Aurelia Butler

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The Bank of England must approach interest rate cuts carefully as it assesses the impact of the rise in employer national insurance contributions, Andrew Bailey has said. There are “different ways” in which UK chancellor Rachel Reeves’ decision to increase employer national insurance payments, announced last month in the Budget, may play out, the BoE governor said on Tuesday.“A gradual approach to removing monetary policy restraint will help us to observe how this plays out, along with other risks to the inflation outlook,” Bailey said in a report to the House of Commons Treasury select committee, arguing that it would take time to assess the ramifications. Forecasts from the BoE released this month show it expects the Budget to bring higher growth and inflation in the short term, damping hopes for rapid rate cuts. Consumer price inflation will be running at 2.7 per cent in the final quarter of 2025 — well above its previous forecast of 2.2 per cent, the BoE said. It will fall below the 2 per cent target only in mid-2027, a full year later than the BoE’s Monetary Policy Committee expected in August.Bailey on Tuesday said he saw risks in both directions with regards to inflation, even as he reiterated that progress on reducing inflation had been faster than the BoE had expected.His testimony did nothing to suggest the governor views a further quarter-point reduction as being likely as soon as next month’s meeting. Part of the uncertainty clouding the outlook is over the impact of the £26bn increase in national insurance contributions. The extra costs could be passed on through higher consumer prices, or companies could absorb them through lower margins, by boosting productivity, or by offering smaller pay rises or shedding workers. Recent data has also given Bailey “cause to reflect”, the governor said. Year-ahead expectations for companies’ wage growth in the bank’s decision maker panel survey had stabilised at a higher level of 4 per cent in recent months, for example.Other data also pointed to a relatively tight labour market, indicating “lingering persistence in wage pressures beyond what we are assuming in our projection”.Speaking at the same hearing, Alan Taylor, the newest member of the MPC, struck a more dovish note about the policy outlook. He said market pricing pointed to about four quarter-point rate cuts in the next year, and that this pace chimed with the notion of gradualism. “If conditions are weaker, and my own view is skewed to the downside risks now versus the upside risks of about a year ago, we could go faster,” he said. Clare Lombardelli, BoE deputy governor for monetary policy, said there had been a fall in services inflation as well as wages, and on top of what has happened to goods prices this suggests the drivers of inflation are “less strong than they have been in the past”. But she stressed that she still sees “risks on both sides”, emphasising she would be looking “very carefully” at incoming data, including a pay survey by the BoE’s network of regional agents. Asked about risks of fragmentation in the global trading system, Bailey urged the UK to engage in “active dialogue” about trade with both US president-elect Donald Trump’s administration and Brussels, adding that it must not feel compelled to choose between them.Bailey said it was too soon to tell how the next US administration’s policies would affect the UK, given that “we literally do not know what their intentions are”.But Bailey told the committee: “Free trade is not about choosing one area over another . . . We should approach all areas of the world as places we trade with.”He indicated this meant implementing the post-Brexit settlement with the EU in the best way possible. “I find it hard to understand people who seem to say we should implement Brexit in the most hostile fashion possible.” More

