Do accusations of dithering sound familiar?

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.

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.

Following last week’s MPC meeting, the Bank of England is facing a dilemma over rising inflation versus the headwinds that the economy is now facing.

Even if the driver crisis were to be solved tomorrow, supply chain issues remain with raw materials in short supply across a wide range of industries, while in the supply of spare parts, the country faces serious competition, mainly from Europe where the recovery is gathering pace.

Andrew Bailey, the Governor of the Bank of England, used humour to express concern over the slowdown of the recovery. He quipped when is the plague of locusts due? following a series of problems that while predictable have arrived together at a critical time for the economy.

With supply chain issues and the rapid rise in energy prices adding to inflation, Bailey commented that the country will face truly hard yards ahead.

Bailey would prefer to use a rise in rates to counter rising inflation and following the MPC meeting it has become more likely that this could occur before the end of additional support through asset purchases.

The pound traded between 103728 and 1.3658 versus the dollar yesterday but eventually settled to close at 1.3697, just eleven pips higher on the day.

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Economy growing but not fast enough

The Fed is facing a dilemma as it grapples with the withdrawal of additional support for the economy in order to cool rising inflation just as the economy falls back into a slower pace of growth.

The balancing act that faces Jerome Powell and his colleagues on the FOMC resembles having painted themselves into a corner.

While the recovery was gaining pace and there was pressure mounting for advance guidance, the Chairman was perhaps tempted into saying too much and raising expectations of the taper sooner than later.

Despite the economy apparently stumbling, the expectation for a reduction in support beginning in November is growing.

Yesterday, the Dallas Fed’s regional Manufacturing Business Index fell from 9 in August to 4.5 in September. While this is considered a secondary piece of data, it continues a trend for a slowdown in such releases across the country.

In contrast, durable goods orders rallied more than expected in August, beating both the previous number and market expectations.,

This data shows orders for durable goods, goods that are expected to last three years or more. They require a greater investment and are therefore an indicator of the longer-term health of the economy.

Chicago Fed President Charles Evans spoke yesterday of the economy coming close to reaching the Fed’s level of expectation in order for the taper to begin coming close to having been met.

Evans went on to say that he believes unemployment could fall below 4% in the coming months. This is indicative of the fact that the FOMC is not especially united in its view of the timing of withdrawal of support and means that if there is a vote to begin the withdrawal of support at the next FOMC meeting, it is unlikely to be unanimous.

The dollar index remains well-supported, but within a relatively narrow range. It continues to knock on the door of a significant rally but seems to run into selling pressure at every attempt.

Yesterday, it rose to a high of 93.49, closing at 93.42. This is the area where sell orders are said to be lurking, which choked off any continued buying interest.

Sees limited signs of price pressures

ECB President Christine Lagarde stuck to her guns over inflation yesterday in testimony to the European Union’s Economy and Monetary Affairs Committee.

She commented that she still doesn’t see any signs that rising inflation is anything other than a temporary phenomenon caused by the level of support that is being provided.

She went on to say that inflation would be significantly lower if it were to be affected by a tightening of restrictions, and that inflation is expected to be below the Bank’s target in the medium term.

Several factors still remain that could see inflation remain elevated. This is a clear reference to the issue of fuel prices, as the wholesale cost of gas continues to rise.

The recovery of the economy is still heavily riven by the evolution of the Pandemic. Lagarde believes that the onset of the winter flu season combined with rising cases of the Delta Variant of Coronavirus could set the recovery back by several months.

Overall, Lagarde remains something of a dove when considering inflation, firmly believing that the Central bank doesn’t need to give it any particular consideration and that it will return to more acceptable levels as the economy levels out.

The release of the latest report on economic sentiment that will be delivered tomorrow is likely to continue the steadily rising trend of the past few months, but with the ECB unlikely to change policy any time soon, the most significant influence will be the Fed and its intentions for monetary policy.

This will have an effect on the value of the euro, which continues to trade in a lower range, flirting with significant long-term support.

Purchasing managers indexes for September were slightly disappointing on the whole and this may have a slowing but still positive effect on economic sentiment which looks further into the future.

The single currency fell to a low of 1.1684, closing at 1.1696. The fact that every close appears to be at a lower rate may encourage a challenge to strong support at 1.1670/80. However, this would need to be in concert with a rise in the dollar index, which may also be hampered by medium term resistance.