25 February 2025: Dhingra the MPC’s resident dove has been reappointed

The Chancellor of the Exchequer and the Bank of England Governor met recently to discuss financial stability.

Andrew Bailey has expressed concerns over the stability being sacrificed in the search for economic growth, while Rachel Reeves and Sir Keir Starmer have been encouraging the heads of the UK’s regulatory bodies to suggest ways their offices could drive growth by loosening regulation.

The meeting has driven speculation that there will be some regulatory changes when Reeves presents her spending plans for the next fiscal year to MPs in the coming weeks.

Doubtless, Bailey would have told her that several regulations relating to the country’s finances were put in place following the financial crisis and are as valid today as they were then.

The Monetary Policy Committee’s resident dove, Swati Dhingra was reappointed to serve a second term as a member of the nine-person rate-setting committee yesterday.

Dhingra has consistently voted for loosening monetary policy during her first term. At the most recent meeting, her “sparring partner” Catherine Mann performed a 180-degree turn, voting for a fifty-basis point cut in the base rate, while the majority voted for a twenty-five-point cut, as she came around to Dhingra’s way of thinking.

The Government’s energy minister, Ed Miliband, may have found a pot of gold at the end of his rainbow. The “green” sector is growing at three times the pace of the UK economy.

However, a think tank run by another ex-Prime Minister and Leader of the Labour Party, Tony Blair, believes that Miliband’s claims about employment in the sector are wildly exaggerated.

The Tony Blair Institute for Global Change said investing in green technology was unlikely to reverse the long-term decline of British industry and warned that ministers must not “over-state the job opportunities from green manufacturing”.

The think tank added that it was a “mistake” to let net zero dominate the Government’s entire economic strategy, as it would deliver only a meagre boost to growth. It said: “It must be a pillar of the UK’s growth strategy, but it cannot be the whole strategy.”

The assessment comes after tensions emerged within the cabinet over the net-zero agenda. Rachel Reeves said last month that carbon emissions had too often been used as an excuse “not to invest” in a clear split with Mr Miliband.

Labour’s election manifesto promised a “Green Prosperity Plan” that “will create 650,000 jobs across the country by 2030”. Mr Miliband has also said that the Government’s net zero plan will involve “backing our proud manufacturing, coastal and oil and gas communities with good jobs, skills and private sector investment”.

However, the TBI report cast doubt on the plausibility of Labour’s targets. It said green manufacturing was likely to employ only 425,000 people by 2050 in a “best-case scenario”, thirty per cent less than promised and decades later.

The pound continued its rise yesterday as the Bank of England is expected to be the last Central Bank in the G7 to loosen monetary policy significantly. It climbed to a high of 1.2690 but ran into significant selling pressure which drove it back to close at 1.2622.

The Consumer Confidence data for January will be published later today, with the market fearing that the likely extended delay in the Fed cutting interest rates will adversely affect household spending plans.

The University of Michigan’s index of consumer sentiment has already reported a fall to 64.7 at the end of February, well below January’s 71.7. It also was weaker than economists’ expectations of 67.8 from a Wall Street Journal poll, which was also the February mid-month reading.

The Federal Reserve has “ridden the wave” of consumer conscience and spending since the end of the Pandemic when consumers unexpectedly found themselves with extra money in their pockets.

However, that ride may now be ending as expectations are high that rates will remain unchanged until at least the summer unless the economy has some unexpected disaster.

The data may also raise some concerns that Donald Trump’s first six weeks in power have not, so far, reaped the benefits that those who voted for him expected.

Sales of durable goods, those items expected to last more than five years, have been sluggish according to data published earlier in the month and that is a trend that Trump will want to break as soon as possible.

The President is used to painting in broad strokes, leaving the details to others, but any change in consumer attitudes will grab his attention.

A leading money manager at one of New York’s most prestigious firms warned yesterday that the economy is decelerating rapidly and if the Fed leaves interest rates unchanged until the Autumn, the economy may well fall into a recession.

As have several of his colleagues on the FOMC, Jerome Powell has hinted that he doesn’t see any need for rates to be cut “excessively” while inflation is still a concern.

Showing a similar attitude to deregulation as Andrew Bailey, the Federal Reserve’s top regulatory official, cautioned recently against a weakening of bank rules and oversight that could make firms vulnerable to surprise shocks.

Fed Vice Chair for Supervision Michael Barr, who is stepping down from the regulatory post at the end of February, cautioned against any push to weaken existing bank rules and supervision significantly and urged watchdogs to complete international capital standards.

In what is expected to be his final speech as the Fed’s rules chief, Barr supported strong rules and robust capital requirements for banks are needed to guard against unforeseen shocks. Barr intends to remain on the Fed board as a Governor. In what was expected to be his final speech as the Fed’s rules chief, Barr maintained that strong rules and robust capital requirements for banks are needed to guard against unexpected shocks. Barr intends to remain on the Fed board as a governor.

“We cannot fully appreciate how a specific vulnerability can interact with other vulnerabilities to amplify and propagate risk in the face of shocks, let alone accurately anticipate shocks in time to avoid them,” he said.

The dollar index has remained comfortably above its long-term level of support, although it is still exhibiting some weakness as President Trump’s economic plans are still unclear.

It fell to a low of 106.13 yesterday but recovered to close at 106.67.

Whisper it softly but the Eurozone economy, which has been on its knees for close to two years, despite a few bright spots, particularly in the Iberian Peninsula, is exhibiting signs that it may be close to bottoming out.

Several leading indicators which predict economic activity in the coming months have moderated since the turn of the year. However, until the Region’s two largest economies follow this trend, any growth will be mired in mediocrity.

There may well be a honeymoon period for Chancellor Friedrich Merz, but the German economy is in dire need of structural reform as the old ways are no longer valid in the new service-based economies which are moving ever further ahead.

China, which has abundant cheap labour, and seemingly endless supplies of energy, even if it turns a blind eye to “green” considerations as well as easy access to Australian raw materials may well have cornered the market in heavy industry production, a hegemony which may well last decades.

Meanwhile, Germany will need to reinvest itself as its vehicle industry goes the same way as it did in the UK. Audi and Mercedes-Benz could become niche producers like Bentley and Rolls-Royce as Volkswagen and Opel fade into insignificance.

Meanwhile, in France, the private sector suffered its steepest contraction in nearly a year and a half in February.

This, as a worsening slump in the services sector, outweighed signs of stabilization in manufacturing, a closely watched survey showed last week.

The HCOB Flash France Composite PMI, compiled by S&P Global, fell to 44.5 from 47.6 in January, marking a 17-month low and extending the downturn to six consecutive months. A reading below 50 indicates contraction.

The consensus expected a reading of 48, confirming this to be a notable negative shock for markets.

The French economy is in recession with no end in sight,” said Tariq Kamal Chaudhry, an economist at Hamburg Commercial Bank, which compiles the activity data. “The latest decline is particularly concerning as it stems from the services sector, which had previously shown more resilience.”

Employment in the French private sector fell at the fastest rate since August 2020, with companies reducing staff through non-renewal of temporary contracts and hiring freezes.

Although the 2026 budget has now passed through the French Parliament, 80% of the French Population fears the worst for the economy. The main issue is that although they have suffered recessions before, this time they can see no way out as political and industrial problems take hold.

The Euro rallied to a high of 1.0528 yesterday but quickly ran into selling pressure which drove it back down to close at 1.0465.

Have a great day!