8 September 2025: Starmer has lost the argument over small boats

Reform UK held its Annual Conference over the weekend, and although it was more like a U.S. convention than a typical British Political Rally, it was able to both grab the attention and show the public that Reform has not only replaced the Conservatives as a credible opposition, but it is ready to mount a serious challenge to Labour to form the next Government.

Having probably won the argument concerning migration and the continuous arrival of small boats, more than 1000 asylum seekers arrived over the weekend alone. Reform needs to move on to the economy and show it has the policies to win an election. It is interesting to note that Labour finds itself in a similar position to the Tories before last year’s election, trying to fend off populist policies that look great on paper or in a speech but could be difficult to implement.

Nigel Farage certainly has the charisma to become the next prime minister, and the rise of his Party in the polls has led to far more scrutiny of his proposals for the economy and net-zero.

Meanwhile, the Labour Party still has the best part of four years in which it will remain in power, despite Farage’s prediction that an election could happen in 2027, which is a typical, baseless, but extremely popular idea.

Having performed a significant reshuffle of his front bench team following Angela Rayner’s resignation on Friday, the Prime Minister will now have to increase the pace of his Party’s policies, although it is becoming clear to voters that, having elected Labour on a wave of “anyone but the Tories” sentiment, they are now possibly regretting their decision.

It is apparent that the Chancellor of the Exchequer, Rachel Reeves, will not only have to begin to write her Budget speech sooner rather than later, but despite having to repair yet another black hole in the country’s finances, she will have to deliver an upbeat statement if she is to retain her position for the entirety of this Parliament.

While she does not have to provide a vote-winning Budget of the type that Chancellors usually do when an election is imminent, she will need to get voters “back onside” similarly.

There is no tier one economic data due for publication this week, although there are industrial and manufacturing output figures due on Friday. Both are expected to be flat after moderate falls last month.

With the MPC due to meet next week to decide on any change to monetary policy, traders and investors will listen to any speeches by its members with interest. So far, only Sarah Breedon is scheduled to speak this week, but there are likely to be others who will want to make their feelings known.

The pound saw a significant rally last week, reaching a high of 1.3554 due in no small part to the dollar’s reaction to the U.S. employment report. Sterling ended the week at 1.3509, but any further strength this week will depend on the market’s view of next week's meeting.

Although the August employment report often shows a hiatus in job creation, given that most hiring managers take their annual holiday during the month, the August report this year was significantly worse than expected, despite seasonal factors.

22k jobs were delivered against a market expectation of 75k. Although July's number was marginally revised upwards to 79k, the market’s reaction was typically bearish. The dollar index was driven to a low of 98.08, closing at 98.28, its lowest close since late July.

The US jobs market stalled over the summer, and a continuing slowdown in the labour market as businesses adjusted to disruptions caused by tariffs.

The latest jobs report also contained more bad news. The US lost 13,000 jobs in June, according to the latest survey, the first time it went into the negative since December 2020.

The unemployment rate for August inched up to 4.3%, the highest it has been since 2021.

The healthcare sector added 31,000 last month, but most other sectors were flat or lost jobs.

The closely watched data comes from a monthly survey of employers conducted by the Bureau of Labor Statistics (BLS), which has been under attack from Donald Trump after it revised its findings last month, showing that hiring in early summer was much weaker than initially reported.

Last month, the BLS slashed the number of new jobs created in May and June by more than 250,000. The figures, revised when the bureau received more reports from businesses and government agencies, showed hiring over the summer was far weaker than first reported. The revised figures for May and June were 19,000 and 14,000, respectively, the lowest since the pandemic.

Experts are now looking to the Federal Reserve and considering whether Friday’s jobs report will be enough to compel the Central Bank to lower interest rates. Cutting rates would make it cheaper for consumers to borrow money and, therefore, make larger purchases such as mortgages or cars more affordable.

Reacting to the latest report, Trump hit out at Fed chair Jerome Powell for not reducing interest rates.

“Jerome ‘Too Late’ Powell should have lowered rates long ago,” Trump said on Truth Social. “As usual, he’s ‘Too Late!”

Meanwhile, Trump indicated that while he had some idea of who he wanted to pick to replace Jerome Powell, he was committed to an interview process. Trump said he saw White House economic adviser Kevin Hassett, Federal Reserve Governor Christopher Waller and former Fed Governor Kevin Warsh as the finalists to replace the central bank’s chair, Jerome Powell.

Earlier, Trump indicated that while he had some idea of who he wanted to pick for the position, he was committed to an interview process.

Treasury Secretary Scott Bessent, who was considered a contender for the job before withdrawing himself from consideration, is organising the search and reiterated Friday that he isn’t interested in the position.

“I’m the only person on the planet who does not want the job,” Bessent said.

The timetable for selecting a successor to Jerome Powell, whose term as chair expires in May, remains unclear. Bessent told the Wall Street Journal late last week he would begin interviewing candidates on Friday. On Wednesday, Waller said he hadn’t yet been scheduled for an interview for the post. That followed Hassett’s comment on August 25 that Trump’s decision on the matter remained “another few months” away.

François Bayrou may be forced out of the role he has only held since December if, as expected, he loses today's vote, a scenario that could have dire consequences for the French economy and President Emmanuel Macron.

France is facing the possibility of having its fifth prime minister in less than two years, an economic crisis and the threat of further civil unrest if a parliamentary deadlock isn't resolved in the coming days.

French MPs will debate a vote of no confidence in the country's current prime minister, François Bayrou, this afternoon.

If, as expected, he loses, it will deepen the country's economic and political malaise and could even put the future of Emmanuel Macron's presidency in doubt.

Mr Bayrou, a 74-year-old political veteran only in office since December, has proposed a drastic budget making around £40bn in savings, including cutting two of the country's annual public holidays.

Economists are keeping a close eye on the vote, which could have significant consequences for EU stability.

Clearly, the markets are watching the situation and thinking about what it could mean. Of course, if the political turmoil were to worsen, that could put pressure on French bond yields. And that in itself is negative for the French economy because higher interest rates mean that investment becomes more expensive.

Political instability generally leads to a loss of investor confidence. Any major political unrest will have consequences for investors, both in France but also for foreign investors who are thinking of France as an investment destination.

The EU expects France to put its finances in order, in line with its European commitments. The task will be all the more difficult if the government falls.

France has committed itself to reducing its deficit through a multi-year plan agreed upon with the European Union. The situation in France, including the absence of a government and a budget for next year, could call this deficit reduction plan into question.

The Governing Council of the ECB will meet later this week to vote on any change to monetary policy. It feels like the Hawks on the committee, led by German economist Isabel Schnabel, hold the upper hand, with economists leaning towards a vote for no change.

The euro was driven higher by a fall in the value of the dollar last week. It reached a high of 1.1759 and closed at 1.1709. A close above 1.17 may prove significant technically, but as Asia opens for a new week, the common currency has failed to build on its gains.

Have a great day!