It has been a rather eventful month for Europe during May, with Emmanuel Macron defeating far-right candidate Marine Le Pen, taking 65.5% of the vote to become the country's youngest president. Mr Macron will also become the first president from outside the two traditional main parties since the modern republic's foundation in 1958.
Macron pledged to unite France’s rifts after his victory over Marine Le Pen in the presidential election, saying that he’ll work to address the concerns that were exposed during one of the most divisive campaigns of recent history.
A pro-European globalist, Macron must now try to unite a divided France after one of the most bitter and turbulent elections of modern times. His challenge will be to end years of high unemployment and sluggish growth, deal with the terrorist threat that has traumatized the country and, ultimately, restore faith in the political establishment.
The European Union finalised its tough Brexit negotiating position, reiterating its hard line on the U.K.’s departure bill and refusing to discuss a future trading arrangement until there is agreement on other key topics.
The size of Britain’s exit bill, which some estimates put as high as €100 billion and is based on the U.K.’s past financial commitments to the EU, has been a source of debate for weeks and will prove an early test of the ability of both sides to find common ground when negotiations start. Included in the EU’s negotiating mandate published on Monday is the demand that European citizens living in the U.K. at the time of Brexit should have the right to permanent residence after living there for five years. It also stipulates that the financial settlement should include all costs related to Brexit, including the relocation of EU agencies currently based in the U.K.
Downside risks to inflation continue to cloud the outlook for interest rates despite a healthy U.S. economy, Federal Reserve Bank of Chicago President Charles Evans said “inflation pressures are still under-running our 2% objective in the U.S. At the moment, I think the downside risks still predominate”. He stated that he was comfortable with two rate hikes this year. Evans believes it may be more appropriate to raise rates just once more if the outlook deteriorates.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased at a 0.3% annualized rate in the first quarter, the weakest pace since the fourth quarter of 2009. Consumer spending is being supported by a tightening labour market with the unemployment rate at a 10-year low of 4.4%. Motor vehicle sales increased 0.7% in April after declining 0.5% in March.
The Dollar is under pressure at the moment largely due to political turmoil, after fallout from President Donald Trump’s dismissal of FBI Director James Comey. Investors fear that the destabilisation could distract the President further from initiating his long promised economic stimulus.
Britain’s factories enjoyed their fastest growth for three years last month on the back of strong demand at home and abroad, which makes up about a tenth of the UK economy. The manufacturing report signalled that strong demand came from the domestic market as well as overseas, continuing a pattern of export support for UK firms from the weaker pound. Sterling’s sharp fall since the Brexit vote has made UK goods cheaper in foreign markets.
The Bank of England’s Monetary Policy Committee voted to keep interest rates on hold at 0.25%. The Committee voted 7-1 to stay on hold, with only outgoing member Kristin Forbes voting for a rise to 0.5%. The Bank warned that rates may rise sooner than the market expects, saying "it might not take much positive economic data to persuade further MPC members to join Forbes and vote to hike rates, though it should be noted that she is due to leave the MPC at the end of June."
The Bank’s growth forecasts for 2017 were cut from 2% to 1.9%, and the inflation forecast for this year was raised to 2.7% from the February forecast of 2.4%.
U.K. Governor Mark Carney highlighted that the expected rise in inflation is ‘’entirely’’ due to the weaker Pound, and at this stage raising interest rates would not be a good way to counter the increase in the cost of living. He also stated that the forecasts are based on the assumption that "the adjustment to the United Kingdom's new relationship with the European Union is smooth".
UK inflation has risen more than expected, with official data showing consumer prices rising well above the Bank of England's 2% target and at their fastest rate since June 2013.
