9 June 2025: Reeves is facing up to the council and police budget cuts

The path of the UK economy since the country voted to leave the European Union has been unerringly on a downward trajectory, with the issues it has caused far outweighing the benefits.

There have been a series of economic shocks to the UK since 2016, but Brexit can be considered to be the only “self-inflicted” wound.

Confidence in the strength of the UK economy has fallen from 45% in May 2015 to 28% a decade later following a cost-of-living crisis, Brexit, Covid and geopolitical upheaval, according to a long-running survey.

However, confidence in non-essential spending has remained strong, aaveraging53% from 2015 to the present, according to the Barclays 10 Years Of Spend report.

Despite financial pressure, households’ discretionary spending has grown by 9.2% annually on average between 2021 and 2024, outpacing essential spending’s 5% growth.

The study, based on billions of transactions and more than 200,000 consumer confidence surveys since 2015, found that 66% of consumers pay more attention to their budget than they did a decade ago.

Just under half, 45%, of all adults say they do not feel better off than they did ten years ago.

This week will see another attempt by the Chancellor of the Exchequer, Rachel Reeves, to gain the acceptance of the public and improve her credibility with the financial community. She will publish her spending plans for the next three years, taking the country to the brink of the next General Election.

There has been a great deal of speculation about where she will make cuts in spending to fund the increase in defence spending that the Prime Minister announced last week.

While she took a bulldozer to the benefits system in her Budget last October, which is still reverberating through several sectors, her apparent reduction in the budgets of several departments that are considered non-protected departments is causing significant concern.

Local councils which provide essential services for the less able members of society will see a cut in their budgets, as will the police.

It is argued that this Government says one thing, that policing will be increased with more officer visibility, but the figures for unsolved crimes continue to escalate.

Local councils will be forced to either cut services to the public or increase council tax to pay for such things as refuse collection, libraries and local transport.

Rachel Reeves has been locked in a stand-off over the policing and council budgets just days before this week’s spending review, which is set to give billions to the NHS, defence and technology.

Yvette Cooper’s Home Office and Angela Rayner’s housing and local government ministry were the two departments still at the negotiating table at the weekend, fighting for more cash, after weeks of trying to reach a settlement.

Whitehall sources said the policing budget would not face a real-terms cut, but there was still disagreement over the level of investment needed for the Home Office to meet its commitments.

Rayner’s department is understood to have reached an agreement with the Treasury late last evening after last-minute wrangling over housing, local councils and growth funds.

The Prime Minister has adopted a hands-off approach as his three most senior Ministers try to reach an agreement.

The pound is still affected by issues in other nations, primarily the United States. Employment data and the very public row between the President and one of his major supporters, Elon Musk, have caused increased volatility.

Sterling fell to a low of 1.3510 on Friday before rallying to close at 1.3533.

The very public spat between Donald Trump and Elon Musk shows no sign of calming down. Trump has often used insults and threats to get what he wants across several areas of his business and political career. He has not learned anything from his first stint in the White House, continuing to believe, as he has been recently in his arguments with the judiciary, that the economy is not a part of his business empire, where what he says goes.

Musk has the financial muscle and a thick enough skin to withstand anything that Trump says or does and fight back strongly. It is becoming clear that both men have significantly more to lose than to gain from what is happening right now,

The most important monthly data release, the May Employment Report, was forced into the background on Friday as Trump accused Musk of “losing his mind” while the Tesla boss threatened to suspend operations at his space exploration company, which remains the only method the U.S. has currently of reaching the International Space Station.

Meanwhile, back on Earth, the economy created 139k new jobs in May. This was not enough to end any speculation about the short to medium-term path of interest rates, but continued the long-running discussion by market analysts of a soft landing.

The Federal Reserve will feel comfortable leaving interest rates unchanged until at least September, despite the almost daily haranguing that Jerome Powell receives from the President.

The creation of 139K new jobs at the current stage of the economic cycle is considered acceptable while inflation continues to fall, albeit slowly, towards the Fed’s 2% target.

While Powell’s apparent stubbornness may cost him his job, a job which he seems to want less and less, his colleagues on the FOMC strongly support his monetary policy actions.

On Friday, Patrick Harker, the President of the Philadelphia Federal Reserve, who retires at the end of the month, embarked on a “farewell tour” and told reporters that the Fed may still yet find itself in a position to deliver rate cuts before the year is over.

However, Harker attached some notable caveats to his hopeful outlook, cautioning that deteriorating economic data in the face of extreme policy swings, as well as a burgeoning budget deficit from the federal government, could waylay rate cuts.

When it comes to easing monetary policy, “it’s possible, I would never take it off the table,” Harker said in an interview with Reuters on Thursday. “If the signals are such that inflation doesn't look like it's moving rapidly north, but unemployment does, then, yeah, I could see making one or more cuts this year, but it's hard to say at this point.”

The dollar index saw increased volatility on Friday as the warm front of economic data ran up against the cold front of Administration spats.

It climbed to a high of 99.32 as the data pointed to more inaction on monetary policy, but fell away as the arguments between Trump and Musk increased in volume and animosity.

It has been some time since a prominent member of the ECB’s Governing Council spoke in what could be considered hawkish terms about the prospects for monetary policy; Joachim Nagel did just that yesterday.

In a radio interview, the Bundesbank President told reporters that we are no longer restrictive. I believe that we can now take the time to look at the situation first. We now have maximum flexibility at this interest rate level," Nagel said in a live interview on Deutschlandfunk radio.

The ECB has lowered borrowing costs eight times, or by two hundred basis points, since last June, seeking to prop up a Eurozone economy that was struggling even before the uncertainty that has been created by Donald Trump’s erratic stance on tariffs.

Nagel went on to confirm that, in his opinion, the ECB has now reached the point where it can be patient in selection of the time, if that time comes, when policy can be loosened further.

ECB President Christine Lagarde agreed, commenting that “recent interest-rate adjustments position the ECB to achieve its medium-term inflation target.

Germany appears to be reasserting its command of the ECB, with board member Isabel Schnabel saying over the weekend that she agreed that the Central Bank can take its time on interest rates, adding that inflation is now close to the ECB’s target.

Schnabel went on to say that she sees a favourable moment now to strengthen the euro’s global role as investors turn to Europe.

There’s a “window of opportunity” to increase the international role of the euro, she said in a question to a panel at the 31st Dubrovnik Economic Conference on Saturday.

Earlier at the same conference, she said there were signals investors are focusing on the Continent to diversify their portfolios, calling it a “positive confidence effect”.

The remarks reinforce comments from policymakers, including ECB president Christine Lagarde and show how officials are seeking to turn US President Donald Trump’s attacks on global trade and US institutions to their advantage.

Investors have rushed out of the US dollar so far this year, with the greenback falling against every other major currency.

At the end of May, Ms Lagarde said Mr Trump’s erratic policies offer a “prime opportunity” to strengthen the euro’s role and allow the currency bloc to enjoy more of the privileges so far reserved for the US dollar.

The only notable data release this week comes later with the publication of Eurozone-wide Industrial production data, while markets continue to be overshadowed by comments on policy from senior Central Bankers.

Dutch Central Bank Governor Klaas Knot and the Head of the Bank of Italy are both scheduled to make speeches, while inflation data from several individual member states will be released.

The Euro was in a downward trend initially on Friday, reaching a low of 1.1377 before rebounding to close at 1.1407.

Have a great day!