Archive

Brexit Redux: Rejoining PEM

• Rejoining PEM would better integrate the UK into regional supply chains by easing rules of origin and tariffs for manufacturers reliant on EFTA and Mediterranean suppliers.
• PEM rules have become more flexible but could impose stricter conditions on EVs and batteries before 2027, creating short-term risks for UK automotive production.
• Although it would not transform UK-EU trade, simplifying compliance, lowering costs, and improving market access make it a pragmatic step in reducing post-Brexit frictions.

By Philip Rush

HEM: One More For The Road

• BoE, ECB and Fed cuts are likely at their next meeting
• We expect at least a policy pause beyond that
• Labour cost rises remain above target-consistent levels
• Activity trends signal monetary policy as nearly neutral
• The ECB is not as exceptional as markets dovishly price

UK: Political Policy Spectacle

• Labour’s new long-term growth plans have merit but limited short-term impact, as infrastructure and investment projects take years to deliver economic benefits.
• Despite policy rhetoric, the UK economy is structurally struggling, with GDP stagnation, persistent inflation, and fiscal constraints limiting immediate growth prospects.
• Political motives overshadow immediate economic substance, as ambitious projections serve electoral strategy rather than offering near-term economic transformation.

By Philip Rush

GBP Depressed By Fiscal Risk Premium

• UK government spending and deficits have attracted unwelcome attention amid falling sterling and bond prices. Yet long-term rate moves match US and short-rate shifts.
• Sterling weakness defies relative rate moves, suggesting a risk premium worth about 4%. About 1.5pp of that premium is probably US trade policy, with the rest UK-specific.
• Donald Trump should sustain his threats against the EU but could be softer with the UK. Fiscal risk will likely extend beyond the 26 March Budget amid tough talk, not action.

By Philip Rush