begin.
Bailey has been outspoken about the fact that he believes the recent rise in inflation is transitory.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"To start with a cliché, today’s Bank of England Monetary Policy Committee meeting is potentially one of the most important in living memory. Either that, or the MPC members will simply agree among themselves that the time isn’t right for a tightening of policy and the market will enter its summer lull, none the wiser.
As with most such decisions, the likely outcome won’t be as clearly defined. Just about every action, every word of Andrew Bailey’s statement, and his answers to questions in the subsequent press conference will be either open to interpretation or ambiguous.
The first of the ambiguities will be the votes. There is little doubt that the vote on a change to interest rates will be 9-0. There is no belief among MPC members that interest rates need to rise, despite inflation.
To start with a cliché, today’s Bank of England Monetary Policy Committee meeting is potentially one of the most important in living memory. Either that, or the MPC members will simply agree among themselves that the time isn’t right for a tightening of policy and the market will enter its summer lull, none the wiser.
It is likely that Bailey will continue to use the transitory mantra, but there are some who feel that unless dealt with, the return of inflation could be permanent and become a self-fulfilling prophecy which drives pay demands, particularly in the public sector, significantly higher.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The third wave of Covid-19 to hit the UK, brought about by the Delta variant of the virus, appears to be on the decline as every form of vaccine that has been used appears to be effective against this strain.
While this is good news for the continued recovery of the economy, scientists are wary of another variant arriving to coincide with the winter flu season.
For this reason, analysts expect the Bank of England’s Monetary Policy Committee, which meets tomorrow, to keep support at its current level despite the possibility of one or two dissenters over the level of asset purchases in the current programme.
The third wave of Covid-19 to hit the UK, brought about by the Delta variant of the virus, appears to be on the decline as every form of vaccine that has been used appears to be effective against this strain.
Overall, the expectation for the MPC meeting is for a neutral outcome, with just a shade more optimism about the continued recovery.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Manufacturing activity in the UK fell from 63.9 in June to 60.4 in July. This was mainly due to technical difficulties like shortages of materials and supply chain bottlenecks, Despite the fall the recovery of the sector which now makes up a little over 20% of GDP remains strong.
Transport and labour remain the most significant issues, while the overall recovery has seen costs increase, which will keep inflation on the front burner.
Supply chain difficulties and shortages of raw materials are unlikely to be resolved until next year, and this will drive the pace at which the recovery takes hold.
Manufacturing activity in the UK fell from 63.9 in June to 60.4 in July. This was mainly due to technical difficulties like shortages of materials and supply chain bottlenecks, Despite the fall the recovery of the sector which now makes up a little over 20% of GDP remains strong.
This data may be a factor when the MPC meets on Thursday. It will allow those who believe that support should stay in place until the recovery is sufficiently robust to stand on its own, while the hawks will point to the inflationary effects of rising costs.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"This week’s meeting of the Bank of England’s Monetary Policy Committee could see the first split votes of the current cycle. While there is certain to be a 9-0 vote on leaving interest rates at historical lows, there may be one or two votes in favour of reducing the level of asset purchases.
That would be a fairly cosmetic event, since there is still a majority in favour of support remaining at its current level. It would, however, drive the view that the landscape is changing and there is a change if not on the horizon, then certainly coming closer.
Andrew Haldane, the bank’s ex-Chief Economist, voted to cut the current round of intervention from £150 billion to £100 billion. That was seen as Haldane’s final act of the campaign over his final few months to convince the nation about how strong the recovery has been.
This week’s meeting of the Bank of England’s Monetary Policy Committee could see the first split votes of the current cycle. While there is certain to be a 9-0 vote on leaving interest rates at historical lows, there may be one or two votes in favour of reducing the level of asset purchases.
This week’s meeting will see how strong the views of Michael Saunders and Dave Ramsden are. They have both spoken recently of the need to tighten policy sooner rather than later. It is hard to discuss this issue factually since it is a completely new event and comes down to the opinion of those in the know.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Next week’s MPC meeting will be crucial in the Bank’s plans to both support the economy and head off inflation that is continuing to rise, but at a slower pace.
While there will be no change to interest rates, which will continue to be held at a historically low level, the discussion about beginning the taper of asset purchases will be significant.
There have been several comments made by MPC members recently in which their position has either changed or softened. It remains to be seen whether the vote to retain the current level of purchases sees any votes against. If that were to happen, it would be a major signal to the market that the end of support for the economy is approaching.
Next week’s MPC meeting will be crucial in the Bank’s plans to both support the economy and head off inflation that is continuing to rise, but at a slower pace.
The comments that have been made have so far ignored the inflation question. They have mainly been questioning the strength of the recovery, either saying that it is sufficiently robust to stand on its own or concerned that there are too many imponderables to take the chance of needing to reverse a decision in the Autumn.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Any thoughts that the Bank of England may be considering tightening monetary policy were dashed when usually hawkish Gertjan Vlieghe commented that he does not believe that now is not the time to tighten monetary policy.
The level of uncertainty, that could still derail the recovery, means that the Bank is unlikely to tighten monetary policy this year.
Despite there being almost zero chance of a rise in interest rates or any change to the Asset Purchase Scheme, next week’s meeting will still attract the market's attention since there is a possibility that Andrew Bailey will provide further guidance as to the Bank’s intentions.
Any thoughts that the Bank of England may be considering tightening monetary policy were dashed when usually hawkish Gertjan Vlieghe commented that he does not believe that now is not the time to tighten monetary policy.
The IMF published updated guidance following a review of potential global growth forecasts yesterday. The UK is set to rival the U.S. by growing by 7% this year. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Bank of England MPC member Gertjan Vlieghe spoke yesterday of the need for the recovery from the Pandemic to be creative, as traditional policies have little room left to help. He went on to say that as longevity increases, the Government should consider raising the retirement age.
As workers come close to retirement they save more and spend less, and this depresses interest rates.
The Pandemic has brought about changes in working practices that could suit older workers. The most prominent of these is working from home.
Bank of England MPC member Gertjan Vlieghe spoke yesterday of the need for the recovery from the Pandemic to be creative, as traditional policies have little room left to help. He went on to say that as longevity increases, the Government should consider raising the retirement age.
Vlieghe ended by saying that he is not against negative interest rates as a policy choice, and next time monetary stimulus becomes necessary he would vote according to the situation at the time. Nevertheless, he believes that the Bank’s current monetary policy stance will remain in place for several quarters to come.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
One week on from Freedom Day and the ‘pingdemic’ continues to draw criticism, fuelling conspiracy theories of lockdown by proxy. The economy is performing well and the recovery is progressing nicely, but inflation is above the Government's target and creeping higher, so there is already reason to start tapering support, but with the global recovery fuelled by printing money, Central Bankers seem reluctant to be the first to turning down the money taps.
The FOMC meet this week. Since Powell formally put tapering on the agenda, we can expect discussions to mirror those reported from most Central Bank meetings. Inflation will remain a key driver of these discussions. New York is reporting raging inflation, which is expected to rise further and we have preliminary Q2 GDP due out on Thursday, which will surely be available to the Fed.
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Bank of England Deputy Governor for Monetary Policy Ben Broadbent spoke yesterday of his belief that the appropriate response to the current rise in inflation is to ignore it.
This is based on a growing belief that given the level of support that has been pumped into the economy to keep it afloat during the Pandemic, inflation is both a small price to pay and a wholly expected outcome.
Strong demand and supply bottlenecks continue to drive prices higher, but the trend for higher prices is unlikely to persist.
Bank of England Deputy Governor for Monetary Policy Ben Broadbent spoke yesterday of his belief that the appropriate response to the current rise in inflation is to ignore it.
Broadbent finds himself at odds with his MPC colleagues Dave Ramsden and Michael Saunders, who last week surprised markets by calling for tighter policy sooner rather than later.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"There is a growing concern for the Government around the jobs market in the UK.
On the one hand, payrolls are growing at a rate not seen in many years as the economy reopens, but the rate at which workers are receiving messages from the Government’s track and trace app telling them to self-isolate is growing at a similar pace.
The muddle over what is happening since Monday’s reopening of the economy can almost totally be laid at Boris Johnson’s door.
There is a growing concern for the Government around the jobs market in the UK.
Although he has faced several almost impossible decisions trying to balance the spread of the Delta Variant of the virus with the need for the economy to reopen, he has appeared both confused and driven by short-termism.
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Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Following last week’s inflation data that showed prices are still rising rapidly, monetary Policy Committee Member Jonathan Haskel was the first to put his head above the parapet.
Haskel said he sees two major issues that could derail the recovery in the coming weeks/months.
First would be the bank withdrawing monetary support by slowing the rate at which it is purchasing assets or ending the programme completely and, second, the continued rise in cases of Covid-19 driven by the highly transmissible Delta Variant.
Two of Jonathan Haskel’s colleagues on the MPC have called for tapering to begin sooner rather than later. Gertjan Vlieghe and Michael Saunders, both considered hawks, believe that the bank should be preparing the ground for a tightening. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Today, the UK removes virtually every restriction that was enforceable by law due to the Coronavirus Pandemic.
In a move that was perhaps symbolic of the Government’s recent handling of the crisis, the Health Secretary has been forced to self-isolate having been pinged by the test and trace app, which left the Prime Minister and Chancellor in something of a dilemma over where they needed to also self-isolate.
Their first instinct was that they didn’t need to remove themselves from public life, only to perform a 180 a couple of hours later.
While it appears somewhat farcical for the UK to be lowering its guard just as the number of infections reached its highest level for close to six months, this is a more complicated issue than it appears on the surface."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Data released yesterday showed that the economy is going to reach pre-Pandemic levels faster than had been expected. The employment report showed that the claimant count fell by 114k following an upwardly revised 151k fall in May.
The flip side of this strong showing for the economy is the growing concern that the country will face labour shortages in several sectors going forward.
Five years on from a Brexit vote which many feel was swayed by a belief that the country would be better placed if it relied less on workers from the EU, the country now faces a situation where it may need to amend employment law to allow foreign workers to return.
With inflation growing at a rate which must be ringing alarm bells at the Bank of England was further evidence contained in the employment report. Not only are more people finding work, they are also being paid more."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Data for consumer price inflation was released yesterday. It showed that the headline figure rose to 2.5%, its highest since August 2018. The median forecast was for a rise to 2.2%.
With producer prices which show inflation at the factory gate also rising, it is likely that rising inflation will be a feature of the economy for several months.
This could mean that the Bank of England has to review its strategy for supporting the economy into next year, as it could be forced to raise interest rates as soon as Q2 '22.
As central banks in the developed world switch policy from being proactive to reactive, this rising inflation was the issue that caused most concern. Since the recovery began in earnest, there have been conversations being had about just how far inflation can go."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Bank of England’s Financial Policy Committee published its twice-yearly report on risks to the economy yesterday, together with several changes to measures that have been in place during the Pandemic.
The Committee performed several stress tests on the outcome of the Pandemic on the financial markets and its participants, and it was decided that with immediate effect, banks would no longer be banned from paying dividends to their shareholders.
This restriction was initially put in place in March of last year to protect banks’ capital base that was expected to come under pressure from the fallout of businesses ceasing to trade. The conditions were loosened a little in December and removed completely yesterday.
The Committee noted that for a few areas of the economy, asset prices are beginning to appear stretched. The most notable is the property market, where there has been exceptionally strong growth."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Andrew Bailey, the Bank of England Governor, remains relaxed about the prospect of inflation remaining above the Government’s 2% target for the foreseeable future.
Central banks in the developed world have all adopted a less proactive attitude to monetary policy, given the unpredictability of the recovery and how the withdrawal of various forms of support will affect growth and activity.
In the UK, the gradual withdrawal of various Government initiatives will bring unknown consequences, in particular to the property and employment markets.
For this reason, Bailey has to allow inflation to rise beyond its target level in order to be in a position to be flexible, leaving support in place if the economy dips, or beginning to taper if Monday's complete reopening drives inflation to levels which are considered to be unmanageable."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"During the Pandemic, the UK saw a rise of 10% in online shopping. The previous 10% took seven years!
While that is one of the more obvious statistics you will read about the outcome of Covid-19, the question is, how quickly will the next 10% rise be seen, and how will that change the makeup of one of the most fundamental parts of life.
Meeting for a coffee then a mooch around the shops will be a thing of the past. We have seen that shopping for groceries is now done online by 29% of the population. And it is unlikely that the online juggernaut can be stopped.
The sea change in retail behaviour has already seen in several high street staples. It is likely that the major retail entrepreneurs are already hard at work deciding what their business will look like in 5-7 years.
They will no doubt get it right, as they will certainly decide how our retail habits develop. However, there is a whole class of retail outlet which cannot serve its clients online. The aforementioned coffee shop will suffer, as will many independent food and related outlets."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Bank of England Governor Andrew Bailey is feeling more and more pressure to act to tighten monetary policy in light of rising inflation. He remains stoic in his determination to continue to support the economy, which he considers still to be at risk.
He is basing his desire to continue with bond purchase and historically low interest rates around the fact that Government support is slowly being withdrawn and that could have a significant effect on growth.
Employers are being expected to contribute more to the furlough scheme, and that will in all likelihood lead to a rise in businesses closing their doors permanently. There has been speculation for some time that without support, many firms are simply not viable.
The change in working practices that is seeing many businesses adopt a hybrid policy for working from home versus attending the office will also have a knock-on effect on support businesses. Cafés and coffee shops are the obvious victims, but there is a whole support structure that will see its customer base permanently decimated."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The rise in cases of Coronavirus which is almost being ignored by the Government will start to concern the Bank of England if it continues for any length of time.
With most restrictions set to be withdrawn in under two weeks’ time, it will be difficult to halt, and although hospitalizations will remain low as a percentage of the number of those infected it will hit the economy hard if it continues for any significant period of time.
The Bank of England Governor has clearly set out his agenda for the beginning of tapering the Bank’s support for the economy, and his most obvious virtue is patience.
Andrew Bailey believes that despite the rise in inflation, even if it does reach 4%, as his former colleague Andrew Haldane believes, any damage to the economy will be transitory. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Services output rose to its second-highest level in eight years in June. This is the largest part of the economy, making up around 80% of GDP.
Bank of England Governor Andrew Bailey in a speech yesterday criticized those sniping at the Bank for not seeming to take inflation seriously.
Turning poacher from gamekeeper, Ex-Bank Chief Economist Andrew (call me Andy) Haldane has already found his voice from the private sector, warning that inflation is rising rapidly and could reach 4% this year.
It seems you can take the economy away from the economist, but you can’ take the economist away from the economy!"
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"According to a recent Financial Times report, almost a third of businesses that traded with Europe have seen a drop-off in activity while 17% have decided to stop, some temporarily or for good.
The headline grabbing story concerning the sale of British sausages to Northern Ireland is now well known, but this slightly offbeat tale masks the real difficulties that are being faced by several sectors of the economy.
Boris Johnson has shown himself to be a Prime Minister who looks at the big picture, leaving the details to his minions. Happy to celebrate successes like the news that Nissan is going to expand production in the UK, he ignores issues facing fishermen who are now unable to make a living.
Nissan have been something of a bellwether for Brexit, as workers in the northeast of the country where their plant is mainly situated voted resoundingly to leave. Now they are joined in expanding production by Vauxhall Opel which is also reportedly planning an expansion."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The true effect of Brexit on the UK economy has never really been felt. The Pandemic ran almost parallel with the UK’s departure from the Eu, so the slowdown in the economy was a combination of the two negatives.
Now, with the country on the verge of doing away with all restrictions in a little over two weeks’ time, analysts will be eager to better judge the way in which trade and availability of workers has been affected.
The so-called sausage war between London and Brussels, where the import of British prepared meat products into Northern Ireland is banned, is a headline grabber, but behind that is the issues businesses face in grappling with the requirements of the EU on a daily basis.
As the Pandemic becomes less of an influence on daily life, despite it taking several months to return to normal, whatever that may be, just how much of the UK’s trading output has been affected will become evident."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The UK economy continues to rebound as more young people receive the Covid-19 Vaccination. The delay in the full reopening has had very little effect on the economy, while the race between the Delta variant and the number of vaccinations, is being won by the jab.
British factories are now seeing their strongest growth in forty years, but shortages of key parts and materials are likely to see price increases that push inflation close to 4%.
Another impressive statistic from a CBI survey published recently is that the growth in output appears to be spread across all areas of manufacturing and industry.
Of course, this needs to be considered in light of the fact that manufacturing now only makes up around 20% of total economic activity."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The UK economy continues to rebound as more young people receive the Covid-19 Vaccination. The delay in the full reopening has had very little effect on the economy, while the race between the Delta variant and the number of vaccinations, is being won by the jab.
British factories are now seeing their strongest growth in forty years, but shortages of key parts and materials are likely to see price increases that push inflation close to 4%.
Another impressive statistic from a CBI survey published recently is that the growth in output appears to be spread across all areas of manufacturing and industry.
Of course, this needs to be considered in light of the fact that manufacturing now only makes up around 20% of total economic activity."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"There is little doubt that a belt tightening exercise is on its way as soon as the Bank of England considers the economy sufficiently strong to withstand an end to its recent free ride.
As furlough ends, those who find themselves without a job will see the Government’s main benefit begin to be cut back to pre-Covid levels.
Those who were unable to retain their jobs at the start of the pandemic, or whose employers were unable to access the furlough scheme, will find themselves as the worst hit, post-recovery.
It is expected that the Government will provide support for those who fall victim to the withdrawal of support, but it is expected that the unemployment rate will start to rise. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The UK has seen yet another political scandal claim the career of a Cabinet Member, as the Health Minister succumbed to evidence that he flouted social distancing measures while having an affair with a senior advisor.
It is ironic that of all the slurs aimed at Hancock by former Prime Ministerial advisor Dominic Cummings, that disregarding social distancing should finally strike home.
Hancock’s replacement would have been most people's choice. A seasoned Minister, Sajid Javid has held two senior Cabinet posts, and was ready to return to the fold.
It is unlikely that Javid will bring any new innovations to the role. He is committed to ending the Pandemic safely as soon as possible. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Bank of England’s Monetary Policy Committee met yesterday and in tune with other major economies, decided that stimulus remains more important than tackling rising inflation.
They left both the level of bond purchases and interest rates unchanged.
There is a concern that something is going to have to give.; Rising inflation could cut the nascent recovery in various economies off at the knees, but the feeling is that more stimulus will solve that issue.
The crystal ball viewers are finding it impossible to decide between inflation and growth as the most important driver for the global economy. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Concerns about rising inflation are clearly for another day, as the financial markets enjoyed a day when the data was nothing but encouraging.
Services output was a little lower than seen in May, but it was still well above the 60 level, and that means that the recovery is still in full flow.
The June flash estimate for services output was at 61.8. This is very positive given the 4:1 ratio of services output when compared to manufacturing.
There have been lingering concerns that employment issues in the services sector may catch up either this or next month, which could slow output. This hasn’t been the case so far but with the next time this data will be released, it will be following the first part of the withdrawal of furlough support, so we could see a dip. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The UK economy continues to rebound as more young people receive the Covid-19 Vaccination. The delay in the full reopening has had very little effect on the economy, while the race between the Delta variant and the number of vaccinations, is being won by the jab.
British factories are now seeing their strongest growth in forty years, but shortages of key parts and materials are likely to see price increases that push inflation close to 4%.
Another impressive statistic from a CBI survey published recently is that the growth in output appears to be spread across all areas of manufacturing and industry.
Of course, this needs to be considered in light of the fact that manufacturing now only makes up around 20% of total economic activity. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"No one really took a lot of notice of the oil price beginning to rise earlier in the year.
