9 August 2024: Energy bills are set to soar

An all-party pressure group in the House of Commons has told the Prime Minister that if he wants to derive full value from a renegotiation of Brexit, he must be prepared to cast aside the entire agreement that Boris Johnson negotiated.

This follows a report by the NIESR which believes that external investment in the UK has been severely damaged by the country’s decision to leave the European Union and the dithering which followed the 2016 vote.

Brexit has been blamed for the “unequal! investment in regions of the country that were failed by the Conservatives, despite Johnson’s undertaking following the 2019 election to “level up” investment and infrastructure investment.

This was symbolized by the HS2 project, which became a “white elephant” and symbolized the Tory’s failure of the “Red Wall” constituencies it won in the last election.

Responding to the report, Richard Kilpatrick, campaign manager of the European Movement UK said: “To grow the economy and invest in our public sector, to build the hospitals and schools that our communities need, we need to accept that Brexit has failed to deliver in every area.

It is now Labour’s “turn” to make good on the expected benefits of the country’s decision, having sat on the fence while negotiations took place.

The country’s growth rate continues to be strong as first the expectation of a cut in interest rates, then the Bank of England’s delivery of a cut, has encouraged continued expansion.

The services sector grew 0.3% in May, after rising 0.3% in April, while the manufacturing sector advanced 0.2%, after increasing 0.9% in April. The construction sector grew 1.9% in May, compared with a decline of 1.1% in the previous month.

In the three months to May, the economy grew by 0.9% according to data published by the Office for National Statistics.

Each report on how the economy is growing is likely a “knife to the heart” of the Conservative MPS who lost their seats last month and are still baffled by Rishi Sunak’s decision to call the election earlier than was necessary.

Next week sees the publication of the first inflation report since the rate cut. The rate of inflation is expected to remain close to 2%, although a cut when the MPC next meets is unlikely given the closeness of the vote to cut.

The July employment report will also be released, and particular attention will be paid to the wage data, which is likely to have continued to fall.

Yesterday, Sterling regained most of the losses it incurred earlier in the week, following further anecdotal evidence that the U.S. economy is “flirting” with a recession.

The pound rallied to a high of 1.2752 and closed at 1.2746.

Jerome Powell, The Chair of the Federal Reserve, confirmed in a speech yesterday that the 2% target for inflation is “non-negotiable” and the Central Bank is committed to seeing price increases meet that goal.

This comment appears to rule out any desire that the Fed is trying to engineer a soft landing for the economy.

Jamie Dimon, the CEO of JPMorgan Chase, has been an outspoken critic of the FOMC’s “pause” over the past year and does not believe that the 2% target is achievable without leaving rates unchanged or possibly even raising them which would show that the FOMC considers price stability as more important than creating more jobs.

The two parts of the FOMC’s mandate are not mutually exclusive, and it is not impossible to have one without the other, but monetary policy has been unnecessarily tight for at least the past three months. This is evidenced by the level of job creation between the first and second quarters.

Last week’s publication of the July employment report has been something that “has been coming” for some time, and the market’s reaction had a lot to do with its timing rather than genuine concerns that the country is headed for a recession.

It may well be that the time has come to show a little proactivity, although a rate cut next month will still be considered reactive.

Dimon said yesterday: “There’s a lot of uncertainty out there. I’ve always pointed to geopolitics, I always think the deficits, the spending, the quantitative tightening, the election all these things cause some consternation in the markets, so we’ll have to wait and see.”

Powell said earlier in the week that it is not the Fed’s job to make the markets feel “comfortable”, and presumably this also refers to the election candidates’ economic policies.

Next week’s publication of inflation data will likely show that the slow fall in disinflation has restarted after a couple of months when it appeared to be frozen.

Headline inflation is expected to have fallen below 3%. Although this will be encouraging, it does not guarantee a rate cut in September.

The dollar index experienced some early buying interest yesterday and reached a high of 103.54. However, continued uncertainty about the economy saw sellers return, and the index closed almost unchanged at 103.22.

It is too early to say the Olympics has been an unqualified success. The furore over the opening ceremony is still fresh in observers’ minds. However, the expected boost to the French economy has already materialized, with consumer spending spiking.

According to data published by VISA, Small businesses in Paris benefitted from a 26% year-on-year rise in sales from Visa cardholders during the first weekend of the Olympic Games. Travellers to Paris from the U.S. increased the most from the previous year (+64%), followed by Germany (+61%) and Spain (+27%).

There is little doubt that the Games have come at a very opportune time for President Emmanuel Macron, who hastily called an election on the eve of the Games in reaction to his Party’s poor showing in the EU Parliamentary Elections and was only saved from the Spectre of an extreme right-wing Government by the intervention of left-wing Parties rather crude intervention.

Germany stands far closer to a recession than the U.S., yet despite this, a further cut in interest is not certain at the ECB’s next meeting on September 12th.

The Eurozone’s largest economy is struggling to find growth, even though its consumers are content that inflation is falling.

German exports, once the lifeblood of the country, fell by 3.4% last month as it tries to fend off Chinese competition. Just about every area of German industry and manufacturing output is suffering in comparison to China, which has lower employment costs, lower manufacturing costs and lower raw material costs.

The U.S. is in a similar position but acted several years ago when it became clear that large American manufacturers had begun “exporting” their manufacturing capability to Asian nations with a lower cost base.

Germany needs to commit to a structural reform of its economy, but it is political suicide given the initial level of unemployment it would likely create.

A report published recently by the ECB found that banks in the region are building a “climate premium” into their lending policies. This means that firms that have lagged in adopting emissions policies are paying more to borrow than those which have made concrete commitments.

This change of policy has become far more prevalent in the past year as Banks try to become more “environmentally aware”.

The Euro is still running into heavy selling interest on any rally above 1.0920. Yesterday, it climbed to a high of 1.0945, but sellers drove it down to a low of 1.0881 before it recovered to close barely changing at 1.0918.

Have a great day!