13 March 2023: Hunt promised help with childcare

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.

While the Bank of England wrestles with the decision regarding short-term interest rates at its next meeting, being held on March 23rd, the entire country does not have the feel of an economy that is about to sink into a recession.

While output and productivity are reacting to the fall in activity that is currently being seen in the housing market, overall there is a definite improvement being seen in consumer confidence as the dark clouds of winter appear to be ever so slightly lifting as spring appears on the horizon.

Last week, Sterling had an extremely turbulent time as, first, the more hawkish testimony of the Chairman of the Federal Reserve drove it well below the 1.20 support. The upheaval in the finance and tech sectors, caused by the collapse of Silicon Valley Bank, sent shockwaves through the entire market.

The pound fell to a low of 1.1802 but bounced back to end close to where it opened at 1.2025, closing a little over twenty points over the week.

The highlight of this week’s data releases will be the February employment due to be published tomorrow, while just how much Jeremy Hunt will be able to help with the cost of living crisis will be highlighted when he delivers the budget on Wednesday.

The financial services and tech sectors of the economy were thrown into disarray on Friday as it was announced that the Silicon Valley Bank had collapsed. This is the first bank failure in the U.S. since the 2008 financial crisis.

The Treasury, Fed and the FDIC will have to combine to contain any fallout from the collapse of the bank which was a significant lender to the high-tech industry.

While it was considered a niche lender, it served by far the biggest niche in the U.S. economy.

Given the year he has had, it will almost be a relief for Jerome Powell that although the Central Bank will need to be involved in the aftermath of the bank’s failure, particularly from a regulatory perspective, the bulk of the responsibility will lay with Treasury Secretary, Janet Yellen.

She has already spoken of steps that will be taken to ensure that depositors will be paid in full later today, when the bank will reopen its doors.

While few in the UK will have heard of Silicon Valley Bank, it only has minimal representation in Europe or Asia. the ripples from its collapse will be felt far and wide.

There is a threat to thousands of jobs worldwide in the tech sector, while billions of pounds were wiped off the value of the major financial services firms.

Yellen went on to say that no losses will be borne by U.S. taxpayers.

The news overshadowed, somewhat, a solid but not quite spectacular February employment report. 317k new jobs were created last month, while the January figure was only marginally revised lower, from 517k to 504k.

The data certainly provided all the encouragement it needs to hike rates by fifty basis points at its upcoming meeting.

Several Fed Governors are signalling their intention to vote for fifty points at the next meeting while Jerome Powell left the market in little doubt that he intends to continue to push for further increases, in his testimony before congress last week.

The dollar index had something of a wild ride last week. It finally closed at 104.63, having risen to 105.88 earlier in the week and falling, following the Silicon Valley Bank collapse, to 104.04.

German inflation data was released on Friday, and it held out no respite for not just the German People, but the entire population of the Eurozone. During the recent cost of living crisis, where Germany has led the rest have followed, not always to the same extent but across the entire region, inflation remains uncomfortably high.

Over the weekend, ECB President Christine Lagarde met with Bundesbank President Joachim Nagel, presumably to agree on a single strategy to take to the next ECB meeting in which rates are expected to be raised by fifty basis points.

The Governor of the Banca d’Italia broke ranks last week, commenting that it is not at all productive for ECB officials and Governing Council Members to be treating the meeting as a rubber stamp exercise for an agreement to hike rates that has already been decided.

One bright spot for the Eurozone has been the performance of the Greek economy. Since it was forcibly put into y special measures by Angela Merkel, it has truly flourished, confounding all the critics who believed that it would never be able to rein in it significant overspending on social welfare projects.

This may be a lesson that Rome may be able to adopt. Greek voters are no less militant than Italians, they lurch from the left to the right in political terms equally easily as their Italian cousins.

Greece now has the second best performing economy in the Eurozone. Interestingly, The best performer in the fourth quarter of 2022 was Ireland, another economy that has had to deal with some harsh realities in recent years.

The single currency was also buffeted by the turbulence seen last week in the financial markets. It gained marginally on the week, reaching a high of 1.0700, and it remains well supported by the continued hawkish noises coming out of Frankfurt from both the ECB and the Bundesbank.

This week sees the release of data for inflation and industrial production as well and the rate-setting meeting of the Governing Council of the ECB and a meeting of Eurozone Finance Ministers.

Have a great day!