Summary

Forefront structured the call around UK and EU COVID data, UK-EU relations, and their macroeconomics outlooks. Regarding future UK COVID policy, the PM is reopening with a maximalist approach deliberately in the summer months, rather than the winter. However, Forefront predicts there is a 20% risk that the reopening will go wrong. The most important data to examine in this area is case data from 19^th July, with the government's models based on 50,000 cases per day, and the critical figure to stay below is 200,000 in the first week of August. Second-generation vaccines will only be in circulation next autumn, and given the virus's rapid mutations thus far, this is a period of significant risk. Gergely moved on to talk about COVID in the EU. The EU is 1-2 months behind the UK in the spread of the newer variants. Forefront side with the more optimistic data modelling in the EU given the positive results of the vaccination programmes in the UK. Regarding travel across the EU for the fully vaccinated, travel restrictions should ease.

Gergely then discussed Northern Ireland, Brexit, and UK-EU relations. The EU will file three infringement processes that will make their way into court by September regarding Northern Ireland. However, Gergely emphasized that the EU has previously shown a reluctance to adopt extreme measures that may cause economic or political harm. James predicts none of these issues to be solved surrounding trade and citizens’ rights until after assembly elections in May 2022 due to the possibility of Sinn Fein’s victory. In terms of Brexit and EU trade, the UK will gradually distance itself from the EU, resulting in a competitive advantage. The Brexit agreement was drafted in such a way as to control this process of veering away rather than merging closer together. There is substantial EU political pressure in the financial services sector to transfer a large portion of derivative clearing away of London to Eurex, although it is still unclear how this will be achieved.

Regarding UK macroeconomic and fiscal policy, James highlighted how we are moving towards experimental fiscal rules that will impact tax and spending policies to provide additional fiscal headroom. However, the Chancellor is unlikely to substantially boost spending, contrary to the PM’s desires. There is also a debate among many about when the UK will raise rates relative to unwinding QE. Regarding EU fiscal policy, the German elections will be key to watch, and some surprises are possible in this area which is underpriced by the market. By the end of 2022, the EU's fiscal rules should be in place, and Gergely concludes that commission appears to be leaning toward an expenditure strategy focusing on new investment spending and restricting permanent new spending.

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