It was a sign that inflation was going to rise, as it has. We didn’t need a stick to beat the Central Bankers with, since they were telling us that inflation was on the rise. In fact, we got so excited that a higher oil price was a sure sign that the recovery was beginning, that a little inflation was not seen as a bad thing.
Now, analysts see inflation topping 4% later this year. Is that really going to be an issue?
Inflation at four per cent! Successive Chancellors in the eighties and nineties would have dreamed of that level of price rises.
Now, times have changed, and we live(d) in a low interest rate, low inflation world.
The three most prominent Central Banks, the Fed BoE and ECB, seem to be chasing each other to be the first to taper their bond purchases that are likely to be a prelude to a rise in short term interest rates. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"There is little doubt among members of the Bank of England’s Monetary Policy Committee that the Bank will be in a position to begin to taper the level of support being offered to the economy sooner rather than later.
Discussions concerning the fact that the Government is about to start to withdraw several support measures, including the Furlough Scheme, are taking place in the wider economy.
Members of the MPC, especially the outgoing Chief Economist Andrew Haldane remain bullish about the recovery. There will be some discussion at the meeting on Thursday about inflation and the pace at which the recovery can take place.
Chancellor Rishi Sunak appears to be among a cohort of Ministers that Prime Minister Boris Johnson can trust to make policy decisions that won't be challenged down the road by disgraced political advisors. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"UK inflation rose to 2.1% in May, breaking through the Bank of England’s 2% target.
While this was expected, it serves to remind those who believe that the Government should extend several of its support packages that the time is approaching when the economy will need to support itself.
The year-on-year data also exposes just how weak inflation was in May of last year. The country was reeling from the first lockdown as the brakes were slammed on.
This is the first time the Government’s inflation target has been exceeded in over two years.
Economists polled by Reuters expected a rise to 1.8%, but breaking 2% shows that the rate at which prices are rising is well above market expectations.
This points towards a more hawkish outcome from the next MPC meeting, although it is likely that, in line with the Fed and ECB, BoE Governor will try to squeeze as much benefit as he can from the Bank’s QE programme before the fun has to stop and reality returns. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
" Last evening, Prime Minister Boris Johnson announced the news that many had expected, and others had feared.
The complete removal of Covid-19 restrictions has been postponed until 21st July.
Johnson refused to commit 100% to that date, but said that prudence in the face of the virulence of the delta of Indian strain of the virus meant that as many as 10 million more people could receive vaccinations.
It is ironic that having been criticized for being slow to react to growing cases in the early days of the pandemic with delays in lockdown rumoured to have cost perhaps thousands of lives that a final, cautionary approach is attracting headlines like will we ever be free?
The economic recovery is unlikely to be set back too far, if at all, by the delay. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Queen produced the quote of the week when posing for a photo with G7 Leaders. She asked ""are we supposed to look like we are enjoying ourselves?''
It is likely she wasn’t the only one asking the question although most kept it to themselves.
The G7 Summit hosted by Boris Johnson was a qualified success, with general consensus around the major issues.
There were plenty of sidebars to the main event with Johnson displaying his usual bonhomie to EU leaders, although beneath the surface the level of trust between London and Brussels continues to be an issue.
French President Macron appeared at one point to promote Northern Ireland as not being part of the UK. Maybe this was an advance warning of the EU’s position on a united Ireland. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The UK continues to struggle to find workers to fill roles in the hospitality sector as the exodus of EU workers created by Brexit hits home.
With British workers content to move on to better paid roles with less onerous hours, there is a danger that rising inflation will contribute to higher wage demands in what could become a vicious circle.
It is some time since pay negotiations particularly in the Public Sector were a significant factor but as the recovery takes hold whether the 21st of June reopening happens or is delayed for a few weeks, longer term the country could become a victim of its own success.
The UK Chambers of Commerce, in a report published yesterday, forecast full year 2021 GDP to reach 6.8%, although this is dependent upon Boris Johnson’s Roadmap being fully complied with. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The interconnectedness of global affairs has been laid bare by the UK’s row with Brussels over goods moving through Northern Ireland, as it may now have a bearing on London’s ability to agree a trade deal with Washington.
The media has picked up on the irony of the EU’s policy banning the import of meat products, which means that the mainland UK cannot sell sausages in Northern Ireland.
Boris Johnson has adopted his usual style of negotiation with Brussels by simply ignoring the issue, commenting that there is a deal to be done.
Brussels’ Trade Minister, who was in London yesterday, used strong language about the deal that has already been done, and called upon the UK to honour its commitments. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Andrew Haldane, the Bank of England's Chief Economist, for whom the next MPC meeting will be his last, spoke yesterday of his belief that any overheating in the economy will manifest itself in the property market first.
He described the market as being on fire, due mainly to the disparity between supply and demand.
The Government’s support for the economy has led people to see an opportunity although this effect will fade as quickly as it has started as Chancellor Rishi Sunak has already announced the end of several support schemes.
The short-term continuation of tax breaks, the growth in the savings rate and the increasing equity as prices rise are driving the market which saw a 10% rise in average prices in the 12 months to March.
While this activity is positive for the recovery it can lead to widening of the gap between the well-off and young first-time buyers who will find raising a deposit that much more difficult in years to come."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Prime Minister wants to create a closer bond between the Government and the City of London’s financial market in order to determine that current and future legislation is friendly to the market and ensures that it maintains its dominant position globally.
There is sure to be further competition from Paris and Frankfurt to try to take business away from London as Brexit matures, but Johnson is determined to ensure that the City receives as much help as it needs from his government.
Competition from Brussels is going to be an ongoing theme in the post-Pandemic period. It is clear that the EU is determined that London won’t gain any advantage from its departure from the EU and any loophole will be quickly closed.
The highest profile dispute: over fishing rights, is set to continue for some considerable time and could escalate as traditionally militant French fishermen are determined that they should be allowed to fish in British coastal waters. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"G7 Finance meeting ahead of the upcoming summit have agreed a global taxation regime to ensure that global tech, and social media companies are being taxed at the right rate.
The right rate appears to be 15%.
However, it is clear that the deal was in fact cooked up by the U.S, so they will benefit the most. Furthermore, if you plan to add taxation, and those about to be taxed welcome the move, clearly, the rate is far from draconian.
The G7 meeting will take place in Cornwall this weekend and will concentrate on vaccinating the world, climate change, and how to cooperate to ensure that the recovery from Covid-19 is robust globally. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The UK recovery continues to gather pace but as mentioned yesterday, it is impossible for the Government to please everyone.
The howls of protest heard yesterday as Portugal was removed from green on the traffic light system to amber means that the only viable mass holiday destination now requires five days of isolation and a single negative Covid test for returning travellers.
Accusations, especially from the tourism industry, centre around a promise the Transport secretary apparently made that he would give three weeks’ notice of any negative change to a country’s status. If he did make such a promise, it would have been incredibly naive since the situation with new variants is so fluid.
Yesterday’s move clearly illustrates the Government's priorities. It remains committed to the complete removal of restrictions in England and sees foreign holidays as insufficiently important to risk a benefit to the entire country. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"It continues to be likely that the UK will remove all Coronavirus restrictions on June 21st.
This will be considered a risk no matter the data that the Government sees over the period between now and then.
This will be considered a positive outcome given the efforts being made within the Eurozone to drive growth in their own services output post-Brexit.
Earlier this week, the OECD radically increased its forecast for the UK economy’s performance over the remainder of the year. It forecasts that full year growth will rise to 7.2% this year and 5.5% in 2022. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Official data shows that the UK recorded zero deaths from Covid-19 yesterday. This is the first time this has happened in 445 days. Despite it probably being due to the delay in reporting data over the bank Holiday weekend, it is being seen in the media as both a significant step in the recovery and a reason for the Government to press ahead with the full reopening in three weeks’ time.
Continuing the theme of positive news for the recovery, data yesterday showed that UK manufacturing output grew at its fastest rate in nearly 30 years and house prices rose by the largest margin in seven.
This drove the pound to its highest level in three years against the dollar.
The outlook for the pound remains mixed since most of the good news on the recovery, number of vaccinations and cases of Coronavirus is now priced in. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Andrew Haldane, the outgoing Chief Economist of the Bank of England is incredibly bullish about the UK economy in light of the volume of stimulus that has been provided during the time of the Pandemic.
However, he has also raised the spectre of a long-forgotten bogey man of the bad old days of wage inflation.
Given the rate at which the economy is recovering and the continued pent-up demand that is still to be satisfied, Haldane is concerned that trades Unions will begin to believe they can anticipate higher inflation by pre-empting a fall in workers real wages by demanding increases well above the current rate of inflation.
This would create a wage/price cycle not seen since the seventies.
There is already something of a skills shortage developing as the economy reopens and such militancy could see the UK’s recovery derailed. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The threat to the total lifting of lockdown restrictions scheduled for a little over three weeks is growing.
Rising cases of Covid-19, 75% of which are thought to be the Indian Variant, are being closely monitored by Government scientists.
The Prime Minister commented yesterday that England may have to wait for the full lifting of restrictions, although he went on to say that he saw nothing in the data that suggests a delay will be necessary.
The fallout from Dominic Cummings’ comments to a Parliamentary Committee this week appears to have fallen almost totally on the shoulders of Health Minister Nick Hancock. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Bank of England has begun to consider how the UK’s banking market will look post-Brexit as it waits to see the effect of the Pandemic on the wider economy.
Capital adequacy regulations are being considered with banks that retrench back into the UK being required to allocate less capital to their domestic operations and thus being able to increase lending.
This will be in line with what was happening pre-Pandemic across Europe as banks looked to concentrate on core businesses, relying less on more capital-intensive areas like trading financial assets.
This should provide companies that are cash hungry as they begin to reopen following lockdown to access facilities to support their operations until cash flow becomes more settled. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"As was mentioned yesterday, the UK Government is beginning to turn its attention on issues that have been paused while the country was in lockdown during the Pandemic.
There are several outstanding issues over the Brexit trade deal with the Irish Protocol having the most potential to bring about a major disagreement.
EU Commission President Ursula von der Leyen has already stated that tensions in Northern Ireland recently owe less to the protocol and more to the concept of Brexit itself. That comment neatly abrogates responsibility for Brussels intransigence over the apparent separation of Northern Ireland from the rest of the UK.
In the eyes of Loyalists and Unionists the protocol that is still subject to full ratification is designed to push the north into the arms of Dublin. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The news that the two major Covid vaccines are effective against the Indian Variant of the virus have provided the UK economy with further impetus as the country is within a month of the full lifting of restrictions.
Unless there is a significant change to the data in the next two weeks, the country will be able to reopen completely.
The Government has begun to look at life after Covid.
Post-Brexit trade deals are being negotiated. The most important agreement will be with the U.S. although it looks as though the steel industry will be sacrificed to ensure that the deal goes ahead.
The UK’s trade minister is studying the lifting of tariffs on UK imports from the U.S., clearly a demand made by American negotiators. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Bank of England Governor, Andrew Bailey, has joined in with his colleagues from other G7 Central Banks in downplaying the long-term effect of rising inflation on the country’s economy as the UK emerges from the Coronavirus pandemic.
When weighed against a tightening of monetary policy which could cut off the recovery almost as soon as it has begun, inflation is being blamed on transitory as opposed to structural factors and is expected to even out as both the UK economy and those of its largest trading partners reach a degree of equilibrium.
As has been seen in the aftermath of recent FOMC meetings and the release of their minutes, commentators, traders, analysts, and investors are clamouring to understand the tools that Bailey has at his disposal to tackle inflation should it begin to rise at a wholly unexpected pace.
Never before has there been such concerted support and stimulus pumped into the economy. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The success of the UK’s vaccination programme has allowed the country to proceed without any problem along the path towards a full reopening of the economy.
There are clearly still several bumps in the road to be negotiated and having come so far, there is genuine concern that the Indian Variant that has been seen in several areas of the country could delay the whole process.
Prime Minister Boris Johnson remains cautious, saying all the right things about maintaining social distancing etc., so unless there is a major change to the current data the full removal of restrictions remains on schedule.
Inflation was always known to be the likely outcome of the measures that have been put in place to help economies survive the Pandemic. The rate at which price increases will take place appears to be varied according to how the stimulus has been applied. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The UK has joined the group of developed economies that are beginning to see inflation point towards an overheating economy.
The difference to the U.S. in particular is that at the height of the first lockdown when the economy was hit hard, the UK economy was one of the worst affected in Europe. It therefore is recovering from a very low base.
The Bank of England will not yet start to be questioned over a change in policy to calm price growth.
Governor Andrew Bailey still sees growing inflation as transitory caused most by supply not keeping up with demand, although the jump in wages seen in yesterday’s employment report will serve as a cautionary reminder.
Clothing and footwear prices were the two unsurprisingly dominant increases adding to consumer prices. First, those sectors saw a seasonally unusual fall in February and the reopening of non-essential retail saw demand grow exponentially. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The UK’s employment report which was released yesterday continued the understated recovery that the country is seeing from the Coronavirus Pandemic.
There are several issues which may happen later in the year around inflation and further stimulus to derail the rosy glow on Boris Johnson's cheeks. One Of the issues could be the lack of a skilled labour force.
There has been a surge in ambition from those who worked in hospitality and were either laid off or furloughed during the various lockdowns. That has meant that as the reopening has begun bar staff, waiters and kitchen staff appear to be in short supply.
At the other end of the skills spectrum, the absence of a full year's training has meant that certain skills in engineering and manufacturing could also suffer.
On the surface, yesterday’s data was encouraging without being spectacular. The unemployment rate fell, from 4.9% to 4.8%, as did the number of claimants. The fall was less than seen last month but the trend remains positive. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The UK is experiencing its first major setback since the delivery of the vaccine began late last year.
The Indian variant is beginning to ring alarm bells for the full reopening of the economy next month.
The degree of uncertainty that the spread is bringing is casting a long shadow over the pace of growth.
A further lockdown, while unlikely, would spell disaster for the hospitality and leisure industries.
The reopening that took place in April showed that measures at that level are manageable but cannot provide sufficient cash flow for several businesses to survive let alone flourish. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Roadmap for Recovery announced several months ago by Prime Minister Boris Johnson has hit a bump in the road with the spread of the Indian Variant in the U.K.
Last week provided a chilling reminder of the Government’s perceived dithering over the timing of lockdowns and other measures as the first and second waves began.
There is growing confusion about both the seriousness of the outbreaks together with the effectiveness of the vaccines that are currently being administered.
Words like hope, expect, and believe carry no weight without the endorsement of the scientific community."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The market now fully believes in the UK's recovery from the Pandemic and the almost total reopening of the economy next month will accelerate the process.
It remains to be seen just how long the headlong pace will be maintained and the longer-term issues that will need to be addressed as the removal of stimulus packages leave the economy exposed.
The Bank of England remains confident that although employment will take a hit as businesses that have solely relied on furlough payments to keep staff employed suffer or fail, the anecdotal evidence from the latest growth figures shows that businesses began gearing up for the reopening almost as soon as the Prime Minister announced his plans.
As the public regains their socialising and spending habits, it will be the consumer that is the main driver behind a sustainable recovery. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Preliminary data for UK GDP in the first quarter was released yesterday. It showed that the economy shrunk by 6.1% in the year to March. The month-on-month data for March showed that the economy grew in that month alone by 2.1% following a marginal rise in February.
This shows that the economy began to recover as soon as Boris Johnson announced his Roadmap to Freedom.
Companies across several sectors of the economy began to prepare for the reopening and Johnson has been able to keep the plan on track, thanks to the continued success of the rollout of vaccinations.
Looking forward, given that the retail sector opened in the second week of this quarter a significant reduction in the remaining differential between now and the pre-Covid level should be expected. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Queen introduced Her Government's Agenda of new Bills to be brought before Parliament yesterday as opposition Parties looked on licking their wounds from another mauling.
Going forward it will be business as usual for a party that has an eighty-seat majority.
Having announced measures that will almost certainly bring the lockdown to an end and downgrading the threat level from Coronavirus, Johnson faces two significant issues as he gets back to introducing measures that he promised in the Conservative manifesto more than eighteen months ago,
Making sure Brexit actually brings the social and economic benefits that were promised will be the first line of business, while quelling further calls for an independence referendum in Scotland will be the other. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Prime Minister Boris Johnson announced the penultimate point on his Roadmap to Freedom yesterday. Restrictions on meeting inside, eating and drinking inside bars and restaurants and hugging will be lifted from next Monday.
The success of the vaccination programme means that the UK is now just a single step away from being free of restrictions.
Concerns are still being voiced about foreign travel particularly given the worsening situation in India. Johnson called for common sense to prevail as he spoke of his expectations that people would remember the dark times of last Autumn when it seemed that the spread of the Pandemic was close to being out of control.
Local elections held last week in the UK were the first significant test of the Government’s actions over both Brexit and the Pandemic. Apart from the mayoral election in London the Conservative Party achieved just about every goal it set itself. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Bank of England is not preparing to provide any further support when the Chancellor brings the Government’s furlough arrangement to an end in September.
Governor Andrew Bailey believes that the pace at which the economy is emerging from the Pandemic will be sufficient to ensure that the number of business bankruptcies will be controllable.
Following comments made by departing Chief Economist Andrew Haldane last week it is fairly clear that he is not in agreement with how the Bank Intends to manage monetary policy going forward, perhaps more pertinently he has a different idea of what is to come as the economy opens up completely.
Haldane has been the most bullish of the members of the MPC during his tenure. He was the first to predict a V-shaped recovery although at the time this had nothing to do with the rollout of a vaccination. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Having contracted by the largest amount in 300 years it is entirely plausible if not inevitable that the economy would rebound at its fastest rate in 70 years.
Andrew Bailey demanded that the markets not get carried away by a recovery which simply takes the country back to where it was in 2019.
The meeting of the Bank of England’s Monetary Policy Committee that was held yesterday raised its forecast for full year GDP to 7.25% and confirmed its belief that the economy would return to pre-Covid levels by the end of the year.
The increase in the forecast from 5% three months ago is based on the pace of growth in the retail sector in particular and is in spite of several well-known High Street Brands either reducing their bricks and mortar presence or disappearing entirely. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Bank of England’s Monetary Policy Committee meets later this morning and is almost certain to leave both official interest rates and the level of Quantitative Easing unchanged.
In keeping with other G7 nations, the Central Bank wants to be certain that the recovery has solid foundations before it begins to taper bond purchases.
Concerns remain that the withdrawal of the Government’s stimulus measures will have a significant effect on the economy, employment in particular, and could drive the bank into the unprecedented step of introducing negative interest rates later in the year.
With Andrew Bailey having undertaken to provide UK banks with as much notice as he can, he now faces a delicate decision in how much advance guidance he can give to the wider market. He cannot tell one specific sector without informing everyone. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The recovery of the UK economy continues to gather pace. It appears that every piece of economic data fits perfectly into the puzzle.
However, the degree of stimulus and support that has been provided to ensure that the country would be prepared to reopen once the Pandemic was under control will at some point need to be withdrawn and that will bring its own concerns.
Fears continue to grow that as the Government's main piece of legislation; the furlough scheme, will be withdrawn before the economy is fully on its feet.
The scheme has been extended twice and now ends in September. Whether that will be sufficient is open to debate. Businesses that have not been able to generate sufficient cash flow given almost an entire quarter to recommence their operations probably never will. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The recovery of the UK economy continues to gather pace. It appears that every piece of economic data fits perfectly into the puzzle.
However, the degree of stimulus and support that has been provided to ensure that the country would be prepared to reopen once the Pandemic was under control will at some point need to be withdrawn and that will bring its own concerns.
Fears continue to grow that as the Government's main piece of legislation; the furlough scheme, will be withdrawn before the economy is fully on its feet.
