May made the big move on immigration this week. A guarantee of EU citizen rights in the UK - the long awaited concession. It was the beginning of the charm offensive in Europe. Alas, que sera, sera, it was not to be. The Europeans wanted more than the deal on offer. Guy Verhofstadt, the European parliament's negotiator said the offer "failed to fully guarantee rights for citizens, with a lack of clarity on cut off date, family reunification and jurisdiction".
No deal! The Tories seem to believe Brexit negotiations simply involve creating a list of conditions on which the UK is prepared to leave the EU. It's a bit like creating an Aldi shopping list. Prepare the clipboard, make the trip, grab a trolley and wander around 27 countries picking up concessions in the meat, fish and veg departments during the round. This was never going to be easy. Davis has already been told the trade deal has to wait the exit settlement.
May has demonstrated the lack of preparation and planning ahead of the announcement. Too much trouble to send the draft of the immigration deal ahead, to ensure there would be no difficulty in acceptance. EU citizens rights should be an easy win for both sides. UK businesses need a deal urgently. The EU would like this particular issue agreed. So what's the problem? Perhaps it's judicial jurisdiction and the rôle of the European Court of Justice brought into play. Oh dear ... the shopping list just got a little more complicated. No click and collect on citizen rights just yet ... the Tory back benches have an allergic reaction to the ECJ ...
Kristin Forbes ... a hawk leaves the MPC
Kristin Forbes is to leave the MPC this month after just one term in office. A hawk among doves, Forbes voted for an increase in rates in March and in June this year. In a speech this week, the MIT Professor talked of the "failure to launch" - the inability of central banks in almost all developed countries to launch interest rates off the emergency levels adopted in response to the financial crisis.
"Escape from Planet ZIRP" has been a theme of ours for some time now. Forbes argues the lift off in the UK should not be delayed any longer. Despite fears of the fragility of recovery, consumer debt and the weakness of wage inflation, the time is right to hike rates.
The view is in stark contrast with the Governor of the Bank of England, Mark Carney, speaking at the Mansion House this week. "We are all going to be poorer" claimed the Governor as a result of leaving the EU. The Governor is inclined to avoid any rate rise until the Brexit negotiations have been concluded. Does this mean the Article 50 settlement (two years) or the trade deal (another five years?). Forward Guidance now extends into the next parliament and beyond according to the Governor. Can we really expect rates to be on hold if Corbyn is elected? Will rates be on hold if inflation persists, wages accelerate and austerity plans are reversed? Hardly.
Indeed this was the view of Andy Haldane, Chief Economist at the Bank of England. In a third speech this week by a member of the MPC, Haldane made it clear he would be considering a rate rise later this year, despite the concerns of the Governor over the medium term. The Governor at the Mansion House, Haldane in Bradford and Kristin Forbes at London Business School on Thursday. Three speeches all with differing views on the future path of monetary policy in the UK. Who said forecasting was easy!
LSE's Professor Silvana Tenreyro will join the lineup to replace Forbes on the MPC next month. With British, Italian and Argentinian citizenship, Professor Tenreyro will certainly supply an international perspective. "I think [Brexit] will have a negative impact on the UK economy" Ms Tenreyro told the FT in January. Bearish on a rate rise, we are losing a hawk for a dove, the likely outcome in the latest MPC change ...
The week in markets ...
The Dow steadied, the FTSE slipped. Sterling weakened against the dollar and the Euro. Yields were largely unchanged. Oil moved lower on news of US output and stock levels. Markets look set for midsummer correction ...
That's all for this week. Have a great week-end ...
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