Highlights
- UK public borrowing falls to a four-year low
- The U.S economy is losing out as Canadians boycott the country
- Fear of Shortages Boosts Global Factories, But Eurozone Activity Declines
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Breeden warns of a pending financial crisis
The survey showed an acceleration in economic activity in April, alongside a record-breaking surge in business costs. S&P Global noted, though, that "the improved rate of expansion is in part a reflection of a short-term boost from a rush to secure purchases ahead of feared price rises and supply shortages linked to the war".
The bad news is that businesses across both the manufacturing and services sectors reported the steepest rise in average cost burdens in more than three years, with some measures of input price inflation reaching their highest levels since the survey began nearly three decades ago.
The agency noted that "prices are rising not just because of surging energy costs, but also due to increases in charges levied for a wide variety of goods and services, with price hikes often stoked by possible supply shortages". Businesses also cited strong wage pressures, which could trigger a wage/price spiral.
The surge in costs, driven primarily by energy price shocks and mounting wage pressures, suggests that inflationary pressures could become more entrenched, prompting the BoE to tighten policy again to avoid erasing the progress made since 2022. The market now prices in 60 bps of tightening by year-end, up from 35 bps a week ago, with a 70% chance of a rate hike by June.
While raising rates risks dampening the economic recovery, the prospect of inflation rebounding well above 3% may leave the MPC little choice but to retighten policy after 5 years of missing its target.
Furthermore, the UK GfK Consumer Confidence Index fell four points to -25 in April 2026, marking its largest decline in a year and its lowest level since October 2023, and falling short of market expectations of -24.
The sharp downturn reflects deepening concerns about the economic fallout from escalating tensions in the Middle East, with pessimism spreading across personal finances and the broader UK economy.
Households are increasingly anxious about rising prices, particularly at petrol pumps, which are straining budgets, and about the prospect of further cost hikes in the months ahead.
Meanwhile, Public Sector Borrowing fell to its lowest level in three years. However, analysts do not expect the improvement to last because of the impact of the war in Iran.
Borrowing, the difference between spending and tax revenue, fell £19.8bn to £132bn in the year to March, the Office for National Statistics (ONS) said, the lowest since 2022-23.
The total was slightly below the £132.7bn predicted by the government's independent forecaster, the Office for Budget Responsibility.
However, analysts say borrowing could worsen this year if inflation picks up and the government offers support to some households to cope with higher energy bills.
Bank of England MPC member Sarah Breeden told reporters yesterday that the energy crisis triggered by Donald Trump’s war in Iran has made a financial crash more likely. She warned that private credit, sky-high sovereign debt and stock market exuberance posed significant threats to the global economy.
The Bank’s Deputy Governor for Financial Stability branded the closure of the vital Strait of Hormuz shipping lane “the worst energy shock in my living memory”, which has put more stress on the banking and financial system.
“Conflict in the Middle East continues to add to uncertainty and unpredictability, with sharp movements in energy prices and bond yields,” she told an event in Washington, before listing ballooning national debt, private markets and “stretched asset valuations” as exhibiting similar traits to previous financial crises.
Breeden said, “Across all three of these risks, you can hear echoes of the past. The combination of leverage, complexity, concentrations and opacity rhymes with the vulnerabilities brought about by the rise of CDOs [a form of debt instrument] in 2007 and, more distantly, the development of investment trusts in the 1920s.
“All at a time when the disconnect between high-risk asset prices and real economy uncertainty.
The pound faced further selling pressure yesterday as uncertainty over the Strait of Hormuz's closure persisted. Sterling fell versus the dollar to a low of 1.3448 and closed at 1.3467.
U.S. Attorney refuses to drop the probe of Fed Chair Powell, leaving Warsh's confirmation in limbo
Month-on-month readings were broadly positive, except for export orders and employment.
On a year-on-year basis, most indicators remained positive, though the backlog of orders, employment, and materials inventories were negative.
Looking ahead, expectations for future activity improved, with the composite index rising from 16 to 18 as projections for production and new orders strengthened.
Following U.S. President Trump’s verbal attacks on Canada over recent months and years, which culminated in his threat to make it the 51st state, Ontario Premier Doug Ford says the U.S. economy is losing out on “tens of billions of dollars” as Canadians continue to boycott the country amid the ongoing trade war.
Ford commented during a CNN interview yesterday.
“The Americans are losing out on tens of billions of dollars, whether it is going down to Florida or going to Las Vegas or any other place that we go,” Ford said. “Unfortunately, Canadians are boycotting the U.S. However, this can come to a quick end; everyone can thrive and prosper.”
Ford’s latest comments come after U.S. Commerce Secretary Howard Lutnick called the ongoing boycott of U.S. alcohol by some provinces, including Ontario, “insulting and disrespectful to America.”
