19 May 2025: The Bank of England must remain independent

Backbench Labour MPs threaten rebellion over several changes their leaders are considering, including assisted dying and closer ties with Europe. However, those same MPs have forced a major rethink of two of the most controversial measures: the two-child benefit cap and the pensioner’s winter fuel allowance.

Europe is proving a more contentious issue than had been imagined. The reason goes back nine years when the Party, under Jeremy Corbyn, sat on the fence, content to watch as the Conservative Government came close to ripping itself apart over the issue.

As Keir Starmer prepares to announce his third international trade agreement of the month, the Brexit reset deal looks set to be a game-changer.

Plenty is being discussed between London and Brussels. According to weekend reports, the UK will be granted access to the EU’s £150 billion defence procurement scheme. Work is also ongoing to ensure that Brits travelling to the continent can avoid the long passport control queues resulting from Brexit.

Crucially, checks on food and agricultural equipment at the border are in line for a substantial reduction, easing the flow of goods across the Channel. Talks will also open the door to the swifter import of energy, which UK representatives say will help to reduce household bills overall.

There’s more to be hammered out between now and the ratification of this agreement, and it’s understood that Labour will opt in to rejoin the Erasmus scheme, allowing students from Europe and the UK to freely study overseas. Furthermore, youth mobility packages are also on the agenda.

Further details will be revealed in the coming days on what this will encompass. One of the EU’s biggest demands during these discussions was to restore a deal which allowed adults under 30 freedom of movement between the Union and the UK. The Prime Minister, it seems, is willing to accept their terms.

Sir Keir Starmer appears to think that he does not need to “sell” the deals he is doing and agreements that he is reaching with his backbenchers, who, in his opinion, should simply enjoy the ride their massive majority affords them.

Critics from the right are blasting this as a ‘surrender’. But financial analysis from Frontier Economics, which assessed how closer ties to the EU could benefit the domestic economy earlier this year, says that this realignment could be worth up to £25 billion annually for the UK.

It is estimated that £3 billion of that could come from farm food exports. Though we’re not quite in ‘rejoin’ territory yet, the PM’s reset deal, marking the third new international trade deal achieved by the government this month, has the potential to undo a lot of the damage caused by Brexit.

However, although signing a new “Brexit reset” deal with the EU will boost the economy, it is unlikely to be enough to end the squeeze on public finances, Rachel Reeves has been warned.

Economists said that agreeing to a closer economic relationship with Brussels would help improve the UK’s growth, though it remains highly uncertain how much difference it will make.

Given the readiness of Brussels to welcome the UK “back into the fold”, Ursula von der Leyen must see an opportunity for the EU to boost its economy.

The Government is now moving, at pace, away from its election manifesto promises as it approaches the anniversary of its stunning victory in July last year.

On Friday, the bound began the day at its highest level for a week, reaching 1.3329 before selling pressure emerged, pushing it down to a low of 1.3250, from where it rallied to close at 1.3288.

Investment sage Warren Buffett sees opportunities from within the U.S. economy and does not expect the recession that is still being touted by several other investment specialists.

The United States, like all countries, has gone through its share of ups and downs -- from soaring economies to recessions, from times of peace to wars. Most recently, President Donald Trump's plan to impose tariffs on imports has rocked the financial markets, as investors worry about the impact of tariffs on prices -- and eventually on the economy.

But through thick and thin, famous investor Warren Buffett has firmly remained a supporter of his country and U.S. companies. Back in 2008, with the financial crisis raging, the billionaire wrote a piece for The New York Times, clearly saying the financial world was "a mess" and the general economy wasn't looking much better.

Fast-forward to 2025, and Buffett's message and strategy haven't changed. His method has led Berkshire Hathaway to market-beating returns over 59 years. At Berkshire Hathaway's annual shareholder meeting recently, the billionaire said he felt lucky to have been born in the U.S. and encouraged investors not to worry since the country hasn't solved every problem it's encountered. His words suggest that, because the U.S. constantly has changed, evolved, and been resilient, there's reason to be optimistic about the future.

Nearly four months after Donald Trump assumed charge as the President of the US, Moody’s Ratings on Friday downgraded the US government’s rating by one notch, reflecting the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns.

President Donald Trump’s move to defuse an ugly trade war with China not only sparked a massive stock-market rally but also drove down the chances of a recession, for now.

The U.S. and China agreed last week to suspend huge tariffs, after a tit-for-tat escalation in April that raised the spectre of a global economic slump. The trade truce of sorts induced a collective sigh of relief on Wall Street and caused a stock-market revival.

Atlanta Federal Reserve (Fed) President Raphael Bostic said on Friday that he “sees just one rate cut this year amid uncertainty.” Economic growth may be 1% or 0.5% this year. He expects slower growth, but a recession isn't in his outlook. While the Fed may have to push back against inflation pressures from tariffs, although the US-China de-escalation changes my outlook a little.

Also on Friday, New York Fed President John Williams said that price stability is foundational for the Fed.

This week, while there will be several speeches made by Fed officials, there are only preliminary activity reports for April that may move markets. Most volatility has been driven by unexpected comments from the President, and since he has been away for a week on a tour of the Gulf, markets can expect the unexpected.

The dollar index managed to remain above the now crucial 100 level last week despite the downgrade that was suffered by the U.S. However, its progress was hampered by sell orders from investors who still see issues for growth down the line, which led to a close on Friday at 101.09.

ECB president Christine Lagarde said the recent rise of the euro against the dollar is a consequence of US President Donald Trump’s erratic policies, and an opportunity for Europe.

“It’s impressive to note that in a period of uncertainty when we should normally have seen the dollar appreciate significantly, the opposite happened: the euro appreciated against the dollar,” she told La Tribune Dimanche.

“It’s counter-intuitive, but justified by the uncertainty and loss of confidence in US policies among certain segments of the financial markets,” she added.

Lagarde said in an interview a week ago that “more than a threat, it is an opportunity” and that “leaders must accelerate the process of deepening the European Union”.

“At a time when we see the rule of law, the judicial system and trade rules being called into question in the US, where uncertainty is permanent and renewed daily, Europe is rightly perceived as a stable economic and political area, with a sound currency and an independent central bank,” she said.

Lagarde highlighted the digital euro and the single capital market, saying “there is a groundswell more powerful than anything I’ve seen in six years in office” in both areas.

Lagarde is not the only ECB policymaker to say that Europe and the euro are currently having a moment.

Her vice-president, Mr Luis de Guindos, has said the euro could become an alternative to the dollar as a reserve currency if Europe increases its integration efforts. Similarly, ECB executive board member Isabel Schnabel stressed earlier that “we now have a historic opportunity to further strengthen the international role of the euro”.

When asked about Trump’s attacks on the Fed, Lagarde warned against challenging the autonomy of monetary policy authorities.

“The independence of the Central Bank is fundamental to monetary and financial health within a country or area,” she said. “In every case where a Central Bank has found itself under the thumb of a fiscal authority, it has never ended well.”

Turning to the state of Europe’s economy, Ms Lagarde said that she is “not at all pessimistic”, adding that “employment is holding up, purchasing power is improving and inflation is falling”.

Meanwhile, ECB chief economist Philip Lane questioned the wisdom of publishing alternative economic scenarios alongside economic projections, arguing they may create more problems than they solve.

The ECB was caught on the hop by the surge in inflation in 20221.22, and it, along with other Central Banks, are considering ways in which to communicate risks as well as incorporate their views into their expectations.

The euro saw markedly little volatility on Friday, trading between 1.1203 and 1.1182, although it did drop briefly to 1.1140 before recovering to close at 1.1190.

Have a great day!