19 March 2025: The government is caught in a welfare/NHS catch-22 situation

Benefits Minister, Liz Kendall, announced changes to the welfare system in Parliament, which she said would deliver five billion pounds of savings by the end of the current decade.

Changes to the Personal Independence Payment and Universal Credit will be made by the end of next year, as Kendall described the current welfare system as unfit for purpose and not helping those it was designed to support.

The Opposition called the measures “too little too late” while there is considerable disquiet among charities and other groups set up to support the most vulnerable in society.

Since NHS waiting lists have grown to excessive levels, part of the problem that has been identified is the length of time it takes to get either a diagnosis of mental health issues or an operation and recuperation from physical problems.

Commenting on government plans to overhaul the welfare system, UNISON General Secretary Christina McAnea said:

Poor decisions made by previous Conservative governments have left ministers little financial wriggle room.

But going after disabled people and vulnerable families is not the way to get the UK economy back on track, nor out-of-work individuals back into jobs.

Many can’t work because of lengthy delays in getting NHS treatment and rely on benefits, awaiting operations or appointments.

Employers too could do more by getting over their reluctance to employ disabled workers, and adapting workspaces and schedules promptly when they do.

But tweaking the rules to make it harder to claim personal independence payments is a false economy. Rather than help disabled people stay in their jobs, the work and pension secretary’s plans could have the opposite effect.

People could be forced to quit the labour market and return to benefits. They’d be worse off, possibly in poverty, and with all the related stress and mental health issues of being out of work.

The Liberal Democrat spokesman on welfare told MPs that as further details emerge over the coming days of the true extent of the changes, it will become clear just how difficult life will become for those who cannot work due to disability.

Of the five billion pounds being shaved off the welfare bill, one billion has been promised to be made available, creating various schemes to allow those who had previously been unable to work due to fear about losing their benefits to find jobs in a “right to try scheme” which will allow people to start work but if they are unable to continue will be able to return to benefits without jeopardizing their rights.

Yesterday's Commons announcement was a forerunner of the spending review, which will be delivered to Parliament next week by the Chancellor, Rachel Reeves.

The Bank of England’s Monetary Policy Committee begins a two-day meeting to decide on any change they feel is needed in the base rate. It is expected that rates will stay unchanged even as GDP contracted last month due to the uncertainty caused by Donald Trump’s imposition of Tariffs on a wide range of U.S. imports.

Sterling is still capped around the 1.30 level, although it is continuously “knocking on the door.” Yesterday, it reached a high of 1.3009 and closed at 1.3005.

Presidents Trump and Putin had a two-hour telephone conversation yesterday in which Putin laid out his demands to agree to a ceasefire in Ukraine, which would have disappointed the U.S. President.

The Russian Leader’s requirements to agree to a total cease-fire for thirty days, which Ukrainian Leader Volodymyr Zelenskyy had already agreed to, became a wish list of all Russia expected to gain from the invasion over three years ago.

Trump put a brave face on his first foreign policy failure since he came to power, although the resumption of hostilities between Israel and Hamas will also have made him pause for thought.

While it is not exactly back to the drawing board, the Trump Administration will need to work extremely hard to achieve a lasting peace in Ukraine. It seems that apart from undertaking to not bomb power and infrastructure facilities for a month, Russian actions since the call ended show that they feel they can still attack civilian targets across the whole country at will.

Trump's biggest victory was the resumption of ice hockey matches between the U.S. and Russia, which shows how far the negotiations still have to go.

While Trump’s foreign policy initiatives are not coming apart at the seams, it will not be the relatively easy job he had believed to bring peace to Ukraine and Gaza.

The FOMC will announce its interest rate decision later today. It is expected that in keeping with the UK, rates will be left unchanged due almost entirely to the uncertain effect of the imposition of tariffs on U.S. imports of, in particular, steel and aluminium.

Although inflation fell last month, having risen to 3% in January, the outlook is for a possible bout of mild stagflation as prices rise and output stagnates or falls.

The evidence of a slowing economy is still academic, with no leading indicators yet showing that a slowdown is actually taking place.

However, prospects for the US economy have cooled significantly in a matter of months. After outperforming its international peers last year, warning lights are flashing on a dashboard of economic indicators as analysts warn that Donald Trump’s erratic approach is hitting the world’s largest economy.

Business and consumer confidence is falling due to the uncertainty and the glib comments of the President when he says that the economy is going through a transition that will ultimately make everyone wealthier, causing severe anxiety.

The FOMC will have a far clearer picture of the economy in six weeks when it reconvenes, but comments from regional Fed Presidents following the meeting will be used as a gauge of their intentions.

Should Jerome Powell’s speech following his press conference be deemed as hawkish, it may be the start of the dollar's recovery since the divergence of monetary policy between the U.S. and Europe may continue for the rest of the first half of the year.

The dollar index is still challenging its support around the 103.20 level, although the lack of follow-through when it reached that level yesterday shows that most of the market’s long positions have already been cut and traders are currently neutral and looking for clear signs in either direction.

It reached a low of 103.20 and closed at 103.25.

The significant increase in German government borrowing, which was approved by its Parliament yesterday, may eventually lead to the country losing its AAA rating, according to ratings agency Fitch.

Germany's parliament approved plans for a massive spending surge, throwing off decades of fiscal conservatism in hopes of reviving economic growth and scaling up military spending for a new era of European collective defence.

The Bundestag's approval gives conservative leader Friedrich Merz a huge boost, giving the chancellor-in-waiting hundreds of billions of euros to ramp up investment after two years of contraction in Europe's largest economy.

Germany and other European nations have been under pressure to shore up their defences in the face of a hostile Russia and a shift in U.S. policy under President Donald Trump, which European leaders fear could leave the continent exposed.

Merz's conservatives and Social Democrats (SPD), who are in talks to form a centrist coalition after last month's election, want to create a 500 billion euro ($546 billion) fund for infrastructure and to ease constitutionally enshrined borrowing rules to allow higher spending on defence.

"We have for at least a decade felt a false sense of security," Merz told lawmakers ahead of the vote.

"The decision we are taking today on defence readiness can be nothing less than the first major step towards a new European defence community," he said.

The legislation still has to go on Friday to the Bundesrat, but the main hurdle to passage there appeared to fall on Monday when the Bavarian Free Voters agreed to back the plans.

German economic output rose unexpectedly in the third quarter of 2024, the Bundesbank’s economists confirmed in their Monthly Report. According to the flash estimate of the Federal Statistical Office, seasonally adjusted real gross domestic product (GDP) was up by 0.2% in the previous quarter.

However, economists do not see this increase as evidence of an improved underlying cyclical trend. “Thus, at the current time, none of the key demand components give any cause to expect a marked short-term recovery in the German economy,” the Monthly Report goes on to say.

Substantially higher wages benefited private consumption in the third quarter. However, consumers were reluctant to use their additional spending power, partly because the labour market outlook is becoming increasingly gloomy.

On the brighter side for Europe’s largest economy, the latest trade data suggested that European and US businesses are accelerating shipments ahead of potential Trump-imposed tariff hikes, as reflected in the sharp increase in transatlantic trade volumes.

The ZEW index of economic sentiment rose by an impressive 25.4 points to 51.6 in January, well above market expectations. This was its highest level in two years.

Further gains are expected, as the boost from the Conservative victory in the recent elections and the new government’s spending plans have not yet been fully factored in.

The euro is still on the cusp of another significant rally, but continually “bumps its head” against resistance on the run-up towards the 1.10 level.

Yesterday, it reached a high of 1.0954 and closed at 1.0944.

Have a great day!