Written by Shane Balkham.
Every month starts with a surge of surveys to provide an update on the health of global economies. The current wave would suggest that global manufacturing is picking up slightly, which is good news, but that in itself would imply higher price pressures, which is bad news, especially with central banks’ decision meetings fast approaching next week.
It is no surprise that central bankers were busy last week reinforcing the view that fighting inflation remains the single most important task ahead of them. Managing inflation expectations, and with it rate hike expectations, has become a core skillset for members of the world’s central banks. They are haunted by inflationary mistakes made in the 1970s when monetary policy was eased too quickly.
With policymakers making all the noise, it was a much quieter week for politics, however in the UK we did see a breakthrough in the long drawn out talks between the UK and EU over the Northern Ireland Protocol. This was part of the Brexit withdrawal agreement, which was agreed in 2019 and rushed through Parliament to meet the legal deadline date of Brexit.
The difficulty was in designing a set of rules to avoid a hard border between Northern Ireland and the Republic of Ireland. The original Protocol ended up leaving Northern Ireland with access to the EU Single Market and effectively created a border between Northern Ireland and the rest of the UK. This resulted in a raft of inefficient red tape and some products were unable to be sent across to Northern Ireland from the mainland as negotiations continued.
Prime Minister Rishi Sunak met with the European Commissioner President Ursula von der Leyen last week and agreed to reforms under the ‘Windsor Framework’ which will allow goods travelling between the mainland and Northern Ireland that are not bound for the EU. These will pass through a green lane, largely avoiding custom checks. Although a minor issue to some, it has been a significant stumbling block for Northern Irish political stability.
The friendlier tone between Sunak and von der Leyen could present a more constructive relationship going forward between the UK and the EU. With Northern Ireland now being able to legally buy mainland sausages, this may mark the start of putting Brexit in the archives and allowing UK equities to be seen in a more positive light by global investors.