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Week Ahead (1 November)


Monday, 1 November - Janet Yellen in Dublin to meet with Minister for Finance Pascal Donohoe

The US Treasury Secretary, Janet Yellen, is in Ireland today for a bilateral meeting with the Minister for Finance, and current head of the Eurogroup, Pascal Donohoe. They will also attend an event hosted by the American Chamber of Commerce where it is expected that they will discuss their perspectives on the recent OECD/G-20 international taxation agreement.

Ireland was particularly reticent to move on its 12.5% corporation tax rate which has been a cornerstone of its economy since 2003 during the recent negotiations, and fought to amend the wording of previous versions of the agreement from "at least" 15% in order to set the rate at 15%. It also secured concessions via side deals with the European Commission which will allow SMEs in Ireland to retain the existing 12.5% rate on profits, as well as allowing multinationals a discount on their tax bills should they decide to invest in research and development in Ireland.

W/C Monday, 1 November - COP26 continues as Europe grapples with surging energy prices

The 26th United Nations Climate Change Conference, COP26, began on Sunday in Glasgow and will last for two weeks.  While the global effort to arrest the worst effects of climate change will be the focus of the conference, the rapid increase in energy prices is also sure to be on the agenda after gas prices in Europe hit record high levels in recent weeks.  Last Tuesday an emergency meeting of member state energy ministers held in Luxembourg to discuss possible solutions for the crisis ended without agreement. 

The EU's taxonomy proposals, which will determine what types of energy production will be eligible for funding via green bonds, may also come under the spotlight in Glasgow.  The Commission has delayed a decision on whether nuclear power and natural gas should be included in the taxonomy until the end of the year due to profound disagreements between member states.  France is strongly in favour of such a move, while Germany, which has almost completed a phase-out of the use of nuclear power, has heretofore resisted its inclusion in the taxonomy.   

  

Tuesday, 2 November - Rishi Sunak to discuss UK budget before Economic Affairs Committee 

Chancellor of the Exchequer Rishi Sunak will discuss the UK budget at the Economic Affairs Committee of the House of Lords on Tuesday.  The Office for Budget Responsibility (OBR) said that the high-growth, high-spend budget would make the post-pandemic UK state “the largest since the late 1970s”. 

The budget will see spending increases of £150 billion over the parliamentary term, including £1.7 billion for a Levelling Up Fund to be invested across the UK, nearly £2 billion of catch-up funding for schools and £6 billion to reduce backlogs in the NHS.  Sunak also announced that the national living wage would increase by 6.6% to £9.50 an hour. 

Thursday, 4 November - Portuguese President expected to call snap election

The Portuguese government is on the brink of collapse after the Socialist party's budget proposal for 2022 was rejected by its coalition partners.  Portugal has been governed by a left-wing coalition for the last six years, with the Socialists supported by the Communist Party and the Left Bloc, but the arrangement appears to have no future after last week's decision.  President Marcelo Rebelo de Sousa announced on Sunday that he would address the nation on Thursday, after holding talks with all political parties and the Council of State. Indications are that a general election, to be held in January, will be called.

The 2022 budget proposal was defeated by 117 votes to 108, with five abstentions.  Following the vote, Prime Minister António Costa told parliament that he had done everything he could to make the budget work and that, in the context of country's efforts to revive its economy, a political crisis was "the last thing Portugal needs".   

The Portuguese political landscape is likely to shift in the event of an election, with smaller parties, including the right-wing populists Chega, founded in 2019, having won parliamentary seats in recent years.  Polls suggest that the Socialist Party would be returned as the largest party following a new election, but support for its potential coalition partners has fallen.  

Thursday, 4 November - Bank of England Monetary Policy Committee meeting to take place

The Bank of England's Monetary Policy Committee meeting on Thursday.  The committee meeting will be interesting in the context of the attitudes adopted by other central banks at a time of high inflation.   

The Bank's new chief economist, Huw Pill, said last week that inflation in the UK is likely to rise "close to or even slightly above" 5% in early 2022, and said that a decision on raising interest rates was "live" going into this week's meeting.  The governor of the Bank of England, Andrew Bailey, increased speculation that a rates rise was imminent last weekend when he said that it was likely that the bank would "have to act" to keep inflation at manageable levels.   

The European Central Bank last week held its main interest rates steady, with President Christine Lagarde saying that that it continued to believe that the underlying economy was recovering strongly.  However, she noted that inflation would remain high for longer than had been originally anticipated. 

Thursday, 4 November – Eurozone composite PMI to be released 

The latest Eurozone composite PMI will be released on Thursday, showing trading conditions in Europe during October.  Flash results were released on 22 October, with a score of 54.3 recorded.  This was down from 56.2 in September and marked a 6-month low. 

Flash results showed that business growth slowed sharply in October due to increasing supply bottlenecks and growing numbers of Covid-19 cases across Europe.  Growth dropped markedly in manufacturing and at a slower pace in services.   

The results indicate that selling prices for goods and services are rising at a rate not seen for over two decades.  While the overall rate of economic growth remains above the long-run average, disruption is set to result in weaker GDP growth in the fourth quarter of 2021, compared to the second and third quarters. 

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