Johnson prevails again over tax rise

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 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.

While this is not going to be a significant or long-lasting anomaly, it does show that the Conservatives are prospered to be flexible.

The recovery from the economy continues to be dogged by supply issues. The government has announced that the time taken for a trainee to obtain a Goods Drivers Licence will be cut, but that won’t bring about the improvement in supply and demand that is needed.

One of the hardest hit sectors of the economy due to the lack of supply is house building. This is a contributory factor in the expected continuation of the rise in house prices. While it was exacerbated by the Stamp Duty holiday, house prices have been severely affected by the lack of stock, whether that is in new property or older homes.

While the Pandemic has appeared to be in the background since the restrictions were relaxed in mid-July, there are still a significant number of fatalities each day together with a rise in infections and hospitalizations.

The Prime Minister continues to speak of the need for caution, but it seems that his Government is no longer committed to anything more than ensuring vaccinations are readily available.

The majority of those admitted to hospital in the past few weeks have not been vaccinated, whether by design or not.

The pound has begun to retreat again against a resurgent dollar. Yesterday, it fell to a low of 1.3726, reversing to close at 1.3777.

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Biden has plenty to say about what he has already done

President Biden is in danger of becoming one of those Presidents that appears to be forever campaigning. His speeches are either full of self-congratulation about what has been achieved so far, despite the fact that he had very little to do with the recovery or announcing plans for the future.

While the country will want to know what his plans are, the Presidency has to remain in the here and now, acknowledging what has gone wrong with Bills already enacted and reacting to current economic and foreign policy needs.

The situation in Afghanistan is almost old news as far as Biden is concerned. An observer could be forgiven that the operation had gone without a hitch, all those who wanted to leave had been, and any terrorist threat can easily be dealt with.

The clamour for Jerome Powell to be replaced as Chairman of the Federal Reserve is growing.

It is interesting that it is not coming from Wall Street, that area of the economy has benefited tremendously from current monetary policy. In fact, what Powell has done in building the platform for the recovery is being considered as the minimum requirement for the job. That must almost be the definition of damned with faint praise!

Joseph Stiglitz, a former Chief Economist at the World Bank, and a Nobel Prize winner, believes that Powell should be considered more on what his plans are for dealing with the challenges of climate change and market regulation, an area where he lacks experience and appears weak.

Biden will likely decide by the end of this month, and whatever he decides is likely to be unpopular except with a small minority.

Treasury secretary Janet Yellen stepped into the debate of the taper of support yesterday. She believes that extraordinary measures to support the economy will run out by the end of next month.

While the market appeared to largely ignore these comments, the dollar index rallied to a high of 92.86 yesterday, closing at 92.66. Several commentators see the index challenging the 93.20 level this week, but a lot depends on the ECB meeting later this morning and to a lesser extent on the weekly jobless claims data.

ECB meeting likely to shape medium term policy

It was an extraordinarily quiet August for the Eurozone. While little comment from Central bank officials at this time of year is hardly unusual, this year the quiet was almost deafening.

The theory is probably because the Central Bank had said all it was going to say on the subjects of tightening monetary policy and inflation.

There is no doubt the noise last month came from the data being seen from the region and the continued success of the vaccination programme.

Lagarde now has to enter a council chamber that will on the one side be full of contend bankers who expect her to stick to her word and hold both rates and support at their current levels until the end of the first quarter of next year, and a group of hawks who face growing concern about the rise in inflation that, as Lagarde freely admits is likely to get worse.

As summer turns into Autumn and Winter, negotiations overcompensation will begin, with militant trades unions poised to use inflation as a stick with which to beat negotiators in both the public and private sectors.

One of the more stimulating conversations will take place in Germany, where productivity and output are rising but inflation continues to follow.

Were the ECB to turn more hawkish today, Lagarde’s credibility would take a significant hit. While she would survive to fight another day, another volte-face would encourage commentators to start to consider a winter of discontent with the cost in interest payments on debt which has reached over 100% of GDP.

The euro has returned to familiar territory, with a test of 1.1720 now far more likely than a test of 1.20.

Yesterday, the single currency fell to 1.1802 and closed at 1.1828.