11 September 2024: Labour defies backbench rebellion

The vote on the Government’s plan to axe the pensioner’s winter fuel payment perfectly illustrated the “shape of things to come”. Being able to rely on its vast majority meant that even though up to fifty-two Labour MPs did not vote yesterday, including six ministers, the Bill passed easily.

It is impossible to say just how many absences were due to MPs being away on government business, and how many were expressing their displeasure on Keir Starmer’s plans.

The Chief Whip told reporters that just twelve “unexplained” absences, while Opposition Parties tried to make political capital by casting doubt on that figure, believing it to be far higher.

Another of the Government’s unpopular decisions also started yesterday, as up to seventeen hundred prisoners were released early from prisons up and down the country having completed forty per cent of the custodial sentence, rather than the fifty per cent that has become common practice.

The early release programme was intended to ease the pressure on prisons and is only intended to be a short to medium-term measure.

In its first two months in power, one of the few election promises the government has kept is that it will make deeply unpopular decisions.

With a week still to go until the next meeting of the Monetary Policy Committee, the Bank of England Governor, Andrew Bailey, spoke of his intention that the Bank will “chart a steady course”.

Currently, the MPC is not under pressure to make any decisions on the timing of the next rate cut, since the economy is performing “adequately”.

Naturally, GDP could be a little stronger and inflation could be a little lower, but overall, Bailey is satisfied with the progress so far.

Yesterday’s publication of employment data for August was slightly better than predicted. The claimant count fell to 23.7k from a downwardly revised figure of 102.3 in July and average earnings fell to 4% following a 4.6% rise in July.

The pound is being driven by commercial flows as it the three monetary policy decisions that will be made over the next week,

Yesterday it initially fell to test the bottom of its recent range but recovered to close at 1.3080, just seven points higher on the day.

Presidential Election Candidates Kamala Harris and Donald Trump went head-to-head last evening in a debate that was televised live on prime-time television.

Harris and Trump accused each other of being weak and lying as the debate threatened to sink into a mud-slinging competition.

A wide range of topics were discussed, both national and international. On Israel, Trump said there would not be a war if he were chosen on November 5th, while Harris called for a two-party solution.

Harris called Vladimir Putin a dictator, while Trump, unable to counter that opinion, resorted to petty name-calling, labelling Harris the worst Vice President in history.

Immediately following the debate, Taylor Swift, who will likely have more impact on young voters than either of the candidates, said that she would vote for Harris.

The Vice-Presidential Candidates were quick to provide an answer to the question of who won the debate. Democrat Candidate, Tim Walz, said that Harris showed her “vision for America”, while JD Vance said that all she offered were “platitudes”.

Trump naturally declared himself the winner but commented that moderators had shown clear bias towards Harris.

Trump did not reveal any policy initiatives, prompting political commentators to evoke the story of the “Emperor’s new clothes”.

With the candidates neck and neck in the polls, there will surely be much more to come from both over the next seven weeks.

Last week’s publication of the August Employment Report probably ended any lingering expectation that the FOMC would vote for a fifty-basis point rate cut at its meeting next week.

The data depicted a “Goldilocks scenario”, neither too hot nor too cold. The timing of the first rate cut appears to be just how Jerome Powell imagined it, and it is entirely feasible that he may declare that the economy has achieved a soft landing in his press conference following the meeting.

Treasury Secretary, Janet Yellen, sees no “red flags” for the economy as she spoke yesterday of the imminent soft landing.

The dollar index continues to rally as the market sees a rate cut by the ECB as “essential”, while the Fed could delay it for another month if it so desired.

The index climbed to a high of 101.77 yesterday and closed at 101.67.

Mario Draghi has been a unifying influence during his time, first as President of the ECB and then as Prime Minister of Italy.

Now, he is considered to be the “economic equivalent of Red Adair” helping Ursula von der Leyen put out fires across the entire European Union.

His latest challenge: to cure all that ails the union and create a platform for an extended period of growth that is immune to “outside influence” is drought with danger.

It needs the twenty members of the Union to put aside jingoistic ideals and pull together as one.

The Draghi report is full of good intentions to mend a continent losing its way. But while the vision is bold, the politics are practically impossible.

His call for the issuance of joint debt to finance key infrastructure investments has already split the German Government and received pushback from the Dutch.

The entire make-up of the European Commission, which relies on a unanimous consensus, must seem to Draghi a lot like herding cats.

Over the past twenty-five years of the Union, there has been a constant flow of flawed decisions driven by politicians who are themselves compromised.

The European Central Bank won’t react to a weakening eurozone economy by lowering interest rates more rapidly, according to a survey of analysts conducted over the last week.

Respondents expect the ECB to follow June’s initial cut in the deposit rate with another reduction tomorrow, maintaining that quarterly pace until reaching 2.5 per cent next September.

They see borrowing costs remaining at that level through 2026.

“Big Four” accounting firm EY sees bank lending expanding by 3.1% next year, which means that it also expects the Eurozone economy to grow at a faster rate than has been seen over the past two years.

It is hard not to see tomorrow’s expected loosening of monetary policy as a hawkish cut. Although members of the Governing Council are determined not to be “railroaded” as they were in June, they are sure to show their reluctance while agreeing to a twenty-five-point cut.

The Euro has lost most of the gloss that it had over the summer but is not yet on a path lower. It is yet to break the important 1.10 level, which would signal a bearish scenario.

Yesterday it fell to a low of 1.1015 and closed at 1.1018

Have a great day!