27 August 2025: Delivery, not ambition, should be Reeves’ goal

The time is fast approaching when the Government and, in particular, Rachel Reeves, needs to deliver on her promises to improve the lot of the British public. The electorate was in the mood for change after thirteen years of Conservative rule, as the Party gradually disintegrated into what it has now become, a distant third, and in danger of becoming an irrelevance.

The population is fed up with wishy-washy centrist politicians treating them as fools, making promises that will never be fulfilled.

Far from continuing a significant swing to the left, since last year’s election, the far right, as represented by Nigel Farage’s Reform UK Party, has leapt into a lead, which, if an election were to be due in the next six months, would appear to be pretty much unassailable.

Farage introduced another flagship policy yesterday, which was both populist and opportunistic. If reform were to win the next election, it would deport up to 600k undocumented immigrants who have arrived in small boats from France. All three other Parties have decried the plan, with Labour calling it unworkable and the Conservatives saying that it is simply a rehashing of their policies.

The economy is showing signs of resilience, with business activity recovering to its highest level since August 2024.

The latest purchasing managers' indices indicate that business activity in the UK has strengthened, with the services sector leading the recovery. Service firms specifically cited strong demand as the reason for improved output.

This positive economic data suggests fears about an imminent economic slowdown should ease, potentially good news for the UK government, which has been facing economic challenges.

However, pricing pressures remain a concern. The PMI release highlights that firms continue to pass on costs from recent National Insurance increases to consumers. More significantly, companies are successfully implementing these price increases due to robust demand.

The BoE recently lowered its base rate to 4%, but this still leaves monetary policy in restrictive territory. Economists believe rates will move lower, though the timing of these moves remains uncertain.

This uncertainty about BoE rate cuts contrasts with the US Federal Reserve, where consensus has shifted from questioning if rate cuts will happen to when they will resume.

Bank of England Monetary Policy Committee member Catherine Mann told reporters yesterday that she would vote for interest rates to remain unchanged at the next rate-setting meeting.

"A more persistent hold on Bank Rate is appropriate right now, to maintain the tight, but not tighter, monetary policy stance needed to lean against inflation persistence," Mann said in remarks released by the BoE.

"However, I also stand ready for a forceful policy action, in the form of larger, more rapid Bank Rate cuts, should the downside risks to domestic demand start materialising," she added.

The pound has seen an increase in volatility as it has been driven by contrasting factors. While the dollar has been under pressure, the likelihood of a further rate cut at next month’s MPC meeting has kept it on the back foot. Yesterday rallied to a high of 1.3493 and closed at 1.3480.

The U.S. has been in turmoil to a greater or lesser degree since President Trump announced that he would be adding tariffs to imports into the U.S. of goods that emanate from across the globe. That turmoil has continued through the spring and summer as Trump has interfered in the Russian invasion of Ukraine, the war in Gaza, and an inconclusive attempt to destroy Iran’s nuclear capability.

However, it is now his attempts to politicise the country’s Central Bank that are causing the most concern. Yesterday, he admitted to the press that he is trying to staff the Fed’s decision makers with those who are more open to cutting interest rates. He unceremoniously sacked Fed Governor Lisa Cook for alleged mortgage fraud, even though she denies any wrongdoing.

The charge emanates from Cook’s signing two documents, both of which pertain to properties in Illinois and Georgia, which she undertakes to be her primary residence.

Federal Reserve Board Governor Cook will file a lawsuit challenging her removal by President Donald Trump, her attorney said Tuesday.

“President Trump has no authority to remove Federal Reserve Governor Lisa Cook,” the lawyer, Abbe Lowell, said in a statement, a day after Trump cited allegations of mortgage fraud by Cook in firing her.

“His attempt to fire her, based solely on a referral letter, lacks any factual or legal basis,” Lowell said. “We will be filing a lawsuit challenging this illegal action.”

A Trump spokesman told reporters, “The President determined there was cause to remove a Governor who was credibly accused of lying in financial documents from a highly sensitive position overseeing financial institutions.”

