Income Tax Thresholds
Yesterday, the Treasury announced its plans to freeze income tax thresholds which given the current levels of wage inflation will effectively place an additional 1.2m employees into the “higher” 40p rate of income tax into by 2026 and 1.5m more into the “basic” 20p rate. This announcement did little to please a growing number of backbench MPs increasingly concerned for their constituents rising cost of living. Such concerns were echoed by the director of the IFS, Paul Johnson, who maintains the cost of living “could well be worse than the financial crisis” over the coming months and years. Hence, critics are arguing that these announcements constitute little more than a “stealth tax” with these policy plans estimated to cost households an extra £430 a year on average by 2026. Nevertheless, given the growing national debt and increasing costs of servicing it, these announcements demonstrate how Number 11 are having to explore all methods of increasing tax revenues in a bid to balance the books.


UK Farming
English farming is to get the biggest shake up in more than half a century, as ministers have unveiled new approaches to subsidising the activities of farmers. Currently farmers receive about £1.6bn in subsidies from the EU every year, but that is winding down in a post-Brexit world and the government has come up with a range of different incentives for farmers to continue to get paid. The plans include large re-wilding projects, which aim to have about 300,000 hectares given fully back to nature by 2042, as well as incentives to take on more environmentally friendly farming practices, such as cutting fertiliser use, improving soil standards and reducing pesticide use. The plans have been welcomed and criticised in fairly equal measure, but they’re still a little light in details for the time being which hopefully means they can now be influenced a little more to ensure that environmental impact is the primary outcome. They’ll also need to ensure that farmers can make long term plans to ensure they aren’t left with a gap between the wind down of the EU subsidies and meeting the qualification criteria for the new ones.

The FT has more:

German Inflation
Yesterday, German inflation hit its highest rate in almost three decades. The 5.3% print for Germany’s national consumer price index was primarily driven by record energy prices and VAT cuts. However, considering that nearly half of the largest components in the basket have an inflation rate of or above 4%, the data indicates that inflation is not merely isolated to a few sectors of the economy but is now very much an underlying issue – affecting the cost of living across all aspects. Yesterday’s data will likely raise tensions between an inflation adverse Germany and the wider ECB whose expansionary monetary programme and unprecedented PEPP fiscal stimulus package – along with eight years of negative interest rates – have hit German savers.  Considering that the newly appointed head of the Bundesbank, Joachim Nagel is expected to follow in the footsteps of his predecessor’s (Jens Weidmann) hawkish monetary policy, all eyes will be focused on the extent to which Nagel will be able to pursue German economic interests within the limitations of the ECB.

Germany, who import some 90% of their gas, have been deeply affected by the rise in wholesale prices across the continent. Exacerbated by issues concerning Nord Stream 2 – which is yet to receive the regulatory approval – the level of gas flowing from Russia to the rest of Europe is at its lowest level since 2015. This state of affairs demonstrates the extent to which Germany is “in between a rock and a hard place” considering that it is under increasing pressure to address inflationary concerns while also remaining cognisant to the wider geo-political worries of Nord Stream expressed by their European allies.

Staying with Russia: Talks Between Biden and Putin’s teams are due to take place in Geneva over the weekend but aren’t getting off to the best of starts as Washington have said that Moscow’s demands that NATO not expand military presence eastward and never admit Ukraine into the club are both non-starters. Following last weeks’ call between Biden and Putin the US is apparently no clearer on whether a Ukrainian invasion is on the cards and there have been no signs of any de-escalation along the border and that it would take ten days for Russia to complete preparations for an invasion, so even buying time from this meeting and agreeing to continue talking would be a good thing – even if both sides know they’ll never find enough common ground on Ukraine to reach a final conclusion.

Moscow has a bit of a distraction with another neighbouring country at the moment, Kazakhstan. The government there has said that public order has largely been restored. With more than 3,000 arrests and about 2,500 foreign soldiers now in the country, this might be the case.  The Kazakh government’s move to cut off the country’s internet earlier in the week had a knock-on effect on the price of Bitcoin. The country is the second largest centre for mining the crypto, with nearly a fifth of the world’s mining taking place there. Taking such a big player offline meant that the computational power behind the digital asset fell and so did the asset price. Interestingly the majority of power in Kazakhstan is generated by burning coal and Bitcoin mining might make up as much as 8% of the country’s total power consumption.

The Guardian has more:

Looking Ahead
Today we look at the all-important Non-Farm payrolls. Last month’s 210k print fell short of expectations but this month’s number is a little more bullish at an expected 400k. We’re not sure to what extent omicron will play a part in the figures, though various parts of the US are now struggling with staffing due to isolation and illness, so we’d say it’s likely to have some impact. Ahead of that we get Eurozone inflation numbers, set to slow slightly from last month but still be towards five percent (it’s worth remembering that the ECB are using ‘average rate inflation’ to influence their policy decisions, so even a big number isn’t likely to shift expectations on them holding tight on rate rises).

Have a great weekend


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