Good morning,

Bank of England governor Andrew Bailey spoke to the Observer over the weekend and is still very optimistic that the British public’s reaction when we come out of lock down will be to “go for it” when it comes to spending.  The Bank hadn’t predicted this lockdown and as such it has delayed their recovery forecasting and is apparently going to knock another 4% off the economy over the course of this quarter.  However, once we do get going again he sees the recovery building as they had previously hoped for and actually called into question whether the supply would be able to meet all of the likely demand.

Online retail, the winner of the pandemic, is set to be hit by a government ‘tax raid’, according to the Times.  The treasury is said to be working with online giants to talk about how a taxation system would work and is hoping that adopting some kind of turnover based tax would go a small way to levelling the playing field between internet sales and bricks and mortar retailers, who are faced with a multitude of extra costs.  The talk is a 2% levy to all goods purchased online, which in the case of Amazon alone would bring an extra £400m into the coffers.  There are a host of complexities around who gets charged what and how, so this isn’t likely to be unveiled in next month’s budget, but it does appear to be on the way.

A strong domestic economy and taxation system are going to be necessary if exports carry on the way they are:  They’ve fallen 68% since the start of the year, as firms struggle to get to grips with paperwork and capacity amongst the experts that can help with it just isn’t there. The figures are from the Road Haulage Association, which is the body that represents the businesses moving goods across border, so they should have a reasonable handle on it, but the government is disputing the figures and saying that freight movements are now close to normal levels once again.  The industry body has called for compensation packages for hauliers to address their loss of earnings and have also warned that things could get worse, as from July 1st the waiver on the UK side of checks is set to expire.  Currently there are only ten thousand customs agents, compared to the government target of fifty thousand.  The FT has the story.

On the Island of Ireland: Simon Coveney has said that he’s open to a ‘modest extension’ of the Northern Ireland protocol, but that it is not open for renegotiation.  The Irish Foreign affairs minister was responding to calls from DUP leader Arlene Foster to scrap the protocol, saying “you cannot simply scrap an element of an international treaty five weeks into its implementation because you don’t like elements of it”.  His comments have come under fire from Ulster Unionist leader Steve Aiken, but it appears his wider frustration is that Northern Ireland have no independent powers to make the changes they want to, and that it all comes down to conversations between Westminster and Brussels/Dublin – conversations which will take place this week in the hopes of finding some improvements to the movement of goods.  The Irish Times has more.

On the virus/vaccine front:  There’s limited, but less encouraging news on the AZ vaccine’s efficacy against the South African variant.  According to a small study it doesn’t prevent mild to moderate disease caused by this strain of the virus, though it is uncertain whether it prevents more serious illness and hospitalisation, as the study group had a median age of 31, which is a demographic that is seldom struck down severely.  Sarah Gilbert, the lead researcher on the Oxford development programme, believes that the current vaccine will prevent severe illness from this strain though.  As long as it prevents hospitalisations we should still be OK to open up the country in due course, as the pressure should stay off the NHS once we’re largely vaccinated.  The link to the story is here.

On the continent:  Mario Draghi is set to resume talks with Italian political parties today and it is looking like he will get the support he needs from 5 Star and The League, subject to some discussion around his policies.  Keeping both parties happy could be tricky, but making some sympathetic cabinet choices could help Draghi get this over the line.  Markets seem to think it’s a done deal, with Italian bond yields falling and the spread between German and Italian debt narrowing to its lowest levels in five years.  Though Draghi probably will get this done, this is likely to be the easiest part of his job.

The EU and Switzerland appear unable to agree to plans that would more closely integrate their economies, as the EU ambassador to Switzerland has said talks will not resume.  The nations were hopeful of aligning on free movement of people, civil aviation, land transport and standards on industrial and processed farm goods, but Switzerland is rejecting the EU’s preferred approach on the free movement of people, because it wants to protect its high-wage labour market and doesn’t want it undercut by cross-border workers.
Meanwhile, Swiss shares resumed trading on London exchanges late last week – for the first time since June 2019. Swiss shares were banned from trading on EU exchanges after they lost financial equivalence, but those rules now longer apply here.  At their peak, about $1.6bn a day was being traded in Swiss shares from London, which will go some way to restoring the $7.2bn in daily volumes our exchanges have lost since losing access to EU stocks.

Looking to the week ahead:  There’s a reasonable amount of data out and interest will also be on the ECB’s Lagarde, who speaks later today.  Fed Chair Powell, who speaks on Wednesday and also what the progress is looking like on Biden’s bailout.  The plans are bold and he seems to be favouring the ‘go big, go alone’ route of getting this through, without Republican help.

Be well.

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