
Euro zone cannot sustain pace of economic growth, economist says
Holger Schmieding, chief economist at Berenberg, discusses the latest euro zone economic data and the outlook for the region.

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Reeves public spending spree ‘costs homeowners £820 extra a year'
Rachel Reeves's public spending spree has pushed up the cost of borrowing in a move that is costing homeowners £820 a year, economists have warned. As the Chancellor prepares to unveil £300bn in new spending pledges in her upcoming review, analysts at Berenberg said households were already counting the cost of the Chancellor's borrowing binge last autumn. Andrew Wishart, an economist at Berenberg, said Ms Reeves's decision to spend more money on public services and investment meant the Bank of England was unlikely to cut interest rates again this year, extending the pain for millions of mortgage holders. While Ms Reeves has repeatedly blamed former prime minister Liz Truss for pushing up mortgage costs after the mini-Budget, Mr Wishart said her own spending blitz meant mortgage deals were unlikely to get better this year. Mr Wishart predicted average mortgage rates would 'likely stabilise at about 4.5pc, whereas they might have fallen to 4pc were the Bank able to continue to lower rates at a quarterly pace'. With every half a percentage point rise in mortgage rates adding an additional £8.3bn in mortgage interest to bills, he said this would cost the 1.8m homeowners refinancing in 2025 an average of £820 each. Mr Wishart said this would force the Bank of England to keep interest rates higher for longer. Policymakers voted to cut interest rates to 4.25pc in May. However, a June cut is looking unlikely, with higher-than expected inflation forcing traders to reassess bets on more rate cuts later this year. Investors are now betting on two more rate cuts this year. However, Mr Wishart predicted higher spending would prevent the Bank from cutting rates further. He said: 'The stance of fiscal policy is pretty loose at a time when it probably shouldn't be. We've got unemployment close to historical lows, and a government deficit of over 5pc of GDP last year. 'That is a sign the Government is injecting cash into the economy at a time [when] it is pulling in the other direction to the Bank of England. 'It is quite an important reason why demand is holding up in the early part of this year, and that is a key reason why I think the Bank is going to have to hold off rate cuts until 2026. 'That means mortgage rates aren't going to decline any further, if that is right, because the market will have to take out the cut or two that it has got in for the rest of this year.' Ms Reeves will on Wednesday set out Whitehall day-to-day and investment budgets until the next election. Labour is hoping that extra spending on health and infrastructure in Red Wall areas will arrest a surge in popularity for Reform. The Chancellor announced an average £70bn a-year increase in spending in her Budget last October in a move that will swell the size of the state to 44pc of GDP by the end of the decade. This is almost five percentage points higher than its pre-pandemic size. Ms Reeves has already set out an £87bn increase in public spending over the next two years, with details of a further £300bn between 2026-27 and 2029-30 to be set out on Wednesday. Broaden your horizons with award-winning British journalism. Try The Telegraph free for 1 month with unlimited access to our award-winning website, exclusive app, money-saving offers and more.

Yahoo
9 hours ago
- Yahoo
Reeves public spending spree ‘costs homeowners £820 extra a year'
Rachel Reeves's public spending spree has pushed up the cost of borrowing in a move that is costing homeowners £820 a year, economists have warned. As the Chancellor prepares to unveil £300bn in new spending pledges in her upcoming review, analysts at Berenberg said households were already counting the cost of the Chancellor's borrowing binge last autumn. Andrew Wishart, an economist at Berenberg, said Ms Reeves's decision to spend more money on public services and investment meant the Bank of England was unlikely to cut interest rates again this year, extending the pain for millions of mortgage holders. While Ms Reeves has repeatedly blamed former prime minister Liz Truss for pushing up mortgage costs after the mini-Budget, Mr Wishart said her own spending blitz meant mortgage deals were unlikely to get better this year. Mr Wishart predicted average mortgage rates would 'likely stabilise at about 4.5pc, whereas they might have fallen to 4pc were the Bank able to continue to lower rates at a quarterly pace'. With every half a percentage point rise in mortgage rates adding an additional £8.3bn in mortgage interest to bills, he said this would cost the 1.8m homeowners refinancing in 2025 an average of £820 each. Mr Wishart said this would force the Bank of England to keep interest rates higher for longer. Policymakers voted to cut interest rates to 4.25pc in May. However, a June cut is looking unlikely, with higher-than expected inflation forcing traders to reassess bets on more rate cuts later this year. Investors are now betting on two more rate cuts this year. However, Mr Wishart predicted higher spending would prevent the Bank from cutting rates further. He said: 'The stance of fiscal policy is pretty loose at a time when it probably shouldn't be. We've got unemployment close to historical lows, and a government deficit of over 5pc of GDP last year. 'That is a sign the Government is injecting cash into the economy at a time [when] it is pulling in the other direction to the Bank of England. 'It is quite an important reason why demand is holding up in the early part of this year, and that is a key reason why I think the Bank is going to have to hold off rate cuts until 2026. 'That means mortgage rates aren't going to decline any further, if that is right, because the market will have to take out the cut or two that it has got in for the rest of this year.' Ms Reeves will on Wednesday set out Whitehall day-to-day and investment budgets until the next election. Labour is hoping that extra spending on health and infrastructure in Red Wall areas will arrest a surge in popularity for Reform. The Chancellor announced an average £70bn a-year increase in spending in her Budget last October in a move that will swell the size of the state to 44pc of GDP by the end of the decade. This is almost five percentage points higher than its pre-pandemic size. Ms Reeves has already set out an £87bn increase in public spending over the next two years, with details of a further £300bn between 2026-27 and 2029-30 to be set out on Wednesday. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
9 hours ago
- Yahoo
NATO's Rutte calls for 400% increase in air defenses to counter Russia, Bloomberg reports
NATO Secretary General Mark Rutte called on alliance members to deliver a "quantum leap" in defense investment as the threat from Russia persists, Bloomberg reported on June 9. "Danger will not disappear even when the war in Ukraine ends," Rutte said in prepared remarks for a speech at Chatham House in London. "We must have more forces and capabilities to implement our defense plans in full." Rutte urged NATO members to boost air and missile defense by 400%, citing lessons from Russia's attacks on Ukraine. Russia has been repeatedly targeting Ukrainian cities with missiles and drones of different types. Most recently, on June 9, Russia launched 499 drones and missiles during its massive overnight attack across Ukraine. Kyiv has been consistently calling on its allies to boost air defense support. "We see in Ukraine how Russia delivers terror from above, so we will strengthen the shield that protects our skies," Rutte said, according to Bloomberg. Rutte is pushing for NATO countries to adopt a new military spending target of 3.5% of gross domestic product (GDP) by 2032, alongside an additional 1.5% of GDP for security-related projects such as cyber defense and border control. The proposal comes after U.S. President Donald Trump called on allies to spend 5% of GDP on defense. Rutte's remarks follow his earlier warning during an April visit to the White House, where he met with Trump. There, he reiterated that NATO views Russia as a "long-term threat" to Euro-Atlantic security. "We all agree, in NATO, that Russia is the long-term threat to NATO territory, to the whole of the Euro-Atlantic territory," Rutte said after those talks. Read also: Amid missile shortage, Ukraine's air defenses are struggling under Russian ballistic attacks We've been working hard to bring you independent, locally-sourced news from Ukraine. Consider supporting the Kyiv Independent.