11 September 2025: Ex-BoE Governor is concerned about debt levels

Rachel Reeves has never struck anyone as the type of Chancellor who will “pull a rabbit from a hat” and perform an economic miracle to drag the economy towards a period of growth and prosperity.

She is reactive to what she encounters, and rarely surprises her colleagues with her level of proactivity.

As the economy slides inexorably towards a period of stagflation with inflation well above the Bank of England’s 2% target and likely to remain so for at least another fifteen months, and growth still hard to find, Reeves figuratively shrugs her shoulders and bemoans what she inherited as Chancellor.

She is annoyingly committed to balancing the books and ensuring that short-term expenses are covered by daily income. While that was seen as novel by economists before and after last year’s election, it is not a policy designed to drive the economy forward.

She does not seem to realise that it is her job to put in place policies that will promote growth, even if the Bank of England could help her out next week by lowering interest rates, even though the more hawkish members of the Monetary Policy Committee are concerned about inflation rising.

Former Bank of England Governor Mervin King has warned that the country is “not in a good place” as it faces a growing debt pile.

Lord King of Lothbury, who led the Bank through the 2008 financial meltdown, said Britain would today be in a worse position to deal with a crisis.

Long-term UK borrowing costs have hit a 27-year high amid doubts about Labour’s ability to balance the books, giving bond markets the jitters.

Bank Governor Andrew Bailey dismissed a bond sell-off, saying it was in line with a global sell-off.

But King told a Lords select committee: ‘Some people have drawn comfort from the fact that the recent rise in long-term interest rates has been true across the G7, and it has. But that simply means we’re all in the same mess.

I think if there were to be another crisis, governments would cope with it, but it would come at a cost, with a much larger rise in the ratio of debt-to-GDP, and we would see interest rates go up to offset that. We’re not in a comfortable position.

‘I think we’d cope with another crisis, but it wouldn’t be comfortable. We were in a much stronger position in 2007/08.’

The Prime Minister is being made to squirm over the revelations that have emerged over the UK Ambassador to the United States’s relationship with disgraced financier Jeffrey Epstein.

Sir Keir Starmer has a worrying habit of expressing his total confidence in someone or something just before they implode.

He is well aware that there will be more revelations regarding Lord Mandelson; Mandelson has said as much himself, but still felt the need to tell the House of Commons during Prime Ministers’ Questions yesterday that he retains his total confidence. It is only a week since he stood before the dispatch and made almost identical comments about Angela Rayner.

Starmer is in a difficult position regarding the Epstein Affair since next week he will be hosting Donald Trump on a State Visit to the UK while Trump is knee-deep in the same controversy.

The pound was muted in the financial markets yesterday as traders prepared for today's release of U.S. inflation data and the ECB’s decision on interest rates. It traded between 1.3565 and 1.3513 and closed at 1.3529.

The President paid tribute to his long-time supporter Charlie Kirk, who was assassinated as he spoke at a rally in Utah.

Trump appeared to blame the rhetoric of the left for the shooting, even though he himself has used extreme remarks to attack opponents and rival political groups.

Trump said, “It is past time for all Americans and the media to confront the fact that violence and murder are the tragic consequences of demonising those with whom you disagree, day after day, year after year, in the most hateful and despicable way possible.

His comments came after another predictable rant criticising the actions of Fed Chairman Jerome Powell. Trump has apparently run out of new adjectives to use in his almost constant flow of rhetoric.

Trump took to Truth Social with a strong message directed at Federal Reserve Chairman Jerome Powell. Trump’s comments come at a time when markets are already pricing in a Federal Reserve rate cut at the upcoming FOMC meeting. Recent weak jobs data and cooling economic indicators have strengthened expectations of a 0.25% cut.

If Trump’s demands for a “BIG” cut were to be taken literally, markets could see a larger-than-expected move, something that could shock markets. However, even before Trump began his second term in office, the FOMC had ploughed its own path, ignoring political interference.

Yesterday’s publication of producer, or wholesale, inflation was the cause of Trump’s ire. The headline number surprised analysts by falling to 2.8% year-on-year, down from 3.1% 3.5% previously and confounded economists’ predictions of a rise to 3.5%.

If such a result is seen today in the consumer price index data, a 50-point cut may well be on the cards.

The recent falls seen in job creation go well beyond the idea of a soft landing, which appeared to be the likely fate of the economy earlier in the year. Having lost close to a million jobs in the past six months, it would be easy, possibly glib, to pin the problem on the change of President.

While President Trump’s economic and trade policies have not, so far, been the panacea that he and his advisors promised, there is a much larger story being played out currently that must be laid at the feet of the Federal Reserve.

If the inflation figures show a significant fall and if the Fed cuts rates next week and Jerome Powell turns a little more dovish, the economy may ride out the fears of a coming recession.

While the jobs data is far from encouraging, the economy has not yet begun shedding jobs, which would be a bellwether for a coming recession.

Many observers feel that the “adjustments” to job creation are part of a cyclical process which often ends with the NFP data slipping into negative territory.

The dollar index has seen a rally for two consecutive days despite the threat of a rate cut next week. Yesterday, it climbed to a high of 97.93 and closed at 97.85.

What is the point of the Eurozone other than a huge trading bloc? While it was able to save the Club Med economies from disaster by bailing them out in 2008 and 2012, it has singularly no answer to the economic strife that has befallen Germany and France.

It is easy to say that Germany’s reliance on energy imported from Russia and the effect of the war in Ukraine have blown Germany off course; it is its reliance on heavy engineering that has been fast overtaken by advances made by China that is causing the economy to suffer. Furthermore, the German Automotive sector, which was the envy of the world, has suffered from a lack of innovation and outmoded working practices.

The pride has departed this sector, as workers who were once honoured to work in such an innovative division of the economy are now seen merely as operatives on the production line.

In France, the story is of mounting debt, a Parliament that is split almost equally between hard-left and hard-right, and a President who appears out of his depth.

There is a long history of militancy amongst French workers. They will never go for a reduction of two days in the number of paid public holidays they enjoy. They lack the wherewithal to understand that sacrifices need to be made to improve the lot of the entire country.

The working class believes that it is always they who are making sacrifices as the threat of another increase in retirement age threatens, while the ruling class face no such suffering.

The rest of the economies of the EU look on, unable or unwilling to become involved, due in no small part to the measures that they had to endure to reach the situation they now find themselves in.

Spain has the strongest economy in terms of GDP growth in the European Union, while Italy is soon to exit the extraordinary measures it faced due to the uncontrolled rise in its public sector debt. Italians are looking at France and know just what needs to be done to rectify the situation. Both countries have a welfare state that is unmanageable and needs to be reined in. Italy leads, and France needs to follow.

Meanwhile, Greece has seen a strong economic recovery, while Cyprus has the lowest inflation in the Union.

The European Union and ECB are both staring at the developing crisis with practical suggestions about how it can be solved.

The ECB is continually patting itself on the back for having defeated inflation without any clue about how to help France and, to a lesser extent, Germany out of the hole they find themselves in.

Later today, Christine Lagarde will again congratulate her colleagues on having capped inflation, while announcing that interest rates will remain unchanged.

The common currency is driven by monetary policy, with investors yet to show concern about the stresses in individual economies. If the situation follows the blueprint of 2012, the Euro may be on the verge of a major fall.

Yesterday, it fell to a low of 1.1682 and closed at 1.1694.

Have a great day!