The scheme has been extended twice and now ends in September. Whether that will be sufficient is open to debate. Businesses that have not been able to generate sufficient cash flow given almost an entire quarter to recommence their operations probably never will. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"As the end of one of the most painful periods in modern history ends, the Government will need to make sure the recovery is self-sustaining before it withdraws completely.
It remains to be seen how successful the total reopening of the economy will be while fears remain that opening the border in any meaningful way could see vaccination-proof variants of Covid-19 arrive.
There are still several loose ends to be tied up as far as Brexit is concerned.
While the Pandemic has allowed both Westminster and Brussels to dance around the issue, real issues remain to be finalized with the EU in no mood to be accommodating following the row over vaccines. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The level of fatalities from Covid-19 in the UK has dropped to a level not seen since the early days of the Pandemic and infections have now begun to follow.
The rollout of the vaccination programme has been a major success, but the Prime Minister attributes the success in bringing the virus under control to the vaccination programme and the third lockdown in almost equal measure.
For this reason, while the next stage of Boris Johnson’s roadmap to recovery will take place in the middle of next month concerns remain that there could be another spike.
There has been no indication yet about when the confirmation of the lifting of more restrictions will be made but even to the untrained eye the programme has been a major success. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"As the Bank of England prepares to raise its forecast for growth in the UK for this year, Chancellor Rishi Sunak is preparing to start to withdraw some of the support packages he initiated as the country went into lockdown.
The furlough scheme is already set to end in September.
The consequences for the jobs market are the unknown that will exercise the thoughts of members of the Monetary Policy Committee when it meets next week.
It is still too early for a physical change to official rates, or the level of support being provided thorough QE, but any change in the conversation around negative rates will provide traders with an opportunity to express their views in the FX market. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"When reviewing the likely drivers for Sterling this week, the Prime Minister’s curtains did not feature very high on the list.
Following the Conservative Party's victory in the 2019 election, it was clear that the Opposition Parties would spend the next five years with very little opportunity to affect policy and in these circumstances, the best they could do was snipe and disrupt.
Brexit afforded the perfect opportunity to criticize but the Prime Minister managed to pull a deal out of the dying embers of the negotiations. No matter that in the grand scheme that it didn’t satisfy everyone, that was always the nature of Brexit, but it has formed a basis for the Government to comply with the wishes of the electorate.
Now, Boris Johnson faces two entirely separate issues that will make him uncomfortable but little more. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"It is becoming clear that forecasters may have underestimated the pace at which the UK economy is recovering from the Covid-19 Pandemic.
As data continues to be released for Q1, it shows that the recovery actually began when Prime Minister Boris Johnson announced his Roadmap setting out the stages at which the country would return to normal.
Businesses began to hire or re-hire staff in anticipation of a surge in activity while the public began to see the light at the end of the tunnel.
While Q1 GDP growth will be negligible, the continued increases being made to 2021 estimates has its roots in an underrating of the pent-up demand and the eagerness of the country to return to normal.
Fundamentals for the UK economy have turned positive with leading indicators improving every month. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The UK economy remains on track to complete its reopening by the middle of June.
Deaths due to covid-19 are still falling as the success of the vaccination programme together with a well-managed plan to gradually reopen the economy mean that the country will return to the level of activity and growth it saw before March last year far faster than analysts had believed possible.
Major investment bank Goldman Sachs believes in a report released recently that the UK economy will grow at a very healthy 7.8% this year. That tops their expectation for growth in the U.S. This is higher than a Reuters poll of analysts which averaged 5% and the IMF’s projection which is slightly more bullish at 5.3%.
Despite this optimism there are still fears that the reopening will see the release of pent-up demand that will fade as quickly as it arrived.
Data released last week saw retail sales begin to show significant growth even before the April 12th reopening of non-essential retail. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Data will be released later this morning that will show just how powerful the recovery has been as the economy begins to reopen.
Markit Economics will release Purchasing Managers Indexes for both services and manufacturing. Given the 80/20 spilt between services activity and manufacturing activity, the services PMI naturally carries significantly more weight than the manufacturing number.
It is expected that both will see significant rises. The data is a measure of expansion or contraction with a read below 50 signifying contraction and above 50 expansion.
Manufacturing output which accounts for 20% of economic output is expected to have risen marginally while services, which now dominate the economy, sees an increase from 56.3 to 59.5. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Most indicators are now showing that the UK is recovering from the Coronavirus Pandemic and remains on course to complete the lifting of restrictions as the two final pieces of the roadmap jigsaw are set to be in place over the next couple of months.
While scientists still voice concerns about variants of the virus emerging in other countries, the UK's infection rate, hospitalizations and fatalities continue to fall.
The turnaround from being the one of the most significantly affected economies in G7 to being likely to be the first to emerge completely from restrictions has its roots in the development of the vaccination.
The work that has been done to ensure its distribution and the willingness of the population to be guided by the science and the Government's continued urging were also significant factors."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Yesterday’s release of the latest unemployment data showed how businesses prepared for the reopening of the economy but may prove to be something of an outlier as the economy fully reopens.
The country remains on schedule to reach the next stage of the roadmap next month and over ten million people have now received both doses of the vaccination.
As the reopening continues, the economy is set to grow at a far higher rate than analysts expected pre-vaccination and is likely to achieve the level it was at before the Pandemic struck faster than any other developed nation outside of the U.S.
However, without significant support for businesses and their cash requirements this could easily be the high point for the data. Small and medium sized firms will struggle to generate sufficient cash to not only increase staff members but retain those they have currently. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Unemployment data is due for release today in the UK. Rising jobless numbers are one of the unwelcome outcomes of the economic effect of the Pandemic.
Many businesses, particularly in the retail and hospitality sectors have seen cash reserves dwindle during the lockdowns and have now simply become unviable. Added to this, just what the new normal will look like is bringing its own level of uncertainty.
Rishi Sunak the Chancellor of the Exchequer was rightly praised for both the speed and efficacy of his plans to support the economy over the entirety of the Pandemic.
However, as his furlough relief and other measures come to an end, he must now put in place schemes to not only support but also stimulate the marketplace.
Retaining schemes, skills courses and fiscal benefits to business must be at the top of his list of priorities as the furlough scheme runs out. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"This week will see the release of data for inflation and employment.
Despite the positivity that has been created by the latest release of the lockdown the number of people who lost their jobs is expected to rise by close to 100k taking the unemployment rate to 5.2%.
The data will be released tomorrow.
House price data has been released overnight and the Chancellor’s stamp duty holiday continues to drive the market higher.
Year on Year house prices across the UK rose by 5.1%. That is significantly higher than last month which saw a rise of 2.7%.
The reopening of several sectors of the economy has driven consumers to release a large part of the huge build-up of savings that took place over the past year. Bank of England Governor Andrew Bailey estimates that £150 billion was accumulated and is now returning to the economy. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Evidence is emerging that the recovery in the UK economy is even more robust that had previously been presumed. Job vacancies have recovered to a level last seen before the first lockdown over a year ago.
Sectors that were least affected by the pandemic such as logistics and construction are seeing a particularly strong recovery.
There had been concerns that Brexit would have an effect on the services sector but so far, that area of the economy, which makes up 80% of output, remains strong.
Concerns remain that there will be several businesses whose survival depends on support from the Government and when the furlough scheme ends in September, it could lead to a significant rise in unemployment. Analysts believe that those fears could be overdone with the economy building a far stronger base that had at first been expected. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Each major or G7 economy will face common issues in the coming months as the effects of the Pandemic lead to rising unemployment while the amount of monetary support coupled with historically low interest rates sees inflation begin to rise.
Inflation has hardly been an issue for the global economy for a generation and despite the concerns voiced by investors, Central Banks continue to adopt a sanguine attitude expecting the market to trust their judgement.
As well as common issues, each economy will face unique demands that will need to be managed both effectively and efficiently.
In the UK, the issues around Brexit have not been dealt with and could come back. So far, data shows that following a near collapse of trade in January due to the confusion brought about by the change in documentation business has begun to recover. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The partial lifting of restrictions in England has proved that despite the record volumes of online shopping that took place during the lockdown, there is still a place for bricks and mortar retail outlets.
Major stores are reporting record takings only seen at Christmas as they struggle to keep pace with demand. However, it is likely that the initial burst of action will level off in the next few weeks as pent-up demand is satisfied.
The number of people in larger stores is being carefully regulated but even a casual observation raises concerns about an upsurge in cases of Coronavirus.
The Government and scientists will be closely observing the data to confirm that the next stage of the road map can take place next month. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Shops, pubs, and leisure facilities reopened in England yesterday and it was clear to see the level of pent-up demand that was released. Ques for shops snaked around the block gyms were full before it was even daylight.
Prime Minister Boris Johnson pleaded with the public to act both sensibly and responsibly in order for the next stage of the roadmap to be achieved.
The savings rate in the UK has skyrocketed during a year of lockdowns and yesterday saw the pressure valve released.
In order for expected economic recovery to continue and for the country’s finances to have a chance to recover, there are three significant obstacles that need to be overcome.
First, the settlement of the proposed agreement between the UK and EU over trade through Northern Ireland needs to be finalized. Then, scares over the safety of vaccines need to be managed to ensure that the success of the vaccination rollout continues and finally the questions about how the nations finances will be restored to some kind of order needs to be answered. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Non-essential retail, personal services like hairdressers, hospitality and gyms will reopen today in England as the benefit of the success of the UK’s vaccination programme sees a return to reality.
The country still has a long way to go to ensure that there is no need to reintroduce strict measures and there are several possible bumps in the road that need to be negotiated.
An image of a possible future for the UK has been seen during the Pandemic with Scotland, Wales, and Northern Ireland each making its own decisions over locking down and reopening. Elections to be held in the devolved administrations could see Scotland's demand for a second referendum in independence gather pace.
Prime Minister Boris Johnson has managed to stay the course of his plans for the reopening and, so far, it has been successful with the majority of the population obeying the rules. Between today and May19th the real test of the roadmap will take place. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Concerns are being raised that the amount of support that will be available to small and medium sized businesses once the country begins to return to normal will be insufficient to bridge the gap in cashflow that is likely to be seen as a chicken and egg situation develops.
Employees will expect to receive wages, suppliers will want to be paid, utilities, premises and a host of other expenses will need to be met without any cash reserves to tide over operations as sales begin again.
Access to finance through traditional means will not be easily available as banks make commercial decisions about the viability of businesses and expect either greater security which simply may not be available or charge rates of interest that reflect the perceived risk.
Either way, it is not going to be easy for businesses to obtain financial support to tide them over and the Chancellor is, again, going to be expected to bridge the gap. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The pound is starting to lack the impetus to challenge the 1.40 level versus the dollar, despite the dollar’s recent correction.
A couple of weeks ago the market had taken on the characteristics that would have been expected from economies that were recovering at different paces, but that has now changed.
The success of the vaccination programme has given more support to the economy than the various support packages delivered by the Chancellor and the Bank of England.
With another stage in the reopening process taking place next week, the short-term prospects for the UK remain sound. Although official bodies are predicting strong growth for the UK well into 2022, there are concerns building that the withdrawal of stimulus and changes to taxation may hit the country’s longer-term prospects.
There are still the twin issues of rises in inflation and unemployment to be faced and the outlook could turn bleak as the country enters the Autumn/Winter period. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The UK’s recovery from the Covid-19 Pandemic is not only going to be far stronger than analysts predicted, but it will be a different kind of recovery.
Data released by the Office for National Statistics showed that in Q2 of last year, the first quarter where the economy was fully locked down, the economy shrunk by 19.5%. That is marginally worse than previously reported.
However, in the third and fourth quarters the recovery was a little stronger than first believed. In Q3, the rebound saw the economy grow by 16.9% and in Q4 1.3%.
In the context any previous downturn, not only has the contraction and recovery been immediate, but there has been no recession when judged by the classic definition of two consecutive quarters of negative growth. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Prime Minister Boris Johnson announced at a press briefing last evening that his Roadmap to Recovery remains on track and the opening of non-essential retail, leisure and hospitality outlets will take place on April 12th.
The lifting of restrictions will take place next Monday and it is expected that there will be a significant rise in activity confidence and spending as the country emerges, hopefully for the last time from full lockdown measures.
The economy is expected to reach its pre-covid level of GDP growth by the start of the fourth quarter, but it remains to be seen how resilient growth will be once the initial surge to satisfy pent-up demand.
The coming months will be the acid test for the retail sector, particularly bricks and mortar shops. Two of the largest chains, Debenhams and John Lewis will bring significant change to the High Street. John Lewis has announced that not all their stores will reopen while Debenhams is set to disappear entirely. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"As the UK heads towards the end of its third lockdown, 41% of small and medium-sized businesses confirmed in a survey published this week that their cash position had weakened significantly during the first quarter. This situation is far worse in the tourism and hospitality sectors where the figure is closer to 80%
While this is a fairly obvious conclusion given the fact that the country was closed for the entire period, it serves as a reminder of the true situation facing the economy in the medium term.
Headline grabbing vaccination data and the support being given by both the Treasury and bank of England hide what remains a precarious situation and underlines the discussion that is taking place regarding the need for a further cut in interest rates later in the year.
For now, the Government is promoting the feelgood factor generated by the success of the vaccination programme while warning that the third wave sweeping through Europe currently illustrates that the country isn’t out of the woods just yet. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The success of the UK’s vaccination programme has given the country an incredible opportunity to forge a new path despite the concerns that still remain about the long-term effect of Brexit.
While it would be unfair to say that this happened more by luck than judgement, the challenges that have been put before Boris Johnson and his Cabinet would have challenged anyone. The shortcomings of certain ministers have been more than made up for by the talents of scientists and diplomats who have charted a course through Covid-19 and Brexit.
Finding a Brexit deal that was even acceptable, let alone agreeable, to a belligerent EU was a significant breakthrough, particularly when you consider the times in 2019 when the country was subjected to a hung Parliament where the tail was certainly wagging the dog.
The size of Boris Johnson’s majority in the last election gave his Party a mandate to drive through Brexit and has meant that right or wrong, he was able to manage the Pandemic to the best of his, and the Cabinet’s, abilities. It is unimaginable the chaos that would have ensued had Parliament been in the same condition this winter. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The UK loosened its lockdown restrictions on people meeting up in public yesterday as a first step on the road to a complete reopening. While this was a relatively small step it showed that the country is on the path to recovery following the complete lockdown that was ordered at the turn of the year.
The success of the vaccination programme still feels like a myth with over 30 million people having received their first jab and close to 3 million receiving their second.
The Prime Minister confirmed last evening that the country remains on track to achieve its roadmap for easing restrictions gradually with most non-essential retail outlets and hospitality venues opening on April 12th.
There will be several restrictions that will remain in place until May 19th, while the scientific community remains concerned about new variants of the virus arriving in the UK. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Concerns over the ready availability of sufficient doses of vaccine to provide a second jab to those who want it are likely to limit the progress of both the lockdown and the economic recovery.
There has been a lull in the belligerence of the EU over vaccine exports. They have realised that the UK is possibly innocent of any underhand tactics over vaccines having been able to take a quick decision rather than commit the entire process to a series of committees.
The economic recovery from the Pandemic will take another step forward today as restrictions on individuals are relaxed and the rule of six returns. This will be the prelude to the reopening of non-essential shops in two weeks’ time. That will be the acid test for several sectors of the hospitality industry.
There is a threat to the recovery from the new strains of the virus currently affecting mainland Europe, but the fact that the UK is so far ahead of the game with regard to vaccinations it is hoped that any increase in cases will not lead to an increase in either hospitalization or fatalities. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The pound is expected to continue to hold its own against a strengthening dollar as the UK continues to reap the benefit of its vaccination programme. The country is set to see two significant easings of lockdown restrictions in the coming weeks.
First, next week the restriction on the number of people who can meet outside will be eased, then on April 12th all non-essential shops will be allowed to open.
Economically the first quarter is likely to be a washout as businesses have been unable to operate for the entire period. However, Q2 is likely to more than make up for the slowdown by producing possibly the highest month on month turnaround since records began.
The easing of tensions between the UK and EU over delivery of vaccines will provide a short-term benefit to the economy. Other than the U.S. where the level of stimulus is far higher the UK is set to outperform all its G7 partners. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Prime Minister Boris Johnson was able to convince the EU Commission in talks yesterday that their stance over a possible export ban on Covid-19 vaccinations was in nobody’s best interests.
The tentative agreement means that the threat to supplies has been averted although it seems to be something of an uneasy truce.
Data for manufacturing output was released yesterday. It exceeded analysts’ expectations, rising to 57.9, while the data for the far larger services sector also beat predictions rising to 56.8. With both sectors well into expansion territory, the one area that may need additional support is hospitality.
It remains to be seen just how many pubs, restaurants and other venues will be in a position to reopen on April 12th and the spectre of a third wave the threat of which was acknowledged by the Prime Minister last week hangs over the sector. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Unemployment in the UK fell to 5% in February as over 86k new jobs were created. This is the first time since the start of the Pandemic that the rate has fallen.
It is noteworthy that the Government has hardly rushed to take credit since it is well aware that the numbers will be significantly worse before any permanent improvement is seen.
The truth about the data is that very little has changed over the past month despite the Budget promising a brighter future.
The most concerning aspect of the country’s emergence for the lockdown will be the jobs market. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"It is a reaction that has taken place for almost as long as there has been unfettered FX trading but the volatility around Central Bank meetings remains as high as ever despite the outcomes becoming more and more predictable.
The Bank of England is facing a sight unknown in that there may be a need for rates to be cut into negative territory depending on two factors.
Negative rates would be a significant step into the unknown with analysts and economists likely to be divided on the effect and the time they will be necessary.
No one can say just what the reaction of the economy will be to when the lockdown is lifted and how long the pent-up demand will exist. Second, the effect on business of a sustained lockdown that may have made hundreds, even thousands no longer viable. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Bank of England Governor Andrew Bailey, under continued pressure over a scandal that cost thousands their life savings, will speak at a Bank for International Settlements Conference this week that will also be attended by ECB President Christine Lagarde and Fed Chairman Jerome Powell.
Each is likely to be questioned over the most recent meetings of their Monetary Policy Meetings. While Bailey and Powell will have to answer questions about how they will deal with inflation, Lagarde is likely to be asked more fundamental questions about how the Eurozone can expect to recover from the pandemic. Once she has managed to answer the how, she will be pinned down over the when.
Bailey will express concern over rising unemployment figures and cite the end of the Pandemic, as the time for discussion of support for the unemployed and jobseekers.
The figures are unlikely to make pleasant reading from either the Bank or Government although there remains a high level of confidence, among Bank Officials at least, that the economy will recover sooner rather than later although there may well be a few bumps in the road along the way. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Bank of England MPC meeting which concluded yesterday was not dissimilar in outlook to that of the FOMC eighteen hours or so earlier.
The Bank has confidence in its own actions and almost more importantly supports the stimulus delivered in the Budget.
The only cautionary note is the fact that the budget was more supportive of the economy than a package of stimulus measures designed to combat any soft patch going forward.
Price action across most financial markets showed that the majority of traders and investors had priced in no change to either official rates or the level of bond purchases. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Health Minister Matt Hancock provided further optimism about the pace at which the UK is proceeding with its vaccination programme when he appeared at the Government Covid update last evening.
The UK is so well advanced in its provision of the first jab that over 40’s will be invited to book their appointments in the coming days.
Meanwhile, the Foreign secretary Dominic Raab made comments designed to counter concerns that the EU may withhold doses of the Pfizer jab that should be destined for the UK, due to unwarranted concerns over the AstraZeneca vaccine.
