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As Thanksgiving comes and goes and we approach Chanukah it provides a moment to reflect – In the words of John F Kennedy – “We must find the time to stop and thank the people who make a difference in our lives”.

Posted: 26th November 2021   |   Share

By Sarah Ryman

Sarah Ryman

Covid variant concerns impact equity markets and additional travel restrictions come into play we are perhaps reminded of the ongoing efforts of those everyday heroes trying to keep life ticking along in challenging environments that have seemingly not yet passed.   

UK

The Bank of England decided to hold fire on increasing interest rates at this month’s meeting with 7-2 voting in favour of keeping rates at 0.1% despite the highest inflation forecast for a decade (now expected to reach 5% in spring).  The requirement for a hike remains with most predicting a hike will come into effect early 2022 given the central bank, historically, has been less likely to change rates in December.  Silvana Tenreyro, one of the rate setters at the Bank of England commented that widespread problems in the supply chain should disappear next year but there is significant uncertainty about the jobs market.  However, with unemployment picking up, withstanding the expiry of the furlough scheme, will this provide enough support for the Bank of England to move interest rates this side of Christmas?

GDP rose 0.6% month on month in September according to data released by the office for national statistics this month.  The reading was stronger than the previous month but 1.30% q/q was lower than expected for the third quarter of 2021.  GDP was impaired by shortages of goods and workers - output remains below pre-pandemic levels. 

Inflation continues to increase with CPI up at 4.2% as a result of rising fuel and energy costs.

EUR

The European Commission’s latest economic forecasts suggest a budget deficit in the EU of 6.6% of GDP which is not as wide as originally expected.  The improving numbers are down to a pick up in the speed of the economic recovery as a result of expanding activity, more people in work and a lift in consumer spending.  They have caveated with comments around the danger of a resurgence of Covid-19 and the potential implications of this alongside the hope that there is a sustained improvement in public finances. 

Covid continues to cause challenges with Chancellor Angela Merkel commenting that Germany is in the grip of a ‘dramatic’ fourth wave highlighting ‘it’s not too late to decide to get a first vaccination’. Meanwhile Austria has locked down around two million unvaccinated Austrians.  The Netherlands is under partial lockdown, Sweden is introducing Covid vaccination passes for concerts and indoor events involving more than 100 people and Czech Prime Minister Andrej Babis said anyone who had not been vaccinated would be banned from accessing public events or services and that negative tests would no longer be enough.  

The euro has taken a bit of a knock this month as traders start to price a divergence in policy between the ECB in comparison to the FED and BoE.  Despite the mounting inflationary pressures the European Central Bank seem to be suggesting they will continue to adopt accommodative policies whilst the Bank of England and Federal Reserve are forecasting raising rates from historic lows over the next year.

US

As already alluded to - the Federal Reserve (FED) also left rates unchanged this month but commented that they will begin to scale back the monthly bond buying citing an improving economy, recovery from the pandemic and surging inflation. 

US Consumer prices had the largest year on year leap since 1990 with a reading of 6.2% suggesting perhaps that the inflationary pressures are a little more persistent than initially expected for the states.  The market consensus for the FED to raise interest rates remains around Q3 2022 but Joe Biden’s administration is rushing to rein in inflation so as to not jeopardise the economic recovery and his spending plans.  Talking of which – his $1.2tn Infrastructure Investment and Jobs Act has become law but his approval ratings meanwhile have hit an all-time low.  To try to control petrol prices and hold back the crude rally the US will release 50m barrels of oil from the countries strategic reserves.

 

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