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Chancellor Rachel Reeves has eliminated post-crisis banking rules aimed at enhancing safety in the City to stimulate growth. The changes reduce ring-fencing requirements, allowing retail banks to engage in hedging activities. While the reforms are intended to boost lending and job creation, Labour's internal leadership challenges may impact their implementation. The Treasury claims these adjustments could enable banks to provide an additional £80bn in support to businesses. Industry leaders have welcomed the reforms, emphasizing their potential to enhance the UK's economic competitiveness.

- Chancellor Rachel Reeves has canceled banking rules aimed at enhancing safety in the financial sector post-financial crisis to spur economic growth.  
- The changes will reduce the number of services that must remain segregated and allow retail banks to engage in certain hedging activities, claiming it will support growth and create jobs.  
- The new rules are expected to provide banks with up to £80 billion in additional support for businesses and facilitate more shared operations between retail and investment banking.

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Reeves scraps post-crisis banking rules  in scramble to boost growth

UK gilt yields have surged to historic highs, with 30-year yields at 5.81% and 10-year yields at their highest since 2008. Political instability, including Labour's local election losses, is unsettling debt markets and raising concerns about increased government borrowing. This trend reflects a global bond sell-off driven by inflation, energy shocks, and geopolitical conflicts.

UK gilt yields hit century high amid political turmoil

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The pound fell 0.2% to $1.3502 amid a political crisis in the UK following the resignation of health minister Wes Streeting, increasing pressure on Prime Minister Keir Starmer after local election losses. The currency also dropped to 86.68 pence per euro. Meanwhile, the 10-year UK gilt yield decreased by 4.3 basis points to 5.026%, while London's FTSE index rose by 0.38%.

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Pound dips as political crisis engulfs Britain

The UK government has confirmed plans to reform money market fund regulations to enhance sector resilience following the liquidity pressures experienced during the COVID-19 pandemic. The reforms will require funds to maintain higher liquidity levels and are expected to be implemented by year-end, pending legislative approval. These changes aim to prevent future market stress events and ensure funds can meet investor withdrawals without causing asset sales disruptions. The Financial Conduct Authority will provide further details on the reforms soon.

- The UK government has confirmed plans to reform regulations for money market funds, which have been closely monitored since market turmoil in March 2020.  
- These reforms aim to increase liquidity requirements, improve asset sale capability under market stress, and enhance the resilience of the sector.  
- The updated framework is expected to be implemented by the end of the year, contingent on legislative approval, following consultations initiated by the Bank of England.

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UK advances money market fund reforms to improve sector resilience

Britain's economy grew unexpectedly in March to cap another strong first quarter, suggesting it was in better shape as the Iran war escalated than many feared, though economists said seasonal distortions were flattering the figures. Sean Hogan has more.

UK economy posts strong Q1, but Iran war casts shadow over outlook

The UK economy grew by 0.6% in Q1 2023, indicating resilience despite geopolitical tensions and rising energy prices. This growth matched economists' expectations and improved from 0.2% in Q4 2022. The services sector led the growth, with a 0.8% increase. However, the ongoing conflict in the Middle East poses risks to future growth, affecting business confidence and inflation. The Bank of England may raise interest rates in response to persistent inflation pressures. Chancellor Rachel Reeves emphasized the government's economic strategy in light of these challenges.

- The UK economy expanded by 0.6% in the first quarter of this year, showing resilience amid rising geopolitical tensions and surging energy prices.  
- The growth was driven primarily by a strong performance in the service sector, with all three major economic sectors reporting gains.  
- However, economists warn that the ongoing Middle East conflict could significantly pressure future growth, affecting consumer prices and business confidence.

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UK economy grows 0.6% in Q1, but Iran conflict threatens recovery momentum

Prior +0.1%GDP +% vs +0.8% y/y expectedPrior +1.0%More to come..

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UK Q1 preliminary GDP +0.6% vs +0.6% q/q expected

Prior +0.5%Services output % vs -0.1% m/m expectedPrior +0.5%Industrial output % vs -0.3% m/m expectedPrior +0.5%Manufacturing output % vs 0.0% m/m expectedPrior -0.4%Construction output % vs -0.5% m/m expectedPrior +1.0%More to come..

- Last month, service sector output increased by 0.5%, yet it is expected to decrease by 0.1% month-over-month.  
- Industrial output is projected to decline by 0.3% compared to the previous month's growth of 0.5%.  
- Manufacturing output is unchanged at 0.0%, while construction output is expected to decrease by 0.5% after a rise of 1.0%.

UK March monthly GDP +0.3% vs -0.2% m/m expected

The UK government has announced a ban on new oil and gas exploration in the North Sea, as stated in the King’s Speech during the state opening of Parliament. This decision is part of the Energy Independence Bill, aiming to enhance energy security and fulfill a Labour party manifesto pledge to transition to clean energy by 2030. Critics argue the ban could harm the economy and increase reliance on foreign fossil fuels, especially amid rising oil prices due to geopolitical tensions. Opposition parties have vowed to overturn the ban, citing potential tax benefits and energy independence.

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King’s Speech: Ministers ban North Sea oil and gas exploration

The UK real estate market is facing challenges due to macroeconomic factors linked to the Middle East conflict. Tarrant Parsons from RICS notes that the Bank of England may need to raise interest rates to combat inflation driven by high oil prices and supply chain issues, creating a tough environment for buyers.

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Reeves scraps post-crisis banking rules in scramble to boost growth