The Bank of England’s MPC concludes its meeting later this morning and it is possible that they will follow the FOMC by taking on a watching brief. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Bank of England’s Monetary Policy Committee will meet today and tomorrow but traders and investors will only be interested in comments made by Governor Andrew Bailey following the decisions on interest rates and levels of support for the economy.
Both are likely to remain unchanged.
It will be interesting to note whether the attitude to the pace of the recovery is affected at all by the outcome of the FOMC meeting which concludes this evening.
Bailey and Jerome Powell face similar issues, both are going to need to hold back potentially overheating economies and deal with inflation that both admit will break above their official targets.
Bailey will most likely be backed in whatever comments he makes by colleagues both at the Bank and on the MPC. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Ipsos MORI Political Monitor which measures confidence in the UK showed that 43% of the population believe that the economy will improve in the next twelve months.
The survey showed that confidence is at its higher level since 2015, ironically just as the Brexit campaigns were beginning. While that is hardly surprising, the main thing to take away is the belief that the Government is dealing with the current crisis in a manner that will lead the country back to some kind of normality.
Andrew Bailey, the Governor of the Bank of England, spoke early yesterday morning about his confidence that the course that has been set by easing of monetary policy and recent fiscal support means that the economy will attain a level higher than at the start of the Pandemic sooner than had been expected. It is expected that will happen around the end of the year.
While optimism continues to rise, there is still the concern that the return of children to school just over a week ago may lead to an increase in infections. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The UK economy shrank in January.
The barely surprising statistic that the economy contracted by 2.9% in January and the fact that it was appreciably better than predicted barely registered.
The lifting of lockdown measures, the barely credible success of the vaccination programme and the forward-looking measures announced by Rishi Sunak in the Budget have given the country a shot in the arm that was becoming desperately needed.
The debt of gratitude the nation owes to both the NHS and the scientists who discovered the vaccine is immeasurable and may in time be compared to the breaking of the enigma code in World War Two.
The world's economy has been subject to globalization as just about every form of communication has been sped up and forever changed by the digital age and the invention of the world wide web and internet. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Andrew Bailey the Bank of England Governor sees a light at the end of the tunnel for the economy as the country begins to emerge from the yearlong effect of the restrictions driven by the Pandemic.
Bailey supports the steps taken by the Chancellor recently but acknowledges that inflation may be a consideration going forward. The initial rise in the rate of inflation may be technical as the collapse of fuel prices a year ago falls off the annual calculation.
Such an event won’t spur any action from the Bank which has, so far nor been as keen to discuss the inflationary effect of stimulus measures as either the Fed or ECB.
The Chancellor continues to face questions over the new measures he has put in place. He commented yesterday that the recovery will be investment driven and consumer led actions such as last year’s eat out to help out scheme will not be necessary. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The dust has definitely settled on the Budget, but economic reality remains.
Concern that there is a significant crisis looming in the employment market is driving fears that the Chancellor may need to return to the House of Commons in the Autumn with another round of stimulus plans.
The length and breadth of the Pandemic that has reached into every nook and cranny of the U.K. economy has meant that the nature of the social recovery is likely to leave any economic recovery in its wake.
Chris Whitty’s comments earlier in the week that there will be another surge in infections as the economy reopens meant that alarm bells sounded again. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Concerns are building that the UK’s recovery from the Pandemic will be a flash in the pan, and the country can expect to return to a consistently lower level of growth that will require interest rates to remain low for several years and even necessitate negative interest rates.
The concerns voiced by independent members of the MPC that the recovery will not be sustainable without a move to negative rates are gaining pace and the balancing of the books with regard to public debt may take longer and require more significant tax rises than were delivered by Rishi Sunak in his budget last week.
The positive effect of the release of pent-up demand when non-essential retail outlets reopen next month will be relatively short lived, reminiscent of the lead up to Christmas but on a larger scale.
But that will not provide long-term gains in other areas of the economy with a nuclear winter in the employment market entirely possible. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Bank of England Governor Andrew Bailey showed to be optimistic about the recovery of the UK economy if cautiously so, in an interview yesterday.
While he retains concerns over certain aspects of the recovery, employment in particular, he believes that the recovery from the recession, putting aside the Pandemic which he feels is a once in a century event, will be stronger since it is a recession like no other.
In particular, household finances are stronger than in a regular recession. Unemployment is likely to remain a major issue but, again, it won’t be as much of a burden as in previous recessions.
He still suffers from a dilemma which is either a cyclical phenomenon in which the economy simply runs out of steam and needs a correction, or will it always be in reaction to a global event, such as the current pandemic or the downturn which followed the global financial crisis. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Now that the dust has settled on Rishi Sunak’s support now, tax later Budget, it is very clear that it will be big business that foots the majority of the bill. Its increased contribution to the Treasury’s coffers from 2023 will be £17 billion. Remember, that is the additional sum that will be paid when the rate rises from 19% 5o 25%.
This was not a Conservative budget by any means. Tax increases, no cuts to services, continuing support measures. It is no wonder Tory Grandees were spluttering in disbelief. Apart from the incredibly unfair treatment of the NHS, it was almost a Tony Blair style piece of work.
Short term, it is the that begins this morning with schools reopening that is providing optimism. Almost 22 million doses of the vaccine have been delivered. Rates of infection, hospital admissions and fatalities are all falling.
However, the country is still in lockdown and will be until after Easter. Once the reopening of the economy happens on April twelfth (assuming stage one goes as planned) that will be the point at which the effectiveness of the stage plan should be judged "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Over the past year the Pandemic has been unpredictable, and any plans made by the Government to tackle the crisis and provide support to those most affected have been subject to change almost as soon as they have been announced.
In his Budget presented to Parliament this week, Rishi Sunak has shown a degree of caution, in that the measures he announced have provided support rather than stimulus.
While continued support is vital to ensure that life goes on, employment is going to continue to be an issue and too little has been done to stimulate the jobs market going forward.
The Pandemic is likely to scar the economy for a generation and there are genuine fears that scenes reminiscent of the days of high unemployment that accompanied the major changes initiated by Margaret Thatcher may return. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Office for Budget Responsibility announced following yesterday’s presentation by Chancellor Rishi Sunak of his spending and taxation plans that the tax burden in the UK would rise to its highest levels since the 1960’s when all of the deferred items kick in.
Sunak’s second budget was, in his own words, not popular but honest. Large firms will be taxed at a rate of 25%, rising from 19% starting in 2023, while by the middle of the decade 1.3 million more people will be paying income tax.
Most measures to reduce the level of Government borrowing were deferred until the recovery is well on the way to stabilising the economy while several of the measures put in place to provide support to those most affected were extended.
The furlough scheme will stay in place until September although employers will be expected to contribute 10% in July and 20% in August and September.
The stamp duty holiday remains in place while the scheme to support first time buyers that was announced recently will come into force immediately. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Chancellor of the Exchequer Rishi Sunak will present his budget to Parliament later today.
In spite of calls from senior Conservatives from another era to raise taxes, Sunak will add to the vast increase in Government borrowing he has embarked upon to ensure that first the country survives the Pandemic economically, then it recovers to take its place in the world post-Brexit.
He is likely to take his cue from the plans already in place to end the lockdown in stages and effect a gradual change from support to stimulus.
There have been several leaks, most likely intended, of his plans. The focus will be on employment, those sectors of the economy most badly hit by the Pandemic and a British staple, property. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Details are emerging of just the type of Budget Rishi Sunak will deliver to Parliament tomorrow.
The emphasis will be on welfare, support and ensuring that the nascent recovery is able to flourish.
The success of the vaccination programme has been a gift that the Prime Minister can leverage to allow the economy to be well on the way to pre-Pandemic levels of growth before the inevitable tax increases have to be invoked.
Johnson confirmed yesterday that the vaccines that are currently available to NHS England are each viable against new variants of the virus. The incredible pace of the vaccination programme will continue with at least twenty-five million people being offered the jab well before the end of this month.
Between Johnson’s four-stage plan for the easing of lockdown and a suitably expansive Budget from Sunak, there is a growing sense of optimism that the UK will emerge from the pandemic in a strong condition relative to the rest of G7. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Chancellor of the Exchequer Rishi Sunak will present his budget to Parliament this Wednesday.
From the degree of advance guidance that has been given it is expected to be supportive, with measures that have been put in place to protect those most affected by the Pandemic evolving into support for the most affected sectors and schemes to promote jobs.
This is going to be a gigantic balancing act and Sunak, who did the rounds of Sunday current affairs TV yesterday, promised to be honest with the public about the prospects for the country’s finances while providing a level of support that ensures that the recovery is both stable and robust.
The UK has now vaccinated 20 million people. This will provide a significant boost to Boris Johnson’s four step plan for exiting the restrictions with the first step next Monday when schools will reopen.
This massive feat means that 28% of the population has now received at least one jab. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The UK’s controversial Universal Credit payment which lumps several benefits into one is likely to be increased for the rest of the year as unemployment is set to climb towards a high close to 8%.
The latest data showed that unemployment rose to 5.1% from 5%, but the real test will come as firms that relied on their staff being paid by the Government find cashflow impossible to manage and either close or drastically reduce their workforce.
The budget that will be delivered by the Chancellor next week will be a delicate balancing act between not just support and regaining control of the economy but also a matter of support being targeted while the level of borrowing is brought back to acceptable levels.
Unemployment will become the major issue globally as working methods that have been adapted to suit lockdown conditions become the norm. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Government's staged plan to reopen the economy as the number of infections continues to fall has provided a boost to the country both socially and economically. The vaccination programme has become self-fulfilling, with the infrastructure that has been set-up working very efficiently.
Next week the Chancellor will present his Budget to Parliament and that is when the realities of the damage done to the economy by the three lockdowns it has taken to bring the virus under control, will be laid bare.
Rishi Sunak is being pressured by business leaders, trade unions and the Opposition to continue several of the support measures that he has put in place.
It seems likely that the stamp duty holiday for property purchases will remain in place. In fact, there are even calls for it to be abolished entirely, since it appears to be an old-fashioned and outmoded form of taxation. Since it raised close to £12 billion in 2019/20 that is unlikely to happen since Sunak is trying to repair the country’s finances not, add to his problems"
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The unemployment rate rose to 5.1% in January. The increase was wholly expected and did nothing to take the shine off Sterling’s continuing rally.
The single lasting economic effect of the Pandemic in every developed nation will be unemployment as businesses of all sizes struggle to come to terms with the reality of a year in lockdown.
No one doubts that the crunch time for unemployment will be when the economy is opened up again and support is withdrawn.
Cash flow will be the major issue and it is unclear whether the Chancellor will extend the furlough scheme at all but if he does there will be two questions that need to be answered. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The UK has been able to begin to take full advantage of the success of its vaccination programme by announcing a staged lifting of lockdown measures culminating, it is planned, for restrictions to be fully lifted by the late June.
As Boris Johnson commented when questioned by journalists at last evening’s press briefing, there will always be those who want him to act with more haste just there will be those who advise greater caution, but he believes that this plan can be seen as irreversible yet able to be delayed if circumstances demand.
The crux of the lifting lies with the gap between the four stages of the plan which means that data will be used to determine that it is safe to move on.
With shops being able to reopen on April 12th, the second quarter will see the recovery begin in earnest with schools reopening and certain social distancing rules relaxed next month. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"In spite of the high degree of confidence being delivered by the undoubted success of the Government’s vaccination programme, independent members of the Bank of England’s Monetary Policy Committee still believe that negative rates will be necessary later in the year.
There is a clear fracture between the independent members of the committee and the Bank of England’s Officials. It is widely expected that the UK will see a tsunami of demand in the first one or two quarters following the loosening of lockdown measures, but it is once the euphoria has died down that the concerns begin.
Unemployment remains a major concern. The Government’s focus during all three lockdowns has been more around support than stimulus and it is naive for Chancellor Rishi Sunak to believe that the withdrawal of restrictions will provide all the support the economy needs. The grow the economy back to health refrain sounds more and more like a Churchillian rallying cry and less like a policy statement.
Next week's budget will probably extend the furlough for what will certainly be the last time, also provide house buyers the continued benefit of a stamp duty holiday but will then hopefully provide, not support, but stimulus to drive the economy forward. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The UK faces a dilemma as it begins to consider the release of lockdown as despite a high level of pent-up demand which is likely to see inflation begin to rise, there will still be a massive overhang of businesses struggling to get back to where they were pre-Pandemic let alone begin to grow past that level.
It will be a virtually impossible square the circle, as on the one hand retail is expected, despite the damage caused to its balance sheets, to see an impressive bounce back while manufacturing and services struggle to retain customers and compete for orders.
The Chancellor will want to project optimism in his budget but will be acutely aware that reducing support by any meaningful amount could spell disaster.
This means that Monday’s announcement from the Prime Minister of the roadmap for the gradual withdrawal of restrictions will be critical to both the economy and the social welfare of the population. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Deputy Governor of the Bank of England David Ramsden believes that given the current risks to the economy that the level of support being provided through fiscal and monetary stimulus remains justified.
Over the past few months there has been plenty of discussion about whether negative rates are an appropriate policy tool. Ramsden believes that the discussion has been no more than contingency planning should support for the economy using QE and financial stimulus fail to avert any significant downturn.
Ramsden along with his boss, Governor Andrew Bailey and Chief Economist Andrew Haldane have remained unconvinced, not about the effectiveness of taking rates negative, but more about such a move being necessary.
Independent members of the MPC have been less optimistic about the recovery and have therefore favoured a serious study of the possible outcomes but the technocrats appear to have won the day. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"As Rishi Sunak continues to prepare his budget which will be delivered on March 3rd, he is also preparing his long-term plans for repaying the debt that has been necessary to take on to combat the worst economic effects of the Pandemic.
Despite his not being a Party of taxation, it is inevitable that taxes will rise during the term of this Parliament. It is laudable but also somewhat theatrical to say that the country is going to grow its way back to financial health, but the reality is somewhat different.
The levels of growth likely to be seen over the next three or four years are expected to be healthy, but little more.
Although the issues with Brexit appear to be coming to an end and there is no doubt that the vaccination programme has been a major success story for the country, a significant post-pandemic shift in output across the entire economy would need to happen for taxes generated from businesses and individuals to be anywhere near sufficient. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Despite a series of high-profile errors in its reaction to the Pandemic in the UK, the Government is looking very likely to reap the benefit of its only major success.
It may very well be that the fact that it managed to order so many doses so early was sheer luck, but getting ahead of the game just once, could prove to be the decisive act economically, if not socially.
At yesterday’s Covid-19 press briefing the Prime Minister announced that he would announce the roadmap out of the lockdown restrictions next week and that progress would be cautious but irreversible.
It is likely that schools will reopen on March 8th as the first of many actions that will slowly return the country to something approaching normality. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The media has been full of stories of how the UK economy collapsed to its worst performance in 312 years but, in reality, that has no bearing on the growing optimism about how the economy will perform going forward.
While employment still concerns analysts, the fact that, differently to most recessions, there is a huge pile of pent-up demand growing which will burst like a dam once the lockdowns are lifted.
Fifteen million people have now been vaccinated. This puts the UK way out in front of other G7 economies.
Pressure is growing for the Government to start a phased reduction in restrictions and the Prime Minister has announced that he will announce a roadmap of just how the lifting of lockdowns will begin on February 22nd. This week is sure to be full of exclusives about how the plan will work. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The developing row between London and Brussels over UK access to the EU’s financial markets is beginning to turn ugly.
The EU Commission appears to be stealthily working behind the scenes to not only promote Paris and Frankfurt as alternatives to London but to actively limit UK access.
The work towards an agreement is something of a phoney war. On the surface, the UK is unwilling to agree that it will mirror EU regulation for financial services, since it cannot agree in advance to any change in regulation that it may deem to be detrimental to its interests.
However, the real battle is for supremacy in the incredibly lucrative financial market, where London has always held the upper hand.
Brussels sees Brexit as the perfect opportunity to supplant London. It is similar to Brussels jealousy over the dollar’s position in the global economy, although the UK Prime Minister Boris Johnson says that all he wants is a level playing field and is willing to continue discussions until a workable compromise is found. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Andrew Bailey, the Governor of the Bank of England warned yesterday that the EU is determined to keep the UK on a tight leash when negotiations begin about UK access to EU financial markets.
The EU wants the UK to confirm that its regulations won’t stray too far from Brussels’ own regulations while the UK believes it cannot agree to abide by rules that may be added in the future that could conflict with its best interest. Bailey believes the EU is trying to hobble the UK and the standing of London as the world’s premier market and try to promote Paris and Frankfurt as viable alternatives. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The economy also showed signs of improvement with like for like retail sales increasing by 7.1% year on year in January versus a 4.8% rise in December. This comfortably beat analysts’ predictions.
The GDP estimate for the three months to January will be released later this morning with estimates of a 0.9% increase the average of analyst’s predictions.
Investors' net long Sterling positions continue to increase as the market's view that the UK will be among the leaders if not the first to be able to lift its lockdown.
Friday will see the release of a raft of data that will provide evidence of the level of improvement (if any) in the economy. However, other than preliminary Q4 GDP data, it is leading indicators that are drawing the most attention. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The UK Government often charged with over-promising and under-delivering is determined to take full advantage of the positivity generated by the success of its vaccination programme to lay the foundations for a strong recovery as soon as they feel it is safe for lockdowns to begin to be lifted.
Chastened by criticism that he made several bad calls last year, the Prime Minister is determined that he listens to every piece of advice he receives, studies each data point and is inclusive of his planning not just for the recovery but the continued support for those individuals and businesses most affected by the Pandemic.
However, there are still dark clouds on the horizon as unemployment continues to rise and issues over Brexit remain a drag on activity and output.
The volume of goods leaving the UK for Europe fell by 68% last month compared to a year earlier."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"When everything is at a record low the economy can only go one way. As Rodney Dangerfield says in the immortal Caddyshack, “Everyone’s Buying? Then sell! Everyone's selling? Then buy!”
The first part is coming to an end, hopes are growing that the second part is going to see hospitality, services, employment, and output grow exponentially from pent-up demand when the various lockdowns are relaxed.
Chancellor Rishi Sunak has already acted, loosening the conditions on loans granted to small and medium sized businesses to enable them to survive the crisis. £45 billion has been borrowed by around 1.4 million businesses and Sunak has agreed to extend the tenor, if requested, of those loans from six to ten years. This is a show of confidence in that sector of the market to both survive and prosper as this scheme will allow firms to pay as they grow.
Payment holidays and interest free periods will also be part of the scheme. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Yesterday’s Bank of England MPC meeting was more positive about the recovery than it has been for some time. This allowed talk of negative interest rates to be slipped onto the back burner with little comment.
It has emerged that the Bank canvassed 160 lenders in the UK to understand the practicality of how negative rates would work in practice.
The operational difficulties for banks led the MPC to agree that it would provide the market with six months’ notice of such a move.
This appears rather curious in that it is fairly obvious that the economy is in an extraordinarily precarious position and should the MPC believe that such a radical move is warranted, it is then prepared to wait two quarters to implement it.
The rollout of the Covid 19 vaccination programme continues at a startling pace.
The country had become accustomed to this Government having to make excuses for delays, whether they be Brexit related or in the reaction to the fast-moving effect of Coronavirus, over its entire term in office but with now well over ten million jabs having been provided, a corner may have been turned. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"When the discovery of a vaccine to halt the spread of Coronavirus was announced, it was proclaimed as a game changer.
Yesterday, the UK announced that the country had passed ten million jabs, and that the target of completing the vaccination of the four most vulnerable groups by the end of next week is almost certain to be achieved.
Indeed, the game does appear to have changed.
The country’s Chief Medical Officer Chris Whitty announced that the science now confirms that the UK is past the peak of the second wave of infections.
