21 April 2026: Reeves may be considering wartime-style bonds to plug the defence funding gap

The Prime Minister had to endure an unedifying two-and-a-half-hour grilling in the House of Commons yesterday as MPs sought to establish whether they had been misled about Peter Mandelson’s failure to pass security vetting, despite being named the UK’s Ambassador to Washington in December 2024.

It was a stark reminder of Boris Johnson’s similar grilling over “Partygate”.

At the end, MPs were no nearer an understanding of who did what and when, and it is most likely that their opinions, not the facts, will prevail.

Keir Starmer may well have broken the ministerial code. Still, he is clinging to the fact that, if he did mislead Parliament, he did so unintentionally, because no one told him that Mandelson had failed his vetting.

Should it have occurred to him to ask, since newspapers reported last September that Mandelson had failed the vetting? Probably, but he will likely cling to power and hopefully move on from a highly damaging episode.

It remains to be seen what effect the whole matter will have on the largest set of elections since July 2024, which takes place in a little over two weeks.

Also happening before voting takes place will be the next meeting of the Bank of England’s Monetary Policy Committee. Its members will have plenty to consider, with the war in Iran still possibly going to recommence when the two-week ceasefire ends tomorrow.

It is interesting to note that Iran appears to have taken away Trump’s upper hand, as his threats to obliterate Iran’s infrastructure and domestic energy sector are being largely ignored by Tehran.

Likely, the MPC will again “sit on their hands”, with markets having mostly stabilised during the past few days, although the two sides appear to be as far apart as ever.

By the time this report is received, the UK employment data will have been published. This will feed into the MPC’s decision as an indicator of the current state of the economy. When inflation figures and the prospect of further volatility in energy prices are taken into account, the outlook for any change in monetary policy will become clearer.

The Governor of the Bank of England, Andrew Bailey, has bemoaned the slow pace of progress towards ​international standards for stablecoins, which he said are needed for “assured value.”

Speaking at an event by the Institute of International Finance last week, Bailey, who is also chair of the Financial Stability Board (FSB), voiced concerns that a lack of global coordination and unity on stablecoin standards affects the ability of the asset class to provide the confidence ​that a stablecoin can always be redeemed at ​face value.

“We do have to have international standards ​to underpin assured value,” Bailey said. “I don’t ​think we can have a situation where we’ve got different ‌rules ⁠of engagement in different countries for that.”

Rachel Reeves is beginning to come around to the idea that she will need to add to the country’s ballooning public debt if she is to fulfil the Government’s undertaking to increase defence spending to 3% of GDP by 2030.

She is apparently toying with the idea of issuing “war bonds” to be used solely for increasing defence spending.

Under the proposal, individuals and financial institutions would be able to purchase government-backed bonds earmarked specifically for national security and defence expenditure.

The idea has reportedly gained support from Defence Secretary John Healey. It has been discussed in private ministerial meetings in recent weeks, as Ministers search for ways to bridge a widening fiscal gap without breaking Labour’s tax and borrowing pledges.

One option being considered is a special-purpose bond issuance designed to attract patriotic investment from the public, potentially at lower borrowing costs than conventional government gilts.

Sterling experienced a less volatile day on financial markets as traders and investors await the next chapter in the conflict between Israel, Iran and the U.S.

The pound climbed to a high of 1.3544 and closed at 1.3534.

Kevin Warsh has for years accused the Federal Reserve of losing its way and has said on several occasions that it’s in desperate need of “regime change.”

Now, as President Trump’s pick to be the next Fed Chair, Warsh will have the opportunity to map out his plans to remould the world’s most important Central Bank when he testifies later today before the Senate Banking Committee.

Warsh, in a nod to concerns about the Fed’s future, will vow to protect the Central Bank’s independence in his prepared remarks, according to a copy seen by Bloomberg.

“I believe that monetary policy independence is earned, and better policy decisions crafted, by steering clear of distractions,” Warsh says in the remarks, while promising to keep the Fed focused on its mandate and operational mission.

“Fed independence is placed at greatest risk when it strays into fiscal and social policies where it has neither authority nor expertise.”

Warsh’s testimony highlights the fine line he must walk during the hearing between President Donald Trump’s demands for lower rates and his reassurances to investors that he will defend the Fed’s autonomy in rate-setting.

