Good morning,

Productivity is expected to be lower this morning in England as the national team managed a 1-0 victory in a late starting game at Wembley, making them winners of the group and lining up a match next week (at a more respectable start time of 5pm) against either France, Germany or Portugal – coincidentally two of these could be quarantine free holiday destinations from the middle of next month if you’ve had both jabs, as UK minsters look to un-cancel summer from the middle of next month. For those without two vaccines, it is being reported that Spain’s Balearic islands will be green listed. This would be a huge relief for the travel industry, who have said that keeping restrictions in their current form throughout July would cost the industry more than £600m per day. The Mail has the story.

The UK and EU are moving towards an agreement on customs checks on good flowing into Northern Ireland, according to a Reuters article. They say that in a meeting taking place today the UK will set out its plans to use the time given by extending the June 30th expiry of the current grace period. Europe is said not to favour just extending deadlines with no firm resolution in sight (though if you remember back to the Greek debt crisis, that’s exactly what they did, multiple times) but if we can convince them that there is some intent then it is likely a three or six month extension will be agreed by both parties.

Michael Gove has said that Boris Johnson will not grant a Scottish independence referendum before the next general election, set to take place in 2024. Nicola Sturgeon has her 2023 vote in her sights, but Michal Gove warned that doing so whilst rebuilding the economy following covid would “at best be reckless, as worst folly to try to move the conversation on to constitutional division when the people expect us to be working together in order to deal with these challenges”. These comments aren’t going to be greeted warmly in Holyrood and it is highly likely that the SNO will want to press on with their original plans and as such this is likely to get legal – though constitutional matters aren’t a devolved power and as such the argument would end up being ruled on south of the border, which would probably put Ms Sturgeon at a disadvantage. The Telegraph has the interview with Michael Gove and a lot more detail.

On an economic note: The Times ‘Shadow MPC’ say that the Bank of England should scrap the final £50bn of quantitative easing and four of the nine economists on the Times’ panel say that interest rates in the UK should rise before the end of the year. This comes ahead of tomorrow’s actual Bank of England announcement, where market expectations are for everything to remain unchanged and market expectations are that rates will remain where they are until the middle of 2023. Tomorrow is Andy Haldane’s last meeting as a member of the MPC and he will be voting in favour of winding QE down, but he has been a largely lone hawkish voice of late, so we doubt that there will be the numbers joining with him to make his point heard. The Bank hasn’t yet announced Mr Haldane’s replacement, but they did confirm yesterday that of the four external members of the MPC, Gertjan Vlieghe is out and Amy Mann, who is chief economist at Citi Group and formerly the chief economist at the OECD, is in.

Staying with central banks: Following the Fed’s announcement last week that interest rates might move slightly higher in a couple of years – to which the market reacted badly – a number of Fed speakers have come out and tried to refine their commentary so as not to keep the market on edge. Yesterday it was the turn of Jerome Powell to soothe concerns by saying that the Fed wouldn’t pre-empt inflation with a rate rise but wait until it actually materialised before acting. Meanwhile Fed member Mester says he wants to wait until later in the year to start making any decisions on tapering QE and see whether progress has been made (spoiler alert: substantial economic progress will have been made in the US by the time we get to the autumn, there’s too much money floating around for there not to be). The market has taken kindly to the calming words though and stock markets have had a good first couple of days to the week, whilst the dollar has softened off from its recently bullish position.

In supply chain news: The wait time from ordering a microchip to receiving it has apparently jumped by another week to a total of 18 weeks in the month of May. The increased lead time is a sign that things may be getting worse and not better, but there is also some concern that manufacturers that are suffering from this now are bolstering their orders to try and get some kind of stockpile and may not actually have the orderbooks to support the increased demand they’re placing on the industry – which could risk us seeing a glut in production further down the line. The automotive space is the hardest hit, with an expected $100bn in lost sales expected as a result. We read an interesting article last week about automotive companies doing themselves no favours with the chip makers when they shut down production at the beginning of the first lockdown and cancelled their microchip orders – which not only had immediate impacts further down the supply chain, but also left these companies in a generally lower priority group than other microchip customers.

Today’s data calendar will make for interesting reading as we’ll see how the services and manufacturing sectors have bounced back this month. We’re expecting huge headline numbers on both, but the UK economy isn’t without its challenges at the moment and there will be calls that we could be doing even better if businesses were able to get staff! The shortages are spreading across industries now and though it’s not likely to appear in the headline data for the time being, it is going to become a drag on growth if the alternatives are either having to pay a lot more to get someone to do the job, or adjust your business operation to compensate for being unable to hire (as is the case in this BBC article).

In other news: The Cure Leukaemia Tour de France team have covered 703km in the last four days (and the rain we’ve had in the UK has also been had in France, making it even tougher!) They’ve got the ‘luxury’ today of a 27km time trial today and a relatively simple 144km flat ground ride tomorrow, before heading into the mountains at the weekend where the going gets even tougher! They’re a week ahead of the pros, who get underway this Saturday, and are pedalling hard towards their £1m fund raising target. You can follow their progress on their Twitter page and donate to the amazing cause here, should you so wish.

Have a great day.

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