He did warn against the relaxation of restrictions in the short term, but the combination of the lockdown and vaccinations means that the UK is about to begin the long road back both economically and socially. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The rumblings that started over the delays at UK ports brought about by Brexit are beginning to get louder as Johnson’s excuse that they are merely teething problems sounds less convincing every day.
The Cabinet Secretary has also attempted to reassure exporters and hauliers in the wake of the fiasco over Brussels attempt to invoke a clause in the Brexit agreement that would have led to a hard border between the Republic of Ireland and the Nationalist North of the island.
It was felt in many areas of business that there would be issues with the agreement, and as time goes on several loopholes and seemingly minor issues are building up.
For example, the EU has now decided that UK shellfish sales are banned because of restrictions on the import of live animals unless they have been through a processing plant that makes the trade non-viable. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Chancellor of the Exchequer Rishi Sunak is preparing to return to the limelight in the coming weeks as both prepares a reboot of the economy and provide further support to those whose jobs have been or are about to be affected by the Pandemic.
He will begin with further support and is being called upon to extend the furlough scheme yet again. With the numbers on furlough now fairly constant, his concern is how many of those currently employed but not working will find themselves out of work when the scheme ends and/or the lockdown is eventually ended.
Sunak will discuss the issue with the Prime Minister and is sure to outline his concern that extending the furlough is pointless if those furloughed have effectively no jobs to return to.
The economic recovery from the Pandemic will provide an opportunity for the Government to invest in retraining. That will shorten both the period people are out of work and go some way towards upskilling the workforce into jobs that will be needed going forward. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"This week’s Bank of England Monetary Policy Committee meeting is unlikely to feature a rate cut into negative territory.
Such a radical move is not warranted currently since it could easily blow up in the face of the bank and exacerbate the economic recovery from the pandemic.
The UK’s post-Brexit trading position is gradually improving although a deal with the U.S. will probably take as long as several market professionals had warned.
There was news over the weekend that the UK is applying to join the Trans-Pacific trade group, consisting of 11 nations including Japan, Australia, Canada, and New Zealand. This would cement relations with several countries in the region although the UK already has trade deals with 7 of the members. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The hospitality sector in the UK is a vital piece of several other parts of the economy and it has been by far the worst affected by the lockdowns that have been off and on over the past year.
There have been criticisms over lack of forward planning and guidance from Westminster and it appears every announcement has contained another issue for this sector.
Supply, staffing, overheads, and forced closures have all led to losses amounting to close to £200 million a day and will contribute to further to a contraction in the economy over the fourth quarter of 2020 and the first of this year.
The Chancellor has been lobbied by several business groups to be made a special case where certain rules have hit them particularly hard but pubs, bars, and restaurants face devastation which will see businesses become unviable with large numbers of staff currently furloughed losing their jobs. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Prime Minister, under pressure to give the country guidance on when the lockdown may be relaxed, gave a tentative date of March 8th as the earliest date on which schools can reopen. At yesterday's Coronavirus press briefing, Boris Johnson was at pains to point out that this is the earliest date on which restrictions can be reduced and this is by no means certain.
He went on to say that the target date of 15th February for vaccination of the four most vulnerable groups is well on track and if that is achieved then he will provide a more detailed roadmap and timetable for lifting restrictions on February 22nd.
That, he explained, will allow schools the two weeks’ notice that the Education Secretary announced recently, would be provided to allow them the time to be fully prepared.
The inauguration of Joe Biden as U.S. President last week has provided the UK with hope that there will soon be a free trade deal agreed between the two nations. It is hoped that Biden will be pragmatic about the special relationship and encourage the Secretary of Trade to push on with talks. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Over the entire period of the Pandemic, the UK Government has grappled with balancing its effect on the economy with the spread of infections and fatalities.
With deaths attributed to Coronavirus passing 100k yesterday, it is easy to argue that they have not achieved either of their objectives. With deaths lagging infections and hospitalisations, it will still be weeks before any substantial improvement is seen despite the current lockdown and vaccination programme.
At almost every turn, the Prime Minister has been accused of indecision and delay and now appears to have decided to be more cautious, leaning towards ending the pandemic by ensuring that the lockdown remains in place for longer than may be considered necessary once the four most vulnerable groups have been immunised.
The balancing of the two major effects of the Pandemic has not been a unique issue for the UK. All across Europe there has been a similar dilemma with German Chancellor Angela Merkel admitting yesterday that the virus is still out of control. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Today’s employment report is unlikely to make pleasant reading. Forward projections expect the rate to top out close to 7% as the Pandemic will continue to hit business output for several months to come. Today's data is expected to see the rate climb above 5% although the claimant count may fall marginally from November’s high figure of 65k.
This Government, which had been elected barely a single quarter before the Pandemic hit has faced several issues in trying to deal with both the social and economic fallout, has faced the additional irritants of an opposition that has no chance of coming to power for five years questioning and criticizing its actions together with a press that continues to ask questions with no answers.
There are growing demands for the Prime Minister to provide a timetable for the return of children to schools when it was only a month ago the demand was for schools to close.
Health Secretary Nick Hancock at yesterday’s press briefing was bombarded with demands from the media to provide a roadmap out of lockdown. His response was unequivocal in that there will be no change in policy until the four most at risk groups are vaccinated and that programme is on track to be complete by the target date of 15th February. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The UK remains in the midst of the Coronavirus Pandemic, but those businesses that are able to operate are beginning to feel the pinch of how Brexit is changing how business is done between Britain and the mainland.
Boris Johnson won the dubious honour of being the first European Leader to be contacted by the new U.S. President Joe Biden, although it seems that his call did not contain any encouragement for the PM regarding a trade deal between the two countries.
While the Government’s vaccination programme is now generating close to 500k inoculations a day, the Prime Minister and his Health Secretary face several tough questions this week: First, why hasn’t been more done to close the borders sooner? What is the most beneficial period between first and second injections? and how effective is the vaccine against the new strains of the virus?
The Health Secretary admitted yesterday that small numbers of the Brazilian and South African variants are present in the UK. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"London is refusing to recognise the EU’s Ambassador to the UK since the EU is not a Sovereign State as defined by the UN, so its representative does not have the status to present his credentials to the Queen.
The fact that 141 other nations accept the sovereignty of the EU is neither here nor there. A neutral can see both points of view; it is really simply a matter of scoring points and should be resolved over time.
Post Brexit, the UK will take some time to find its feet in trading both with Europe under its new terms and with the wider global market. One positive following the Brexit deal has seen Japanese car manufacturer Nissan commit to the UK. This secures 6k direct jobs and a further 70k in the supply chain.
Progress has been made in trade negotiations with several major economies, but it is how the new U.S. President deals with a new trade deal that is vital to the UK’s short-term prospects. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Governor of the Bank of England Andrew Bailey followed his Chief Economist Andy Haldane in predicting a robust recovery in the UK economy once the vaccination programme begins to take hold.
Both Bailey and Haldane’s opinions differ from those of the financial markets where analysts see the recovery taking longer than expected and the recession lasting into at least the third quarter.
There are differing opinions too about when the recovery will begin. It is highly likely now that the country will spend the entire first quarter in recession. That means, depending on how quickly activity can grow, the second quarter will begin in recession.
Brexit continues to fly under the radar with yesterday’s report that 20% of small and medium businesses are now avoiding selling in the EU due to uncertainties over delivery. Not generally reported this particularly applies to perishable goods. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Bank of England Chief Economist spoke yesterday of his opinion that the UK economy will recover at a rate of knots. The shock to the economy of the first lockdown was far more damaging than the second wave since the Government already had support packages in place and business knew to a certain extent what to expect.
Comparing this human disaster to the 2008/9 financial crisis, Haldane went on to say that although the loss of human life is tragic, the structure of investment and financing remains intact, so it is far easier to recover economically.
Haldane has consistently been the most optimistic Bank of England Official as his fellow MPC members barrel with the idea of negative interest rates as a way of boosting the economy going forward.
There is a concern over the effect on banks of such a move. Their profits would be hit which would probably be welcomed by the general public, but this would have a knock-on effect on their capital base which would, in turn, curtain lending. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"While the Government battles to gain control over the Coronavirus Pandemic and the new variants of the virus, it cannot shake off Brexit and the issues that are being caused by delays being seen, particularly by fishermen, in getting produce to market in Europe.
Yesterday saw a protest in the centre of London from Scottish fishermen whose trade has been seriously affected by delays caused by border checks. Prime minister Boris Johnson has pledged an interim support payment of £23 million to assist those hit hardest.
Numerous stories have emerged of cargoes spoiling in lorries delayed at the border by discrepancies in paperwork.
As the Pandemic continues to threaten the Health service, it seems that evidence is emerging to suggest that the nationwide lockdown is having the desired effect. The level of new infections is down by 25% in a week while the vaccination programme surges ahead. Hospital admissions and fatalities lag infections so a peak is still 7-10 days away. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The short-term prospects for the UK economy are, if anything, worsening as the measures taken by the Government to protect the population bite into economic growth.
The economy shrunk by 2.8% in November as the tier system was brought in and is likely to see a similar or even worse result in December as even more draconian measures were introduced.
The bad news has continued into the New Year with the travel and aviation sectors hit by the withdrawal of all travel corridors in the wake of new strains of the virus emanating first in South Africa, then in Brazil.
Analysts predict that every month of continuing lockdown adds three months to the time before activity in the UK returns to its pre-Covid level. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"While it was expected that he would by now be looking at ways to repay some of the borrowing that is running at a peacetime high, he is still on the frontline putting out fires.
The expectation remains that the vaccine will ultimately be the panacea that cures the country but economically the effect of the current lockdown, without even considering Brexit will take a considerable time to recover from.
A panel of analysts when asked their view on how long it will be before the economy is back to the pre-Covid level, the average response was two years’ time. Some even believe that it could take appreciably longer than that, possibly the entire length of this Parliament.
Estimates put the hit to the economy from the current lockdown at 3% in this quarter. With flash estimates for Q4 expected early next month a recession appears unavoidable, although the brief lowering of restrictions in October may have provided a degree of impetus before lockdown 2 took hold. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The excitement that greeted the rollout of vaccines to combat Covid-19 is close to being overshadowed by the continued spread of the virus which killed 1,564 people yesterday.
This is a record for a single day and underlines the massive human cost of the Pandemic not just in the UK, but globally.
The sense of euphoria provided by the approval, rollout, and delivery of two working vaccines has now turned into a desperate race to get people inoculated as the NHS gets closer every day to being overwhelmed.
The economic cost of the Pandemic is not yet being fully felt as the Government has done all it can to ease the burden but several of the measures that have been put in place are close to expiry raising concerns. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Bank of England Governor Andrew Bailey spoke yesterday about his concerns for the recovery from the Pandemic as case numbers and fatalities continue to rise.
Bailey echoed the sentiments of Chancellor Rishi Sunak in commenting that the economy will suffer further before any improvement starts.
Bailey is encouraged by the rollout of the vaccination programme but sees that as a medium-term benefit while the current lockdown measures are hitting the retail and hospitality sectors particularly hard.
The trajectory of any recovery has been significantly flattened by the latest restrictions and a double-dip recession cannot be ruled out. Bailey expects the performance of the economy to be broadly in line with the Bank’s economic forecasts which were last updated in November. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Data for like-for-like retail sales was published overnight. It showed just how bad 2020 was for the sector.
There was a slump in demand for fashion and homeware products while sales of foodstuffs grew by 5.4% over 2020. This perfectly illustrates the effect of the lockdowns that took place during the year. Overall, sales fell by 0.3%, the worst outcome since records began twenty-five years ago.
Silvana Tenreyro, a member of the Bank of England’s Monetary Policy Committee spoke yesterday of the possibility that the Bank will need to add more stimulus to the economy This view was backed by U.S. investment bank Goldman Sachs which, in a report on the UK economy, said it expects a move as early as next month.
Tenreyro went on to discuss negative interest rates in the UK. While most analysts expect stimulus to be delivered in the shape of increased or faster purchases of bonds, she said that it was important that the Bank maintained the weapon of another interest rate cut and retained the possibility of taking rates into negative territory. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The UK Government continues to appear to overpromise in its desire to provide the country with a degree of hope in various directions.
It has been a feature of the Government’s tactics since before the election at the end of 2019 regarding Brexit, it continued through the first lockdown and has now reappeared over Coronavirus vaccinations.
There is some doubt over its ability to deliver on a promise to vaccinate every member of the four most vulnerable groups by the middle of next month and now, to provide every adult who wants a jab with one by the Autumn.
With positive tests at levels last seen last spring, deaths at record levels and the NHS close to being overwhelmed, the Health Minister has appealed to the public to adhere to the rules while a reluctance remains to tighten restrictions. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Prime Minister, speaking at the Coronavirus press briefing yesterday, provided a bullish update on the progress of the Government’s vaccination programme concluding that things will look very different by the Spring.
The plan to vaccinate all four of the most vulnerable groups is being supported by the army’s logistics division and Johnson explained that the only limit to the rapid deployment of the vaccine is supply.
A report issued yesterday by a major European Bank concluded that the country’s GDP will take a less significant hit from the latest lockdown as business knows what to expect, has been able to prepare and the Government’s furlough scheme is well established.
The financial markets have no clear trend as we enter the second week of the New Year. With Brexit now complete, there has been some encouraging news from the Bank of England. Its Director for Financial Markets commented yesterday that, so far, the transition has been exceptionally smooth, and the UK intends to continue to provide robust regulatory standards on a par with the EU. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Bank of England Governor Andrew Bailey spoke yesterday of his confidence that the country would thrive post-Brexit. He commented that he doesn’t see Brexit as a major drag on growth and the benefit of the certainty that deal brings outweighs any new regulation of trade.
He went on to say that he does not have any agenda regarding bank dividends having acted to restore the right of banks to pay dividends and last year's suspension was a one-off.
The pound is struggling to make any further progress against a weakening dollar as the country’s economy faces another recession with the length of the current lockdown remaining unclear.
It is estimated that the current lockdown measures are costing the economy close to £400 million a day. The economy faces the perfect definition of a double dip recession where two quarters of contraction are followed by a period of growth (in this case one quarter) followed by two further quarters of contraction."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The spread of Coronavirus in England that has led to a new national lockdown has increased to such an extent that one in fifty is now infected.
With new cases of the virus reaching more than 60k for the first time yesterday, there was little obstruction when the Bill to make regulations law was passed in Parliament last evening.
As the latest restrictions take hold, a further significant fall in economic output is likely. Another recession beckons and Chancellor Rishi Sunak allocated a further four billion pounds in grants to those most affected yesterday.
The official definition of a recession is where two consecutive quarters suffer a contraction of GDP is likely to be fulfilled with Q4 ‘20 and Q1 ‘21 seeing falling growth. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Prime Minister Boris Johnson announced last evening that he had made the decision to place the entire country into full lockdown as cases of the variant of Covid-19 spread unchecked.
In an effort to wrest back control Johnson announced that from midnight last night, everyone should stay indoors unless any trip was essential.
It was a day of contrasts as the Oxford/AstraZeneca vaccine began to be given.
Following the announcement of the lockdown, it appears that the Government is pinning its hopes upon the delivery of the vaccines to conquer the pandemic.
Given what happened to the economy during the first lockdown which started in March of last year, it is vital that the new measures not only work but work quickly. Chancellor Rishi Sunak has already extended the Government’s furlough scheme until the end of April, but he is bound to face pressure to put other regional and/or industry specific measures in place. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"With Brexit now completed, there has been a positive start to the movement of goods between the UK and EU from both sides of the country.
The New Year holiday has allowed freight businesses to ease themselves into the new methodology and so far, the reaction has been positive.
Given the concerns over what would happen in the event of a no deal scenario, the UK can look forward to its new trading relationship with Brussels with a degree of confidence.
Remain supporters can now be seen as having ideological rather than practical concerns although there is still time for problems to surface. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Strong rumours of a breakthrough in talks between London and Brussels have emerged overnight with an announcement of a Brexit trade deal possible this morning.
The UK had been facing the twin threats of its own isolation due to the rapid spread of the new strain of Coronavirus and the possibility of chaos at UK ports should no deal be agreed.
Those two issues appeared to have melded into one as France banned freight services between the two countries bringing chaos to the south east of the UK.
In further good news, France has eased restrictions overnight with the military being drafted in to assist with mass testing for lorry drivers.
In what was being labelled a dry run for a no deal Brexit, queues of lorries stretched for miles as with drivers rapidly running out of food and drink and comestible cargoes beginning to spoil."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The chances of the UK escaping an economic contraction in Q1 are fading fast.
Prime Minister Boris Johnson finally acted on Saturday to tighten Covid limitations. He created a new tier four in which he changed the relaxation of restrictions for Christmas.
In the south east of the country restrictions will not be lifted at all while in other areas the Christmas relaxation has been reduced from five days to Christmas Day only.
Tier Four is a further blow to the retail and hospitality sectors as all non-essential shops will have to close and the traditional Post-Christmas Sales will now be cancelled.
With restrictions likely to stay in force well into the New Year, the prospects for the economy have become severe. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Brexit is still just ahead of Coronavirus on the list of short-term drivers for both the economy and the pound.
Johnson and von der Leyen had yet another phone conversation last evening and according to Michel Barnier, a deal is still possible by tomorrow with ratification by the EU Commission on Sunday. That view is countered by UK Government Minister Michael Gove who commented yesterday that he believes the chances of a deal are less than 50%.
The review of the lockdown tiers has been carried out and Health Secretary Matt Hancock announced yesterday that only very minor positive moves from tier three to tier two would take place. Having placed London in tier three earlier in the week, several other areas of the South East of the country were moved up to tier three.
It is therefore slightly incongruous that Westminster and the three devolved administrations have agreed to leave the relaxation of restrictions over the Christmas Holiday in place with just a request that people behave sensibly."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"If the UK economy can grow in the current environment 2021 should be a piece of cake! The IHS Markit Economic Survey grew marginally in this month from 49 to 50.7. That rise, more importantly, took output into expansion territory.
As the month has worn on, problems with freight services have led to issues in the supply chain. This can only worsen as the outcome of Brexit negotiations becomes known.
Unless the EU totally capitulates and gives the UK all it wants in talks, the situation post January 1st is certain to be worse than it is today.
No matter what procedures are set in place, documentary requirements, more customs checks and additional permits for UK lorries to travel unfettered across Europe will come into force. Brussels has suspended the need for new permits for lorries until June, but there will be issues over the use of the correct containers. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"A word that has disappeared from Brexit talks since Johnson took over from May is fudge. The forthright approach used by Johnson during a year of sometimes intense negotiation persuaded commentators that he was prepared to simply walk away.
However, over the past few weeks the deal has become everyone’s focus on both teams as they have allowed several deadlines to come and go.
It has taken an inordinate time for the penny to drop with both sides. The rhetoric and sabre rattling have been replaced by a more considered approach.
However, as time runs out it is becoming more and more probable that an agreement, if one is reached, will prove to be unattractive to both sides leaving the entire divorce process in a mess and adding to the level of uncertainty that already exists.
Officially, and according to the UK Prime Minister’s Office, no deal remains the most likely outcome, but acceptance of such comments is becoming thinner and thinner. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The EU and UK representatives negotiating a post-Brexit trade deal have been told by their respective leaders to continue talking despite the comments made by both sides at the end of last week that agreement is unlikely to be achieved.
With the UK’s transition period ending on December 31st, it is hard to imagine the three remaining issues being resolved. Despite the deeply rooted intransigence of both sides, they both now understand that a deal is preferable but the rhetoric about being prepared to walk away remains.
