18 January 2023: UK faces a crisis over electric cars

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.

The December employment report was published yesterday. The claimant count rose by 19.7k after a rise of 30.7k in November. The employment rate rose to 4% after recording a rate of 3.9% last time.

Average earrings rose by 6.4%, but with headline inflation at 10.7%, real wages continue to fall.

The latest inflation data is released this morning, and it is expected to only have fallen by 0.1% despite the continued efforts of the Bank of England, which is expected to hike rates again for the tenth consecutive meeting next month.

There was more depressing news for the high street yesterday, with reports that the stationery retailer Paperchase is on the brink of failure.

Paperchase employs more than 800 staff and if it closes, it will add to the gradual demise of bricks and mortar shops.

Sterling rallied to a high of 1.2299 and closed at 1.2279 as traders continued to lose faith in the dollar index.

The three major Central banks in the G7 each have rate setting meetings at the start of next month, and traders believe that the Federal Reserve is closest to ending the rate hike cycle.

There is a school of thought emerging that the American jobs market is not as stretched as has been thought.

While there are still above ten million job openings at the last count, there are at least a similar number of people not currently working who could fill them.

The issue revolves around pay, with employers reluctant to change what have become well established pay structures that have evolved over the last ten years.

With real wages for those currently in employment continuing to fall despite the Fed’s desire to bring inflation under control, there are rumblings that strike action being the only option.

A breakdown in industrial relations would be a blow to the economy and may be the catalyst that tops the country into recession.

Treasury Secretary Janet Yellen spoke recently of her belief that the Central Bank can engineer a soft landing for the economy. A soft lading is when the Central bank manages to lower inflation and increase employment without driving the economy into recession.

A couple of months ago, there was a degree of certainty that the pace at which rates were being hiked would lead to a contraction of GDP by the fact that rates have only recently entered restrictive territory, and inflation appearing to have topped out have changed a lot of minds.

Later today, data for retail sales and producer prices will be published. While retail sales are expected to move back into positive territory, adding 0.1% after losing 0.6% in November, a fall in producer prices will influence Fed to taper rate hikes further down the road.

It is expected that there will be a fifty basis point hike at the next FOMC meeting but the commentary from Jerome Powell will be slightly more dovish than has been seen for some time.

The dollar index lost a little ground yesterday. It fell to a low of 101.93 but recovered to close unchanged at 102.39.

Christine Lagarde is facing unrest from within her own office, as ECB employees are discussing industrial action in favour of a pay-claim that appears to be being ignored by officials of the Central Bank.

This would be highly embarrassing for the President of the Central Bank, as she continues to preach restraint across the entire Union but is unable to control her own employees.

The influential ZEW Institute published its latest economic report yesterday, and for the first time in several months it was positive about both the German and the wider Eurozone economy.

Having been negative for almost a year, with the last reading at -23.6, the index moved into positive territory at 16.7. The German economy remains in the doldrums, but the report showed that it has improved, although it is still negative.

Today, the harmonized index of consumer inflation will be published. This data is under continued attack due to the weaker economies of the region, which are not suffering from extremely high inflation, feeling that they are penalized as this is the data upon which the ECB bases its determination of the suitable level for interest rates.

There was an interesting volte-face performed yesterday by the Governor of the Central bank of Portugal, Mario Centeno. Just last week, he was commenting that the ECB was close to ending its cycle of rate hikes and yet yesterday he made a speech in which he projected a few more rate hikes at the next couple of meetings at least.

Centeno, speaking on the opening day of the World Economic Forum in Davos, Switzerland, painted a more upbeat picture of the Eurozone economy than has been seen recently. In fact, his speech was entitled staying ahead of recession.

There has been a growing feeling recently that significantly fewer half of Eurozone nations will fall into recession in 2023.

Centeno went on to say that the economy has been surprising us quarter by quarter. He believes that the fourth quarter will provide another surprise, as will the first half of 2023.

His comments echo the most recent economic data releases.

The Euro lost a little ground yesterday for the fourth consecutive session. It fell to a low of 1.0774 as it bounced off resistance that is now at 1.0860 and closed at 1.0783.

Have a great day!