Good morning,

Rishi Sunak is set to start raising taxes in the March budget, according to the Sunday Times, as long as the covid vaccination effort stays on track.  The logical starting point is corporation tax hikes, because in theory businesses making a profit are ones that haven’t been adversely affected by the pandemic.  Though he’ll take with one hand, he’ll likely give with the other and extend furlough and other support packages whilst the UK economy gets back on its feet in the second quarter of this year.  This could also include the extension of the stamp duty holiday that has been so supportive of property transactions (and therefor prices) over the course of the last ten months.  There is also talk of council tax and stamp duty being phased out and a hybrid ‘national property tax’ being introduced, though we can’t find much in the way of detail for what this would look like.

The UK’s credit rating was affirmed by Fitch over the weekend, who have kept us at AA with a negative outlook. They say that the significant increase in public sector borrowing is somewhat offset by a high income, diversified and advanced economy, and that Sterling’s status as a reserve currency and our deep capital markets also justify our rating remaining where it was.

Staying with the UK: Boris Johnson is set to meet with business leaders today and try and understand what bureaucracy they face and what can be done to streamline things, as he looks to make the UK ‘the Singapore of Europe’.  The ‘build back better council’ will consist of 30 business leaders and its plan is to make doing business that much easier, though without lowering standards.  We would suggest they start by looking at just what’s gone wrong with the fishing industry for the time being and fix that before it’s broken beyond repair, despite Dominic Raab saying yesterday that he wasn’t sure it was because of the Brexit deal that there were these problems!  Still, if government is finally listening to industry then they could be onto something.

In Europe: Germany’s ruling political party the CDU has chosen their new leader, Armin Lasecht.  This is important because Germany go to the polls later this year and it won’t be Angela Merkel on the ticket.  Mr Lasecht isn’t guaranteed to be the one that will replace her as their party’s nominee, but he has been governor of the most populous state in the country for the last four years and as such is probably in reasonably good standing to be able to do so.  The vote for Mr Lasecht is also an endorsement from the CDU party to maintain so called ‘Merkelism’ as their politics are very closely aligned, which could be something that plays well to voters as change is afoot after so many years of Angela Merkel in charge.

Italy’s political situation continues to look very turbulent. T his week we will see prime minister Conte face votes of confidence in both houses of parliament and his majority in both is wafer thin and not entirely assured.  There is a prospect that Mr Conte wins the votes but doesn’t have a parliamentary working majority, which would make his government a lame duck at a time when debt is spiralling through post war records and the pandemic is still far from under control.  Debt is now forecast to hit almost 160% of GDP later this year as the government announced another €32bn bailout package last week.

It’s a big week for the US this week, as Joe Biden is to be sworn in on Wednesday. So far just about every state is preparing for ‘armed demonstrations’ and in Washington 25,000 members of the National Guard are on duty.  Joe Biden apparently has a host of executive orders that he’ll be signing on day one in the job – of which a major one is the cancelling of the permits for the Keystone XL pipeline, which is an extension to the current Keystone pipeline that runs from Canada to the Texas coastline.  Canada was hoping that this would be a subject open for debate, but it looks like Biden has made his mind up.  Another environmental action many are pleased with is his re-joining of the Paris climate accord, which he also plans to do on Wednesday.

We’re not too sure how much stimulus will be heading into the US economy, as there could be a headache in passing the $1.9trillion package he unveiled last week.  The market bought the Dollar quite heavily going into Friday’s close, as there were concerns that whatever got passed would disappoint versus the recent lofty expectations. Either way Goldman Sachs seems to think the US will have a good year and increased their GDP growth  forecast to 6.6% for 2021.

This week will be dominated by the inauguration, but it will be a quieter start to the week as it’s Martin Luther King day in the US and therefore a market holiday.

Be well


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