Ford responded to CNN, “I guess what is disrespectful is that we never started this tariff war, and I don’t believe the American people did. It was Secretary Lutnick, followed by President Trump, as well, who attacked our joint economies.”
The U.S. Attorney for Washington, DC, Jeanine Pirro, has said her investigation of Federal Reserve Chairman Jerome Powell will continue, even as it threatens to derail the nomination of his successor.
After bitter acrimony with Powell over interest rates, President Donald Trump is eager to see his Fed chair nominee, Kevin Warsh, take over the role. But the investigation by Trump's DOJ leaves the transition at an impasse, with dimming hopes that the Senate will confirm Warsh by May 15, when Powell's term expires.
If Warsh is not confirmed by May 15, Powell would remain as interim chair until a successor is confirmed.
Powell has drawn Trump's ire over the Fed's refusal to lower interest rates as dramatically as the President believes necessary. The investigation appears to leave no path forward for Warsh, who faced tough grilling from Democrats on the Senate Banking Committee during a confirmation hearing earlier this week.
Asked if she was having conversations with the Trump administration on the investigation into Powell, Pirro said it wasn't necessary to do so.
"I don't need to have a conversation to know as a prosecutor what I need to do, and I'm doing it," said Pirro, who Trump also appointed.
Powell has denied the allegations and said the investigation was little more than a pressure tactic to force lower interest rates.
The Federal Reserve headquarters renovation cost rose from $1.9 billion in 2023 to $2.5 billion in 2025. It cited unexpected problems with the building, soil contamination, and rising material costs.
Crucially, Republican Sen. Thom Tillis has said he will not vote for any Fed nominee until the DOJ probe into Powell ends, calling it an unacceptable assault on Fed independence.
The dollar index is reacting positively to continued risk aversion as the impasse over the Strait of Hormuz continues. It reached a high of 98.94 yesterday and closed at 98.82.
ECB’s Lane sees a ‘natural’ fiscal case for European Common Debt
During a panel discussion at the London School of Economics, Lagarde, noting that she was merely stating "a common position that has been adopted by the Governing Council of the European Central Bank," called for a "common endeavour" at the European level to shoulder "the significant challenges and massive investment needs that we have in Europe, in defence, the green transition and now artificial intelligence".
Backing up Lagarde’s remarks, Philip Lane, Chief Economist at the European Central Bank, argued that the Eurozone suffers from a shortage of “safe assets”, highly liquid, low-risk financial instruments essential for stable financial markets and effective monetary policy.
He explained that German Bunds currently serve as the main euro-denominated safe asset, but their supply is too limited to meet growing global demand. While EU-wide reforms and crisis-response tools have strengthened financial stability and reduced sovereign risk differences across member states, national bonds still cannot fully function as a unified safe asset.
Lane highlighted that jointly issued EU bonds represent a step towards expanding the safe-asset space. Still, their scale and liquidity remain insufficient relative to major sovereign bond markets such as Germany's or France's.
To address this, he outlined several possible solutions. These include expanding common EU borrowing for shared priorities such as defence or geopolitical support (for example, Ukraine), and developing innovative financing structures.
Among them are proposals such as “blue bonds,” which would pool part of the national debt into a common instrument backed by earmarked tax revenues, and sovereign bond-backed securities (SBBS), in which portfolios of national bonds are transformed into senior, safe assets through financial engineering.
Lane stressed that all approaches involve trade-offs between increasing liquidity and maintaining political feasibility, since fiscal authority remains largely at the national level. He also emphasised that greater issuance of joint debt would require strong political trust and continued fiscal discipline among member states.
This is a deficiency in the EU’s original charter, which did not envisage the need for joint debt funding.
Factories in the U.S. and parts of Asia and Europe have reported a pickup in activity as they rush to fulfil orders from customers anxious to avoid price hikes and shortages should the conflict in the Middle East prove long-lasting, according to business surveys released yesterday.
In the eurozone as a whole, manufacturing activity hit an eight-month high. The U.K. also saw a boost.
That pickup in manufacturing helped drive overall business activity across those economies, despite the uncertainty caused by the conflict, which has weakened business and consumer confidence.
The main exception was Germany, where a sharp decline in services activity accompanied a slowdown in manufacturing.
Across the eurozone as a whole, the composite Purchasing Managers Index fell to 48.6 from 50.7, reaching its lowest level in 17 months. A reading below 50.0 indicates a decline in activity.
The Euro again suffered at the hands of a stronger dollar. Yesterday, the common currency fell to a low of 1.1669and closed at 1.1684.
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23 Apr - 24 Apr 2026
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Alan Hill
Alan has been involved in the FX market for more than 25 years and brings a wealth of experience to his content. His knowledge has been gained while trading through some of the most volatile periods of recent history. His commentary relies on an understanding of past events and how they will affect future market performance.