In a joint statement released yesterday, Johnson and von der Leyen did not say how long talks would continue for but there seems to be a growing realisation of what no deal actually means even at this late stage, and a desperation to get an agreement is growing.
The Pound has rallied overnight as traders optimism in a deal being done was renewed. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"It is inconceivable that the UK and EU after spending so much time negotiating first a withdrawal agreement, then a trade deal and post-Brexit relationship find themselves two days away from disaster.
The degree of chaos that Brexit is going to bring to the logistics sector of the UK economy is already evident. In the south east of the country roads are already becoming clogged with lorries waiting to cross the channel while in several ports, there is a logjam developing with containers unable to be cleared through customs.
The issues in the ports are not just about Brexit, Covid has played a part as has an issue that has been developing for months with goods arriving from China. However, the country is experiencing the beginning of a living nightmare that will become reality in just three weeks.
There remains confusion about the paperwork that is necessary and there is the potential for 100km queues clogging roads in Kent as the full effect of Brexit is felt. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Boris Johnson and Ursula von der Leyen were unable to bridge the considerable gaps which remain between the two sides' positions over a post-Brexit trade deal following a meeting in Brussels last evening.
Delivering the downbeat news, a spokesman for Johnson confirmed that talks between Barnier and Frost will resume later today. The only agreement that was reached is that a firm decision will be made by this Sunday.
Nothing appears to have materially changed over the three major sticking points, and the chances that the transition period will end on December 31st with no trade deal in place have increased significantly.
With both sides’ economies in tatters following the Coronavirus Pandemic it was hoped that there could be compromise over fishing rights, competition rules and how the future relationship will be governed. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The respective Brexit negotiating teams led by Lord Frost and Michel Barnier appear to have exhausted every avenue available to them to find a solution to the remaining issues that face the conclusion of a trade deal and the future relationship.
The outstanding issues remain unchanged: Fishing rights, the creation of a level playing field, and how disputes will be dealt with as the UK departs the European court system.
It was rumoured yesterday that the British delegation had agreed to soften the terms of the internal markets bill which will come into force if no deal is agreed and is considered by Brussels to contravene the agreement that is already in place.
It has been 1,629 days since the Brexit referendum decision set the UK on a path to depart the European Union and there have been several false dawns, but now every cliche that has been used such as eleventh hour, five to midnight, last chance saloon and now or never, is coming to fruition."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The fact that Brexit trade talks are continuing well into December is the perfect illustration of just how important a deal is to both sides.
Talks between the UK and EU Chief negotiators resumed yesterday following a tense phone call between the Prime Minister and EU Commission President on Friday evening. Another such call will take place this evening.
It must be expected that an overall agreement must be within reach otherwise it is hard to imagine why talks are continuing at this late stage.
The Chancellor of the Exchequer has begun to consider how he will start to recoup some of the money he has provided to help all areas of the economy to survive the Pandemic. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"As negotiations continue over a trade deal between the UK and the EU, there are very mixed messages coming from both sides. After a rather disappointing round of talks on Wednesday, yesterday appeared to hold out much more hope. As was mentioned yesterday, the matter of fishing rights is punching well above its weight in discussions. It is often the case that a symbolic cause carries more weight than something more basic and meaningful.
Despite an air of optimism, there has been no significant comment over the matters of competition and Government support. It has been fishing where the militancy of the French fleet is well known that there has been open disagreement.
It was expected that this would be the week when an agreement of sorts would be confirmed. This would give the EU Commission and British Parliament a chance to ratify the terms without the late-night dramas that were seen a year ago. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The prospect of an agreement between the UK and EU over a trade deal, and the additional conditions that accompany it remains in the balance. A spokesman for Prime Minister Boris Johnson confirmed yesterday that the UK’s position over the Internal Market Bill remains unchanged.
This could be a supplementary stumbling block even if agreement over the other outstanding issues is reached. When it was passed by Parliament recently the Bill was labelled by Brussels as being in contravention of the agreement that is already in place.
Since the Bill was put in place to provide clarity in what happens over the passage of goods between the Mainland and Northern Ireland in the event of no trade deal being agreed, it will become moot, only if an agreement is reached.
Monday's combination of a weakening dollar and almost a sense of euphoria over Brexit led the pound into waters that have not been visited for some considerable time. The last time the pound closed above 1.34 versus the dollar was almost a year ago and was in response to the result of the General Election. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The financial markets have clearly decided that the conclusion of a trade agreement with the EU is currently by far the most important driver for the economy.
Over the past few weeks as the Brexit clock continues to count down the Chancellor and Bank of England Governor have speculated about the effect of leaving the EU with no deal and it has been generally agreed that no deal will have a more lasting effect on the economy overall than the Covid-19 Pandemic.
That is why, on a day when the effect on those retailers who have become dinosaurs, locked into long bricks and mortar leases on expensive High Street premises, finally accounted for two of the most prominent groups, Debenhams and Arcadia, Sterling still managed to break above long-term resistance levels.
Rumours are again circulating of a deal being reached and news of which of the two sides has blinked first is eagerly awaited. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Parliament will vote today on the new regional tier system that the Prime Minister and Health Secretary have designed to replace the lockdown that ends tomorrow.
While several MPs have complained about various aspects of the restrictions, and Opposition MPs will abstain, it is unlikely that we will see a return to the situation a year ago when, then Prime Minister, Theresa May lost numerous votes on Brexit.
Once the new measures have been agreed, Brexit will return to the top of Boris Johnsons to do list as the transition period now has less than a month to run.
While there has been a degree of progress, the sticking points; fisheries, and economic fair play, remain. Johnson repeated yesterday his long-held view that a deal would be preferable, but the UK will flourish outside the EU’s rigid framework and bureaucratic morass. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Office for Budget Responsibility, an independent body which oversees the fiscal and economic performance of the Government has expressed concerns over the additional effect on the country of a no deal Brexit.
Ursula von der Leyen and Boris Johnson clearly have the final say in what their Chief Negotiators do or don’t offer by way of concessions, but it is now becoming more and more likely that both sides are sleepwalking into no deal which is by far the least favourable outcome.
Last week, while presenting his spending review to Parliament, the Chancellor was at pains to impress just how serious the fallout from the Pandemic will be, it is unclear whether he has factored in the additional cost of trade between the UK and EU reverting to WTO rules from January.
The only possible benefit of that happening would be that businesses that trade with Europe and beyond will already have some experience of using WTO since the UK trades with 111 counties under those regulations. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"At a press conference last evening it became very clear how much Prime Minister Boris Johnson had gone against the scientific advice to allow a softening of the Coronavirus regulations in order to allow the country to have as normal a Christmas as possible.
The revamped tier system which will come into force next week will be tougher than it was in the period running up to the current lockdown with hardly any regions in Tier one.
This means that the hospitality industry faces severe restrictions with a large swathe of the country seeing its pubs and restaurants either unable to open or facing draconian limitations.
Following on from the spending review announced by the Chancellor the previous day, the public face an extremely difficult period until next March. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The UK economy is unlikely to return to pre-Pandemic levels before the fourth quarter of 2022. Unemployment will peak at 7.5% in Q2 of next year meaning the jobless total will reach 2.6 million. These were the stark outcomes from the Chancellors spending review that he delivered to Parliament yesterday.
While there were dire warnings for the future of the economy, the Chancellor announced two large new areas of investment.
First there will be a £4 billion fund setup for investment in areas that have missed out on funding in the past, while the Government’s restart scheme will receive £3 billion to go towards finding jobs for around a million people who are currently or about to become unemployed.
Equity markets appear to be providing a far more reliable guide to the performance of the economy recently. Yesterday, for example the pound reached its highest levels this quarter, despite the slowing economy and second lockdown. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Chancellor of the Exchequer Rishi Sunak will stand before Parliament later today and present his spending plans for the next year.
In light of the Coronavirus Pandemic a more formal budget for the year ahead was considered inappropriate as the usual expenditure and taxation measures do not necessarily apply right now.
The main purpose of the spending review is to ensure that all Government Departments receive the necessary support to carry on through the next twelve months. How this will all be paid for is, as Sunak said in an interview on Sunday, a matter for another day.
So, Sunak, less than twelve months in the job, will again be seen as the good guy handing out support to every part of the economy. The day will come when he, or his successor, will have the far less palatable job of determining how the largest peacetime Government debt pile ever is serviced. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"As Brexit talks resume again this week following a pause brought about by a Coronavirus scare, the pressure for a deal to be found appears equalised between both sides.
Andrew Bailey, the Governor of the Bank of England spoke yesterday of his concerns over no agreement being reached before the termination of the transition period on 31st December.
He believes that the chaos that has been wrought upon the entire population by the Coronavirus Pandemic could be dwarfed by the effect on business, and ultimately the economy, by no deal.
Were the country hit by both a Pandemic continuing well into the New Year and an agreement failing to be reached it could affect the country for decades. However, he went on to say that an agreement would help the country recover from the current crisis. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Chancellor of the Exchequer Rishi Sunak will announce the Government’s spending plans for the next twelve months this week. In a TV interview yesterday, he was at pains to calm concerns regarding how the expenditure will be paid for.
It is fairly clear that there will be tax increases at some point in the next two to three years but there will be no return to austerity despite the threat of a public sector wage freeze.
There will be more money provided to the NHS with £3 billion made available immediately to allow it to catch up with procedures delayed by Covid-19 and to replace equipment.
The threat of a pay freeze for the rest of the public sector has raised concerns over industrial action, but as Sunak said, there has been a huge amount of struggle for the private sector over the past nine months and the Government cannot immunise those working for local councils etc."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The UK, U.S. and Eurozone are facing mounting cases of Coronavirus as the second wave takes hold. The UK is in lockdown for another twelve days, President-elect Biden has said that the U.S. won’t enforce a total lockdown, while in the Eurozone speculation is rising that those nations that have put lockdowns in place will have to extend them as they have not had the desired effect.
However, with each country facing additional issues, Brexit for the UK, the outcome of the election for the U.S. and a mounting bad debt mountain in the eurozone, the financial markets are struggling to decide how their respective economies will fare.
Unprecedented levels of Government debt threaten the entire financial system while the amount of QE being undertaken by the Central Bank and the threat of a move into negative interest rates will create a journey into the unknown. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"With the Government in a lockdown induced state of limbo as it awaits an expected fall in cases, Brexit is set to become the dominant factor driving the financial markets.
The negotiation period is definitely coming to an end despite there having been calls from several places for the transition period, due to end at the end of next month, to be extended.
As things stand, no matter what is or is not agreed in the coming days/weeks, implementation is going to have to be done in real time.
The ECB has warned that banks who wish to operate in the EU must not use the Pandemic as an excuse to drag their heels over the transfer of staff expertise from London to the major European Financial centres of Paris and Frankfurt."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Andrew Bailey the Governor of the Bank of England spoke yesterday of his optimism over the news that highly effective vaccines are now being produced.
However, he still sees a high degree of uncertainty in the coming months brought about by both the current lockdown restrictions and how the Brexit negotiations will finally play out.
Bailey went on to say that he has seen evidence of business investment being unusually restrained and this has fed through into a significant slowdown in productivity. He hopes that the news about a vaccine will begin the process of releasing the shackles on investment. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"It is hard to say how many times over the past eighteen months we have been told that it is crunch time for a deal to be agreed between the UK and EU to avoid the turmoil that would be created by a no deal Brexit.
It is therefore difficult to write that the negotiations really have reached crunch time and it is now or never since there are only six weeks to go until the transition period expires and the UK is set free or cast adrift depending on your view.
It is astonishing that London and Brussels are still calling on the other to make the necessary concessions to get a deal done.
There is still a degree of optimism that in the end both sides will see the error of their ways and come to terms over the remaining sticking points. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"It has become apparent over the past month or so that both sides have realized that a trade deal between the UK and EU is in everyone’s best interests and, more importantly, that neither can expect perfection.
While that realization is yet to manifest itself in any concessions, there is a growing degree of optimism that this week could be vital, particularly as it is fast becoming a case of now or never.
This year was intended to allow for a transition period in which both sides got used to the new regulations, but instead it has brought confusion and concerns that come January, when the sabre rattling ends, all that will be left will be confusion and a logjam at Channel ports. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The UK economy grew by 15.5% in the three months to September but remains around 25% smaller than it was pre-Pandemic.
In comments made following the publication of the Q3 GDP data, Chancellor Rishi Sunak admitted to concerns that the economy was slowing before the country went into the current lockdown but went on to say that there are signs that give him a cautious optimism and the news of a vaccine provides a genuine chance of a return to normal.
It is obvious that the regional restrictions that were in place prior to the lockdown started in motion a fall in activity and the Bank of England's latest data predicts a 2% fall in GDP in Q4. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"In the past, faced with either cutting services or increasing taxes, a Conservative Government would have chosen cuts. However, in order to comply with Boris Johnson’s pledge to increase Government investment in infrastructure, the NHS, and local Government, Sunak is planning to take a most unconservative path and raise taxes.
To go against the grain even further, it is Capital Gains Tax that is first in his sights. This is the tax that applies to the profit made on the purchase and sale of an asset and is something that applies far more often to Conservative than Labour voters.
A Government review of taxation has suggested that the rate of Capital Gains Tax should be doubled. Even this measure would bring in a relatively small proportion of the additional borrowings the Government has undertaken but is seen as symbolic of the Government’s commitment. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Although talk of a vaccine to protect against Coronavirus becoming available before the end of the year has been going on for some time, the fact that it is now reasonably certain that it will happen has taken markets by surprise.
The Government, while being naturally cautious, must be incredibly relieved as it was reaching the point where the effect on the economy of further lockdowns would become almost impossible to support.
The boost to confidence of both business and consumers could be a game-changer according to Bank of England Chief Economist Andrew Haldane. It is clear that while the rollout of the vaccine will take several months, the news will provide a vision of a light at the end of the tunnel."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Yesterday, the drugs firm Pfizer announced that they have developed a vaccine that they say is effective in 90% of cases of Coronavirus. This provided a boost to the financial markets with the shares in businesses involved in the most affected sectors making significant gains.
While excited by the news, Prime Minister Boris Johnson sounded a note of caution and told the country in a news conference yesterday afternoon that the basics of social distancing, hand washing and the wearing of masks should be maintained to stem the tide of infections."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"It is becoming more and more likely that the Bank of England will cut interest rates in the coming weeks and take them into negative territory for the first time.
Bank of England Governor Andrew Bailey has been canvassing the opinion of the banks, who essentially, control the practicalities of the money market, for their views on what the effect will be on their business. Once that review is complete, the MPC will decide.
Having already added a further £150 billion to its bond purchases, it is clear that the Treasury and Central Bank are working in unison to ensure that the country is prepared financially for whatever happens following the current lockdown. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Yesterday, the Bank of England and Treasury joined forces to provide support to the economy, and those most affected by the Coronavirus Pandemic.
Andrew Bailey, the Governor of the Bank of England announced that the Bank would increase the level of its purchases of Government debt from £300 billion to £450 billion.
Despite his own concerns over the level of borrowing needed to fund an extension, Chancellor Rishi Sunak announced in Parliament that the furlough scheme under which the Government funds 80% of the wages of those furloughed would now last until next March. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Overnight, legal challenges to the election results in the States of Pennsylvania, Wisconsin and Michigan were the entirely predictable outcome of President Trump’s penchant for the dramatic coupled with a childish inability to accept when a situation is not his liking
Trump’s ability to attract controversy like a magnet has been with him all through his business career and has accompanied him on what could turn out to be a brief sortie into politics.
While he has done rather better than the polls predicted, Trump’s behaviour yesterday when he declared that he had already won the election but was in danger of being fraudulently cheated out of it, was fairly typical. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The counts continue in the U.S. following the closing of polls overnight.
Tight races are expected with Covid-19 concerns currently outweighed by the economy as the most important topic to voters according to exit polls.
Continued expectations and projections can do little more, even now, than predict a tighter race even than had been forecast.
Stories are coming in of results that defy the opinion polls with Key Trump supporter Lindsay Graham retaining his Senatorial seat against seemingly overwhelming odds in South Carolina.
The closer the race becomes, the more concerns there will be about fraud over postal voting from Trump and stumbling over the finish line for Biden. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The UK economy is about to take another massive hit as England will enter a period of lockdown for one month starting on November 5th. The measures were announced on Saturday by Prime Minister Boris Johnson as estimates were released that showed that the country could face up to 4k deaths a day without action.
The lockdown will hit the hospitality and tourism sectors hard and predictions are being made that up to 30% of pubs and restaurants may not reopen. Johnson announced that the original furlough scheme, which ended on Saturday would remain in place for the entire period of the lockdown.
The scheme has cost an estimated £40 billion already and this will add to Chancellor Sunak’s sleepless nights as he prepares his spending plans that will be released in three weeks’ time. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The UK economy is about to take another massive hit as England will enter a period of lockdown for one month starting on November 5th. The measures were announced on Saturday by Prime Minister Boris Johnson as estimates were released that showed that the country could face up to 4k deaths a day without action.
The lockdown will hit the hospitality and tourism sectors hard and predictions are being made that up to 30% of pubs and restaurants may not reopen. Johnson announced that the original furlough scheme, which ended on Saturday would remain in place for the entire period of the lockdown.
The scheme has cost an estimated £40 billion already and this will add to Chancellor Sunak’s sleepless nights as he prepares his spending plans that will be released in three weeks’ time. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The UK is facing a further contraction in its economy unless it increases spending on supporting jobs during the second wave of Covid-19. That is the opinion of the IMF which downgraded its forecasts for UK GDP in 2020 and 2021.
The economy is now expected to contract by 10.4% this year and recover in 2021 growing by 5.8%.
In order to invigorate the economy, the IMF recommends that the Bank of England increases its support for the economy by increasing its bond purchases. Support should last as long as the rate of infections remains according to the Fund’s Managing Director."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Rishi Sunak announced a few weeks ago that he was abandoning plans to produce his budget and three year spending plans due to uncertainties caused by the Pandemic, but yesterday he confirmed that on November 25th he will present a one year spending review to Parliament.
This will have three main purposes; funding for the NHS, protecting jobs and ensuring that Government departments have sufficient funding to deal with issues arising from Covid-19. From this it has been deduced that projections show that new infections will be close to peaking at that time. This will provide a degree of certainty to those Ministries directly affected by spending on the Pandemic. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"It is going to take a very long time before the UK economy fully recovers from Covid-19, but no matter how long that period is, at the end of it the UK will still have left the EU and the circumstances of its departure will echo for a generation.
Although most people are sick of hearing about it, the UK’s £900 billion trading relationship is crucial to the country’s economy despite the medium-term issues being created by the pandemic.
While everything is on the table as far as EU Chief Negotiator Michel Barnier is concerned, the most important factor over the past couple of weeks is that his opposite number, David Frost told him not to come to London for talks last week unless something fundamental had changed. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The increasing concerns over a fresh national lockdown, the cost of Coronavirus so far and the far from certain departure from the EU are weighing heavily on the UK economy.
Having increased the support given the areas of the UK who are forced into Tier Three of the new regional lockdown measures, the Chancellor is being forced into considering the effect on those regions who have been raised into Tier Two, while facing questions over how the country is going to pay for the borrowing which has pushed the debt to GDP ratio up to around 100%. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Chancellor of the Exchequer Rishi Sunak improved the support being given to businesses and workers affected by the Covid Pandemic by almost doubling the Government’s contribution.
The move was largely welcomed on all sides although the Parliamentary Opposition believe that it is too little too late.
In a press conference also attended by the Prime Minister and Chief Medical Officer, Sunak supported the practice of regional lockdowns despite criticism from various sections of the media. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Chancellor of the Exchequer Rishi Sunak has exhibited a degree of flexibility not usually seen in this Government by agreeing to revisit his latest plans for financial support for those returning to lockdown.
