Aurelia Butler

The EU’s Brexit negotiator has urged the UK to engage with Brussels over Northern Ireland, warning that tearing up their trade deal could damage peace and stability in the region.Maros Šefčovič, European commission vice-president, was responding to UK threats that it would draw up legislation next week to disapply parts of the Northern Ireland protocol, which governs post-Brexit trade on the island of Ireland.In an interview with the FT, Šefčovič described the protocol as “a measure for peace”. “I don’t see how this [UK move] is promoting peace, stability and predictability for Northern Ireland and for the island of Ireland,” he said.The UK government has received legal advice that it would be justified in overriding parts of the protocol in order to support the 1998 Good Friday Agreement that brought peace to the region. Northern Ireland’s Democratic Unionist party on Friday blocked the election of a new speaker at the region’s national assembly, effectively blocking the formation of an executive, until the protocol was scrapped.Unionists say the deal undermines the region’s ties to the UK because it puts a trade border for goods in the Irish Sea. Šefčovič declined to say how Brussels would respond to any unilateral UK move on the protocol but said it is “unacceptable for us” to change an international agreement that was less than two years old. “I would say there is a united position of all EU member states and the [European] parliament,” he said.An EU ambassador told the FT that Brussels would respond calmly “but firmly” to any unilateral action by London. “Constantly attacking the protocol is not just utterly unhelpful, but it’s also quite irresponsible and it’s playing with fire given the risk of polarisation inside Northern Ireland,” the ambassador said.Diplomats said the EU was likely to wait for any UK legislation on the protocol to pass through parliament before responding. But measures it could take include scrapping the post-Brexit Trade and Cooperation Agreement, which would introduce tariffs on UK exports to the single market. However, diplomats pointed out that in the meantime Brussels could reactivate legal action against London for failing to implement full border checks in Northern Ireland. It paused the process in July 2021 to bolster the negotiating process.Šefčovič said Northern Ireland had a “unique opportunity” to grow its economy as a member of both the UK and EU markets, and added that the region’s business community supported the current arrangements. However, he cautioned that uncertainty over the protocol was holding back investment.“There are a lot of new investment opportunities, which are on the shelf . . . because these big investors from the US, Canada, Europe . . . are waiting to see how this would pan out,” he said.Šefčovič said that if the UK decided to override the protocol, Brussels would have to impose customs and animal health checks on goods, but did not say how or where these checks would take place.“We, of course, are responsible for the integrity of the whole single market. And I think it’s quite clear that it would be unacceptable to have an unguarded backdoor to the single market,” he said.Dublin fears unilateral action by the UK could cause disruption to its own trade with the EU. Simon Coveney, the Irish foreign minister, warned in a BBC interview on Friday that Ireland’s economy could become “collateral damage”.Šefčovič acknowledged that the protocol has affected intra-UK trade and has proposed fewer controls on freight from Great Britain that is destined for Northern Ireland. “If we work together, we know how to reduce the checks by 80 per cent and we are proposing express lanes. The same for customs procedures, cutting them at least by half.”However, Liz Truss, UK foreign secretary, maintains there should be no controls at all on British freight destined for Northern Ireland. Šefčovič said he could only discuss such changes if the UK implemented the measures it had already agreed, such as allowing EU officials to access real-time, complete customs data. “This is really a tiny little effort the UK has to do to make sure that this system works,” he said. “There is a basic pre-requisite [for concessions] that we have also to feel that the UK is ready to meet us halfway . . . that we would get access to the IT system, that they accept the fact that there has to be some minimal checks.”He added: “I want this to end well for EU-UK relations because I think we just really need to close this chapter and build a new one.” More

A survey of professional forecasters, meanwhile, seemed to endorse the Fed’s hope it can tame inflation without killing millions of jobs in the process. Estimates for annual inflation a year from now in the Philadelphia Federal Reserve’s quarterly survey published on Friday dropped to 3% or less, depending on the specific price measure. Meanwhile the consensus view on the unemployment rate in the next two years ticked up to just 3.8% from the current 3.6%, an outcome that would enthuse Fed officials if it plays out.Policymakers, including Chair Jerome Powell, have been warning U.S. households that the large increases in interest rates they are planning to control the inflation that has soured the national mood are likely to be painful in and of themselves. The Fed raised its benchmark rate by half a percentage point last week and Powell has said increases of the same magnitude are warranted at meetings in the next two months.”The process of getting inflation down to 2% (the Fed’s target) will also include some pain, but ultimately the most painful thing would be if we were to fail to deal with it and inflation were to get entrenched in the economy at high levels, and we know what that’s like,” Powell told public radio’s Marketplace on Thursday.The week’s headline annual inflation readings at the consumer and business production levels eased for the first time in months, offering some hope that consumer price increases that reached 8.5% year-over-year in March may have crested.While they didn’t slow by nearly as much as expected, investors – rather than further stoking fears of ever-increasing inflation – responded to the upside-surprises by bidding up bond prices and pulling yields from multi-year highs.On the week, the 10-year Treasury note yield dropped by about 20 basis points, the biggest weekly decline since early March, and the 10-year inflation expectation reflected in Treasury Inflation-Protected Securities hit its lowest since February.Indeed, a new inflation expectations benchmark measurement from ICE (NYSE:ICE) showed the one-year outlook has now dropped to near 4.5% from 6% in mid-April. Graphic – ICE inflation expectations index ICE inflation expectations index: https://graphics.reuters.com/USA-FED/INFLATION/akvezxjwrpr/chart.png About half of the drop in Treasury yields appears to have been driven by the decline in inflation expectations, Piper Sandler’s Head of Global Policy Roberto Perli wrote in a note disentangling that aspect from other factors that contribute to changes in bond yields. That “is good news for the Fed,” Perli wrote. “(I)f it continues (which is a big if, of course), it might even induce the Fed to be somewhat less forceful in its hiking campaign. However, market inflation expectations are still too high for the Fed to claim victory for now.” Consumers, meanwhile, appear to believe the price grind will not keep accelerating.Data out Friday from the University of Michigan’s twice-monthly survey of consumer attitudes showed no upward move in households’ outlooks for inflation one year out for the third months in a row, holding steady at 5.4%. The view over five years was unchanged at 3% for a fourth straight month.”They are still in the game,” former Fed governor Randall Kroszner said of the Fed’s quest for a so-called “soft landing.””Inflation expectations have not become unanchored despite inflation going from a decade where they cannot get to the goal to going to four times it. They have maintained credibility,” said Kroszner, now a professor at the University of Chicago Booth School of Business. “That is a pretty amazing feat.” More