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Central banks in Eastern Europe are significantly increasing their gold reserves as a hedge against economic volatility. The Czech National Bank, under Governor Ales Michl, aims to double its gold stockpile to 100 metric tons within three years, reflecting a broader trend among regional banks to diversify investments and capitalize on rising gold prices.
The Czech Republic's central bank is on a mission to significantly increase its gold reserves, aiming to double its stockpile to 100 metric tons within three years. Since Ales Michl took office in 2022, the reserves have grown fivefold as part of a strategy to diversify the bank's assets.
Bank of England Deputy Governor Clare Lombardelli emphasized the need for more evidence of declining price pressures before supporting another interest rate cut. In a recent interview, she also highlighted concerns about potential threats to UK growth from a global trade war, particularly in light of US President-elect Donald Trump's tariff threats against Canada, China, and Mexico.
Former Bank of England policymaker Gertjan Vlieghe criticized Governor Andrew Bailey for stifling essential discussions on the future of interest rates. Vlieghe emphasized the need for rate-setters to determine when to halt rate cuts, as current borrowing costs have decreased from 5.25% to 4.75%, with expectations of further reductions to 4% by the end of 2025.
UBS maintains a neutral stance on UK equities, citing a supportive macroeconomic backdrop but a slow earnings recovery ahead. While domestic GDP growth is improving and interest rates are being cut, risks from higher tariffs and rising bond yields could impact valuations. The bank forecasts a -3% earnings growth in 2024, down from previous estimates, and advises broad-based exposure to the UK market, favoring sectors like IT, consumer staples, and utilities.
Bank of England Deputy Governor Clare Lombardelli expressed concerns about the potential for inflation to exceed the central bank's forecasts. She advocated for a cautious approach to interest rate reductions, emphasizing the need for gradual adjustments.
Britain faces a looming stagflation crisis as rising costs from increased national insurance, minimum wage hikes, and property rates threaten business profitability. Companies may resort to layoffs to cope, while the Bank of England grapples with the dilemma of maintaining interest rates amid inflationary pressures. With external risks from global conflicts and domestic economic strains, the outlook for growth remains bleak.
Europe's economy faced another setback in November, as surveys indicated a downturn. Amidst this, the Bank of England is preparing for a potential 25 basis point rate cut, influenced by ongoing political uncertainties, including the implications of a possible Trump trade war that could severely impact European markets.
British business output has contracted for the first time in over a year, with the S&P Global Flash Composite PMI falling to 49.9 in November. Tax increases from the new government’s budget have dampened hiring and investment plans, leading to job cuts and a pessimistic outlook, particularly in the manufacturing sector. The services sector also showed weakness, with inflation concerns prompting caution from the Bank of England.
Despite stronger-than-expected UK inflation data, market sentiment remains bearish on the British pound following a recent rate cut by the Bank of England. The pound briefly rose above $1.27 against the dollar but quickly lost ground, driven by the dollar's strength and the BoE's cautious policy approach. UBS indicates that this trend will likely keep sterling under pressure.
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