This is a response to the arguments of Manchester Mayor Andy Burnham who refused to allow his City to return to lockdown without a proper support package in place.
Ultimately, the Prime Minister asserted his authority and placed Manchester in Tier 3, but Burnham’s actions have prompted Sunak to act. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"London and Brussels continue to demand that the other give ground in order to agree a trade deal while Boris Johnson stood firm and placed Manchester under the highest level of local lockdown in order to try to get cases of Covid-19 under control.
It seems as far as Brexit is concerned Johnson and his advisors are unable or unwilling to make the final gesture and confirm that talks are at an end and the UK will end the transition period of December 31st with no deal in place. Apparently, the door to a deal is still ajar. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Prime Minister Boris Johnson repeated his assertion that without a significant change of heart from Brussels there is no basis for talks to resume.
The call between the negotiators was said to have been constructive but that is simply political speak for no progress.
Meanwhile, the UK prepares for an Australia style departure which means it will begin its new independent life without a trade deal with its biggest partner. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Talks between the UK and EU ended last week with no agreement over a future relationship between the two and UK Chief Negotiator Lord Frost claiming that Brussels had no genuine interest in finding a solution.
There are two areas over which there is still a significant disagreement between the two sides demands, fishing rights and state aid.
Following the break-up of talks, the EU Summit which was supposed to ratify the talks ended in confusion.
Boris Johnson commented that the talks are at an end and there is no point in EU Chief Negotiator Michel Barnier visiting London this week without a significant change of heart on the part of the EU. It appears that as things stand, the UK will be dealing with Brussels on WTO terms from January. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"There was a sense of deja-vu yesterday as an EU Summit began in Brussels with the intention of ratifying an agreement that had been reached between the two parties over Brexit. Since no agreement has been reached it felt a lot like last November was being repeated.
Both sides expressed disappointment over the others failure to compromise. UK Chief Negotiator, David Frost said that he felt that Brussels was no longer serious about finding a solution to the remaining issues. The most likely outcome of what was supposed to be the defining week for Brexit is that talks will continue well into next month. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The pound had its most volatile day in terms of its range for over a month yesterday as the Government’s handling of the second wave of Coronavirus came in for some heavy criticism while Brexit negotiations provided a backdrop of uncertainty.
It is now fairly certain that the Prime Minister ignored the advice he was given by his scientific committee about a circuit breaker lockdown to arrest the spread of the virus. It was suggested by SAGE members that a complete lockdown for two or three weeks would see infection rates be brought back under control and provide a level playing field across the entire country."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The new lockdown regulations announced by the Prime Minister have been criticized from just about every corner as the balance between protecting the population while defending the economy has seemingly failed to be met.
With infections, hospital admissions and fatalities all rising exponentially, the placing of just one area of the country in the new tier three is difficult to understand. Opposition Parties appear to have evidence that the scientific evidence and advice has been largely ignored. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Prime Minister Boris Johnson’s self-inflicted deadline for a Brexit deal to be agreed expires on Thursday, while later today he will announce further restrictions that will be made to try to halt the spread of the virus.
It is expected that he will announce a three-tier system based around the number of infections per 100k of population with areas in the north of the country likely to see the most significant constraints. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Following Scotland’s move to radically increase restrictions to deal with an increase in infections from Covid-19, England looks likely to follow its lead and introduce a three-tier system of restrictions next week.
The hospitality industry will be decimated by lockdown measures similar to those introduced by the devolved Scottish Assembly while new data suggests that high streets in England could see 75% of smaller family owned independent shops close. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"An agreement about the future trading relationship between the UK and EU is beginning to look more likely although the one outstanding matter is an issue that has been around for decades.
The ability of the EU’s fishing fleet, particularly those from France to fish in UK territorial waters, has often been a source of controversy and as is often the case, this time it is exacerbated by politics. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"It is unclear whether the EU negotiating team actually believes that Johnson will pull the plug on negotiations on October 15th as he has promised, but it does appear to continue to hold their attention.
Talks have been extended and are now due to finish this week. Rumours were flying at lunchtime yesterday that the EU was admitting to some progress having been made. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Chancellor of the Exchequer Rishi Sunak appears to be shouldering the burden of the UK's economic recovery from Covid-19 almost alone.
While the majority of the Government’s resources are being channelled into fighting the second wave, Sunak is trying to ensure that there is some form of an economy to return to once the infection rate is under control. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"It is hard to be optimistic about the economy while it faces the added headwind of Brexit. Official negotiations came to an end last week without an agreement being reached.
The official statement that both sides agreed to summed up the entire process. The same two or three differences remain with neither side prepared to go the extra mile. Each blames the other for grandstanding driven by a belief that they believe they are in a stronger position than their opponent."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Just about every aspect of UK society is in confusion.
Whether it is the Government’s response to Covid-19, the public understanding of the rules, Brexit, the economy or negative rates It is becoming impossible to follow what is happening and each has a knock-on effect for the rest.
Track and trace and testing capacity are nowhere near where they should be with people having to travel hundreds of miles to get a test. Local lockdown rules have become so confused that even the Prime Minister is giving out wrong advice. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"As the final official Brexit negotiations conclude, there is concern over several areas of the UK economy that could be dealt significant blows in their ability to do tariff-free business with the EU from January 1st.
The pharmaceutical industry believes that the Government has not done enough to secure its competitive position with Brussels while there is a perennial concern from the fishing industry that it could face competition from French trawlers within UK waters.
Although it is a relatively minor part of the overall economy, fishing rights have always been a symbol of UK independence with several skirmishes over the years. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"BoE Governor Andrew Bailey injected a sense of reality into the UK’s potential recovery as he branded it inconsistent but slowly improving.
Bailey also added his take on the conversation around negative rates commenting that the media had read too much into recent comments.
Bailey went on to say that he felt that the economy would be between 7% and10% weaker this quarter than it was at the end of Q1 when the Pandemic really hit.
Three days of intense Brexit negotiation between Westminster and Brussels began yesterday with the lingering rumour of a potential breakthrough still hovering over the talks. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Office for Budget Responsibility, a Government funded body that provides economic forecasts has said that it expects unemployment to peak at between 10% and 13% in the next two years. The latest data shows the jobless rate to be at 4.1%. This not only bears out the Chancellor's comment that not every job can be saved but shows the scale of the economic fallout the country faces from Covid-19.
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Having announced a series of measures to support those facing the threat of losing their jobs by supporting wages and continuing the reduction of VAT he is faced with another round of consideration of how it will all be paid for that will exercise his mind.
The cost of the new measures have not, as yet, been officially announced but by postponing the Budget which was due to be presented to Parliament in November he has bought a little breathing space and the opportunity to consider the Treasury’s options should the situation worsen. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"In a plan to save jobs anyone who works fewer than their normal weekly hours can qualify for a top up which will be paid for jointly by their employer and the Government.
Anyone who works 33% of their hours will receive 77% of their pay.with 55% paid by the employer and 22% by the Government. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Rishi Sunak began by cancelling the Autumn Statement that was to be delivered in November. This is the announcement of spending plans and more importantly how they will be paid for in the coming year.
His decision to cancel this and speak today on new measures he is going to introduce to protect existing jobs rather than provide detail on how new ones will be created is an illustration of the gravity of the situation. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Johnson labelled the new measures vital as the hospitality industry will be hit hard again and this would appear to be the final chance before the announcement of another total lockdown. All pubs, bars and restaurants will now be forced to close at 10pm and anyone able to work from home should do so.
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"A press conference held by the two top scientists in the Government’s Scientists Advisory Group for Emergencies revealed that at the present rate of infections, England could be looking at 80k new cases a day by the middle of next month.
It is impossible to say what the effect of this will be on the country since a second total lockdown would drive the economy back into recession and this time it will take more than a few gimmicks to see a return to growth. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Government admitted that its Covid-19 testing system was at breaking point last week as the number of new infections rose exponentially.
With 20% of the country already suffering a more severe set of lockdown rules, Prime Minister Boris Johnson has some important decisions to make about how to deal with the growing threat of a second spike. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Many commentators are looking for the Government to provide further support for the hospitality industry which is still seeing outlets closing in major cities as working from home becomes the norm. Also, Holiday companies and the entire aviation industry is in serious trouble and craving support with activity not expected to return to normal until late 2023 at the earliest.
The Bank of England’s Monetary Policy Committee meets later today and is set to hold fire on any further boost to the economy until Chancellor Rishi Sunak firms up his fiscal planning."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Chancellor of the Exchequer Rishi Sunak reacted to yesterday’s employment report by confirming that retention of existing jobs and schemes to create new ones is his top priority.
The data shows that the number of those claiming benefits rose by 73.4k and the unemployment rate ticked back above 4%. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Analysts believed that the collapse in growth over Q2 would be more than made up for by a major recovery in Q3. With just a few weeks of Q3 left, the outlook is, perhaps, not as rosy as had been expected.
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The rise in Coronavirus cases which doubled within a week and the controversy over the Internal Market Bill which was introduced to Parliament last week have had a profound effect on confidence that the UK can grow back to its pre-Pandemic level in the short/medium term. Any optimism that had been built up as the country appeared to be returning to something approaching normal has almost entirely dissipated. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Any future relationship between the UK and the EU is now in serious jeopardy with Brussels threatening legal action if the Bill is passed, while Boris Johnson refuses to back down. This goes above and beyond no deal as an outcome of the negotiations. As a tactic to ensure that the EU backs down over the two outstanding disagreements over the future relationship, it is brinkmanship at its most extreme.
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Yesterday the UK released the terms of its internal market bill.
Hidden in plain sight in the document was the potential bombshell that the UK Trade Minister will have the authority to effectively change the terms of the agreement that formed part of the Withdrawal Agreement that was signed last year and is governed by international law."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The pound has taken a battering over the past few trading sessions as the market comes to terms with the fact that the recovery in the UK is going to take longer and be more costly than it previously imagined while the Government has to also deal with Brexit trade negotiations.
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The game of bluster and counter-bluster that has gone on ever since the UK voted to leave the EU has burst back to life as the clock counts down on the negotiation period. Each side blames the other, and while Prime Minister Boris Johnson continues to extol the virtues of a no deal departure, such an outcome would be fraught with dangers. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Brexit trade talks continue but there is little, or no progress being made on the two remaining sticking points. First, the UK will not bow to the EU on competition rules.
The second point of contention is around fishing rights. Brussels concedes that the UK controls its own coastal waters, but the EU must have access to fish within those waters."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The UK is suddenly seen as a leader in the fight against a second wave of infections from Covid-19. If not a global leader, certainly a leader as far as Europe is concerned.
The fear is that there is going to be a second wave of infections across Europe that will decimate their ability to fight off its worst effects on their economy, while the UK considers its own plans but limits travel to and from the mainland. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Although the recovery to a level last seen at the end of last year won’t be seen until the end of next year, Bailey is confident that the recovery will be steady and gradual, despite its length.
There is a very real caveat, and that is the extent to which the economy may be affected by a second spike of the Coronavirus epidemic. New infections across the larger EU economies are currently running at a rate of about double what is being seen in the UK. It is assumed that the UK follows mainland Europe by between two and three weeks, so it is obvious that the next month will be critical. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"When Bank of England Chief Economist Andy Haldane made his prediction of a V-Shaped recovery it seemed from the data that has been released since that he was definitely on to something. The economy seemed to be recovering nicely and the Chancellor’s innovative schemes were being deemed a success.
What a difference a week makes. Despite the pound reacting positively to a weakening dollar and data which shows that there is a recovery, of sorts, happening, the spectre of a second spike is taking shape. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Monetary policy is in danger of becoming irrelevant. That is a theory that could shake the walls of Threadneedle Street to their foundations. Some would say that the official rate of interest has always been irrelevant, but for now it certainly is.
For the man in the street, it is far more important to be able to go out, possibly take his family out and eat at a price they can afford. The Eat Out to Help Out scheme looks like it is a success. Of course, we will need to await official data but anecdotally it looks that way. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Bank of England's Chief Economist Andy Haldane is paid to see into the future and predict just how the economy is going to perform. It would appear that he has earned every penny of his salary over the past month as he predicted a significant rise in manufacturing output and that is what the economy delivered.
Factory output grew to 53.3 in July, in line with the flash estimate, confirmed Haldane’s view that the economy is going to experience a V-shaped recovery. Of course, his prediction was made prior to the current fears over a second wave of Covid-19.
That could curtail what has been a run of improving data despite headwinds over China and Brexit threatening to push the recovery off course. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Over the month of July, confidence had been growing that despite the UK being the most affected European Country it may emerge from the Covid-19 Pandemic, while not unscathed, with the ability to recover more quickly than the rest of Europe and possibly the U.S.
It emerged on Friday that the Scientific Experts believe that the UK has reached the limit of its ability to move any further. That may mean a trade-off where, for example, in order for schools to reopen, pubs and or restaurants may need to close."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Government’s manifesto for the December election and the Budget which took place before the lockdown both pledged an end to austerity. However, it has taken the most unexpected of events to ensure that austerity is finally dead and buried.
Covid-19 has taken the austerity card out of Chancellor Rishi Sunaks hand as the only way to solve the recession that is now certain to happen is for the economy to grow and that is by stimulus not penny pinching from public services. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The pound is continuing to rally against a dollar which has barely reacted to the entirely predictable Fed meeting. As the euro stalls, the pound is continuing to make ground. This is most likely due to the much larger short Sterling positions that have been being reported by the CBOT.
While it is to be expected that a post-Brexit trade deal will be competed fairly routinely with the U.S., despite talk of sell offs in the NHS and chlorinated chicken, it is deals likely to be made with other major partners, like Japan and Australia that are likely to give the pound further wind beneath its wings."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Last week’s retail sales data was better than expected and that will have helped the Treasury's coffers to fill but with a cut to VAT and the much-vaunted hospitality bonus will slow the flow by a significant amount.
One of the thoughts rushing through the mind of the Chancellor is an online sales tax. This may serve to solve two issues. First those online retailers who are avoiding the issues of High Street rents and business rates will see part of their profit be paid to the Government, while many of the biggest retailers, Amazon are a prime (!) example, have been heavily criticised for their tax regimes. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The pound continued its recent rally last week as technical indicators continue to amount to very little as a clue to its direction.
Given the storm clouds that are gathering for the country and the economy, the pound’s rise to its current level appears unsustainable. However, it could easily extend to test the 1.30 level but having reached its highest level since the lockdown began, the Covid pandemic may have had all the effect it is going to as Brexit and the ongoing row with China prove to me more immediate concerns. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Date figures show that Manufacturing output is at its lowest level in forty years. That in itself is hardly surprising, manufacturing has been on a decline for many years since globalization has allowed firms to create, build or make goods of similar quality to what can be produced in the UK at a fraction of the cost.
One of the more significant outcomes of the pandemic, particularly if the UK’s fall out with China escalates is that as manufacturing develops and becomes less labour intensive, the cost of setting up in the UK will fall. That has already been shown in a few car companies with global brands moving production to the UK. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The unpredictability that has pervaded the FX market over the period of the pandemic has seen risk appetite as the primary driver and the dollar has been the major respondent, the pound and single currency have trailed faithfully behind.
While the market remains unpredictable, the outlook may have changed as the rally in Sterling came to something of a halt yesterday despite the dollar’s continued fall.
Brexit, China, and the state of the economy remain the principal drivers for the pound. Each has a different time scale with the economy, the most pressing issue followed by Brexit and the long-term effect of the escalating row with China.
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"A double dip recession where the economy looks to be over the worst of its contraction only to fall back is being predicted in several quarters by analysts who fear a second spike in Covid-19 infections as well as criticising the Federal response over aid to those who are either furloughed or are having to start claiming unemployment support.
The original support package with paid $600 per week to those in need of support expires at the end of the month and while further measures are being worked on fears remain that the level of support will be significantly reduced. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"While the pound has several short-term victories, it is becoming clear that longer term investors, hedge funds and strategic traders remain bearish about the longer-term prospects for the currency. Thus, there is little follow through when bullish comments or expectations are made such as those by Bank of England Chief Economist Andrew Haldane yesterday.
Haldane’s view is that the economy is in the middle of a V-shaped recovery from the Covid-19 pandemic and has already recouped half of the fall in activity due to the lockdown."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Although there is still an option for Chancellor Rishi Sunak to either cut public spending or raise taxes to pay for the support he has provided during the Covid-19 pandemic, it is becoming more and more certain he will opt for tax rises.
This is not a traditionally Conservative way of raising funds, it was made clear by Boris Johnson at last year’s election and Sunak’s action at the time of the Budget in March that austerity in the UK was over and a more expansive form of Capitalism will be this Governments watchword. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The UK got a glimpse of the shape of things to come yesterday as data was released that showed that the country shed close to 700k jobs in the three months to May.
With the spate of major retailers and High Street stores closing premises permanently and several large firms saying they won’t take up the Government's job retention scheme, the situation can only get worse going forward."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"China responded to the UK’s decision to end using equipment produced by Huawei in its 5G network exactly as the Government will have expected.
The calculated risk taken by Boris Johnson may have stoked the importance of the Special Relationship, but it has put in jeopardy Chinese investment in the UK.
A spokesperson for Beijing voiced its disappointment with the British decision which it said raised questions over the security of Chinese investment in the UK which last year totalled in excess of £50 billion."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The UK stoked the fires of growing enmity with Beijing yesterday as it announced that it will cease with immediate effect using any equipment produced by Chinese tech giant Huawei in its 5G network.
Already embroiled in a dispute over Chinese actions in Hong Kong, the UK Government bowed to significant pressure being exerted by Washington to both stop working with Huawei immediately and remove all its kit from the network by 2027."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The services sector in the UK spans many segments of ordinary life. It has been the most widely hit by the furlough of staff and will see the largest share of job losses, as befits its status as the largest part of the UK economy.
An example of this is the travel industry where nine of every ten businesses are facing significant job losses. This is created by the knock-on effect across the entire sector that has seen airlines making staff redundant, hotels and restaurants struggling to make the new social distancing measures viable and quarantine measures (now relaxed) forcing holidaymakers to stay home."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The torrent of unemployed workers could reach three million which would put it in line with the seventies and eighties although at least then, the country was going through a major realignment. At that time, the mines were on their last legs and vehicle manufacturing was becoming a niche rather than prime industry.
What the UK could see in coming months may be beyond the wit of any Government to deal with and no amount of cut-price meals or other freebies will even scratch the surface. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The fallout from Brexit, particularly if the UK departs without a deal over trade and the future relationship, seems to have been a factor so long that its significance has been dulled. But while the pandemic is by far the biggest concern for the economy going forward, the effect of a no-deal Brexit could last longer.
While Rishi Sunak’s package of measures to move from shock treatment for the economy to long-term plans to stimulate growth were well received on the whole, the cost of ensuring unemployment doesn’t spiral out of control is being questioned. Sunak had little option but to act but opposition Parties are already labelling the measures as frivolous in some cases and too little too late in others."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Sunak’s plans contain some innovative ideas, not least of all the half price meal deal, but they also contain an element of kicking the can down the road which is understandable as he doesn’t have an unlimited money tree. A reduction in VAT has been warmly received but as is usual where a degree of relief is offered, more would have been more welcome.
The overall financial cost of the Covid-19 Pandemic to the UK will be in excess of £300 billion and it will take some further, less palatable decisions for Sunak to be able to balance the books. He may be left with the stark choice of cuts to services or tax increases in the winter or early next year although Johnson has already ring-fenced the health and care sector as being virtually untouchable. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"While the Prime Minister is painting with broad brush strokes, Sunak will be expected to put some flesh on the bones of his plans. Johnson spoke recently of kickstarting the economy by investing in infrastructure, but Sunak’s approach will more likely provide real assistance to those either out of work or facing redundancy.
