3 March 2025: BMW pauses UK electric car production

Sir Keir Starmer hosted several European leaders in London yesterday as he tried to find a “coalition of the willing” to support Ukraine and find a lasting peace for the regions which would suit the purposes of all involved in the conflict, which has now raged for three years.

Starmer’s initiative followed the extraordinary scenes in Washington on Friday during which President Trump and his Vice President, J.D. Vance publicly humiliated the Ukrainian President in front of the world’s media.

The clouds gathered that have hung over the peace process recently have opened several questions as Starmer tries to bring a degree of sanity and diplomacy to proceedings.

Ukrainian President Volodymyr Zelenskyy was feted in London upon his arrival. Despite the American President’s opinion that Ukraine does not deserve a seat at the negotiating table, both Starmer and French President Emmanuel Macron are leading Europe’s efforts to find a lasting peace.

Rachel Reeves has announced plans to loan more than £2bn worth of frozen Russian assets to fund weapons in Ukraine as the prime minister warns that we are at a “turning point” in the war.

It came ahead of the summit in London yesterday where European leaders met to thrash out a response to Donald Trump’s erratic stance on Ukraine and his catastrophic meeting with Volodymyr Zelenskyy on Friday.

The £2.26bn package will be given to Ukraine as a loan and will be paid back using profits generated on sanctioned Russian sovereign assets.

BMW has threatened to halt electric vehicle production in the UK, partly due to the sluggish nature of sales, but also because it feels that the UK’s net-zero policy is not conducive to its green policies.

They currently occupy a facility that once belonged to the now-defunct Morris factory in Oxford, where cars have been manufactured since 1911.

Electric vehicle production has run into difficulties in the recent past as the government has dithered about its green plans, which are often seen as running contrary to their rush for growth.

Tax hikes could be on the horizon as Reeves eyes new revenue sources in the upcoming Spring Statement. From pensions to inheritance tax, five key areas may be targeted; lifetime ISAs, pension tax relief, further changes to inheritance tax, changes to income tax thresholds and a possible increase in employees’ National Insurance contributions.

Given the furore that has been created by the reduction in the foreign aid budget, which has led to one Cabinet Minister’s resignation, it is unlikely that Reeves will receive a smooth ride when she presents her spring spending review to Parliament.

Last week, the pound rallied to a high of 1.2715 but was unable to hang on to gains following the extraordinary scenes in Washington, which led to a further risk aversion.

It fell to a low of 1.2559 and closed at 1.2581.

Media experts in the U.S. are openly questioning if Trump and Vance’s highly public “ambush” of Ukrainian President Zelenskyy on Friday afternoon may have been decided in advance.

It is thought that they may well have choreographed the entire event to underline their views on Ukraine’s wish for peace on its terms. While the U.S. backs Kyiv, Zelenskyy has a far stronger negotiating position with Moscow than it would otherwise have had.

Trump is a businessman at heart and sees every conversation as a negotiation. There is little doubt that his primary aim is to secure access to Ukraine’s vast mineral rights for U.S. businesses. Ukraine has the second-largest gas reserves in Europe, as well as oil and other mineral deposits.

By throwing Zelenskyy out of the White House on Friday, knowing that there would be no peace in the region without U.S. involvement. Trump was galvanized to act in a wholly inappropriate way in the certain belief that he would get his way, perhaps not immediately but eventually.

Meanwhile, Russian President Vladimir Putin is no doubt pleased, having advanced his position without having to make any concessions to get his way.

At some point, the rhetoric will have to end with all parties seated around a negotiating table, but for now, the fighting will continue with Kyiv and other major cities in Ukraine subject to daily drone attacks.

The Fed’s favoured measure of inflation fell marginally in February, which came as something of a surprise to financial markets. Personal Consumption Expenditures fell to 2.5% Last month, down from 2.6% previously.

This has led analysts to consider that the Fed may resume its cycle of rate cuts sooner than had been believed. Attention will switch to the prospect for growth later this week as the employment data will be released. It is feared that the headline number for jobs created could fall below 100k, although there is nothing but anecdotal evidence for that to happen.

Other forward-looking numbers are still predicting robust growth for the first half of the year, and it may well be that the new administration is engineering these rumours to pressure the FOMC into looser monetary policy.

St. Louis Fed President, Alberto Musalem continued the recent rhetoric of his colleagues on Friday by telling reporters that he wants to see solid evidence that inflation is going to reach the Fed’s target of 2% “sooner rather than later.

Treasury Secretary Scott Bessent said he’s confident US consumer price increases will slow over the year after a poll suggested Americans want President Donald Trump to focus more on bringing down inflation.

However, it will take more than simply the will of the President to make that happen. Trump will need to be aware of the inflationary effect of his policies, particularly adding tariffs to imports, to see inflation fall.

The dollar index had a rollercoaster ride last week. It fell to a low of 106.13 before rallying to close at 107.55 as risk aversion returned.

Despite its economic woes, the European Union must now face up to an issue that it has studiously avoided for three years. Without a lasting peace in Ukraine, there will be little or no economic growth in the twenty nations that make up the Eurozone.

It is blindingly obvious, yet it has taken an outsider in the shape of UK Prime Minister Keir Starmer to bring its leaders to the table. Emmanuel Macron, the French President, never one to shy away from the opportunity to advance his diplomatic credentials, has “buddied up” with Starmer to drive the process forward, calling for a coalition of the willing to make proposals to Kyiv, Moscow and most importantly Washington.

The European Union purports to stand squarely behind Kyiv, but its ability to finance the war in the same way as the U.S. has been severely hampered by its parlous financial state.

Furthermore, Russia still holds a significant stranglehold over Europe, particularly in the energy sector.

The European Central Bank is expected to cut interest rates again this week in a bid to boost the floundering eurozone economy, even as debate heats up about when to hit pause.

It will mark the central bank’s sixth reduction since June last year, with its focus having shifted from tackling inflation to relieving pressure on growth.

With “growth stuttering”, a quarter-point cut at Thursday’s meeting “is a near certainty”, HSBC bank analysts said.

A reduction by a quarter percentage point would bring the bank’s benchmark deposit rate to 2.50%.

The rate reached a record of 4% in late 2023 after the ECB launched an unprecedented hiking cycle to tame energy and food costs that surged after Russia invaded Ukraine.

But investors will be keeping an eye out for signals from ECB President Christine Lagarde that a pause might be on the horizon after some officials said it was time to start discussing the matter.

Markets have indicated they expect the ECB to bring the deposit rate steadily down to 2% by the end of the year to support an economy that has shown increasing signs of weakness.

Despite the appearance of “green shoots” of a nascent recovery, the doves on the ECB’s Governing Council are prepared to continue to defy the hawkish tendencies of Isabel Schnabel and her supporters.

Although a cut this week is “baked in”, there will be more conversation required as the eurozone’s main deposits rate nears its perceived “neutral zone”.

Given the contrast between expected monetary policy decisions, the euro is still fundamentally weak. Last week, the single currency made a small gain but remains in a downward trend. It reached a high of 1.0423 and closed at 1.0417.

Have a great day!