My nerves are still shredded from watching the conclusion of the Ryder Cup on Sunday evening, when Europe narrowly triumphed over a resurgent US team despite almost managing to snatch defeat from the jaws of victory.
Keir Starmer probably hopes for something similar. Despite winning last year’s election with a significant majority, his time in government has been a constant battle. He will hope that he still has time to turn things around, but with a Budget announced for late November it seems more likely that the news flow for the next couple of months will be dominated by speculation about how the Chancellor is going to plug a growing budget deficit.
Everybody seems to have an opinion on this, not least former Bank of England Governor and now Canadian Prime Minister Mark Carney, who has urged Labour to reduce the tax burden on Britain’s middle classes to stop a lurch towards extreme politics and help hasten the exit of a prolonged period of economic malaise. With the cost of government borrowing close to a 27-year high, this advice seems unlikely to be followed – and an increasingly nervous bond market continues to heap pressure on Rachel Reeves to raise taxes and curb public spending, or risk another gilt crisis similar to that seen during the Liz Truss era.
UK inflation remains elevated and the risk of stagflation could worry the Bank of England, which might ultimately have to choose between growth and inflation. You only need to look at the treatment of US Fed Chair Jay Powell by Donald Trump to see that bankers are increasingly being pressured to cut rates during periods of slowing economic growth, but doing so here could risk adding further fuel to the inflation fire and I imagine that any change in base rates will therefore remain data dependent.
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