20. The Policy Watch

The Policy Watch is a weekly update which aims to provide concise insights into the current policy landscape. Tailored for our members and individuals interested in international affairs, this update offers a brief yet comprehensive summary of key developments affecting policy decisions and political trends in the UK, Sweden, and the EU.

BANK OF ENGLAND SIGNALS POTENTIAL INTEREST RATE CUT AFTER LEAVING IT UNCHANGED

The Bank of England has hinted at the possibility of cutting interest rates as early as next month after stating that inflation was heading in the desired direction, after the BoE kept it steady at 5.25% for the sixth consecutive time.

Despite maintaining the current interest rates, the Bank projected that inflation would hit its 2% target and fall to 1.6% within two years, indicating a potential for future rate cuts. The Bank’s more optimistic economic outlook, suggesting the end of the UK recession and a 0.4% growth in the economy for the first quarter of the year, is subject to the official estimate of growth to be published by the Office for National Statistics on Friday

BRITISH SME EXPORTERS STRUGGLE AS OVERSEAS SALES REMAIN STAGNANT, BCC REPORT SHOWS

The British Chambers of Commerce’s (BCC) Trade Confidence Outlook for Q1 2024 indicates a challenging scenario for most SME exporters, with over half (53%) experiencing no change in overseas sales and 23% reporting a decrease. Only 24% of exporting SME firms saw their overseas sales rise in Q1, with BCC indicators suggesting consistent underperformance in SME exports compared to domestic sales since the pandemic, according to a survey of more than 2,000 UK SME exporters conducted by the BCC’s Insights Unit.

RISHI SUNAK OUTLINES VISION FOR BRITAIN’S FUTURE AMIDST GLOBAL CHALLENGES

In a speech on Monday, UK Prime Minister Rishi Sunak expressed a sense of urgency, highlighting that the next few years could be among the most dangerous yet transformational for the country. Sunak outlined the challenges Britain faces, including global conflicts, the rise of authoritarian regimes, and the dangers of technological disruption by AI, while also emphasising the opportunities made possible by it. He pledged to lead the country through this period by strengthening national security, investing in education and innovation, and ensuring financial security for all citizens.

UK WILL NOT FOLLOW US IN HALTING ARMS EXPORTS TO ISRAEL AMIDST THREAT OF RAFAH INVASION

British Foreign Minister David Cameron stated on Thursday that the UK will not mimic the White House’s pledge to cease certain arms exports to Israel if a full invasion of Rafah occurs. Cameron clarified that the UK’s approach differs significantly from the US, as the UK government issues individual licenses for arms exports to Israel, rather than being a major state supplier like the US.

He emphasised that the UK would adhere closely to its rigorous arms export procedure, which takes approximately six weeks to update evidence on whether Israel is violating international humanitarian law, potentially delaying any decision until after a possible Rafah invasion.

RIKSBANK LOWERS INTEREST RATE BY 0.25 PERCENTAGE POINTS

The Riksbank has lowered the interest rate by 0.25 percentage points to 3.75 percent, indicating the possibility of two further cuts in the second half of this year.

Riksbank Governor Erik Thedéen announced the decision at a press conference, suggesting that the move could potentially boost household purchasing power and real wages. The decision, the first interest rate cut in over eight years, was widely anticipated, with the Riksbank indicating that inflationary pressures remain uncertain despite unexpectedly low inflation figures in March.

SWEDEN INCREASES SUPPORT TO GEORGIA AMIDST CONTROVERSIAL LEGISLATION

The Swedish Government is increasing its support to Georgia by 11 million SEK this year due to the contentious “agent law” expected to be implemented soon. Ten million SEK of the new funds will be allocated to Georgian civil society, with one million SEK designated for the investigative Georgian media organisation Ifacts. “The situation for civil society is more difficult than ever, and therefore, support will go to these important organisations,” said Minister for International Development Cooperation and Foreign Trade Johan Forssell.

SWEDEN REINSTATES BORDER CONTROLS AMID SECURITY CONCERNS

Due to severe threats to public order and internal security, the Swedish Government has announced the reinstatement of border controls at its internal borders from May 12th to November 11th, 2024. The decision follows the Swedish Security Service’s decision to maintain the terror threat level at four out of five, citing a persistently high security threat level and ongoing tensions, including the conflict between Israel and Hamas. Similar measures have been adopted by other Schengen member states, with the Swedish Police Authority tasked to determine the specifics of the controls to safeguard public order and internal security.

EU APPROVES PLAN TO USE FROZEN RUSSIAN ASSETS TO BUY WEAPONS FOR UKRAINE

The EU has given the green light to a plan that will utilise the profits from investing frozen Russian assets to purchase weapons for Ukraine. Following Belgium’s agreement to alter its treatment of tax revenue from the cash, the last major obstacle to the deal has been removed. The profits, estimated to be between €2.5 billion and €3 billion per year, generated by investing Russia’s assets, predominantly held in Belgium, will be allocated, with 90% going towards weapons and the remaining 10% towards non-military aid.

SOCIAL DEMOCRATIC POLITICIAN FRANZISKA GIFFEY ASSAULTED IN BERLIN LIBRARY

Berlin’s Senator for Economic Affairs, Franziska Giffey, of the Social Democratic Party (SPD), was assaulted Tuesday afternoon in a library in the German capital, sustaining injuries. According to police reports, Giffey was attacked from behind by a man wielding a bag filled with hard contents, causing injuries to her head and neck. She received outpatient treatment for headache and neck pain at a local hospital.

The assault on Giffey is the latest in a series of attacks against politicians in Germany ahead of June’s European Parliament election, sparking discussions about improved protection for public officials and elected representatives.

VICTORY OF RIGHT-WING PARTY IN NORTH MACEDONIA ELECTIONS RAISES CONCERNS FOR EU ACCESSION

North Macedonia’s nationalist VMRO-DPMNE party secured significant wins in parliamentary and presidential elections on Wednesday, marking its return to power after seven years. With the VMRO-DPMNE’s victory, North Macedonia’s ambition to join the European Union is likely to face further complications, potentially impacting relations with neighbouring Bulgaria and Greece. Despite the country’s efforts, its EU accession process has been hindered by issues such as corruption, slow reform, and disputes over its constitution and minority rights.

SPANISH SOCIALISTS WIN CATALONIA VOTE, DEALING BLOW TO SEPARATISTS

The Socialist Party led by Pedro Sánchez secured the largest share of votes in Sunday’s regional election in Catalonia, boosting the Spanish prime minister and denting the separatist movement. Catalonia’s pro-separatist parties fell short of the 68 seats needed to form a coalition government for the first time in over a decade. Salvador Illa, leader of the Catalan wing of Sánchez’s Socialists, aims to become Catalonia’s next president but will need to seek a coalition to form a government as his party fell short of a majority.