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Week Ahead (27 February)

European Commission President Von der Leyen will arrive in 10 Downing Street around lunchtime today to sign off on a deal on the Northern Ireland Protocol. A press conference will follow in Windsor at 330pm where Rishi Sunak will undoubtedly be questioned about the reaction to the deal among his own Brexiteer MPs and the DUP.

In the case of the former, speaking on ITV, Jacob Rees-Mogg would not commit to supporting the deal, simply stating that the “devil will be in the detail” and adding that the outlook of the DUP will be an important indicator for him.

It appears highly unlikely at this juncture that the DUP will support this deal. It does not pass the DUP’s “7 tests” and the rhetoric from DUP frontbenchers in recent days suggests any role whatsoever for the European Court of Justice will be rejected by the party. The DUP support base broadly favours a hardline approach to the protocol and also supports the party’s decision to refuse to enter the Stormont assembly on that basis.

Nevertheless, it is understood that Rishi Sunak will proceed with a deal with or without DUP support. He will be more concerned about rebels within his own party, particularly as many of the hardline European Research Group have indicated that they will take their line from the DUP. Suak’s team are understood to be hopeful that Conservative MPs opposing the deal can be restricted to 20-30 MPs, thereby minimising the fallout.

The contest for the leadership of the Scottish National Party is expected to kick off, as the deadline for gathering nominations expired on 24 February.

A relatively low threshold, requiring the collection of 100 nominations from at least 20 local branches has resulted in three candidacies, namely; Health Secretary Humza Yousaf, Scottish Finance Secretary Kate Forbes, and former minister Ash Regan. Voting will begin on 13 March and close on 27 March, with the leader to be declared that day.

On 15 February, Sturgeon announced her resignation from her post as First Minister of Scotland after more than eight years in charge. The move could have broader political implications for the UK, ahead of the general elections of January 2025. Shortly after the announcement of her resignation, Labour leader Keir Starmer urged Scottish voters ‘’to take another look at Labour’’, aiming to maximise swing voters from the SNP. The party’s change of leadership could also be a setback for its quest to hold another independence referendum, depriving the campaign of its political momentum.

A poll announced earlier today by a UK communications agency (Big Partnership) revealed that most Scottish respondents regarded the cost-of-living crisis as the most important issue, followed by the economy, the NHS and education. According to the poll, conducted between Monday and Wednesday, Forbes was leading the race with 28%, followed by Yousaf (20%) and Regan (7%), with nearly one-third remaining undecided. The winner of the leadership race will be announced on 27 March. By mid-April, the Scottish government will have to decide whether to battle the UK government in court for blocking the Gender Recognition Reform Bill, which is partially blamed for prompting Sturgeon’s resignation.

On Thursday, Eurostat will publish flash inflation data for February 2023. In January, Eurozone inflation data eased to 8.6%, down from 9.2% the previous month and significantly lower than the peak of 10.6% in October 2022.

As has been well flagged, the energy crisis is having an outsized effect on inflation rates in Europe. The recent drop in energy prices was reflected in the easing of inflation figures in the Eurozone. Food, alcohol & tobacco accounted for 2.94% of the inflation rate in the eurozone in January, followed by energy (2.17%), services (1.80%) and non-energy industrial goods (1.73%). Latvia had the highest inflation in the eurozone with a rate exceeding 21%, while Luxembourg and Spain had the lowest, at 5.8% and 5.9% respectively.

Nevertheless, the ECB Governing Council, which meets on 16 March, appears more concerned about core inflation. Despite an overall decline in consumer prices, core inflation rose from 5.2% to 5.3%.

Thursday, 2 March – ECB to release minutes of February meeting

Meanwhile, also on Thursday, the ECB will release the minutes from its policy meeting in February, where it raised interest rates by 50-basis points, confirming strong support for the continuation of its tightening monetary policy. Since July, the ECB has raised rates by 3% in order to bring Eurozone inflation back towards the 2% target.

Earlier this month, ECB board member Isabel Schnabel and the French central bank chief Francois Villeroy de Galhau warned that inflation could prove to be more persistent than the projections of financial markets, which currently price longer-term inflation at just over 2.4%.

ECB has already promised another 50-basis point rate hike in March. Markets now widely expect ECB to raise interest rates to all-time highs, given persistent core inflation, pricing in a rate hike to 3.75 by September, up from the current 2.5%.

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