Economics 101
On Tuesday evening earlier this week in a well signposted speech – no surprises on this occasion-UK Chancellor Reeves delivered the annual banking and business Mais lecture at the Bayes Business School part of City, University of London. We say well signposted since Chancellor Reeves has been espousing closer ties with the EU for some months. As ever, the pre-conditions to making substantial progress on this aim which include allowing free movement of people which is the equivalent of a political Dodo i.e. it will never fly, rejoining the single market and paying large amounts of money which the UK does not have, were brushed aside as she stated that re-joining the EU was not on the table. The second plank of her speech was a push for AI and innovation – again a well-rehearsed aim which requires investment, investment incentives, and confidence all of which do not sit with the UK tax regime in general and the Chancellor’s recent tax measures in particular. The third strand to the Chancellor’s lecture which was more radical is the proposition of giving more power to the regions with a permanent transfer of power by them taking control over some tax revenues such as income tax. If this was a sop to next Labour PM hopeful Manchester Prince over the Water Andy Burnham, the real case of bankrupt Birmingham and the economic and political ambitions of London’s Mayor Khan should serve as fair warnings of what that might entail for the future fortunes of the already over-taxed and cash strapped UK. In summary, there is somewhat of a gulf between Chancellor Reeves and the economics of the real and deliverable world.
GBP/USD 1.3406.
Central Banks
It has begun to look as if this year’s agenda of 1 or 2 further interest rate cuts by the major Central Banks is either off or has been pushed further out while the current energy price rises, increases in freight rates and spikes in fertilizer are absorbed into the world’s economy. The subtext is that depending on how long what POTUS describes as a glitch continues, this may mark the base of the rate cycle. Accused of being too slow to react to the last bout of inflation, the world’s Central Banks will want to be seen to be rather more fleet of foot than in 2022. With Brent Oil at over USD 110 and likely to move higher from here given the most recent attacks on the oil fields, the markets’ hopes of a short war have receded at the end of the third week since the outbreak on March 1.
EUR/GBP 0.8629.