29 May 2026: Starmer defends his government against Blair’s criticism

A report commissioned by the Government and written by a former Education Secretary. Alan Milburn has warned that the country faces having a “ lost generation" as in excess of one million young people between the ages of 18 and 22 are not in either education or work. This represents a level not seen in more than ten years.

“It is no longer simply a question of temporary youth unemployment,” Milburn added. “Today, the deeper problem is youth detachment from the labour market. Nearly 60 per cent of young people who are NEET are economically inactive. They are not just out of work. They are not looking for work.”

The report identified poor physical and mental health as a major driver of economic inactivity among young people.

Milburn said health had become “central to who becomes NEET (not in work, education, employment or training) and who stays NEET”, describing it as “a story that should disturb anyone who cares about the future of young people in this country”.

Young people are now more likely to be economically inactive (57%) than unemployed, with rising inactivity linked to anxiety, depression or neurodevelopmental conditions, according to the report.

“Today, around seven in ten young people claiming health and disability benefits are still claiming a decade later,” it stated. “The damage done to the life chances of these young people is almost incalculable.”

The report also suggested the NHS was too quick to categorise young people as unfit for work rather than supporting them into employment.

The Government has introduced new regulations, including higher national insurance costs for employers, a 37% overall increase in the minimum wage and a 45% increase for younger people, as well as new workers' rights, including access to sick pay and tougher rules around unfair dismissal. All of which have increased employers' costs.

In response, a minister in the Employment Ministry joined the Prime Minister to outline measures already taken, although Sir Keir Starmer acknowledged that more needs to be done to get young people into work.

At another press conference, Starmer, who has been keeping a low profile since the election debacle and multiple threats to his Premiership, insisted he made the right policy choices given the backdrop he inherited, after former Labour Prime Minister Sir Tony Blair accused his government of having "no coherent plan".

The Bank of England is warning that global investors may be underestimating how vulnerable financial markets have become as households and businesses continue dealing with high borrowing costs, weaker growth and growing geopolitical instability.

Sarah Breeden, the Bank’s Deputy Governor for Financial Stability, warned that stock prices continue pushing higher even as risks across the wider economy keep building underneath them. Officials are increasingly focused on whether several fragile parts of the financial world could come under pressure simultaneously if investor sentiment suddenly turns.

“There’s a lot of risk out there, and yet asset prices are at all-time highs,” Breeden said. “We expect there will be an adjustment at some point.”

Her warning comes as the FTSE 100 and major US indexes remain near record highs despite continuing wars, inflation concerns and signs that parts of the global economy are slowing. Investors are still pouring money into technology companies tied to AI growth, even as many businesses become more cautious with borrowing, expansion and hiring plans.

Right now, investors believe that AI will be the panacea for all that ails industry and commerce, despite a lack of hard evidence of its effectiveness across many sectors of the economy. If an AI-driven business fails and loses investors' money, there is a real risk that the entire sector could be seen as a bubble, with the associated risks.

Yesterday, Sterling initially fell to a low of 1.3365 but rallied as the U.S. session began on hopes of a peace deal being agreed between the U.S. and Iran. It eventually closed at 1.3445, having reached a high of 1.3452.

U.S. GDP growth in the first quarter of the year was revised downward to 1.6% from the initially reported 2%. The figure, given by the Commerce Department's Bureau of Economic Analysis, stood in contrast with the expectations of economists surveyed by Reuters, who expected it to be unchanged.

The Bureau went on to detail that economic activity is largely being driven by spending related to artificial intelligence. Consumer spending, which accounts for over two-thirds of the U.S. economy, was revised down to 1.4%, while business spending increased to 17.2%.

Consumer Confidence also declined slightly in May. The Conference Board's consumer confidence index dropped 0.7 points to 93.1. The Board added special questions to the survey, determining that rising prices have caused many Americans to change their spending habits.

Two-thirds of respondents said they have changed their spending habits, particularly by reducing purchases and delaying expensive acquisitions.

The figure follows a Gallup poll showing that Americans' confidence in the economy is now at a four-year low. Concretely, the pollster's Economic Confidence Index fell to -45, its lowest reading since October 2022. The index remains above the lowest point of the Biden presidency, -58, reached in June 2022, as the economy was still reeling from the Covid-19 pandemic.

Another recent poll showed that more than three-quarters of Americans say their income is not keeping up with inflation.

A CBS News survey found that Americans are stressed about high gas prices and a feeling of uncertainty regarding the war with Iran. The war, launched in February by the U.S. and Israel, has dragged on for months and led to the closure of the Strait of Hormuz, a key waterway through which about a fifth of all global energy passes, leading to soaring prices.

