27 May 2025: Farmers are facing more disappointment

The Labour Party is facing an identity crisis that harks back to its previous terms in government. While Tony Blair was very popular, rank-and-file members of the Party felt that his Cabinet was more about staying in power and less about the Labour movement.

Going back even further, one of the more significant reasons for the creation of New Labour was the almost total annihilation of the Party during the Thatcher era.

Since the beginning of the Millennium, socialism has become less about workers and workers’ rights and more about social justice. Even that view has been further eroded following the Party’s election last July.

Rachel Reeves has a very particular doctrine in which she appears to be infatuated with balancing the books irrespective of political values.

While she would be expected to have little time or sympathy for the farming community, the viciousness of the removal of the pensioner’s winter fuel allowance is tantamount to political suicide for a Socialist Chancellor.

However, she appears to have survived any significant sanction for her actions, although the Prime Minister has hinted that the reversal of that decision is being considered.

The Deputy Prime Minister, Angela Rayner, is a more left-wing politician than several of her colleagues, who believe in Labour’s moral duty towards the less able in society. She has begun to throw her weight into the fray, clearly believing that a closer relationship with Europe, to the detriment of the special relationship with the U.S., is the way forward.

She is also being accused of leaking her recent memo, in which she suggested that Reeves would fulfil her Party’s values more readily by raising taxes rather than cutting benefits, in her Spring Budget.

This is a story that can be expected to run and run until Sir Keir Starmer exerts leadership and decides the direction his Government will take between now and the end of the decade.

The rise of Reform UK has shown that the country has lurched to the right since last July, with the Conservative Party struggling for identity while Nigel Farage sees his popularity increase many times over.

The Bank of England has reached a level which is normal at this point in significant changes to monetary policy. When the decision to cut (or raise) rates is a no-brainer, there is always consensus from members of the Monetary Policy Committee, but as the decision becomes closer to the margin, MPC Committee members tend to make decisions based on their contrasting views of what makes economic sense.

The last meeting of the MPC voted in favour of a rate cut, while the next meeting, on June 19th, could easily “swing back” in the opposite direction. The vote was even more split, since two members voted for a fifty-point cut and two for no change.

A lot will depend on the inflation and activity data, which is published in the intervening period.

The pound is still being affected by the uncertainty in global markets. Yesterday, it rallied to a high of 1.3590 and is expected to reach a 39-month high above 1.36 as Donald Trump continues to pressure the European Union over trade tariffs.

President Trump came back with a bang over the weekend when he lost patience with the European Union over the delays in agreeing on a new trade deal between the U.S. and the EU.

He announced that tariffs would be increased by 50% instead of the 10% on most products, outside of steel, aluminium and vehicles, which exist at present.

He also announced that the changes would take place in ten days' time, giving very little time for further negotiation.

German Finance Minister Lars Klingbeil on Sunday urged "serious negotiations" with the United States after President Donald Trump announced the 50% tariffs.

If imposed, they would dramatically raise Washington's current baseline levy of 10 percent, and fuel simmering tensions between two of the world's economic heavyweights. Klingbeil told the Bild newspaper that "we don't need any further provocations, but serious negotiations" and added that he had spoken with his US counterpart Scott Bessent about the matter.

Trump reiterated on Friday that he is "not looking for a deal", repeating his long-standing view that the EU, conceived to seal postwar peace in Europe, was little more than a tactic designed to take advantage of American support for the rebuilding of the continent both literally and figuratively.

Having made deals with the UK and China in the past weeks, Trump will want to go for a “hat trick” in pushing the EU into making significant concessions.

Trump is yet to react to the EU and UK agreeing to a closer relationship, which he is expected to consider against the U.S.’s best interests.

Chicago Fed President Austan Goolsbee said Friday that President Donald Trump’s latest tariff moves have complicated policy and likely put off changes to interest rates.

“Everything’s always on the table. But I feel like the bar for me is a little higher for action in any direction while we’re waiting to get some clarity,” Goolsbee told CNBC.

Trump also jolted the market by announcing that Apple products manufactured outside the U.S. will attract a 25% tariff, which won’t be applied to those products built in the U.S.

While the impact of a costlier iPhone likely wouldn’t mean much from a larger economic perspective, the sabre-rattling underscores the volatility of trade policy and provides another flash point for a market already unnerved by worries about fiscal policy that have sent bond yields sharply higher.

Central bankers are generally careful not to wade into issues of fiscal and trade policy, but are left to analyse their repercussions.

Goolsbee said he is still optimistic that the longer-run trajectory is toward solid economic growth before Trump’s April 2 tariff announcement that rattled markets.

“I’m still hopeful that we can get back to that environment, and 10 to 16 months from now, rates could be a fair bit below where they are today,” he said.

Goolsbee is a voting member this year on the rate-setting Federal Open Market Committee, which next meets June 17-18. At the meeting, officials will get a chance to update their economic and interest rate projections. The last update, in March, saw the committee indicating two rate cuts this year.

The dollar index fell further following the Trump announcement, reaching a low of 98.74. The 100 barrier is now little more than a distant memory, but remains in play, due to the current volatility in the market.

Christine Lagarde spoke last week of her view that the pacts and agreements that have been built since the end of World War Two have been irrevocably shattered by Donald Trump’s announcement on April 2nd, which effectively announced a new world order.

G7 finance ministers and central bankers wrapped up three days of meetings on Thursday in Banff, during a period of global trade uncertainty. President of the European Central Bank Christine Lagarde told reporters that Europe and Canada's 'collective objective' should be to first 'remove the uncertainty’ and then ‘agree on rules of the game that will be favourable for all parties.’

Donald Trump’s announcement the following day took “the game” even further out of the hands of the Europeans and Canadians.

So far, 2025 has proven to be the year of reckoning for the eurozone economy, caught in the crosshairs of high inflation and sluggish growth. In a delicate balancing act, the ECB changed course with consecutive interest rate cuts this year, following aggressive monetary policy tightening during the 2022-2024 high inflation period.

As the region grapples with weak demand, geopolitical uncertainty, and looming trade risks, questions remain about whether these measures can sustainably stabilise prices without derailing progress.

The political picture has become a little clearer with a new Government in Germany, but any economic benefit for the region will be delayed until the middle of next year at the earliest, by which time a recession may well have come and gone.

The reaction of Brussels to the addition of tariffs to EU exports to the U.S. was not only predictable, it was almost inevitable. The EU is unable to react in anything other than a measured manner, given its wholly ridiculous method of making every decision by way of a unanimous vote.

If there ever comes a time when a cruise missile is in the air, heading for Berlin or Paris, and a quick decision is necessary, woe betide the region.

Trump has been allowed, not that he needed permission, to make several demands upon Europe, none of which have been anything other than unpalatable, yet it seems that Brussels is simply ignoring the inevitable.

Eurozone experts to the U.S., be they German Engineering, French Brandy or Italian fashion, are going to attract tariffs, and it will take ever more generous concessions to make them even marginally palatable.

The Euro reached a high of 1.1415 yesterday as traders tried to come to terms with Trump's new edict. It traded close to that level in thin markets, closing at 1.1389.

Have a great day!