12 September 2025: Monthly GDP data may sway the MPC

In her time as Chancellor, Rachel Reeves has spent a lot of time complaining about the state of the economy she “inherited” and precious little working on her goal of promoting growth in the economy.

So, her comments yesterday that growth is her number one priority are hard to understand.

She received another blow yesterday as US pharmaceutical giant Merck announced it is scrapping a planned £1bn expansion of its UK operations, saying the government is not investing enough in the sector.

The multinational business, known as MSD in Europe, said it would move its life sciences research to the US and cut UK jobs, blaming successive governments for undervaluing innovative medicines.

Pharma companies have been refocusing on investing in the U.S. following pressure that has been exerted by the Administration, including severe tariffs on drug imports. The Merck decision is precisely the result that Trump had been hoping for.

The company had already begun construction on a site in Kings Cross, which it was due to occupy in 2027, but has now said that it will not happen.

The move will lead to 125 job losses at its other venues, which, while not significant overall, represents a blow to the government’s overall growth strategy.

Speaking in the House of Commons, science minister Ian Murray said Merck's decision was "deeply disappointing" but that it was "a commercial decision for them". Murray said global economic pressures and the US trade policy had compounded its problems.

He added that foreign pharmaceutical companies are receiving a lower proportion of NHS drug contracts due to the actions of previous Conservative Governments.

Reeves has said that she will look to reduce the business rates burden following an announcement from the British Retail Consortium that up to 400 large stores were at risk of closure if they were included in the Government’s new business rates surtax on premises.

Some of Britain’s biggest shops – including supermarkets and department stores – face a fresh wave of closures if the Government forces them into its proposed higher business rates tax band, industry leaders have warned.

The BRC said its latest analysis suggested that 400 large-format stores were at risk of closure if they were included in the Government’s new business rates surtax on premises with a rateable value over £500,000.

The Decision on a rate cut at next week’s meeting of the Bank of England Monetary Policy Committee is on a knife-edge. Provided independent member Alan Tayloot has learned the rules governing the vote, it may again fall to the Bank’s Governor Andrew Bailey to cast the deciding vote.

At times like these, when members are torn between supporting the economy and fighting inflation, the help of a committee of experienced business figures could help, and that is what has happened as Bailey announced the first members of his Market Participants Group.

The pound was driven mainly by the delivery of the latest inflation figures in the U.S. yesterday. It climbed to a high of 1.3582 and closed at 1.3572.

US inflation rose to 2.9 percent in August, underlining the Federal Reserve’s challenge of balancing persistently elevated price growth with a weakening jobs market ahead of a high-stakes decision on interest rates next week.

Yesterday’s report on the annual consumer price index figure from the Bureau of Labor Statistics was above July’s 2.7 percent and in line with the 2.9 percent forecast by analysts in a Bloomberg poll.

Core inflation held steady at 3.1 percent, matching expectations and showing that the effects of President Donald Trump’s tariffs on underlying price growth remain measured.

A separate report from the labour department on Thursday showed that 263,000 people made first-time claims for jobless benefits last week, up from 236,000 on the week before and well above Wall Street estimates of 235,000.

It marked the highest total for initial claims since October 2021.

This number has been slowly rising over the past six months as the economy has begun to see falls in job creation.

The President has laid the blame for this entirely at the door of the target Federal Reserve, or more particularly at the feet of Fed Chairman Jerome Powell.

It feels like the President is struggling for credibility as he is constantly shifting his focus between national and foreign policy matters and “shooting from the lip” when asked for comment, often announcing policy initiatives at press conferences, giving the impression that they are ill-considered and not discussed in Cabinet.

On the anniversary of the 9/11 terrorist outrage, the country mourned the assassination of the Conservative “poster boy” Charlie Kirk. Kirk was a personal friend of the President who paid tribute at yesterday's 9/11 commemoration.

The reaction to Kirk’s murder has underlined the deep divides that Trump has fostered between the conservative and liberal wings of U.S. politics.

The acceptance that the balance of risks within the economy has shifted from inflation to growth has been perfectly illustrated by the contrast between yesterday's inflation numbers and the publication of the August jobs report.

While inflation appears to have been contained and Powell has spoken of his belief that the imposition of tariffs on U.S. imports will be a singular event, job creation has fallen significantly over the past quarter and a half.

This should lead to the FOMC cutting the rate by twenty-five basis points next week. Any larger “jumbo cut” will need net job losses to be reported, which is not predicted to happen since the Fed has plenty of ammunition still available to it.

The dollar index retreated again close to its recent low yesterday, reaching 97.47 and closing at 97.55 as traders added to short positions given the likelihood of a rate cut next week.

There were no surprises from the ECB yesterday, as its Governing Council voted for interest rates to remain unchanged at 2%.

In her speech following the meeting, ECB President Christine Lagarde signalled that there is no rush to intervene in the bond market to support France as it struggles with a political and economic crisis.

French political instability and its failure to tackle ballooning public debt have unnerved investors, who have been demanding a growing premium to lend to the French government in the bond market.

The ECB has the power to step in and buy government bonds to stem an "unwarranted, disorderly" rise in borrowing costs under its Transmission Protection Instrument, as long as a country complies with the European Union's budget rules.

Lagarde appeared to play down the prospect of an intervention, saying the eurozone bond market was still functioning well and all countries needed to respect the EU fiscal framework.

Euro area sovereign bonds are orderly and functioning smoothly with good liquidity. Lagarde, herself a former French Finance Minister, told reporters, following the collapse of François Bayrou’s government last week, which handed the country its fifth Prime Minister in two years, after he failed to secure support for his plans to reduce the country’s budget deficit, which last year was nearly double the EU’s GDP limit.

Images of burning barricades were shown side by side with the handover ceremony for France’s new prime minister, Sébastien Lecornu, on French television channels on Wednesday as “block everything” protests brought back memories of the rallies by the populist “yellow vest” movement that rocked the country in 2018 and 2019.

French government debt stood at around €3.3 trillion (US$3.9 trillion), or 114 percent of the country’s gross domestic product, at the end of the first quarter and has continued to grow, with ratings agencies considering imminent cuts to the country’s sovereign credit rating.

The chaos speaks to a more profound concern among many French people about what they see as their country’s slow decline, which feeds into the country’s rising sense of anxiety at a time of mounting geopolitical tensions and a global economy increasingly dominated by the United States and China.

“Our taxes keep rising, but in return we are having worse public services in hospitals, schools, and companies keep closing down factories,” Laurent Joly, a representative of the General Confederation of Labour (CGT) trade union organisation, said on Tuesday.

More than 175,000 protesters hit the streets across France on the day of Lecornu’s inauguration, according to the country’s interior ministry.

Spain remains the fastest-growing economy in the Eurozone, thanks, according to the World Economic Forum, to the success of its green initiatives.

However, most economists attribute its success to three critical factors: first, it has risen from a relatively low base; second, its tourism sector has recovered strongly from the pandemic; and third, it has transitioned from a manufacturing to a services-based economy.

Despite the turmoil in France and the apparent demise of German Manufacturing, the Euro continues its inexorable journey towards the 1.20 level.

Yesterday, it rallied to a high of 1.1746 and closed at 1.1733, giving the impression that its fall to below the support at 1,17 in the previous session was merely a blip.

Have a great day!