Tensions high for Starmer and Sunak after vote on an SNP motion and high court ruling, Autumn forecast published for European commission, and US retail sales come in higher than expected.
It was a bruising evening for Keir Starmer, as a house of Commons vote on an SNP motion to call for a ceasefire in Israel led to a number of frontbench resignations and more than 50 MPs defying the whip to vote in favour of the motion. The vote ultimately didn’t pass, with 125 votes for and 294 against, but the level of defiance amongst Labour MP’s being told what to do was the largest (as a percentage) since 2003, when 59 voted against Tony Blair’s plans on Iraq. Jess Philips was the highest profile MP to resign her seat at the shadow top table. Rishi Sunak will no doubt welcome the chaos across the aisle, as polling since his reshuffle (and reintroduction of David Cameron) has extended the gulf to a 27-point gap between Conservatives and Labour.
Mr Sunak barely got a chance to celebrate meeting his self-determined inflation target, as yesterday the high court ruled that the government’s plan to process asylum claims in Rwanda wasn’t lawful. The government’s immediate plan is to introduce emergency legislation that confirms Rwanda as a safe country. They will also seek to establish a treaty (rather than just an understanding), that will reduce the possibility that someone sent to Rwanda to go through the asylum system would not be returned to their country of origin, which would break conventions on the handling of refugees. This is clearly going to all take time, and will no doubt be tested back through the courts, so we wonder how the PM is going to put a tick in the box against ‘stop the small boats’ on his five-point plan, given this was meant to be the largest deterrent.
Yesterday the European Commission published their Autumn economic forecast, in which they indicated that there would be a “modest recovery ahead after a challenging year”. The headline takeaway is that the Commission downgraded EU and Eurozone growth by 0.2 percentage points over 2023, thereby projecting that growth will come in at 0.6% over the year. This modest reduction in the pace of growth comes as monetary conditions remain at some of their highest levels in decades with the main refinancing rate at a 22-year high of 4.5%. Hence, with Frankfurt continuing to try to bring inflation (currently at 2.9% across the EZ) down to their 2% target, a slowdown in growth in the near term may ease some of the headwinds they face in trying to achieve this.
Looking further ahead, the EC forecast growth to pick up in 2024 to 1.4% across the 27-member state union as a “steadily robust labour market, sustained wage growth and continued easing of inflation” feed into an uptick in consumption. The report also cited how public deficits will start to decrease as fiscal support for pandemic and energy related issues is phased out. The EU’s debt-to-GDP ratio is thus expected to fall to 83% by the end of this year, before continuing to ease to the pre-pandemic level of around 79% by 2019.
Interestingly, the Autumn Economic Forecast covered Bosnia and Herzegovina, Moldova and Ukraine, for the first time, given these countries’ status of EU Candidates. Here, the EC forecast Ukraine to have 4.8% growth over 2023 and 3.7% throughout 2024. (This of course follows their GDP falling just under 20% during 2022 given the implications of the full-scale Russian invasion).
Yesterday, US retail sales came in hotter-than-expected in another indication that the world’s largest economy shows signs of being more resilient than forecast despite tighter monetary conditions and a rising cost of living. Against expectations of a 0.3% contraction, retail sales fell only marginally by 0.1% on a month-on-month basis for October. While yesterday’s print surpassed expectations to the upside, yesterday represented the first monthly contraction since March. Amongst some of the areas of the US economy most hit was furniture stores and vehicle dealers which saw sales drop 2% and 1% respectively. Nevertheless, spending at health shops grew over 1% while sales grew at electronic shops and restaurants rose 0.6% and 0.3%, respectively.
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