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Thursday's Business and Politics round-up

16 Aug 2019

Person sat at a table reading a newspaper

Good morning!

Official figures released yesterday showed inflation accelerated to 2.1% in July. It came as a surprise as many economists had predicted a drop to 1.9% from 2% the month before. 

The increase was driven by price rises in products including clothes, shoes and toys. Experts commented that inflation will probably be supported over the next few months by the recent drop in the value of sterling. 

IoD Chief Economist Tej Parikh said “the recent weakening in sterling will provide some upward pressure on prices as firms begin to feel the pinch of higher import costs.”



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Left field

Jeremy Corbyn has outlined his plans to defeat a no-deal Brexit in a letter to MPs from all sides. The proposals see the Labour leader becoming caretaker Prime Minister. 
 
He said that after winning a no-confidence vote he would form “a strictly time-limited temporary government with the aim of calling a general election, and securing the necessary extension of Article 50 to do so”. 
 
Corbyn added that were he to succeed in calling for a general election – a move which requires the backing of two-thirds of the Commons – his party would campaign for a second referendum with an option to remain in the EU. 
 
Responses from opposition parties have been lukewarm. The Liberal Democrats have denounced the proposal, while the Greens and Plaid Cymru expressed their disappointment that Corbyn will not commit to holding a referendum before a general election. 
 
In response to the letter, a Number 10 spokesperson said "This government believes the people are the masters and votes should be respected. Jeremy Corbyn believes that the people are the servants and politicians can cancel public votes they don't like”. 

Go West 

The Government has awarded the West Coast rail franchise to FirstGroup and Italian state-run operator Trenitalia, ending Virgin’s 22-year control of the route. 
 
The news comes amid concerns regarding the feasibility of some other rail franchises and before the release of a comprehensive review of the UK rail industry by former British Airways chief executive Keith Williams.
 
Transport Secretary Grant Shapps said the decision had the backing of Williams, who called the contract “a step forward that is firmly in line with the review, introducing benefits for passengers today and capable of incorporating the reforms needed for the future”. 
 
The contract is problematic for FirstGroup. Earlier this year its largest shareholder, Coast Capital, said it would be “absolutely foolish” to bid for further rail franchises. FirstGroup’s contract with TransPennine Express is expected to make the firm a loss of £106 million. 
 
Williams recently said that the current rail franchise system had “had its day”. His review will be published as a government white paper in the autumn. 

Dow-n Jones

Global stock markets plunged last night, and a key bond market inverted for the first time since 2007, prompting fears of a global recession. 
 
America’s Dow Jones industrial average index dropped more than 800 points, constituting the most significant fall in a single day since October 2018. European stocks tumbled across the board, while stock markets in Asia opened lower. 
 
Panic set in when there was a collapse in borrowing costs for ten-year government debt in the US and the UK to below the rates charged on two-year debt. The so-called “inversion” has historically been a reliable indicator of an oncoming recession. 
 
President Trump took to Twitter to criticise the US Federal Reserve for its interest rate policy. He said it “acted far too quickly” in raising the rate four times last year, and called its chair Jerome Powell “clueless”.  
 
The news was just part of a day of challenging economic developments. Germany confirmed it is on the brink of a recession after national GDP contracted in the three months to June by 0.1%, while industrial output in China fell to its lowest rate in July in 17 years. 


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