Economy

BENGALURU (Reuters) – The Bank of England will keep Bank Rate on hold in December as global inflation worries resurface, according to a Reuters poll of economists who were split on the impact U.S. President-elect Donald Trump’s proposed tariffs would have on the UK economy.Trump’s proposed tariffs, a 10% levy on imports from all foreign countries and 60% on imports from China, was expected to slow global growth and reignite inflationary pressures, limiting room for most central banks to ease policy.Nearly 90% of economists, or 22 of 25, who answered an additional question in the Nov. 13-19 poll said the proposed tariffs would be implemented early next year.However, they were split on the impact it would have on the UK economy over the next two to three years. While 11 of 21 said it would be insignificant, the rest said significant.Those findings contrasted with a Reuters survey on the euro zone economy, where a majority of economists, 34 of 39, said Trump’s proposed tariffs would have a significant impact.”A universal U.S. tariff could significantly impact the global economy…although the UK has a goods trade deficit with the U.S. and may not face the most severe tariffs,” said Stefan Koopman, senior market economist at Rabobank.SLOW AND STEADY FOR BOEStarting its easing cycle in August, the BoE has taken Bank Rate from a 16-year high of 5.25% to 4.75% with two cuts of 25 basis points.All 66 economists surveyed expected no change from the BoE in December. Poll medians showed rates falling 25 basis points every quarter next year, dropping to 3.75% by end-2025.Every respondent who expressed a view predicted the next cut would come early next year.Of 58 economists who provided forecasts until end-2025, 50% or 29 of 58, predicted Bank Rate to fall 100 basis points next year. While 19 said 125 bps or more, 10 said by 75 bps or less.Among 15 Gilt-Edged Market Makers, five each predicted 125 or 100 basis points of cuts, three said 75 bps while two said 150 bps.”The Autumn Budget was notably more expansionary than anticipated – raising the prospect of stronger demand in the near term – while the increase in employer National Insurance Contributions is likely to add to inflationary pressures,” noted economists at Goldman Sachs.”We look for wage growth to fall back notably given that headline inflation is now close to target.”Poll medians showed inflation would average 2.5% in 2024, 2.3% in 2025 and 2.1% in 2026, broadly unchanged from last month’s survey.The UK economy was forecast to grow 0.9% this year and 1.4% in 2025 and 2026, close to the BoE’s own predictions. Earlier in November the BoE cut its growth forecast for this year to 1.0% from 1.25% but raised its 2025 forecast to 1.5% from 1.0%.(Other stories from the Reuters global economic poll) More

MILAN (Reuters) -ECB policymaker Fabio Panetta said on Tuesday the European Central Bank should cut interest rates so they no longer curb economic growth, or so they even stimulate it, and give more guidance now that post-pandemic shocks are abating and inflation is normalising. Panetta’s comments bring into the open a growing debate inside the ECB about how far the euro zone’s central bank should cut rates at a time when inflation is close to the bank’s 2% target and economic growth is stagnating.The Bank of Italy’s governor, one of the ECB’s most outspoken advocates of looser monetary policy, said the ECB needed to “focus on the sluggishness of the real economy” and move official interest rates into “neutral, or even expansionary, territory”.”With inflation close to target and domestic demand stagnant, restrictive monetary conditions are no longer necessary,” he said in a speech at Milan’s Bocconi University, adding that inflation could fall well below target in the absence of a sustained recovery.”A scenario that would be difficult for monetary policy to counteract and should therefore be avoided,” he said.The ECB has cut interest rates three times since June after seeing inflation, which hit double digits in the wake of Russia’s invasion of Ukraine in 2022, drop to its 2% target.Panetta said the euro zone economy was returning to “charted territory” after the “exceptional shocks of 2022-2023″ and inflation forecasting errors were normalising.The ECB’s most recent cut, in October, saw it reduce the rate it pays on bank deposits by a quarter of a percentage point to 3.25%.”We are probably still a long way from the neutral rate,” Panetta said.Economists define the neutral rate as one that neither restricts nor spurs economic growth and see this in the euro area at between 2% and 2.5%, although estimates are as high as 3% and as low as 1.75%.Investors expect the central bank to lower borrowing costs by another quarter of a point at its next meeting on Dec. 12, followed by more cuts through the spring. This would leave the ECB’s deposit rate at 1.75% to 2.0%.Having managed to steer the euro zone’s economy through uncharted waters, the ECB should change its “meeting by meeting” approach to monetary policy dictated by the exceptional circumstances of the past two years, which forced it to give less weight to forecasts, Panetta said.”We can now return to a more traditional, genuinely forward-looking approach to monetary policy, in line with our medium-term orientation.” Panetta also said the ECB should “provide more guidance on the expected evolution of our policy than has been the case in the recent past.”This will help firms and households to form their views on the future path of policy rates, thereby supporting demand and the recovery of the real economy.”That view pitches Panetta against leading hawk Isabel Schnabel, who said last week such “forward guidance” was “of limited use” in what remained a “volatile environment”.Wrong-footed by a surge in inflation in 2021-22, the ECB has ditched its habit of providing official guidance about the future path for monetary policy.Instead, it has insisted it would make decisions ‘meeting by meeting’ based on incoming data – albeit not without the occasional hint about what to expect. More

