9 July 2026: Bailey is wise to Farage’s Crypto lobbying

The IMF expects the UK economy to grow by an anaemic 1% this year, but even that may be optimistic, given that the war in Iran appears to be flaring up again.

With the Prime Minister’s days in Downing Street numbered, the IMF’s projections show that Labour remains well behind its manifesto ambition to achieve the fastest growth in the G7 group of major advanced economies.

While that puts the UK ahead of Germany, France, Italy and Japan, it is slightly behind Canada and well short of America.

That is despite Sir Keir’s claim, announced last month as he announced his resignation, that Britain’s economy was now stronger and ‘growing faster than our peers’.

In fact, while the UK did enjoy stronger growth than other G7 countries in the first quarter of this year, it has not led the pack in any other quarter since Labour came to power.

The IMF’s latest projections suggest that the relatively strong performance at the start of 2026 will not carry through the rest of the year.

Many businesses say that, far from boosting growth, Labour's tax hikes, workers' rights policies, and minimum wage increases under Sir Keir and his Chancellor, Rachel Reeves, are crushing the private sector.

The latest forecast for the UK is published in the IMF's World Economic Outlook update. It is unchanged from the forecast published following an IMF visit to Britain in the spring. Growth is expected to recover to 1.3 percent in 2027.

It has previously been said that Britain, as a net importer of energy, is more exposed than other major economies to the impact of the war in Iran, which has pushed up oil and gas prices.

Critics say that Ed Miliband’s net zero policies are making the problem worse by holding back investment in North Sea drilling. Miliband is the favourite to replace Reeves as Chancellor when Andy Burnham enters Downing Street, which could be as soon as two weeks from now. now.

It is “increasingly likely” that the Bank of England could raise interest rates at its next meeting on 30 July or the following one on 17 September if renewed tit-for-tat exchanges in Iran escalate into a full-scale conflagration.

Oil prices, which had fallen from over $100 a barrel to around $70 before the latest escalation, have jumped sharply and are now trading around $78 a barrel.

This matters because oil feeds into the cost of almost everything, from fuel to food to manufacturing, “so a sustained rise pushes inflation back up”.

Markets have reacted accordingly, with government borrowing costs rising and share prices falling. This is significant for mortgage borrowers because fixed mortgage rates aren’t priced directly off the Bank of England’s base rate, but off swap rates, which reflect what lenders expect will happen to interest rates over the next two, five or ten years.

The longer hostilities continue, the greater the risk of renewed inflationary pressure, increasing the chance that the Bank of England ends up raising rates rather than cutting them, a prospect that had become more likely as the ceasefire was agreed despite its obvious fragility.

Andrew Bailey has indicated that he was fully aware of Nigel Farage’s attempts to influence the Bank of England’s crypto and CBDC policy, and that he consciously discounted them. The evidence across multiple reports shows a consistent pattern: Farage lobbied Bailey to drop the digital‑pound (“Britcoin”) initiative, but Bailey says the Bank identified the lobbying and maintained complete policy independence.

Farage’s resignation and intention to stand in the Clacton-on-Sea by-election is being seen by the major political parties as little more than a stunt, while the print media are labelling the contest as a straight fight between Reform UK and Count Binface.

The pound rallied yesterday despite a marginally hawkish set of minutes from the most recent FOMC meeting, published yesterday.

Sterling rose to a high of 1.3481 but drifted lower towards the end of the session, closing at 1.3381.

Minutes of last month’s Federal Open Market Committee meeting show that, in Kevin Warsh’s first meeting as the Donald Trump-appointed chairman of the US Federal Reserve Board, active dissent among the committee’s members may have disappeared, but division remains.

In recent Fed meetings, the committee showed a growing split among Fed officials over whether to hold, raise, or cut the Fed’s policy rate amid rising inflation and intense pressure from Trump to lower US interest rates.

As Warsh strives to lessen the “noise” emanating from FOMC members, calling, in the immortal words of Elvis Presley, for a little less conversation and a little more action, he can do nothing about the opinions expressed in its meetings, which are faithfully reported in the minutes.

At the June meeting, there was unanimous agreement that (a) the rate should remain on hold and (b) the “easing” bias inserted into previous Fed statements, which was one source of the dissent, should be excised.

The minutes, however, did show a major divergence among officials’ views on the future. While individual comments are not attributed, “many” of the 19 voting members of the committee thought the fed funds rate would remain at or slightly below its current range of 3.5 percent to 3.75 percent by the end of the year.

But, “many” other, more hawkish participants in the meeting thought the rate would be above the current targeted range at year-end.

It is too early to say whether the increase in hostilities between the U.S. and Iran will evolve into full-scale war or whether Israel will feel justified in recommencing its attacks on Hezbollah in Lebanon.

The US has launched a series of additional strikes on Iran following yesterday's barrage and assaults on commercial shipping.

