15 May 2025: Carney questions Starmer’s motives for Trump visit

The Government has strongly denied that, as part of the trade deal it signed with the U.S. recently, it has granted a veto to Donald Trump on any future investment by China in large UK infrastructure and tech projects.

It is being said that the U.S. administration is using its powerful position in negotiations to force through its agenda to harm the Chinese economy.

The economy is expected to have grown in the first three months of 2025, offering a short-term boost before the effects of new tax rises and US trade tariffs begin to bite.

Official figures, due later today from the Office for National Statistics (ONS), are forecast to show gross domestic product (GDP) grew by 0.6 per cent between January and March.

This follows stronger-than-expected economic activity at the end of 2024 and a rise in domestic spending early this year. The data follows news that major exporters to the U.S. have seen exports hit record levels as companies try to get out ahead of the imposition of tariffs.

UK businesses were also hit at the beginning of the current quarter by tax increases and the rise in the national living wage, which is likely to have seen business investment fall significantly.

Canada’s new prime minister, Mark Carney, has criticised Britain’s invitation to Donald Trump for a second state visit, saying it undermined his government’s effort to project a united front against the US president’s talk of annexing Canada. Carney is taking seriously off-the-cuff remarks made by Trump early in his second term in the White House that it should consider becoming the 51st state.

King Charles, also head of state of Canada, a former British colony, has made several symbolic gestures in recent months, wearing Canadian medals, planting a maple tree and referring to himself as the King of Canada.

Carney, in an interview with Sky News, was asked about the move by the British prime minister, Keir Starmer, in February to use his visit to the Oval Office to hand Trump an invitation from the monarch for an unprecedented second state visit to London.

“I think, to be frank, Canadians weren’t impressed by that gesture, given the circumstances. It was at a time when we were being quite clear about the issues around sovereignty,” he said.

The UK’s competition regulator should be strengthened to better combat tech giants Apple and Google and their market dominance, a think tank has said.

The Institute for Public Policy Research said strong competition laws would help increase innovation and help grow the UK economy.

A new report from the think tank said that despite growing political criticism and what it called intense lobbying from US tech giants, the Government should give more powers to the Competition and Markets Authority (CMA) to challenge the dominance of Apple and Google.

The pound saw some strong buying interest early in the London trading day yesterday, reaching a high of 1.3353 before returning to its recent range as traders took profit due to the current uncertainty, which continues to pervade the market.

President Trump is not letting up in his calls for the Federal Reserve to cut interest rates “significantly” to support the economy while it transitions to deal with the imposition of tariffs on imports.

Jerome Powell has stoically avoided any confrontation with the President, using every opportunity to say that he and his colleagues on the FOMC are concerned over the uncertainty that is being driven by current economic and trade policy, which could see inflation become an issue just as the Central Bank appears to have got it under control.

Trump has continued to insult Powell, calling him “too late Powell”, although he did recently confirm that Powell would remain at the Federal Reserve for the remainder of his term.

Powell has received the backing of several of his colleagues, with the Chicago Fed President commenting yesterday that "We're still kind of holding our breath."

Chicago Fed President Austan Goolsbee said in a radio interview broadcast yesterday. "We've got a bunch of noise that we're trying to figure out the through line."

A case in point is yesterday’s release of a widely-watched measure of inflation showed consumer prices rose a less-than-expected 2.3% in April, the smallest annual increase in four years.

The tame reading owed mostly to a decline in food prices. Excluding food and energy prices, which can be volatile from month to month, underlying "core" inflation was 2.8%, the same as in March and too hot to be consistent with the Fed's 2% inflation goal.

"We continue to get these numbers that at least suggest that it's going okay," said Goolsbee, a current voting member of the FOMC. "It's just not realistic to expect businesses or central banks to be jumping to conclusions about long-term things when you've got so much short-term variability. That's just a very difficult environment."

