Yesterday, as Boris was making the final preparations for PMQs, the former Tory backbencher, Christian Wakeford defected to Labour sending shockwaves from Westminster which were felt throughout the whole of the British political landscape. The loss of Wakeford’s Bury South seat is a blow to the Conservatives attempts to defend what had previously formed part of the Labour Red wall. Indeed, Wakeford had won the seat with a majority of just 402 votes (or 0.8% of votes cast) back in 2019 – representing the tenth slimmest majority (with Bury North being the second most marginal seat) and is hence a psychological blow to the Tories who now hold 359 seats in the House of Commons down from 365 in 2019.
While Wakeford’s primary reason for crossing benches was in relation to the ‘party-gate’ revelations, some analysts maintain that this argument may be somewhat superficial given reports that he first contacted the labour party some four months ago.
Subject to the law of unintended consequences, Wakeford’s decision may have in fact united the Conservative party given that repots are emerging that between three and seven MPs have retracted their letter of no confidence in the PM, handed to the 1922 committee. Nonetheless, the Financial Times are reporting that a senior Tory MP reckons that around 25 of his PCP colleagues have delivered such letters. Moreover, Wakeford’s move has unsurprisingly unsettled the Momentum faction of the Labour party who have maintain that his twenty years in the conservative party – and damage to the red wall – have rendered him unwelcome, with some even demanding a by-election.
It’s Europe’s turn to face the inflation music this morning and they’re going to find themselves in an incredibly similar boat to the UK. A 5% year on year increase in prices in December is on the cards and if the UK numbers are anything to go by, this could be on the lower side of the actual outcome, particularly as gas prices in Europe were about eight times higher in December ’21 than Decemeber’20. The ECB is still maintaining the ‘ride it out’ approach, but they’ve got to be feeling uncomfortable at this point, particularly given their central bank peers are almost universally on a rate hike path.
Yesterday we received some comments from Andrew Bailey on the UK’s inflation predicament and he’s warning that it’s not going to go away anytime soon. His concern is that energy prices might not start easing off until the middle of 2023 because of the tensions with Russia. He’s also warned that the reaction of rising wages to offset inflation might produce an upward spiral of inflation that then becomes entrenched, rather than if wages didn’t keep pace and consumers had to rein in spending, which in turn would slow the economy and then bring back inflation – and either outcome isn’t really a desirable one.
One exception to the central bank hiking rule is the People’s Bank of China. The bank cut its one year Loan Prime Rate by 10bps and a 5bps cut to the five year rate. The small adjustments are more a demonstration from the Bank that they remain supportive of the government’s “common prosperity” policies, but also that they remain cautious that super easy credit conditions could come back and bite if business as usual in the country resumes – though that does seem to be a way away given that a single covid case is enough to force a lockdown.
Turkey’s central bank are due to meet today and after cutting 500bps off the interest rate in the last three months, it is likely they’ll sit on their hands. The country is grappling with inflation around 35% at the moment and despite Erdogan’s insistence that looser monetary policy leads to lower inflation, the risk of another fall out in the foreign exchange market is likely to dissuade them from continuing with the experiment for the time being.
Yesterday evening, Biden also addressed the global community during a White House press conference which covered the Ukrainian crisis. While the President stated that he believes Putin will “move in”, he also added that such actions would be met with a “swift response” and again committed that further sanctions would cripple the Russian economy and act as a deterrent.
We have also seen a considerable risk-off appetite in the Russian stock market with the Moex index plummeting around 6.5% on Tuesday and the RTS index falling 7.3% – its lowest level since late 2020 – with the rouble trading around nine-month lows against the dollar.
Have a great day.