ECB VIEW: Barclays Remove September Cut From Forecast

The House of Commons is due to begin its final debate on the second reading of the Universal Credit and Personal Independence Payment Bill at around 13:30BST ( delayed from 12:40BST due to statement from the Business Secretary, no change to timing on the vote, live stream here) ahead of a vote ~19:15 (see 'UK FISCAL: Welfare vote this evening and wider implications for markets', 11:03BST).

• The gov't offered concessions on the welfare reform over the weekend. A new amendment has around 40 Labour signatures at present, substantially fewer than the 120+ that were due to back the initial amendment.
• Speaker of the House of Commons Sir Lindsay Hoyle has yet to indicate whether the amendment will be selected. Its passage is uncertain, based both on the fluctuating number of Labour rebels and whether the main opposition centre-right Conservatives back it.
• Any rebellion on the second reading of under 40-50 would likely be viewed as something of a success for the gov't, as in this scenario, its whipping operation has reduced the number of rebels.
• If between 50 and 83 Labour MPs vote against the bill (or for the amendment), it would come as a major blow to Sir Keir Starmer's authority, given heavy gov't efforts to whip support for the bill.
• If more than 83 Labour MPs vote against, and all opposition MPs do so, the bill will fail. It is unclear whether the vote would be viewed as a confidence issue (presaging a snap election), but in any case it would severely damage the PM's standing and almost inevitably lead to ministerial changes and a rethink of gov't policy programme. 

On balance, latest German labour market data was, again, on the softer side: employment continues its stabilization off the highs, and unemployment ticked up but the unemployment rate remained unchanged vs consensus for a slight uptick. The IFO employment barometer has given away some of its previous gains most recently. Some potential remains for renewed optimism on economic momentum in Germany to filter through to the labour market ultimately - but as of now, the data does not suggest that is happening (yet).

• Unemployment rose a little less than expected (+11k vs 15k cons, 33k May) on a seasonally-adjusted basis. The unemployment rate meanwhile remained at 6.3% for the fourth consecutive month, despite consensus looking for an uptick to 6.4%.
• Employment was roughly unchanged in May, meanwhile (as it was for the last three consecutive months), at 45.8mln (+1k vs April, seasonally-adjusted Destatis data).
• The expected number of employees impacted by 'Kurzarbeit' (which has to be reported in advance by companies and can be interpreted as an early indicator for future use of state benefits) was little changed in June at around 46k (when extrapolating trends in place until the survey period end on June 25).
• New vacancies ticked up a little in June but not far enough to question their longer-term downtrend, at 120k vs 115k May (which was the lowest since the pandemic). Overall vacancies continued their longer-term downtrend in place since 2022.
• Recall that the IFO employment barometer decreased to 93.7 points in June, from 95.1 in May and not far away from April's 93.9. "Despite improved sentiment in the economy, the labour market has not yet managed to turn the corner. There is still a lack of orders for new hires," IFO commented.

Highlights from ECB Muller's interview with Reuters:

• "It’s reasonable not to change rates in July,"...."While it’s too early to discuss the autumn, it’s also reasonable to assume that we should not go much lower during the current cycle, unless the euro area economy will turn out to be much weaker than we expect."
• "The euro exchange rate against the dollar is well within the historical range,"...."The appreciation this year has indeed been quick but we’re not at a level where I am particularly concerned.