16 October 2024: Starmer warns employers on National Insurance

The Government is “drip-feeding” details of the tax plans it is making that will be announced in the Budget, which is due to be delivered to Parliament two weeks today.

Rachel Reeves wants to make forty billion pounds of savings to fund Government investment in growth, as well as plug the “apparent” black hole in this year’s outgoings,

It is rumoured that she is planning to hit pensioners again by doing away with the twenty-five per cent discount on council tax payments that pensioners receive.

The Prime Minister refused to rule out a rise in employers’ national insurance contributions, despite the Office for Budget Responsibility commenting that such a move would be a direct contravention of a manifesto promise.

A rise in employers’ national insurance has been labelled a “tax on jobs” since if employers must pay more to employ workers that will, naturally” scale back on numbers of workers.

Wes Streeting, the Health Minister, is proving to be as ineffectual as Matt Hancock was in the previous Government.

The creators of the weight loss drug Wegovy, Eli Lilly, have announced a two hundred- and seventy-nine-million-pound investment in the UK. It seems that to sweeten the deal, the Government is going to provide Wegovy to people who are both obese and unemployed to hasten their return to the workforce.

The flagship investment summit has been hailed as a success, although other than Eli Lilly’s investment, the most visible victory has been persuading DP World to attend after the Trade Minister named and shamed its subsidiary P&O Ferries for dubious employment practices.

The latest employment figures were announced yesterday, and they were seen as both a positive and reducing the pressure on the Bank of England to cut interest rates at its November meeting.

The Unemployment Rate fell to 4.0% in the three months to August from 4.1% in the previous three months and beat expectations of the same (4.1%). The Employment Change showed a 373K rise over the same period from 265K previously, and average earnings rose in line with expectations.

The only data point to cause concern was the September Claimant Count, which rose to 27.9K from 23.7K in August, beating expectations of a 20.2k increase.

The August inflation report is due to be published this morning. The outcome will certainly seal the MPC’s decision on whether to deliver a rate cut next month or delay it until December.

The pound rallied on the back of the positive employment data, rising to a high of 1.3103, although as the dollar exerted further strength, it was unable to cling onto gains and fell back to close at 1.3073.

There appears to be a slight split in the FOMC between the Fed Governors based in Washington and the Fed Presidents, who seem to be more “plugged in” to their regional offices.

Michelle Bowman is the spokesperson for the Governors. She has been outspoken about the need for caution in loosening monetary policy since she fears it may reignite inflation.

Most Fed Presidents including Kashkari, Goolsbee and Williams have recently spoken of their support for continued rate cuts and agree that they should be both at regular intervals and data-dependent.

Yesterday, Mary Daly, from San Francisco and Raphael Bostic from Atlanta agreed that rate cuts should continue until they reach a neutral level.

Daly believes that the Fed remains on track for more rate cuts this year if data meets expectations while noting that even with last month’s rate cut, monetary policy is still working to bring inflation pressures down.

Meanwhile, Bostic tempered his call for rates to be lowered, commenting that he has pencilled in one further twenty-five basis point cut in 2024.

Fed Governor Adriana Kugler may have broken ranks with Bowman since she also called rate cuts to continue and that she had “strongly supported” the decision to cut by fifty basis points at the last meeting.

As the economy edges towards a soft landing, it seems that Jerome Powell’s job is on a knife edge, dependent on who wins the upcoming Presidential Election, and, if he wins, how disposed Donald Trump feels towards a Fed Chairman who he employed in 2017.

Trump has pledged to drastically increase tariffs on foreign goods entering the US if he is elected president again. He has promised tariffs, a form of taxation, of up to 20% on goods from other countries and 60% on all imports from China. He has even talked about a 200% tax on some imported cars.

Tariffs are a central part of Trump’s economic vision. He sees them as a way of growing the US economy, protecting jobs, and raising tax revenue.

Looked at in isolation, growing the economy, protecting jobs and raising tax revenue without burdening the public look to be sensible, vote-winning policies, but when placed within the wider picture, they place America’s standing in the world in jeopardy, although Trump’s “America First” mantra shines through.

The dollar barely reacted to the weak Empire State Manufacturing index published yesterday. Manufacturing output fell from +11.5 in August to -11.9 in September. The dollar index rallied to a high of 103.35, as doubts remain about the size of any rate cut that may happen in November and closed at 103.21.

The ECB’s quarterly review of credit availability from Eurozone banks was released yesterday. It showed that although banks continue to lend despite a marginal tightening of the terms on offer, the “quality” of their loan portfolios fell over the past two quarters.

There is more concern being expressed about possible defaults while the ECB is still trying to clear up the fallout from the last credit crunch, following which the Central Bank allowed lenders additional time to write off bad loans.

The Eurozone economy showed some signs of life on Tuesday, with a raft of indicators pointing to lukewarm but still positive growth for a bloc that has been skirting a recession for over a year.

Industrial output expanded and lending demand rose, while expectations in a key German sentiment survey also increased more than predicted, offering some reassurance after key indicators tended to underperform expectations over the past month.

The figures are likely to reinforce the view that the bloc is still growing, even if at the slowest possible pace, but are unlikely to prevent the European Central Bank from delivering an interest rate cut this week, which is now almost fully priced in.

Industrial production rose by 1.8% in the month, a touch ahead of expectations, and was up 0.1% from a year earlier, driven by rising demand for capital and durable consumer goods, Eurostat said.

The ECB is at a crossroads. Inflation is down, and the growth outlook is increasingly uncertain. Can policymakers deliver a soft landing? And how far are rate cuts likely to go?

When the Fed abandoned its “inflation is transitory” narrative and rates started to rise in G7 economies, the ECB lagged since it was still supporting economies that had been severely damaged by the pandemic.

Over three monetary policy cycles, it has been slow to react to situations that have been “staring it in the face.” This may be a factor of the unwieldy nature of the Bank’s Governing Council or, more likely, the fact that there is still no “vision” for a unified union with twenty countries each pulling in a different direction.

This has been highlighted recently by the disagreement between the region’s two largest economies. France wants to introduce tariffs to encourage more goods to be manufactured within Europe, while Germany wants to export its way out of recession and believes that tariffs may damage its export markets.

Every Eurozone member has a “pet” policy that it wants to protect at all costs. And this lack of unity is damaging the European Union’s raison d’etre.

The euro continues to lose ground as a rate cut appears to be certain. It fell to a low of 1.0881 yesterday and closed at 1.0893.

Have a great day!