Where do we go from here?
That was the question on every politician’s lips in Catalonia and Spain yesterday as a flurry of actions and threats moved the crisis over Catalan independence further towards the brink.
As a symbol of hardening stances on both sides, Spain’s constitutional court ruled to suspend a planned session of the Catalan parliament on Monday at which the leader of Catalonia’s regional government, Carles Puigdemont, is expected to to act on the result of last Sunday’s referendum by issuing a unilateral declaration of independence for a Catalan republic.
Speaking in an interview for the first time since Sunday’s vote, the Spanish prime minister Mariano Rajoy has warned Madrid could invoke a clause in the constitution suspending Catalonia’s autonomy as a result.
The political polarisation shows signs of spreading to the business community as companies consider how best to manage the uncertainty. A significant concern is the need to maintain regulatory continuity, as independence for the region also carries with it compulsory re-application to the EU for membership. In response, the Spanish government is thought to be preparing a hastily-drawn up law making it quicker and easier for Catalan-based companies to shift their operations to the rest of Spain.
But as high as the stakes are, neither side seems willing to back down. Indeed, the German EU Commissioner, Günther Oettinger, who has called for the EU to act as an intermediary, has suggested the region could face armed conflict and ‘civil war’ if a diplomatic solution couldn’t be found.
At this juncture, it is hard to see what could encourage a de-escalation of tensions for both sides. Catalan politicians, alongside those of Spain, seem damned if they act and damned if they don’t.
Grant Shapps, a former Conservative Party chairman, has admitted to helping lead dozens of rebel MPs in a plot to oust the prime minister before Christmas. One Tory MP said there was a 50% chance Theresa May could resign following her speech at the Conservative Party conference with reports of a potential coup of 30 MPs over the weekend. Several cabinet members including Amber Rudd, who is spoken of as a potential leadership candidate, have rallied behind the prime minister.
Ryanair chief executive Michael O’Leary has apologised to the airline’s pilots, offering pay increases and improved job security to stay at the airline. It is thought the move was prompted by speculation of a letter circulating among staff encouraging support for an unofficial union to challenge the airline’s working practices. New figures yesterday revealed air fares for last-minute trips have risen by more than a fifth following Ryanair’s cancellations and Monarch’s collapse.
Business & Economy
The main trade union at Royal Mail has announced a two-day strike due for October 19 - the first since the postal service’s privatisation. The move is an escalation by the Communication Workers Union over disputes concerning pensions, pay and jobs, and follows a strong vote by workers in favour of industrial action.
Two-thirds of the Exchequers’ £26bn ‘war chest’ financial reserve could be wiped out as the Office for Budget Responsibility (OBR) is due to publish a report suggesting a persistent over-estimation of Britain’s productivity during the past seven years. Lower productivity and slower growth expectations will limit the Chancellor’s ability to reduce the deficit and announce new investment in the Autumn Budget due next month.
UK car sales have fallen for the six month in a row, leaving the market on course for its first annual decline since 2011. New car registrations dropped by 9.3% to 426,170, with sales of diesel cars falling sharply by 21.7% last month over uncertainty attributed to Brexit and confusion over air quality plans.
What happened yesterday?
British politics wreaked fresh havoc on currency markets yesterday amid renewed uncertainty over Theresa May’s future as prime minister following her appearance at the Conservative Party conference. The pound fell 0.9% against the dollar to $1.31 and declined 0.45% against the euro to €1.12. The rumours undid much of the recent gains led by speculation of an interest rate rise later this year, leaving BoE policymakers with a tough task as they were due to give a set of speeches on the issue last night.
The FTSE 100 responded predictably well to the pound’s weakness, closing up 40.4 points at 7,507.9. The big winner was theme park operator Merlin Entertainments whose shares finished 3.4% higher at 463.8p amid news it is considering a purchase or takeover of US theme parks, SeaWorld.
Elsewhere, Tesco clawed back 2.7p to 186.6p in response to a UBS report of ‘healthier’ finances following negative market reaction to underwhelming sales figures earlier in the week. Tesco’s restoration of a dividend and its merger with Booker cemented confidence in the UK food wholesale market, UBS added.
UK Economic Announcements
(08.30) Halifax House Price Index
International Economic Announcements
(07.00) Factory Orders (GER)
(13.30) Non-Farm Payrolls (US)
(13.30) Unemployment Rate (US)
(15.00) Wholesales Inventories (US)
(20.00) Consumer Credit (US)
Columns of Note
Writing in The Times, Philip Collins writes that the furore over Theresa May’s leadership is a proxy battle between four competing factions of the Conservative Party for dominance. He suggests the liberal, open, multinational sections are on the back foot which could ultimately save the party from its current electoral challenges.
Philip Stephens writes in the Financial Times that the questions of sovereignty and citizenship raised by the crisis over Catalan independence will have ramifications for Spanish citizens everywhere. In a pessimistic outlook, he concludes that the situation will ultimately be decided by agreement between both sides or by civil war.
Did you know?
President John Adams and President Thomas Jefferson died within 5 hours of one another on July 4, 1826, which was the 50th anniversary of the Declaration of Independence.
House of Commons
In recess until 9th October for party conference season.
House of Lords
In recess until 9th October for party conference season.
No business scheduled.