Drip drip drip
For the second time in five days the pound placed last among the major currencies on Friday, falling by an average of 0.5% and cementing a weekly loss of 1.4%. There were no cardinal errors, nor any unpleasant UK economic data to hold it back. Rather, it was simply the drip, drip, drip, of worrisome news that did it.
The government’s new TV ad campaign “Check change go” provided a constant reminder that businesses still have no solid information about the regulations that will affect trade with Europe, the United States and other major markets in the New Year. Pressure from Washington is forcing the UK government to distance itself from China and relations with Russia are under strain from allegations of interference in last year’s election and Covid-19 research. None of this was constructive for the pound.
At the back end of last week the only salient UK data were Thursday’s jobs numbers and the Bank of England’s Credit Conditions Survey for the second quarter. The former showed a big fall in employment but no change to the - artificially low – 3.9% rate of unemployment. The latter reported that both demand and supply decreased in Q2 as a result of the lockdown.
500, 750, 400, 390
The three-day EU summit that was supposed to agree the Covid-19 recovery plan and a new long-term budget has so far fallen at every hurdle. Three days have become four and there is as yet no agreement on either the recovery plan or the budget. But fear not: hopes remain high.
It is the recovery plan that forms the biggest sticking point. Two months ago Germany and France proposed a €500 billion fund to help Europe out of its economic hole. A week later the European Council put forward its own proposal for a €750 billion package. EU national leaders met on Friday in Brussels to discuss the plan and the bickering started. As feared, the “Frugal Four” – Austria, Denmark, Finland and Sweden – objected to grants, instead proposing repayable loans.
Overnight it has come to look as though a compromise is at hand; rather than €500, €750 or €400 billion, the leaders can apparently see a way forward to making €390 billion of grants to members heavily impacted by the tragic coronavirus. It is not yet a done deal but looks likely to happen, if only because some level of assistance must be provided and nobody has come up with a mutually more palatable alternative. An agreement later today would probably be positive for the euro.
Jonathan, Andy and Silvana
There is nothing on today’s agenda to distract from the big build-up to notification of the European Council’s decision this afternoon. The Council reconvenes at 1500h, at which point the deal should be almost ready for signature.
Also this afternoon, the Commons Treasury Committee will interview Jonathan Hall, Andy Haldane and Silvana Tenreyro. Mr Hall is in line for a position on the Monetary Policy Committee and Ms Tenreyro is expected to be confirmed for another three years on the MPC, as is Mr Haldane.
There are no ecostats of any consequence during the London day. The Japanese inflation data come out tonight, as do the minutes of the Reserve Bank of Australia policy meeting. RBA governor Philip Lowe will be speaking.