In a statement overnight, US Central Command said: "At the direction of the Commander in Chief, US Central Command forces have started conducting additional strikes against Iran to degrade further their ability to threaten freedom of navigation in the Strait of Hormuz".

"The United States is holding Iran accountable for recent unjustified aggression against commercial shipping and civilian crews freely navigating a vital international waterway."

The most recent strikes come after Trump threatened action against Iran, saying Iranian attacks signalled the end of the ceasefire. But he later said the exchange with the Islamic Republic did not herald a return to full-scale war. Given Trump’s nature, that remains to be seen.

He called the Iranian leadership "scum" and "cuckoo".

The massive AI infrastructure buildout continues to be the main driver of both the U.S. equity markets and the U.S. economy. The five major hyperscalers combined have capex budgets of just over $700 billion for FY2026. This is more than 2% of the just over $30 trillion of GDP the U.S. will deliver this fiscal year.

Spending around the AI Revolution contributed approximately 70% of GDP growth in Q1. Whether the massive investments by the hyperscalers will yield an acceptable return on investment remains an open question. However, this spending is powering impressive profit and revenue growth among suppliers of the 'picks & shovels' for this buildout, including Intel, SanDisk, and Micron Technology.

A hyperscaler is a company running 5,000+ servers and 10,000+ sq. ft. of data‑centre footprint, often far larger, with infrastructure designed for automatic, near‑infinite scaling across global regions.

They build and operate hyperscale data centres, costing $10–12M per MW for standard builds and $20M+ per MW for AI‑optimised facilities.

The dollar index initially rallied to a high of 101.27 yesterday but fell back as sellers took over despite the marginally hawkish FOMC minutes. It drifted lower and closed at 101.06, while remaining within its recent range.

Bank of Spain Governor and ECB Governing Council Member Jose Luis Escriva said in a speech yesterday that the ECB will remain flexible in its monetary policy decisions as uncertainty over energy prices persists. Escriva explained that the recent conflict in the Middle East pushed oil prices higher for longer than expected, and those higher energy costs have begun to spread through the broader economy, contributing to increases in services inflation, transport costs, and food prices.

These indirect inflationary effects prompted the ECB to raise interest rates by 25 bps at its most recent meeting, as inflation has moved above the 2% target and is not expected to return to target before 2027.

He noted that the recent US-Iran agreement has led to a sharp fall in oil prices. If lower oil prices persist, the inflationary pressures that concerned policymakers would likely ease. Because the situation can change rapidly, Escriva emphasised that the ECB will continue to evaluate incoming economic data at each meeting and keep all policy options open rather than committing to a fixed path for interest rates.

However, his remarks already look outdated, as rate-hike bets have increased since President Trump said the MoU with Iran was over for him, and oil prices have spiked to new highs. Traders are now pricing in 40 bps of tightening by year-end (25 bps before yesterday) and a 40% chance of a rate hike at the upcoming meeting (27% yesterday).

This is a graphic example of the ECB being reactive, meeting by meeting.

The International Monetary Fund (IMF) continues to rank Spain among the most dynamic economies in the Eurozone, both this year and next.

In its "World Economic Outlook" report, the IMF confirms its expectation that the Spanish economy will grow by 2.1% in 2026, a slowdown of 0.7% from the 2.8% expansion in 2025. It maintained its 2027 growth forecast at 1.8%.

The IMF has kept Spain's GDP growth forecasts unchanged since March and has confirmed them in both its April "World Economic Outlook" report and the July update.

At the press conference to present the forecast update, Petya Koeva Brooks, deputy director of the IMF's research department, highlighted "better-than-expected" first-quarter results in Spain and said that some energy support measures have offset the negative impact of rising energy prices.

"It should be noted that the high proportion of renewable energies has also contributed to Spain's resilience," she said, adding that she expects domestic demand to continue driving growth in the Spanish economy, but warned of some risks in this regard.

Marine Le Pen launched her presidential campaign yesterday with a hasty U-turn.

For her first campaign stop, she chose what was supposed to be friendly territory: La Flèche, a western French town of 15,000 residents, which the far-right Rassemblement National Party won in the March municipal elections, in an area her family, notably her sister, Marie-Caroline Le Pen, and her brother-in-law, Philippe Olivier, had cultivated for years.

Even on home turf, the RN's presidential candidate was not welcome. She and her second-in-command, Jordan Bardella, managed to stay in La Flèche for only 27 minutes, half of which they spent with journalists. The two far-right leaders barely made it five metres into town, took a few photos, and then returned to their car. Their departure was drowned out by noisy protesters clanging pots and pans. Le Pen and Bardella saw nothing of the town's market, the stated destination of their visit.

The Euro continues to “shadow” the dollar as traders and investors await some “fresh” information from the ECB. The common currency reached a high of 1.1431 yesterday and closed at 1.1416.

Have a great day!