The Week Ahead

The Week Ahead

BOE talks Brexit. EU and US leaders meet at NATO summit. US releases employment data. G20 trade ministers gather. All in The Week Ahead.

BOE releases financial stability update, with questions for governor

On Tuesday the Bank of England will release its Financial Stability Report. While its December report highlighted issues like the UK housing and mortgage markets, cyber risks, the UK account deficit and fragile financial markets (notably in the US) as key issues for the British economy, the Brexit vote and its uncertain aftermath will almost certainly take up the lion’s share of the media questions following release of the report (and may be features prominently in the report itself, though the recent nature of the vote could have limited the Bank’s ability to offer substantial commentary).

Commentary following the report release that may be raised on the Brexit impact include: the declining value of the pound relative to other major currencies, the likelihood of significant shifts of the UK banking sector to the EU and that impact on the pound and Britain’s macroeconomic position, and of course, interest rates.

The Bank of England may soon face a Gordian knot in monetary policy; as the value of the pound continues to remain low against foreign currencies, the price of imported goods in pounds will rise, stoking inflation. Normally, the central bank would signal an intent to raise interest rates to tamp down inflation, but raising interest rates during a poor macroeconomic environment could lead to a recession. Carney has already indicated that he believes the Bank of England may lower interest rates from its current 0.5% at some point during the summer, so perhaps the hope is that the pound will recover in value, or that reduced consumer spending will dampen inflationary pressures in the event the pound continues to fall to 30-year lows.

U.S. President meets with Presidents of the European Council and European Commission

On Thursday and ahead of the NATO summit in Warsaw, President Obama will meet with European Council president Donald Tusk and European Commission president Jean-Claude Juncker. It appears highly likely that the three will discuss the political and economic developments since the June 23 Brexit vote. All three face serious policy and economic questions in a still-uncertain and chaotic environment.

President Obama has increasingly taken the tone of “calm down, the sky isn’t falling” demeanor, noting that the “hysteria”, at least on the US side, has been misplaced. However, President Obama also added to the confusion (or hope, depending on who you ask) regarding whether Brexit will actually happen when he noted at a North American summit in Ottawa that there could be longer-term growth concerns “if in fact Brexit goes through.”

For Presidents Juncker and Tusk, both will have to contend with and balance 27 voices that have frequently contradictory views on the dynamics of Brexit, while all seem to agree on the elements that would be totally unacceptable to the British Brexit populace, i.e. access to the free market in exchange for the free movement of peoples. The Visegrad Group (consisting of Poland, the Czech Republic, Slovakia and Slovenia) has already indicated its intent to veto any agreement with the EU that does not protect its citizens living in the UK (and would likely push against any future limitations).

The other area that brings together all EU member states is no informal negotiations ahead of a formal invocation of Article 50. While it seems possible that these informal negotiations will not occur, it is highly probable that countries and blocs will signal most of their red lines for as long as the British government does not invoke Article 50. Spain, for example, has already indicated it would not accept Scotland as a negotiating party, and that Scotland would still need to become independent and leave the European Union before it could return as an EU member state.

NATO meeting in Warsaw to bring North American and European leaders together

On Friday, the North Atlantic Treaty Organization will begin a two-day summit in Warsaw. The meeting was originally intended to focus principally on bolstering defense capabilities in Eastern Europe, but chances are very good the NATO summit will be at least partially sidetracked to discuss both the impact of the Brexit vote as well as the recent terrorist attack at the Istanbul airport.

In terms of the Brexit vote, the loss of the UK voice within the EU has raised concerns among several Eastern European countries suspicious of Russia. As the EU was negotiating how to react to Russia’s actions in Eastern Ukraine, the UK government stood as a consistent voice in favor of strong sanctions. Many Eastern European countries, particularly the Baltic states, are fearful that the loss of Britain as a counterweight to countries with significant political or economic interests in taking a more lenient view on Russia could tilt the EU away from using its political muscle against Russian actions in Eastern European states.

In terms of the recent terrorist attack in Istanbul, NATO is likely to offer its support as needed to member state Turkey, though many in the alliance have grown concerned that President Erdogan’s focus on Kurdish separatists at the expense of ISIS fighters crossing the border with Syria has the potential to lead to further security failures. The meeting, which is slated to include President Obama, Chancellor Merkel, Prime Minister Cameron, Prime Minister Trudeau and possibly President Erdogan, will represent probably the best opportunity for all major transatlantic leaders to discuss both the security and economic challenges facing North America and Europe. It is also likely to be David Cameron’s last NATO summit, an unthinkable notion before the Brexit vote.

U.S. employment figures could pick up from last month’s weak numbers

On Friday, the Labor Department will release both U.S. employment figures as well as worker pay trends for the month of June. Following last month’s surprisingly low job gains numbers, most economists expect growth to normalize, in part because Verizon workers that had gone on strike last month have since returned to work. The unemployment rate is likely to be somewhere around the 4.6-4.8% range, and rising wages could indicate that the US economy has entered a period of relatively full employment.

From a macroeconomic standpoint, this could increase pressure on the Federal Reserve to further raise rates, in direct contrast to the desires of most foreign leaders and banks fearful that rising U.S. interest rates could lead to a flood of divestment from struggling economies in both developed and developing regions (and most economists who have indicated that the rise in global economic instability since the Brexit vote has made it very unlikely that rates will be raised this summer, or possibly not even this year).

From a political standpoint, the improvement of the US economy is likely to benefit Democratic presumptive nominee Hillary Clinton’s campaign, who can claim a desire to build off the successes of the Obama administration (and diminishing Republican nominee Donald Trump’s claim that a radical change is necessarily to improve the livelihood of the American electorate).

G20 trade ministers meet in Shanghai ahead of September G20 summit in Hangzhou

On Saturday, the trade ministers of the Group of 20 member states will meet in Shanghai for a two day meeting in preparation for the leaders’ summit in early September. Several of the G20 countries, including the US, Canada, Australia, Japan, and Mexico are member states of the TPP and are all working towards ratification (and several other G20 members – Indonesia, China, Russia, South Korea, and India – have looked at the negotiations with some degree of interest).

The rise of economic and political populism across both the developed and developing worlds has brought trade into sharp relief. Some countries are facing populist backlashes where trade has emerged as a critical sticking point, notably in the UK, US, Germany, and France. So even while certain countries that are trying to move towards opening to trade, notably Argentina and Brazil, they are likely to encounter a tricky geopolitical environment.

This will also represent the first opportunity for major country trade ministers to discuss the implications of the UK exiting the EU. This may be the UK government’s opening salvo to (albeit informally) discuss its trade moves in a post-Brexit world.


The Week Ahead provides analytical foresight on the economic consequences of upcoming political developments. Covering a number of future occurrences across the globe, The Week Ahead presents a series of potential upside/downside risks, shedding light on how political decisions affect economic outcomes.

The Week Ahead is written by GRI analyst Brian Daigle.

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