Some midweek reads
Interest rates in Britain, Putin leads the BRICS, Mexico's economic opportunity....
Britain’s inflation fight enters its final leg
The last time the Bank of England’s monetary policy committee met to decide on interest rates, they agreed to hold interest rates steady at 5.25%. Economic data since the November meeting has reinforced the view that the central bank’s fight to bring down inflation is going to plan. When the Bank meets on Thursday, it will probably leave rates untouched once again.
Inflation was 4% in December, the lowest reading in almost two years. Britain’s resilient labour market is cooling: annual growth in regular earnings fell to 6.6% in the three months to November, a sharper slowdown than economists were expecting. Meanwhile, the economy is slowing.
Observers will be looking for signs about when to expect rate cuts. However, after getting inflation wrong in 2022, rate-setters will probably want to make sure that inflation is dead before discussing loosening monetary policy. Services inflation remains uncomfortably high, and spiking shipping costs could cause prices to surge. The last mile of the inflation fight may be the hardest.
Russia takes over the BRICS presidency
Russia recently assumed the chairmanship of the BRICS, a group comprising Brazil, Russia, India, China and South Africa. The timing is perfect—for Vladimir Putin. His war on Ukraine has sparked international condemnation, so he hopes that this will give a boost to his attempts to show that Russia is not running out of friends.
The war and rising tensions between the China and the West have revitalised the bloc; last year member nations invited six new countries to join the party. In this year’s summit, which will be held in the Russian city of Kazan in October, China and Russia will push for further expansion.
However, a bigger crowd does not necessarily mean that the BRICS will obtain the influence they seek. Its members differ economically and politically. Some claim to be non-aligned, while others are anti-Western; some are democracies, others autocracies. Thus, a bigger BRICS will expose the bloc’s contradictions.
Mexico’s economic opportunity
Mexico has a reputation for squandering opportunities. The North American Free Trade Agreement (NAFTA) was supposed to lift millions of people out of poverty—yet growth has averaged 2% a year since the deal took effect. Recently, the shortening of supply chains by American firms because of tensions with China has provided another opportunity to grow. But is Mexico seizing the moment? On Wednesday America releases trade numbers for 2023, and Mexico publishes car export and production data, providing an indication of whether it is strengthening ties with its powerful neighbour.
Mexico is having a moment. Foreign investment is pouring in, its currency is one of the strongest in the region and the stock market is booming. Moreover, thanks to NAFTA, Joe Biden’s jumbo package of green subsidies will incentivise American firms to buy Mexican goods. However, obstacles remain. Poor infrastructure, reluctance to invest and embedded corruption could hold the economy back, resulting in yet another missed chance.