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Week Ahead (31 January)

W/C Monday, 31 January - Costa to form government in Portugal after election

Antonio Costa will assess the aftermath of Sunday's Portuguese general election with a view to forming a new government. Early results from the snap election show that the Socialist Party has gained 117 out of 230 seats - after 98.7% of the votes had been counted they had registered 41%, with the Social Democrats in second on 28%. Chega, the far-right party formed in 2019, increased its representation significantly and looks set to take around 12 seats in the new parliament, up from the one it previously held. A Socialist absolute majority will smoothen the process of rolling out Portugal’s €45 billion recovery plan and will be welcomed by markets.

W/C Monday, 31 January - Talks on Northern Ireland Protocol to continue; Truss and Sefcovic scheduled to meet again

Discussions between the European Commission and the UK government will continue this week. While the tone of the negotiations has improved since the resignation of Lord Frost and the appointment of Liz Truss, there are few indications of a breakthrough and the possibility exists of a further change in personnel at the top of the British negotiating team. Truss is seen as a strong candidate for Prime Minister should Boris Johnson be forced to resign on foot of the investigation into breaches of Covid-19 restrictions.

Wednesday, 2 February - Commission to sign off on taxonomy regulation

The European Commission is expected to sign off on a new regulation which will determine what types of energy investments can be marketed as "green". The taxonomy regulation will inter alia help green technologies secure preferential borrowing rates on financial markets. Nuclear and gas investments will almost certainly be included in the taxonomy.

The Commissioner for Financial Services, Financial Stability and the Capital Markets Union, Mairead McGuinness, has said that major changes to the draft regulation are not expected, despite the unhappiness of several countries with the proposals. France pushed strongly in favour of nuclear, while Germany, which has almost completed a phase-out of the use of nuclear power, had resisted its inclusion in the taxonomy.

Thursday, 3 February - Second round of trilogue negotiations on Digital Markets Act to take place

The next round of inter-institutional talks on the Digital Markets Act have been brought forward to 3 February.  The trilogue discussions had been scheduled for 10 or 15 February but will now take place this week.  The move may reflect anticipated difficulties in coming to an agreement on the final form of the legislation, or merely the eagerness of France, which holds the presidency of the Council of the European Union, to conclude the Digital Markets Act before its domestic presidential election in April.  A tentative deadline of 29 March has been set for the conclusion of the talks.   

Thursday, 3 February - BoE expected to raise interest rates for second time in two months; ECB to hold firm

The Bank of England's Monetary Policy Committee will meet on Thursday, with expectations growing that it will announce a second hike in interest rate in two months. After heavy criticism for dodging the decision in November, the central bank upped its rate to 0.25% in December. Following the recent announcement that inflation has reached its highest level in 30 years, at 5.4%, the MPC is considered likely to raise its rate by a further 0.25% on Thursday.

The European Central Bank Governing Council will also meet on Thursday. While the ECB has maintained that the inflationary pressures will ease and that a rate increase would be counterproductive, the head of the Irish Central Bank, Gabriel Makhlouf, said last week that the ECB would have to keep a close eye on “second-round” inflation effects, such as wages rising without corresponding increases in productivity.

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