The Fed has held interest rates in a 4.25%-4.50% range at each of its three meetings so far this year, and last week Jerome Powell signalled there is no rush to change that.

Policymakers speaking this week echoed that sentiment.

"We have ourselves in a good position to respond to whatever comes right now," San Francisco Fed President Mary Daly told the California Bankers Association on Wednesday. "Patience is the word of the day."

The back and forth has left the Fed struggling to determine the ultimate impact on inflation, growth and employment.

Travelling across the western states in recent weeks, Daly said she hears plenty of worries from businesses and households, but sees little sign in the data that they have pulled back on spending or investment as a result.

"If you're in a highly tourism-driven state like Nevada and especially Las Vegas, you're getting nervous because international tourism might be coming down; you're worried about the domestic durability when consumers get a little pinched," she said.

Daly appears to have a slightly more dovish attitude to monetary policy than some of her colleagues, but still backs a policy of wait and see.

The dollar index is awaiting the next significant pronouncement from the Administration on trade policy, having been positively affected by the deals done with China and the UK recently. It lost a little ground yesterday, falling to a low of 100.31, although it now appears to have settled above the significant 100 level.

Day traders appear to be holding sway as the Greenback reversed its falls and returned close to the level at which it began the day.

Germany’s new Chancellor fully expects the country to return to the apex of the Eurozone’s growth providers in the coming months. Friedrich Merz told reporters yesterday of his pledge to reform investment in Europe’s biggest economy to transform it once again into a “growth engine” after two years of recession.

In his first major speech to the Bundestag, the conservative leader reeled off a string of ambitious plans to revive the struggling economy, even as it faces a fresh threat from US tariffs.

These ranged from boosting competitiveness to slashing corporate tax rates, fixing outdated and outmoded infrastructure and reducing red tape.

“We will do everything we can to put Germany’s economy back on the growth path,” he said. “We can, through our efforts, become a growth engine once again that the world looks up to with admiration.”

He faces immense challenges: The economy has been hit by a manufacturing slump, high energy costs triggered by Russia’s invasion of Ukraine and weak demand in key export markets, particularly China.

Deep-rooted problems, from an ageing population to shortages of skilled labour, are adding to the headwinds.

A key plan of the new ruling coalition of Merz’s conservative CDU/CSU bloc and the centre-left SPD is to set up a fund to boost investment in infrastructure.

The new government has agreed on investments of 150 billion euros for this purpose in the current legislative period, Merz said.

The fund is to be established after Merz succeeded in pushing changes to the country’s strict debt rules through parliament, to allow greater borrowing.

In addition, German firms will be offered tax breaks to invest in new equipment, and corporate tax rates will be gradually reduced from 2028, he said.

ECB Works Council Chair Carlos Bowles claims that employees were pressured to adapt study results to suit the agenda of top managers. The central bank strongly denies the allegations.

When employees find themselves in a situation where they know that saying something their boss doesn't want to hear will damage their career, many people will not speak up“, Bowles told reporters. He accuses the ECB of creating a climate of fear for many employees.

Bowles’ statements are backed up by surveys from the employees' union, where he also serves as vice president. In a poll published in late April, only 34% of employees said that promotions go to those who perform well. By contrast, 77% believe that having the right connections is what matters most.

According to Bowles, this can become a problem when research or forecast results don’t match what superiors want to see.

The ECB President appears to want to rise above any consternation from her staff at the Bank, preferring to see herself in a role as figurehead, with day-to-day issues dealt with by a legion of bureaucrats.

Unfortunately, those same bureaucrats are now out of step with Christine Lagarde’s vision.

The Euro is lacking direction as the market awaits news on either a deal or retaliation from the European Commission over the imposition of tariffs on experts to the U.S. Ursula von der Leyen has witnessed the UK and China both coming to agreements with Washington, and is being pressured to find a similar solution.

The common currency traded between 1.1150 and 1.1250 yesterday, closing at 1.1174.

Have a great day!