Good morning,
Brexit terms look likely to be subject to parliamentary approval
Yesterday, James Eadie, a senior UK government lawyer, said that any final agreement with Brussels is “very likely” to be subject to parliamentary approval. Given the majority of the House of Commons were in the remain camp before the referendum, it appears that a hard Brexit and a departure from the Single Market will be a tougher task for Theresa May than previously thought. Much of the pound’s weakness over the past few weeks has been as a result of the fears that the UK is voluntarily heading for a messy divorce with Europe, and the market seems to believe that putting this to a vote of MPs could be one of the better ways in which to achieve a smoother exit from the Union.
Inflation induced by a weaker pound yet to bite
The Consumer Price Index, the most commonly used bellwether for inflation in the UK, rose by 1.0% year-on-year in September, the fastest rate of growth since late 2014. According to the ONS’s figures, it’s clear that inflation induced by the weak pound is still yet to hit receipts at the checkout and the bottoming-out of the oil markets hasn’t been fully factored in. If these two triggers aren’t sparking inflation, then what is? A general rise in the cost of restaurants and hotels and an end to the extended decline in transportation prices are the main culprits, which could prove worrying for the economists at the Bank of England, who are forecasting a sharp rise in food, clothing and footwear in the months following Christmas. Once these price rises take hold, we could be looking at inflation rates twice what they are now, making next year’s Christmas far more expensive than this one.
Sterling rallied in response as markets see the Bank of England’s room to manoeuvre being restricted by an accelerating inflationary profile in the UK. This comes despite Mark Carney making it clear that the Monetary Policy Committee would be happy to look through high levels of inflation for an extended period in order to ensure the economy can withstand an interest rate rise if and when it arrives.
Resistance to BoE low rate policy builds
Former foreign secretary William Hague yesterday caught a lot of flak for warning that the Bank of England could face losing their independence unless they withdraw emergency policies (low interest rates, quantitative easing) that have squashed returns on savings and fuelled a seemingly unstoppable rise in equity and property markets. While Hague’s assertions that the Bank of England’s strategy has pressured pensions and savings is correct, suggesting the Bank of England should answer politics and not economics is, at best, misguided and, at worst, dangerous.
Today’s jobless numbers could be another jolt in the arm for the pound if it follows recent strong economic data. Average earnings is the number to watch, seen holding at an inflation-busting 2.1%. They’re due at 0930BST.
Have a great day.