Week Ahead (12 February)

Wednesday, 14 February – UK inflation figures for January to be published 

On Wednesday, the Office for National Statistics (ONS) will release the UK consumer price inflation figures for January. 

The release will come two weeks after the Bank of England Monetary Policy Committee (MPC) decided to leave interest rates unchanged for a fourth time in a row, following 14 consecutive increases December 2021 to August 2023. The key interest rate was kept at 5.25%, which is the highest level since the 2008 financial crisis.   

It is worth noting that for the first time since 2021 a member of the MPC, Swati Dhingra, voted in favour of a rate cut.  An analysis by capital economics has found that when one MPC member votes to cut interest rates, a majority of the nine members will agree about two meetings later.  We already have a strong indication of this from one of the two MPC members who voted in favour of a hike at the 1 February meeting, Jonathan Haskel, who told Reuters last week that his decision earlier this month had been "finely balanced" and that should the encouraging signs of lower inflation persist he would be “happy to change my vote”.   

After remaining unchanged in September, inflation cooled more than expected in October and November dropping to 3.9%, its lowest level in two years. Despite a slight increase in December (4%) inflation, wage growth, and economic growth have fallen below the central bank’s expectations, prompting a reevaluation of its tough stance on borrowing costs. According to a Reuters survey conducted last month, a slim majority out of a total of 70 economists expect the BoE to start cutting rates as early as May, followed by three more cuts in 2024.  

Earlier this month, the bank predicted that inflation would drop towards 2% in Q2 2024, before rebounding later in 2024. This week’s data will indicate whether inflation continues its downward trend, thereby giving leeway for Haskel and others on the MPC to change their respective stances.   

Wednesday, 14 February – ECON Committee to vote on PSD3 and PSR amendments, following progress on political and technical aspects  

On Wednesday, the European Parliament’s Committee on Economic and Monetary Affairs will vote on the Payment Services Regulation (PRS) and the revised Payment Services Directive (PSD3), following a breakthrough in compromise amendments negotiations in late January.  

On 28 June, the European Commission announced its revised rules to improve consumer protection and competition in electronic payments, after conducting a review of the PSD2. In its review, the Commission identified certain areas requiring improvement, including inconsistencies in the application of rules across the EU, an uneven playing field between banks and non-bank payment service providers, and an increasing risk of payment fraud. To address these issues, the Commission proposed restructuring PSD2. The majority of direct regulatory obligations on payment service providers will be transferred to the PSR to ensure consistent application throughout the EU.  The proposed changes aim to improve the functioning of EU payment markets, strengthen fraud prevention measures, enhance consumer rights and information, and foster the availability of cash. 

The latest round of negotiations between ECON members revolved around fraud prevention. To that end, agreed amendments included measures requiring big telecom operators such as Vodafone and Orange, and big tech firms, including Amazon and Google, to be held liable for imposter scams conducted through text messages, calls, social media posts, and fake ads on online platforms. According to the Rapporteur of the two files, Marek Belka, the Parliament will be done with the legislation before the end of its mandate. More specifically, the ECON vote this week will pave the way for a plenary vote in April. 

Thursday, 15 February – ECON Committee to hold Monetary Dialogue with Christine Lagarde 

On Thursday, the ECON Committee will hold a Monetary Dialogue with the President of the European Central Bank (ECB).  Discussions are expected to be largely centred around the ECB’s monetary policy in the coming months.  

Earlier this month, Eurostat’s flash estimates projected inflation to drop 2.8% in January, down from 2.9% the previous month. The news came only a week after the ECB decided to keep its rates unchanged for a third consecutive time, at a record high of 4%, amid a worsening economic outlook. Yet, the minutes of its December meeting indicated that the GC is still wary of inflation, with eurozone central bankers agreeing that monetary easing will most likely start taking place in its June meeting, provided that inflation has been tamed. Also, Lagarde in her press conference on 25 January shared her concerns that inflation could once again rise later in 2024 as subsidies on energy prices will be removed.  Nevertheless, according to the ECB’s own data, presented by Chief Economist Philip Lane last Thursday in Washington DC, there are indications of wage pressures cooling in recent months. Lagarde will likely be pressed by lawmakers, seeking reelection in 4 months time, to clarify timings around interest rate cuts.  

Thursday, 15 February – By-elections to take place in English constituencies of Wellingborough and Kingswood  

On Thursday, by-elections are scheduled to take place in the English constituencies of Wellingborough and Kingswood, both currently held by the Conservative Party. Labour will be looking to take advantage of anti-Conservative sentiment in England by winning by-elections in two constituencies with significant Tory majorities.  

Last October, the Labour Party emerged victorious from the by-elections held in the constituencies of mid-Bedfordshire and Tamworth, winning two seats previously held by Conservatives. A similar outcome is now anticipated with Conservative MPs expressing concerns that the party has conceded defeat without putting up a significant fight in the two formerly secure Tory strongholds. The Tory majority in Wellingborough exceeds 18,000, while in Kingswood, it surpasses 11,000, based on the 2019 election results. Labour is currently favoured to win both contested Tory seats, a prospect that could intensify internal conflicts within the Conservative Party. 

Nevertheless, Prime Minister Rishi Sunak remains optimistic, stating over the weekend that the economy was ‘’pointing in the right direction’’, and asserting his party’s readiness for the upcoming general elections, despite Labour’s substantial lead in the polls.  The Tories seem to be diverting resources away from this week’s by-elections and focusing more on their general election campaign, with emphasis placed on Chancellor Jeremy Hunt implementing tax cuts, with particular focus. However, the outcome of these by-elections could influence future political dynamics within the Conservative Party, particularly concerning Rishi Sunak's leadership. 

Friday, 16 February – EU member states expected to give the green light on the Gigabit Infrastructure Act, following preliminary deal with Parliament 

On 16 February, EU diplomats are expected to rubber-stamp the final text of the Gigabit Infrastructure Act (GIA), aimed at facilitating a faster and more cost-effective deployment of telecom networks across the EU. Last Tuesday, negotiators from the Parliament and the Council reached a provisional agreement. 

The draft law is part of the Commission’s Connectivity Package, aiming to accelerate the deployment of fiber and 5G networks at the national level, in line with the digital connectivity goal to provide gigabit connectivity to the entire bloc by 2030.  An updated connectivity package will be presented by Commissioner Vestager on 21 February.  These initiatives are also seen as part of the Commission’s plans to respond to longstanding complaints by European telecom operators who have been arguing that a highly fragmented market has posed obstacles to the development of digital infrastructure due to increased investment and network upgrade needs and declining profitability.  

Key provisions of the GIA include the introduction of a four-month deadline for national authorities to grant or refuse permits for building mobile towers and fiber infrastructure. A mechanism for automatic approval of permit requests in case of delayed responses from authorities will also be implemented.  The law also aims to abolish from 2029 surcharges for calls and texts within the EU, complementing the existing free roaming regulation. However, this ban on intra-EU call fees will only come into effect after the Commission provides an impact assessment study by June 2027. Until then, current caps on call and text charges will remain in place. 

Friday will be the last day the Council can give its final approval to provisionally agreed texts to be voted on at the Parliament’s final plenary session on 22-25 April. Otherwise, these files will have to be redirected to the first plenary session of the new European Parliament. Once approved, the new rules will take effect 18 months after their publication in the EU’s Official Journal.