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I continually get a sick feeling about the leadership and actions shown by the Central Banks, and I will go for it, The lot of them!
On Wednesday, the Bank of England ended its expansionary £895bn asset buying program, only to raise its key interest rate by 15bp a day later. As a renewed Covid outbreak causes UK consumers to cower at home, investors were mildly surprised at this punchy move. In contrast, the European Central Bank stuck to its cautious script, saying it would buy bonds through 2022—albeit at a lower rate than expected—and beyond if necessary. Of the two, the UK’s tightening approach’ looks most prone to a forced reversal.
It is true that both central banks edged toward “normal” policy settings, as would be justified by an established economic recovery. At 0.25%, the UK’s base rate is two quarter-point rises away from its February 2020 level. The ECB signaled that policy will broadly return to its pre-pandemic orientation by October 2022, when bond purchases should be lowered to €20bn a month.
Yet investors were surprised at the BoE’s hike since UK public health officials have in recent days made alarming projections about the omicron outbreak, which is spurring consumers to resume lockdown-type behaviors. In response to all this gloom, the UK’s flash PMI just hit a 10-month low.
In contrast, the ECB has left itself wiggle room to react to both Europe’s bad Covid situation and rising energy prices due to uncertain Russian gas supplies. The pandemic emergency purchase program will, as planned, end in March, but the ECB has given itself the option to restart net asset purchases if financial instability returns; i.e. bond yield spreads widen too much.
Energy prices are a key worry for both central banks and explain more than half of the consumer price rises seen in the UK and eurozone in the last year. The ECB now expects consumer price inflation to average 3.2% next year, but to fall back to 1.8% in 2023 and 2024. About two-thirds of the ECB’s upward revision is down to expected energy price rises, with the other third due to other bottleneck issues. The BoE sees UK inflation peaking next April at around 6%, before falling slowly in the following 24 months.
Where the BoE and ECB really differ is on wages. UK policymakers look at Britain’s 4.2% unemployment rate and worry that rising prices will spur a spiral of wage demands and more price rises. While it is lower than pre-pandemic levels, the eurozone’s jobless rate still stands at 7.4%. In Spain and Italy, unemployment is much higher at 14.6% and 9.2%, respectively.
Supply-chain bottlenecks are squeezing Europe’s large manufacturing sector, and governments across the region have recently reimposed social restrictions to contain a fresh wave of Covid-19 cases. The yields on Southern European government bonds have edged up since the summer, putting pressure on highly indebted governments such as Italy’s.
Reality will take over from Idealism, ... and the rose c
Hi Mr Gnome,
Announced this morning a new post Brexit trade deal with Australia, (Load of horse **** really!)
9000 miles away instead of 22 miles away and the British trade department said the deal would add 0.08 percent to UK growth by 2035, Big deal!
https://www.politico.eu/article/uk-and-australia-sign-first-brand-new-post-brexit-trade-deal/
According to analysis commissioned by The Independent from top academics at the University of Sussex UK Trade Policy Observatory, the much-trumpeted free trade agreements (FTAs) “barely scratch the surface of the UK’s challenge to make up the GDP lost by leaving the EU”.
https://www.independent.co.uk/news/uk/politics/brexit-trade-deals-australia-new-zealand-b1959478.html
Hi Mr T
Its all a game, justifies Ambassadors to the UK, Trade Ministers, numerous junkets and post political life positions for mates, foreign consulates etc. There are talks and walks, and virtual meetings, all in a fairly virtual world nowdays. They achieve B&&ger all in the real world
Stalled negotiations for a free trade agreement with the European Union – delayed two months ago at the height of French fury over the axed $90 billion submarine contract – have been given the go-ahead to resume in February.
Trade Minister Dan Tehan confirmed the 12th round of talks had been scheduled, as he signed the UK free trade deal with British counterpart Anne-Marie Trevelyan on Friday in a virtual ceremony in Adelaide.
I am looking so forward to deglobalisation, including no foreign invasions for the betterment of the local people.
Lets hope the French don't bring up the subject of Nuclear submarines, and the Germans dont bring up the war. Troublesome lot the Europeans, got a lot to answer for.
from the most isolated colonial outpost
the gnome