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Morning Update

A win for Rishi Sunak, UK economy data, UN vote in favour of a ceasefire in Gaza, and what's happening today.

Rishi Sunak lives to fight another day after a fairly convincing win (relative to what it could have been) on the Rwanda vote last night. The bill passed 313 for to 269 against, with no conservative MP voting against the government but up to about 38 abstentions from his benches, and this is where it gets interesting. The abstentions were predominantly from right wing factions of the party, who didn’t want to support the bill but did want it to go through so they can hopefully make amendments at the next stage.

The problem with trying to make amendments to satisfy the right is that the more centrist MPs in the party – the One Nation group particularly – have said that any change to what has been

written will be shot down by them. So, Rishi now finds himself with a bill that he wants to push into law to make good on one of his five pledges, but almost no way of getting it there. We imagine that he’s woken up this morning just happy that it’s one day closer to Christmas and that’s about it!

From a market’s perspective, getting this through is probably stabilising for sterling traders as we go into the festive markets period, which is no bad thing for the pound, as a lot of uncertainty plus less liquid trading could mean a really bumpy run of it.

UK GDP in Focus

This morning data from the ONS indicated that the UK economy contracted 0.3% over October. This came in considerably softer than the consensus which forecast a 0% reading, reversing the gains seen over the previous two months when the UK economy grew 0.1% and 0.2% over August and September, respectively. The UK services sector – which accounts for around 80% of output – shrank 0.2% over the month with the ONS citing a drop in output of the information and communication sector as one of the primary negative contributors. Consumer-facing services also saw a fall over October, remaining 5% below pre-pandemic levels.

As we looked at earlier in the year, the IMF’s indicated that the UK is set to have weakest growth among G7 over 2024. Additionally, the IMF downwardly revised their 2024 growth projections from 1% to 0.6% and estimated that growth would be the second weakest, after Germany this year. Here, the IMF stated that “the decline in growth reflects tighter monetary policies to curb still-high inflation and lingering impacts of the terms-of-trade shock from high energy prices”.

Similarly, last month the Bank of England also downwardly revised growth projections for Q4, estimating that the size of the UK economy will expand by just 0.1% over the quarter. And more recently, following Hunt’s latest Autumn Statement, the ORB also downwardly revised growth projections for 2024 from their 1.8% figure estimated in March, to 0.7%. Hence, this morning’s miss is another indication that the UK economy continues to face headwinds as we go into 2024.

UN General Assembly

Yesterday, the UN General Assembly voted in favour of supporting resolution which demanded a ceasefire in Gaza. The vote at the United Nations headquarters in New York saw 153 member states back the motion for a ceasefire as 10 states opposed it while 23 states abstained.

Resolution 377A – which is a means by which the GA can make formal recommendations to the UNSC when the latter “fails to exercise its primary responsibility for the maintenance of international peace and security” was invoked by Egypt and Mauritania on Monday.

Nevertheless, while the vote indicated the widespread support for a ceasefire across United Nations member states, the motion is non-binding. For such a motion to be non-binding, it would need to pass through the 15-member state United Nations Security Council, made up of the P5 (China, France, Russia, the United Kingdom, and the United States). In order to pass, such a resolution would need nine votes in support by the UNSC and cannot be vetoed by any of the P5.

Last Friday, the US vetoed a draft resolution submitted by the UAE which demanded a ceasefire in Gaza. 13 other members backed the motion for a ceasefire, with the UK abstaining. The US have instead called for temporary humanitarian pauses, paving the way for getting aid through to Gaza and for the release of Israeli hostages held by Hamas.

Today’s Events

Today’s main event is the Federal Reserve Interest Rate Decision at 1900 this evening. While the market is pointing to a hold from the Fed, the event is being hotly anticipated given that it will also include the release of their dot plot as investors look to gain further insight into the central bank’s future monetary pathway. Their policy meeting follows yesterday’s US CPI print which showed headline inflation slowing to its lowest level in five months at 3.1%.

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