Europe’s largest economy unexpectedly grew, albeit only by 0.2%, in the three months to September but the Bundesbank said there was little to suggest this would continue as demand from abroad and investment both remained weak.”All of the key demand components therefore currently offer little reason for a noticeable short-term recovery in the German economy,” the Bundesbank said in its monthly report. In addition, it warned “political demands for new tariff barriers pose considerable additional risks for international trade”, a likely reference to the protectionist stance of U.S. President-Elect Donald Trump which could hit Germany’s export-oriented economy hard.A bleak domestic picture helps explain a shift in the Bundesbank’s stance inside the European Central Bank from a laser-focus on fighting inflation to a greater emphasis on stimulating growth via lower borrowing costs.High wage growth, until recently a source of worry about a potential new leg-up in inflation, had likely peaked in the third quarter at 8.8% for collective agreements and was now likely to be “noticeably lower”, the Bundesbank said. “In view of the long-lasting economic weakness and significantly lower inflation rates, it is to be expected that the upcoming wage negotiations will result in noticeably lower agreements than in the past two years,” it said. More

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WASHINGTON (Reuters) – Members of the over 2 million-strong U.S. civilian federal workforce are looking to an unlikely source to protect it from Donald Trump and Elon Musk’s promise to slash government employees and cut costs: the incoming Republican-controlled Congress. Federal employee unions are lining up lawyers and preparing public campaigns to try to stave off any mass firings, but they’re hoping Republican Congress members will join Democrats in defending their importance to local economies, health and safety, union members and government watchdogs tell Reuters. Trump has tasked Musk and former presidential candidate Vivek Ramaswamy to head a panel to streamline the U.S. government and is expected to revive a plan to convert some federal employees to “Schedule F” status which strips them of job protections. Musk has said he could cut $2 trillion in spending, more than the annual discretionary budget; Ramaswamy recently proposed cutting 50% of the workforce by firing everyone whose Social Security number ends in an odd number.  Because the U.S. Congress sets federal spending levels, Republicans may balk at any erosion of their power, unions say. Trump, Musk and Ramaswamy are “going to come up against congressional mandates and come up against the Constitution, and it’s going to set off this (debate) who has the right to spend money on behalf of the American people,” predicted Steve Lenkart, the executive director of the National Federation of Federal Employees, which represents over 100,000 federal employees. The U.S. government is the country’s largest employer. While workers are concentrated in Washington, D.C., and nearby Maryland and northern Virginia, some of the greatest concentrations of federal workers can be found in areas like southern Oklahoma and northern Alabama, which are represented by Republicans in the House.The biggest federal employees’ union, the American Federation of Government Employees, which represents 750,000 federal workers, is also looking to Congress, said Jacqueline Simon, the AFGE’s policy director.Trump may ask Congress to refuse to spend money on government agencies that it has already approved, a process known as impoundment, to drive out workers, Simon said. “That’s something that we’ll certainly be looking to Congress for them to uphold their own interests in maintaining their ability to determine appropriations,” Simon said.”The American people reelected President Trump by a resounding margin giving him a mandate to implement the promises he made on the campaign trail. He will deliver,” Karoline Leavitt, spokesperson for Trump’s transition team, said. The Musk and Ramaswamy panel’s advisory role means its real power is still an unknown. “It’s unclear what kind of authority it would have or what sort of legal oversight it would have,” said Michael Knowles (NYSE:KN), a U.S. Citizenship and Immigration Services (USCIS) employee who represents the agency’s workers at the American Federation of Government Employees union.Many federal agencies, including USCIS, which has a massive backlog of asylum cases, actually have fewer employees than they need to run efficiently, he said. “I would certainly hope that all members of Congress, regardless of their political persuasion, would be, you know, protecting their prerogatives in our check and balance system to oversee the functioning of and the funding of government,” he said. REPUBLICAN CUTS Republicans won some modest spending curbs in a 2023 showdown with U.S. President Joe Biden, but since then have shown little interest in scaling back the largest federal employers. The Republican-controlled House of Representatives this year voted to increase spending at the Department of Veterans Affairs, which employs 487,000 civilian workers, more than any other single agency.Government watchdogs say they are hoping Congress will stop Trump from “purging departments he disagrees with ideologically, regardless of what that means for government efficiency or serving in the public interest,” said Joe Spielberger, policy counsel at the Project on Government Oversight. “This is an issue where we can push Congress to fully exercise its oversight authority,” he said. A rule that Biden introduced in April to bolster protections for government employees could slow down any plans to slash employees.  It is “not an executive order that can be changed willy nilly by the next president,” Democratic Senator Tim Kaine of Virginia said. But the rule and Congress’ ability to block some Trump layoffs taken together represent just “a guardrail, not a guarantee,” Kaine said. “We are going to need not only Democrats but some Republicans battling against efforts to turn the federal civil service into a political loyalty spoils operation,” said Kaine.  Trump may have the backing of some courts, however. Last year, two judges on the U.S. Fifth Circuit Court of Appeals wrote that a president should have broad powers to fire government workers.Whether there are Republicans in Congress willing to oppose Trump on the issue remains to be seen. “Where you have the three arms of government that are all on the same page, there’s not as many checks and balances, obviously,” said Lilas Soukup, president of an AFGE local that represents workers from the Centers for Disease Control and Prevention and the Department of Energy.  More

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