The Justice Department last week opened a criminal investigation of Cook after she was accused of making false statements on home mortgage applications by the Federal Housing Agency Director, Bill Pulte, who has been a constant supporter of the President’s campaign to remove Fed Chairman Jerome Powell.

Powell used his annual Jackson Hole keynote speech to paint a picture of an economy facing policy-driven headwinds and rising uncertainty. He pointed to sharply higher tariffs “across our trading partners” that are reshaping global commerce, and to tighter immigration rules that have abruptly slowed labour-force growth.

Over a longer time horizon, Powell added, shifts in tax, spending, and regulation could weigh on productivity, yet no one knows where these policies will land or what their lasting effects will be. The underlying policy should be cautious, as multiple shocks are hitting both demand and supply, and the Fed can’t easily offset structural changes.

At Jackson Hole, in his last speech there as Fed Chairman, Powell set about beginning his legacy. He made news in two important ways in his valedictory keynote speech. First, he opened the door wider to a possible interest-rate cut in September. Second, he released the Fed’s revised framework, or “consensus statement,” describing its approach to setting interest rates.

His comments served as an important milestone in framing his legacy as Fed chair, nine months before he is scheduled to vacate the position.

One part will be his rock-solid commitment to keeping the Fed one step removed from the day-to-day political fray. There can be no doubt that if Fed policymakers trim rates in September, they will do so because they judge economic conditions as warranting a cut, not because the president is demanding one.

Another part of Powell’s legacy will be these periodic reviews of the consensus statement.

The revisions announced on August 22 are not beyond debate, but they are subtle and anticipate all the most obvious objections. The revised statement will leave the Federal Open Market Committee well-positioned to conduct monetary policy for the next five years.

The dollar has doubtless been affected by the persistent turmoil which is swirling around its policy decisions and now the makeup of its board. Yesterday, it fell to a low of 98.08 and closed at 98.24 as it awaits the important data and monetary policy decisions due over the next two to three weeks.

ECB President Christine Lagarde has had her confidence in Central Bank independence shaken over the summer, while she was away on vacation.

While she is unlikely to face such a difficult time as has been experienced by her American Counterpart, she recognises the gradual politicisation of Central Banks, which has been led by Donald Trump.

Trump’s position is that it is inconceivable that such an important plank of the economy, such as monetary policy, should be outside the purview of the Administration.

However, Fed independence is enshrined in its charter and was followed by the Bank of England when Gordon Brown created the MPC in 1993, and in the formation of the European Central Bank a few years later.

Lagarde issued a strong defence of Central Bank independence, warning that political meddling in monetary policy risks destabilising entire economies.

Speaking on U.S. TV at the weekend, Lagarde stressed that while Central Banks must remain accountable to lawmakers, they should not be directed by them when it comes to setting interest rates.

“The independence of any central bank is critically important,” she said. “We have to be accountable, but it’s vitally important that a Central Bank is independent.”

Lagarde noted her experience at the International Monetary Fund, where she saw the fallout when governments interfered with monetary authorities. “It becomes dysfunctional, it starts doing things that it shouldn’t do,” she said. “The next step is disruption. It is instability, if not worse.”

Her comments came after attending the Federal Reserve’s annual Jackson Hole symposium in Wyoming, where Fed Chair Jerome Powell has faced relentless criticism from U.S. President Donald Trump for resisting demands to cut rates.

Powell received a standing ovation from fellow officials before his speech, a symbolic gesture of support as political pressure intensifies, while Lagarde’s warning underlines growing global concern that political attacks on Central Banks could undermine not only monetary policy but also financial stability.

Lagarde went on to say that while she is disappointed that President Trump “felt the need” to impose tariffs on imports of raw materials and finished goods from Europe, she believes that the region has developed sufficient resilience to withstand the issue. “It is a setback”, but not a factor that will derail our economy, she said.

The euro is seeing significant support at around the 1.16 level. Yesterday, it climbed to a high of 1.1706 and closed at that level, having begun the day at 1.1618.

Have a great day!