With French public finances increasingly out of control, the 2025 budget bill seeks to squeeze 60 billion euros in savings via tax hikes and spending cuts. The aim is to cut the deficit to 5% of economic output next year from over 6% this year. Lacking a majority in the deeply divided parliament, Prime Minister Michel Barnier told L’Ouest France newspaper last week that he did not see how the budget could be passed without invoking article 49.3 of the constitution.The 49.3, famously used by the previous government to push through President Emmanuel Macron’s pension reform against a backdrop of street protests, allows the text to be adopted without a vote – but usually also triggers a no-confidence motion against the government.Barnier’s weak coalition is propped up by the far-right National Rally (RN), which could join forces with the left to topple his government, making the 49.3 a risky option for him.So far, Barnier has decided to let parliament go through the movements of reviewing and debating the budget before he calls time in order to give lawmakers the impression he is not riding roughshod over their role as legislators.But with a vote on the overall budget scheduled for Dec. 12, Barnier’s patience may be wearing thin. Below is a run-down on the state of France’s budget negotiations.WHERE DOES THE BUDGET LEGISLATION STAND?In an unprecedented move for modern France, a majority of lawmakers in the lower house of parliament rejected the government’s 2025 budget bill last week after leftist lawmakers heavily revised the legislation.A left-wing alliance, which has the single biggest block of seats but falls far short of a lower house majority, had added 75 billion euros ($79 billion) in new tax hikes to the bill.Budget Minister Laurent Saint Martin described the additional tax burden as unacceptable “Frankenstein” legislation that would violate the constitution and EU fiscal rules alike.The rejection means the Senate will begin its review of the government’s original, unamended bill on Monday Nov. 25. ahead of the final vote on Dec. 12.WHAT WILL HAPPEN NOW?Senate finance committee chair Claude Raynal has said the upper house, where Barnier’s conservatives have the most seats but fall short of a majority, would likely make fewer changes to the bill than the lower house.After the senate vote, a panel of lawmakers from both houses will then have to try to agree on a new version of the bill, but with little time for sweeping revisions.As that version would likely be rejected again in the full lower house, the government will then have little choice but to invoke article 49.3 of the constitution to ram the budget through without a vote.WHAT ARE THE CONSEQUENCES OF BYPASSING PARLIAMENT?Left-wing lawmakers in the lower house have said they would then trigger a vote of no-confidence against the government, which could potentially bring it down if it passes.To survive, Barnier needs the far-right RN to abstain from the vote. While some RN lawmakers have brandished the threat of not cooperating, its head Jordan Bardella has said the decision will depend on whether the final cut of the budget reflects their demands.The RN will also have to make a political calculation about whether it gains anything from triggering a political crisis as new legislative elections cannot be held before next summer.Still, a recent request by prosecutors for RN leader Marine Le Pen to face an obligatory five-year ban from politics for her alleged role in embezzlement of EU funds may cause the RN to reassess its loyalty to propping up Barnier’s administration, some analysts have suggested. Le Pen denies the allegations.($1 = 0.9489 euros) More

BOGOTA (Reuters) -Colombia will need a budget adjustment of 56 trillion pesos ($12.7 billion) to comply with its fiscal rule this year, an independent committee of experts said on Tuesday.The Andean country may also require a budget adjustment of 39 trillion pesos ($8.8 billion) in 2025, a report from the Autonomous Fiscal Rule Committee (CARF) said.Colombia’s government has already made cuts to its 2024 budget amid fiscal difficulties, and has been weighing further measures, including a possible 33 trillion peso trim.The finance ministry in June announced a cut worth 20 trillion pesos due to lower than expected income.The CARF already warned in July that Colombia could need additional adjustments to comply with the fiscal rule in 2024 and 2025 due to possible risks to tax collection goals, despite previous government announcements.The fiscal rule was created in 2011 to impose policy constraints meant to block deterioration of public finances. To comply with the rule in 2024, the government would have to keep debt at 55.3% of GDP, rising to 56.4% of GDP in 2025. More

Ukraine plans to spend 2.22 trillion hryvnias ($53.7 billion), or about 26% of its gross domestic product, on defence and security next year, officials said. More

If approved, the agreement would bring the total amount disbursed to Ukraine under the program to $9.8 billion, the IMF statement said, adding that the board was expected to review the deal in coming weeks. “The outlook remains exceptionally uncertain and Russia’s war in Ukraine continues to take a heavy toll on Ukraine’s people, economy, and infrastructure,” the funds’ staff wrote, adding that despite those challenges the program “remains on track.” “The economy has continued to show resilience despite the devastating challenges arising from Russia’s war in Ukraine, which has now lasted 1,000 days,” it added. “However, risks remain exceptionally high given uncertainty on the intensity and duration of the war, including from the continued attacks on energy infrastructure.”IMF staff, which met with Ukrainian officials Nov. 11-18, said the country’s real GDP growth was expected to be 4% this year but slow to 2.5%-3.5% in 2025 amid energy infrastructure damage and labor shortages.Inflation in Ukraine also reached 9.7% year-over-year in October over rising food and labor costs “but inflation expectations remain well anchored,” IMF staff concluded. More