There have been some positive whispers from both sides about a degree of progress having been made in the negotiations over the UK’s relationship with Brussels once Brexit takes place at the end of the year. While there is never any official statement over how the talks are developing or where the difficulties lie, rumour will continue to drive the market. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"There is a radical economic theory that has been tested in a few economies that Chancellor Rishi Sunak is rumoured to favour as he looks to innovate to help the UK recover from the worst effects of the Covid-19 pandemic.
It is believed that the most effective way to get an economy moving is the shock treatment of placing cash in the hands of the population with the instruction to spend spend spend. This resembles the Helicopter Money theory championed by former Fed. Chairman Ben Bernanke. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The nation will have to wait for a couple of weeks to see if there has been any major fallout from the opening of the hospitality sector on Saturday, in terms of fresh Covid-19 infections.
The effect of social distancing in restaurants in particular is yet to be seen on their ability to generate sufficient cashflow to stay afloat. Furthermore, any return to lockdown due to a spike in Covid-19 cases could create a catastrophe for the sector. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Sunak has been left holding the baby, when it comes to explaining just what the Government’s priorities will be, when and where they will start and most importantly how they will be funded. So now, Sunak who is wrestling with saving jobs, paying for continued support for those who are affected by the lockdown is now spokesman for the Government’s flagship project to return the country to growth. He is probably entitled to ask just where his remit begins and ends and probably for a pay rise too!"
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The initial boost to activity as the economy began to open up has proved something of a false dawn as the true picture of job losses begins to emerge.
So far this week more than 12k jobs have been lost, mostly among large high street employers and some major retailers like John Lewis confirmed yesterday that some of their stores, that are prominent on several High Streets, won’t reopen. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Boris Johnson channelled his inner Roosevelt yesterday as he announced a New Deal for the country which will see the playing field levelled as far as possible.
Having already invoked thoughts of Lady Thatcher and Sir Winston Churchill, Johnson looked across the Atlantic to find a way to galvanize the country to follow his lead in backing large infrastructure projects. He is planning to launch a New Deal that will evoke the ideas of the U.S. recovery from the great depression which was the last time the world found itself so close to the edge in peacetime."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Johnson has said he is expecting the UK to adopt an Australian style Brexit. To which the EU Commission President replied but we deal with Australia under WTO rules. I imagine Johnson’s reply was exactly.
Despite the posturing, negotiations resumed yesterday and there is sure to be some progress made. As Angela Merkle said in a number of newspaper interviews, if there is no deal done, the UK will have to live with the consequences. More posturing? No, that is a hard fact. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Contrasting information, dataflows, opinion, and analysis are combining to provide a chequered picture for Sterling that has developed over the past month or so. It will continue until there is an announcement over the future arrangements between the UK and EU as well as a degree of certainty over the likelihood of a second wave of Coronavirus.
The deadline for the UK to request an extension to the December 31st deadline for it to leave the EU expires tomorrow and it is virtually certain that nothing more will happen in that direction. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The reduction on the rate of VAT almost across the board is the perfect instrument.
It is a headline catcher that will be seen by consumers when studying prices, it will be immediate from one day to the next and it can be used to attract footfall into shops. An additional benefit is that it can be used to differentiate between online shopping and a visit to the High Street. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The data for activity in both the manufacturing and services sectors, released yesterday, points to the UK seeing a U-shaped recovery from the effects of Codvid-19.
The hospitality sector of the economy is going to be allowed to reopen but this will be subject to strict social distancing restrictions. The two most significant requirements for the reopening of pubs and bars is that customers must provide their identity to enable contract tracing and they must only be served at their tables. This will ensure that the new one metre social distancing requirement can be maintained. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Prime Minister is expected to announce two major lockdown events later today which will see the UK back on the path to normality. Buoyed by the lowest number for fatalities and new cases since lockdown began, Boris Johnson is set to announce the reduction of the social distancing measure from two metres to one.
Rishi Sunak, the Chancellor is apparently putting the final touches to an announcement that VAT will be cut from 20% to 10% on several products. This will be the first cut in VAT since Labour introduced different rates for petrol and luxury items in 1974. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Rishi Sunak the Chancellor of the Exchequer is considering ways in which to boost consumer spending in the short term. He is also studying how he can replenish the nation's coffers after data last week which revealed that public sector net borrowing ballooned to £55 billion in May.
VAT receipts are one of the major earners for the country producing £138 billion in income last year. Sunak is considering reducing the sales tax on several items to encourage spending but in doing that as a short term fix, he may need to consider a rise in personal taxation later in the year in order to balance the books, or at least make a move in that direction."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"There is a degree of expectation growing that although the contraction in the UK's Q2 GDP will be severe, it may not be as bad as had been predicted. That means a contraction of nearer 20% rather than closer to 40%.
With that in mind, the Bank of England pumped a further £100 billion into its QE programme at its Monetary Policy Committee meeting yesterday to add a level of security to the economy. The Bank did agree to slow the pace at which it hoovers up Government bond issuance. This will require private investors to take up the slack. This is a move which shows a degree of confidence in economic activity."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The pound suffered from some home grown pressure yesterday as inflation fell to its lowest level in four years driven by a 17% fall in fuel prices at the pump and major discounting from clothing and footwear retailers providing price cuts to shift summer stock having missed out on the first month of the news season.
The upturn in sales seen over the first few days of the lifting of lockdown restrictions has barely scratched the surface of the surplus stock so with underlying prices continuing to fall, low inflation is likely to be a factor for some time to come. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Current data releases in most major economies seem to be following the same trend; bad but could have been much worse. The population is now seeing the effect of the pandemic in black and white as the Government struggles with the dilemma of public health versus the economy. 600k jobs were lost in the three months to May, pointing to the biggest jobs crisis in more than 25 years. With the Government's furlough scheme and other support mechanisms paying the wages of more than 9 million workers the potential effect of the pandemic on the economy has been dampened down according to some analysts.
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The pound gained a little ground yesterday as a meeting between UK Prime Minister Boris Johnson and EU Commission President Ursula von der Leyen ended on a positive note with both committed to finding a way around the current impasse over a post Brexit trade deal and promising in Johnson’s words to put some oomph into the talks. Yesterday was the first day of phase two of the easing of lockdown restrictions with non-essential retailers being allowed to open for the first time since March 23rd."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The UK economy shrunk by a little over 20% in April, the first full month of the Covid-19 lockdown. This was the worst data on record, but really only serves as a confirmation of what has been said for some time; that the UK, developed and global economies will all suffer as a result of the pandemic. No two recoveries will be the same, just as no two economies are the same.
The OECD has said that it believes that the UK economy will be one of the worst hit in the developed world, but as Chancellor, Sushi Sunak said in a pair of TV interviews yesterday, that is hardly surprising given UK activity and output are driven by services which will be the last areas to reopen."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"With little data to go on regarding how countries in Europe are faring having begun to open up a few weeks ago, Johnson faces a difficult decision that he will have to take blind about how to retain social distancing when non-essential retail reopens this Monday.
Today will see a slew of data released. The monthly GDP data for April, together industrial production figures will both provide confirmation of just how bad Q2 will be. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"An analysis of the prospects for the developed world and its efforts to escape the effects of the Covid-19 pandemic has concluded that the UK may be one of the worst affected of the affluent nations.
The study released yesterday concluded that due to the UK’s lack of a manufacturing base it is extremely reliant upon the performance of the global economy and its predominantly service driven economy will lead to a longer lead-in period to a complete return to normal than other nations. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The pound is struggling to make further gains against the dollar as analysts begin to express concern over the Government’s Covid-19 strategy and the ability of the economy to cope with both the pandemic and an impending no-deal Brexit.
As the UK prepares for a further easing of lockdown restrictions with non-essential shops to open next Monday, despite some major retailers deciding that it is not yet safe to do so, the Government has performed a U-turn over the return to school before the summer of children in the younger age group. This confused policy has led to concerns that the Government’s strategy is being decided on the hoof."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The rise in the value of Sterling has clearly been primarily driven by recent weakness in the dollar and there is a distinct feeling that a correction from current levels is a more likely scenario than a continued drive towards the 1.3000 level.
The two main issues facing the UK Government; Covid-19 and Brexit will remain throughout the summer with the end of this month set to be a watershed in its dealing with both. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Today the new rules over quarantine for travellers arriving in the UK come into force. The protests from the travel industry and airlines highlight the Government’s dilemma over the pandemic and the economy.
Across the UK, there is a clear divide between public concerns about how safe it is, or can be, to lift the lockdown, even using baby steps and the long-term effect of the job losses that are bound to occur as the recession begins to bite."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Despite the pressure that businesses in the UK have faced over the Covid-19 pandemic, Prime Minister Boris Johnson told them yesterday to prepare for departure from the Single Market and Customs Union on December 31st.
With thousands of businesses of all sizes on the brink of collapse despite the Government’s packages of support, analysts had believed that the negotiations may be extended but with a 30th June deadline for the UK to request one, any hopes that that may happen are fading. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The European Union has accused the UK negotiators of being inflexible in negotiating a trade deal between the two. The deal would serve as the basis for a future relationship once Brexit takes place on December 31st.
There have been rumours for a considerable time that the negotiations are not running smoothly but the advent of Coronavirus has led to them taking second place for the time being. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Since the Chancellor of the Exchequer announced on March 23rd that the Government was prepared to offer several schemes to help companies, the self employed, and individuals survive the effect of coronavirus, banks have been left with something of a hot potato.
Under pressure to lend as quickly and simply as possible, they have been concerned about the risk they face and have charged significantly higher interest rates to their customers than they would in a normal market. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The pound continued its recent rally as the latest round of lockdown easing started. Schools reopened for certain age groups while several open-air businesses were able to start trading again.
Yesterday's release of data for manufacturing was as predicted a very slight improvement on the April figures. This strengthened the market's believe that the economy has, in fact, bottomed out as has been predicted recently. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Data for Manufacturing output will be released later this morning with market expectations for a very small increase from the 40.6 level seen this month. This should provide the pound with further support as it will be another indication that activity has bottomed out.
It was a political truism spouted at the time of the last election campaign (which was only a little more than six months ago) that if Labour couldn't win with Brexit negotiations in such a shambles and accusations that they had been mishandled from day one, then they could never win.
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Boris Johnson is getting closer to putting the entire Dominic Cummings lockdown breach to bed through his sheer bloody-mindedness. His move along, nothing to see here metaphor has worn down reporters who live by the maxim that today's news is tomorrow’s chip paper.
The voracious political press have done all they can to damage the Government and Johnson’s Chief Advisor simply because he is seen as a shadowy figure who is never held to account. Well, he has certainly been forced to account for his actions between the end of March and the middle of April and while the Governments poll rating may have fallen a few pips, in the long run very little will change. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Sterling struggled to make any headway above its high from the previous day yesterday as the markets concerns over a no deal Brexit combined with the coming recession drove it lower.
On top of those two concerns, the market is still considering the effect should the Bank of England decide to drop official interest rates below zero. However, the more optimistic comments from Chief Economist Andrew Haldane on Tuesday settled traders worries to a certain extent. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Bank of England’s Chief Economist Andy Haldane in an interview yesterday said he saw the possibility of a shallower than expected recession given the fact that activity and output indices are already bottoming out.
Haldane’s cautious optimism which counters the less factual and more gut-felt reactions of a month ago will be seen by the market as an indication that the Bank of England may have completed the extraordinary support it has been giving the market since the pandemic crisis began."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
On a day when the UK was supposed to be having a Public Holiday despite lockdown restrictions, the Prime Minister’s Chief Advisor faced a grilling from the press over his actions in travelling 280 miles to his parent’s farm to self-isolate.
In an announcement more relevant to getting the country’s economy moving again, Johnson announced that from June 1st, open air markets and car showrooms could reopen and from June 15th, all retail premises could also reopen. This is, of course, subject to social distancing measures.
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The UK PMI’s for May released yesterday were better than market expectations and a significant improvement on last month. Taken in isolation the numbers were somewhere between appalling and abysmal, but in light of the lockdown and the measures being taken by the Government to keep the economy above water, the data was somewhat comforting.
Having said that, it was still well below the worst ever seen bar last month and the downturn is likely to be significantly more severe than 2008. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Inflation in the UK fell to its lowest level in more than four years last month as economic activity in addition to the precipitous fall in the price of oil saw the Consumer price index fall to 0.8% year on year.
With Tuesday’s employment report, also for April, adding concerns over the recovery of the economy once the lockdown is over, Chancellor Rishi Sunak predicted that it could take longer than originally expected."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Sterling remains under pressure and is still the worst performing currency in the G10 this month, despite two reasonably strong days so far this week.
The confusion over the partial lifting of the lockdown, the reopening of schools and the ability of the Government to get funds to those who most need it, is more a testimony to the return of industrial relations woes and the ineptitude of Boris Johnson’s newer recruits than a concern over the spread of Covid-19."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The Bank of England is considering the benefits of allowing interest rates to fall into negative territory as a means of stimulating the UK economy. This would be unprecedented in Britain, but would follow Japan, Switzerland, The Eurozone, and Denmark which currently have negative rates.
While this is seen as a radical move, one which BoE Chief Economist Andy Haldane sees as not being the first port of call, the concept itself is as simple as it sounds. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The pound had its worst week since the lockdown began last week as concerns over the pace at which the economy can recover from Covid-19 mixed with concerns over the intransigence of both sides regarding Brexit to create a toxic cocktail.
The Government’s plans to provide a little comfort to the population in the shape of a marginal lifting of restrictions appear to be close to unravelling as Trades Unions try to ensure the safety of their members in light of what they consider to be the unplanned and uncontrolled of the return to work, in particular the plans to see children of certain ages return to school. This is slated by the Government to happen on June 1st but according to several Government ministers, this will only happen if it is safe to do so. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The realization, despite previous warnings, of a severely damaging recession has finally hit home pushing Sterling to its lowest level since early April.
An economy which is completely dominated by the services sector is bound to suffer a longer and more painful slowdown as that is the area that will be most delayed in reopening and suffer from the most severe cash flow issues. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
" The UK released data yesterday for Q1 GDP yesterday. Speculation has been growing for several weeks about just how deep the recession caused by the Covid-19 pandemic will be.
Despite the lockdown only being in place for a little over a week of the first quarter, the economy contracted by 2%. This is in line with other G7 countries and each is now estimating the size of the devastation of the current quarter. The current consensus for the UK, is for a 30% fall in Q2 which is totally unprecedented in peacetime. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Published Description "The continued chaotic response from the world’s most powerful economy defied any kind of logic. With over 80k deaths and around 1.25 million infections, it is impossible to predict just when there will be a degree of control being exerted.
The U.S.’ most revered expert on infectious diseases Anthony Fauci has already said a second spike in Autumn is already possible even before the first wave is under control. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The proposals being put forward by the Government to partially lift the lockdown have come in for significant criticism for being confusing and unclear and for putting people’s lives at unnecessary risk.
The proposals which switch the emphasis from stay at home to stay alert, place a far greater responsibility on the public to use common sense to maintain social distancing and minimise contact and risk of infection."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"There is concern, especially from SMEs, that they will be caught in an impossible position where they are able to reopen but the slowdown in activity means they are not operating at sufficient capacity to be able to pay their employees.
There are calls for the review of the scheme to be carried out as soon as next week to allow firms the time to plan how they will operate post-lockdown. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"If the UK economy needed any further confirmation of the difficult times that lay ahead, it received it in two pieces of economic news that were released yesterday.
First, data for services output fell to its lowest level since records began in 1995 and then Virgin Atlantic announced that it was to cut 3,000 jobs and possibly quit its slots at London’s second major airport at Gatwick."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
It seems it will be virtually impossible to introduce a blanket plan for a return to work and also keep social distancing rules in place. While that is obvious, the traditional enmity between the Government and Trades Unions has bubbled to the surface.
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"With the market likely to be interested in the NFP data from the U.S. on Friday which coincides with a UK holiday, volatility could ramp up from a slow start today.
Acting in manner more like the Fed than the ECB, the Bank of England has taken up a watching brief as the Government deals with the fiscal necessities of the pandemic. This week’s MPC meeting may add further QE, it is unlikely to make it open ended like the Fed, but Andrew Bailey is sure to provide a greater degree of advance guidance than Christine Lagarde. "
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
In the relative chaos and confusion of 50 American States each going their own way, with a President who is unwilling or unable to either coordinate any Federal planning or response, there is one U.S. institution that stands head and shoulders above the rest; the Federal Reserve.
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Q1 data for growth in the U.S. was as bad as the market had expected and then some! GDP contracted by 4.8% in the January to March period. Given market expectations of 4%, which in reality were little more than a shot in the dark, illustrates just how bad it can be when an economy slams on the brakes.
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
With the return of Boris Johnson to lead the Government’s response to the Covid-19 pandemic, there is a degree of optimism growing that the UK lockdown will start to be eased. As more evidence is revealed of the decline in economic activity large corporates are beginning to feel the pain and react in an effort to save their businesses.
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Retail Sales data for March was released on Friday. They fell by 5.1% month on month, the worst ever result. It was expected that there would be something close to a collapse, given that the lockdown began on 23rd March. Sterling reacted poorly to the data as traders asked if a month with just one week of lockdown is that bad, what will April’s data look like?
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"It seems that traders have accepted that there is a recession on the horizon but in comparative terms, since every economy is in the same boat, single data sets do not necessarily mean a reaction from individual currencies.
If the UK economy is slowing at a rate of 6% per quarter, the U.S, Eurozone, Japan etc. are also slowing at an alarming rate so comparisons are futile."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"The UK maintains that it will leave the EU on 31st December come what may, while there have been calls from a variety of officials from the Union for that date to be extended.
The UK remains steadfast that it will leave by the end of the year with no deal if necessary. There have also been rumours circulating that the UK will refuse to pay the £39 billion divorce payment should there be no agreement. That would be another blow to Brussels and something it will be keen to avoid."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
Employers taking advantage of the Government's scheme to pay workers 80% of their wages up to a maximum £2.5k paper month may be using that facility just to keep going but once that is removed and the SMEs in particular have to survive without support the true effect will be seen.
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
"Boris Johnson the UK Prime Minister is at various stages of recovery depending on which newspaper you read. The Government’s speakers have agreed on one thing: he did hold a video conference with his number two, Dominic Raab last Friday where an extension of the lockdown was ordered.
The effect of the extended lockdown to at least the second week of May means that whatever happens after that, the UK will be behind the curve in catching up with other G7 nations."
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The pound reversed its recent rally yesterday as traders were reminded that the peak in the Covid-19 pandemic has not yet been reached and any talk of a loosening of lockdown regulations is premature.
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The Office for Budget Responsibility (OBR) has predicted that the economic downturn could see unemployment rise to two million and their estimate for QoQ contraction is the most bearish of the recent calculations at 35%. In their estimation, that could lead to a 13% year on year contraction.
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
It is fairly clear that the predictions for the slowdown in the UK economy between April and June have little chance of being accurate. A poll of economists conducted last week by the BBC predicted a 14% slowdown. The latest prediction attributed to Chancellor Rishi Sunak puts the figure at between 25 and 30%.
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The pound reached something approaching equilibrium yesterday as an apparent improvement in the Prime Minister’s health was balanced against the economic effect of the continued lockdown.
While announcing £750 million of help for the UK’s charity sector, Sunak answered questions about the pace of help finding its way through the system to both workers and businesses.
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.
The funds allocated by the Government to bailout all sizes of companies affected by the Covid-19 pandemic are failing to reach their intended destination due to bank’s unwillingness to lower their security requirements.
Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.