His hearing comes against the most politically charged backdrop for the Central Bank in decades. Trump’s scathing criticisms of Chair Jerome Powell, his attempt to fire a Fed Governor, and the Justice Department’s criminal investigation into Powell and the Fed have all fuelled worries that the Fed's independence is under threat.

President Trump’s approval rating sank to a new second-term low in the latest NBC News poll, amid growing concerns about his handling of the economy.

In the NBC survey, conducted during the first two weeks of April, 37% of respondents said they approve of the president’s overall performance, down from 39% in early February and 42% in early December.

Trump’s approval rating had been steadily declining throughout his second term, according to an NBC poll conducted by SurveyMonkey, with 45% of respondents approving of his handling of the job in April 2025 and June 2025, and 43% in late August.

The War in Iran, while crucial to the economy, will most likely be a side issue when the polling for the mid-term elections takes place in November. Trump will be primarily judged not just on the economic facts but on how the electorate “feels” they are doing personally.

The next scheduled meeting of the Federal Open Market Committee is on 29th April. In recent speeches, most members have urged further caution on Monetary Policy, giving the situation in the Gulf every opportunity to stabilise.

U.S. banks reported a sharp rise in corporate borrowing last week, offering an early indication of resilience in parts of the economy, even as inflationary pressures and broader fears of a slowdown persist.

The robust uptick suggests companies are continuing to borrow working capital despite uncertainty over policy and cracks in the labour market, which typically prompt caution in spending.

Companies may be front-running a possible rate hike to lock in cheaper financing, as the Federal Reserve may be forced to raise interest rates to tackle war-driven inflation.

The American consumer has also remained resilient despite President Donald Trump's sweeping tariffs and the ongoing war. However, growth in consumer loans at several big banks was outpaced by double-digit growth in commercial lending.

Economists remain cautious, suggesting that a protracted war, persistently high inflation, and slowing job growth could weigh on borrowing.

The dollar index fell yesterday as risk appetite grew, even as the market remains in flux ahead of the end of the current ceasefire tomorrow. It seems that Trump is unlikely to be able to “bomb Tehran back to the negotiating table”, and he is faced with a dilemma as to what happens next.

The index fell to a low of 98.01 and closed at 98.05.

Pablo Hernández de Cos, the current General Director of the Bank for International Settlements and a former governor of the Bank of Spain, is emerging as the best-rated candidate among the main names under consideration to succeed Christine Lagarde at the helm of the European Central Bank (ECB) when her term concludes on October 31, 2027, according to a survey conducted by the Official Monetary and Financial Institutions Forum among monetary policy specialists.

Although Lagarde pledged in a speech at the IMF in Washington last week not to leave her role at the ECB during what are likely to be some of the most turbulent times of her tenure at the Central Bank, speculation continues.

De Cos and former Dutch Central Bank Governor Klass Knot appear to have been “distilled” from several candidates who have “thrown their hats in the ring”.

Knot is not currently in a role that would have made him the favourite had the role needed to be filled immediately. Still, following Lagarde’s remarks, there is time for due consideration by Eurozone Heads of Government, even though some of those may change in the interim, most importantly in France.

The Governing Council of the ECB will meet next week to decide on any change to monetary policy. Several members of the council, including those seen as at the hawkish end of the spectrum, have expressed the need for caution and deliberation as to whether any inflationary effect of the war in Iran will be transitory or could contribute to a secondary effect that the Central Bank fears most.

Bank of France Governor Francois Villeroy de Galhau said that G7 Central Banks, in Washington for the IMF Spring Meeting, have pledged to take the necessary steps to prevent the energy and commodity shock from the Iran war from becoming embedded in core inflation and from triggering second- and third-round price effects.

"We will act, without hesitation, if and when necessary, but we are not in a rush. We need more data about the impact of the price shocks.”

Market sources agree that the Council will feel it has insufficient data to make a decision and will likely issue a strong note of caution while leaving rates unchanged.

Today will see the publication of the ZEW surveys of economic sentiment for both Germany and the wider region. It is expected that current expectations will have fallen considerably in Germany, while in the Eurozone, some marginal improvement has been evident.

Yesterday, the Euro gained a considerable amount of the ground it had lost in the previous two sessions. It rallied to a high of 1.1789, closing close to its high.

Have a great day!