11 November 2024: Farmers threaten blockades in a show of militancy

Following its second interest rate cut in its current cycle, Andrew Bailey expects the Bank of England to be more cautious in loosening monetary policy as the Monetary Policy Committee also raised its inflation forecast following the Budget and global uncertainty linked to Donald Trump’s victory in the U.S. presidential Election.

Policymakers pointed to a continued easing of inflation as a factor influencing their decision (slightly below the 2% target) but noted that the government’s fiscal plan had raised their forecasts for growth and inflation.

The vote was almost unanimous, with only Catherine Mann dissenting, as she voted for rates to remain unchanged.

The MPC may now feel the need for another pause in December and to limit the pace of cuts in 2025 to lean against these potential inflationary pressures.

It now sees inflation rising by 0.5 percentage points, more than previously forecast, to hit a high of around 2.75% in 2025 before falling back to its 2% target. Meanwhile, growth is predicted to increase by around 0.75% in a year.

Bailey’s remarks accompanying the decision struck a balanced tone, stressing the need to support price stability and respond to economic shocks. However, with the balance of inflation risks now skewed back to the upside, the base rate should settle at around 4% by the end of 2025.

The hospitality sector is still reeling from the Budget as tax increases are expected to hit it hard, leading to drastic job cuts and business closures.

The industry body, UK Hospitality which has around 200 members has written to the Chancellor saying that the rises disproportionally affect the industry.

The changes to the NIC thresholds are not just unsustainable for our businesses, they are regressive in their impact on lower earners and will impact flexible working practices which many older workers and parents rely upon,” wrote Kate Nicholls, UK Hospitality’s chief executive, in the letter.

The signatories have called on ministers to create new employer NIC bands with a lower rate of 5 per cent for workers earning between £5,000 and £9,100 or to implement an exemption for lower-band taxpayers who work fewer than 20 hours a week.

The Budget and the U.S. election result have driven significant volatility in the markets.

Sterling had by far its busiest week of the year last week ranging versus the dollar between 1.3048 and 1.2834, although it ended the week virtually unchanged at 1.2920.

Tomorrow will see the publication of the October employment report, while preliminary data for third quarter GDP will be published as the market gets back to normal after two turbulent weeks.

President-Elect, Donald Trump has promised to forge ahead with his plans to deport up to sixteen million undocumented immigrants and significantly strengthen the country’s southern border.

The ripple effects of President-elect Donald Trump’s win are already being felt throughout the U.S. economy as experts say his policies could have mixed results.

“This will truly be the golden age of America,” Trump said in his victory speech early Wednesday morning.

That remains to be seen, but his triumph is being considered with concern in other developed and emerging economies. At the meeting of the BRICS group of nations which was held before the election, several national leaders were concerned that a result which gave Trump an almost free hand to enact policies which “Make America Great Again” will hurt the global economy.

The recent rally on Wall Street has two aspects. One is the quick resolution of the presidential election, and secondly, investors like the prospect of reduced regulation, which may help corporate profits.

Some industries are already bracing for Trump’s sweeping plan to raise tariffs on imports, which he says will encourage more domestic production.

“My message is simple: make your product in America and only in America,” Trump said during a speech at the Economic Club of New York in September, that is the only way to avoid tariffs being levied against your products.

The new President plans to hit the ground running. He said in his election campaign that he would “have the Ukraine war settled before he officially takes office on January 20th.” That remains to be seen since the two sides’ positions appear to be as entrenched as ever. Ukraine wants its borders to be returned to where they were previously, while Russia is still concerned about NATO’s eastward advance.

There is speculation about the fate of Fed Chairman, Jerome Powell, who many younger business heads believe to have achieved the most remarkable results of any Fed Chair.

They clearly do not remember the Greenspan or Bernanke periods.

Although Trump appointed Powell, he has also called some of his policy decisions “boneheaded”. On balance, Powell is expected to see out his term and is already building up his defences.

The dollar has had a fairly spectacular week, rallying to a high of 105.45 and closing at 104.95. It is expected to remain strong for the rest of the year as some Trump policies are likely to see inflation rise, which may slow the Fed’s loosening of monetary policy.

This week, following today’s Veterans Day holiday, data for inflation will be published while four Fed Presidents are to make speeches tomorrow which will give the market some insight into Central Bank thinking.

European banks face an even tougher task to close an earnings gap on US rivals, as Wall Street awaits a new era of financial deregulation under a second Donald Trump presidency.

Individually, members of the European Union may have given a lukewarm reception to Mario Draghi’s recent report on European competitiveness, but they may well be dragged “kicking and screaming” into accepting large parts of its proposals.

In a meeting in Budapest, European Leaders signed a declaration in which they vowed to improve competitiveness.

The bloc has too many barriers to innovation and must drastically reduce red tape, especially for startups; ramp up investment; make access to capital easier; to raise productivity, the European Commission president, Ursula von der Leyen, said on Friday.

“There is broad consensus that this is the basis on which to move forward,” von der Leyen said, highlighting a planned “single rulebook” for startups across the bloc as well as steps to cut energy prices that are three or four times higher in the EU than in the US.

The uncertainty surrounding Trump’s trade policies will hinder growth in the eurozone, according to economists from Goldman Sachs.

The eurozone can expect a 0.5% hit to real GDP due to Trump’s victory in the US presidential election, predicted economists at Goldman Sachs.

In a report published in the wake of the results, economists at the investment bank said that the outcome will hurt some nations more than others.

Germany could expect a 0.6% hit to real GDP, while Italy and the UK could see negative effects of 0.3% and 0.4%, respectively.

A significant cause for concern is Trump’s suggested tariffs on European imports. It is hoped that he will be open to some negotiation since he has several goals to achieve including increasing Europe’s share of the NATO budget.

The European Union should push ahead urgently to lower national barriers and build a capital markets union to help the bloc foster innovation with a more suitable financing ecosystem, European Central Bank President Christine Lagarde said.

She was speaking at the Budapest meeting last week and renewed her calls for national borders to be lowered to push on what she called “the next stage of the union.”.

European Central Bank (ECB) Governing Council member Robert Holzmann said on Sunday that a December interest rate cut is a possibility but by no means guaranteed. Holzmann has historically been the most hawkish member of the Governing Council but as he approaches retirement, he appears to have mellowed.

The Euro suffered disproportionately from last week’s volatility despite two G7 rate cuts. It fell to a low of 1.0682 and closed at 1.0717.

The pace of its fall may slow but as the U.S. economy powers forward under Trump the euro may suffer further losses.

Have a great day!