One driver of economic anxiety is that most Americans do not believe their incomes are keeping pace with rising costs. The poll found that only 23% said they were keeping up with inflation, with the rest admitting they were not. Additionally, only 29% said the economy was in a good place.

At the same time, another survey showed economists are increasing their inflation forecasts and believe the Fed will take longer to cut interest rates, given the current economic scenario.

This entire release lends credence to the view that the less well-off are increasingly affected by economic weakness, while the more well-off, with earnings in excess of $100k pa, are more comfortable.

Meanwhile, the latest inflation data, Personal Consumption Expenditures, will have given the new Fed Chair, Kevin Warsh, an uncomfortable first few days in office.

According to data released yesterday by the Commerce Department, the Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve’s preferred inflation gauge, rose 3.8% annually in April. The figure was up from 3.5% in March and marked the highest reading since May 2023.

The increase was slightly below economists’ expectations of 3.9%, but it still reflected a significant acceleration in inflation over recent months.

Core PCE inflation, which excludes volatile food and energy prices, increased 3.3% year-over-year in April, matching market forecasts.

While the reading suggested that underlying inflation pressures remain relatively stable, economists noted that broader price increases continue to affect essential household expenses.

Energy costs recorded the sharpest gains during the month, driven largely by disruptions linked to the ongoing conflict in Iran and instability in global energy markets.

Prices also rose notably in housing and utilities, recreation services, and food-related categories, adding to the financial burden on consumers.

A report that the U.S. and Iran have agreed on a framework under which negotiations can continue towards a peace deal increased risk appetite in the market and depressed the dollar. The Greenback fell to a low of 98.95 and closed at 99.00.

The main headlines of the framework are that the Strait of Hormuz will be opened, and Iran will cease development of a nuclear weapon, while U.S. economic sanctions are eased.

Confidence among the Eurozone’s businesses and consumers edged up this month, with selling-price expectations easing even as the Middle East conflict endures.

The European Commission said its gauge of economic confidence rose to 93.5 from 93.2 in April, still well below its long-term average of 100. A consensus of economists polled by The Wall Street Journal expected 92.0, its lowest level since 2020.

The war in Iran has sent oil and gas prices surging as the closure of the Strait of Hormuz rippled through energy markets globally. Responses to the commission’s survey came in between May 1 and 21, ahead of reports last weekend that the U.S. and Iran were close to a deal.

Selling-price expectations eased across all business sectors, interrupting the steep upward trend seen over the past two months, the commission said. However, they remain well above long-term averages.

ECB Chief Economist Philip Lane has issued a stern warning that inflationary pressures stemming from the recent energy shock are set to persist, even in the event of an immediate ceasefire between Iran and U.S./Israel and a swift reopening of the Strait of Hormuz.

Lane emphasised that although the primary shock is beginning to dissipate, the subsequent adjustments in wage demands and corporate price-setting continue to weigh heavily on the regional economy.

He observed that the fallout from elevated energy costs is far from a transitory, one-off event. Even if oil and gas markets stabilise, the so-called "second-round" effects, whereby businesses raise prices to protect profit margins and employees seek higher pay to regain lost purchasing power, are generating a lingering inflationary tail that is difficult to shake.

Furthermore, he indicated that the true extent of the decline in global oil supply has been temporarily obscured by the drawdown of inventories, suggesting that underlying supply constraints continue to pose a significant risk to the outlook.

Lane cautioned that energy shocks frequently trigger "non-linear" outcomes, implying that inflation could spike more intensely than traditional economic models might forecast. While the current landscape differs from the acute crisis witnessed in 2022, the ECB remains highly vigilant regarding how these structural shifts are influencing the mindset of various "price-setting sectors."

A central pillar of Lane’s remarks focused on the psychological dimension of monetary policy. He underscored the necessity for the ECB to prevent a "persistent belief" from becoming entrenched among the public that inflation will remain elevated indefinitely; this remains the primary driver behind the Central Bank's consideration of an "insurance" interest rate hike in June.

European Central Bank President Christine Lagarde has said the independence of the U.S. Federal Reserve remains in jeopardy and requires support from voters and lawmakers.

According to Lagarde, the ability of Central Banks to make decisions that may be unpopular with governments is under growing pressure amid a series of economic shocks. She noted that the current global situation is both boosting inflation and slowing economic growth, increasing the political sensitivity of monetary policy.

The Head of the ECB emphasised that protecting the independence of regulators is impossible without public confidence and is not solely the task of central banks themselves.

Lagarde’s statement came amid ongoing discussions in the US about the role of the Federal Reserve, interest rates and political influence on monetary policy.

For global markets, the independence of major central banks remains a key factor in confidence in the financial system and in inflation expectations.

The Euro gained yesterday as risk appetite improved. It rallied to a high of 1.1661 and closed at 1.1651.

Have a great day!