UK- Rishi Sunak has possibly been given some wiggle room when it comes to tax rises, courtesy of borrowing figures released this morning. Official data show that the government had to borrow less money in December than was previously forecast and was accompanied by downward revisions to his use of the credit card in previous months too. Overall, the numbers are still painfully high, with financial year to date borrowing a whisker under £150bn, although compared to last year when it was closer to twice that number, things are looking a lot better. The Chancellor may well be tempted to delay the National Insurance rise as a result, not least because it might make him a firmer favourite with the new job he’s likely to apply for in the not too distant future.

Avoiding a tax rise might also be accomplished if the government took tackling fraud seriously, according to the, now former, Minister for Efficiency and Transformation within the treasury. Lord Agnew resigned at the dispatch box in the House of Lords last night, having given a damning account of the government’s attitude to tackling fraud generally and specifically with in the Bounce-Back Loans Scheme, where he said the oversight of the British Business Bank was “nothing less than woeful” and that they were “ably assisted by the Treasury who appear to have no knowledge or interest in the consequences of fraud to our economy or society”. So far the government has had to reimburse more than a billion pounds to banks where BBLS loans have defaulted and its estimated that a quarter of that is down to fraud. The scheme was operational by May 2020 and repayments were meant to start from May 2021, but a host of deferments mean that defaults won’t be fully known of well into this year and beyond. However, with £47bn of loans issued under the scheme if there ever is a final number revealed on what is lost to fraud, you an expect it to be a big one.

Lord Agnew made very clear that his resignation was in no way related to the hot water that the Prime Minister finds himself in and apologised for the inconvenience that his resignation would cause. This hot water might be a few degrees warmer this morning as ITV once again broke news of another party at Number 10, this time a birthday party for the big dog himself! The ‘party’ has been downgraded to a ‘gathering’ and that gathering has been acknowledged by Number 10 as having taken place, along with a string of defences for the actions. Whether this leads to more problems or just more noise come PMQs tomorrow probably depends on when Sue Gray’s report lands.


Ukraine & Russia- With tensions heightening in Ukraine and the Blinken/Lavrov diplomatic negotiations leaving much to be desired, the markets are factoring in the potential for a further deterioration in relationships. However, the market’s reaction to potential warfare has thus far has been asymmetric with the Russian economy feeling the pinch.

For instance, Moscow’s leading index – the Moex – has slumped nearly 15% this year alone with yesterday seeing a 5.5% downturn. This is further concerning for the Kremlin, given that this sell-off in the Russian stock market has also pervaded into a sell-off of securities, with yields on government bonds now climbing to their highest level in six years. This will worry those in Moscow who will already be calculating the adverse effects that further sanctions will have on the Russian economy which will subsequently require government fiscal stimulus to keep the economy afloat.

These issues are manifesting themselves in an increasingly weakening rouble as it hits fourteen-month lows against the dollar with developments yesterday – including the US announcing that it was bolstering up troop numbers and material in bordering NATO states – feeding into a 3% drop yesterday.

While recent developments have feed into a global risk-off appetite, in the latter half of yesterday we saw an indication of investors ‘buying the dip’ which fed into gains in the S&P and Bitcoin. For example, yesterday saw the S&P 500 recover over four percentage points from its session low, which represents the largest swing since 26th March 2020. Nevertheless, earlier in the day we saw PMI figures out of the Eurozone and the UK come in well below expectations with market services activity in the UK slumping to 11-month lows, indicating the impact that Omicron and the wider global economic concerns had on the market.

Have a great day.


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