21 September 2026: Retail Sales surge past forecasts

Consumers unexpectedly increased their spending in August, although they cut fuel purchases after prices jumped following the resumption of the Iran war, official figures showed on Friday. Retail sales volumes rose 0.5% from July, defying economists' forecasts in a Reuters poll for a 0.2% decline and adding to signs of resilience in Britain's economy despite uncertainty linked to the Gulf conflict.

The increase reversed a 0.5% fall in July. Sales volumes had also risen in the previous two months, helped by sunny weather and the start of the men's World Cup in June.

The economy looks on track for solid growth of about 0.4% in the third quarter, or possibly more following Friday's figures.

Having said that, with the peak in inflation yet to come, the biggest drag on households' real incomes has yet to come. That's why it's likely that real GDP growth will slow in Q4 and Q1."

Andy Burnham has offered some cost-of-living help to households, but he and John Healey have little room for more giveaways in the new government's first budget towards the end of next month.

Bank of England Governor Andrew Bailey has dampened market expectations of almost four UK interest rate hikes in the next year. He believes current economic conditions are still too difficult to predict. Bailey spoke to reporters following the Bank’s decision to leave rates unchanged after the Monetary Policy Committee’s meeting last Thursday.

"We had a lot of discussions this time, but we didn't discuss the possibility of raising interest rates four times," Bailey told reporters after the decision.

He acknowledged that the market needs to form its own expectations regarding the direction of interest rates, comments more akin to those of Fed Chairman Kevin Warsh.

However, he feels the current economic situation is still too uncertain to conclude the future path of monetary policy.

One of Britain’s wealthiest business chiefs has launched fierce criticism of government policies and the health of the UK economy.

Billionaire energy boss Sir Jim Ratcliffe warned about the state of the economy and the direction of policy.

In particular, he claimed that tax policy, coupled with government attitudes towards wealth, is driving high earners away from the UK and forcing the country into decline.

His remarks follow the departures of some of the country’s top earners, including hedge fund founder Chris Rokos, who is reportedly moving to Greece amid fears of tax rises in the looming Autumn Budget.

Ratcliffe himself left the UK in 2018 to become a tax resident in Monaco, saying that things would have to get better before he considered returning, and calling Britain a once “fantastic place”.

He said: “Unfortunately, at the moment, I think the UK is on the slide. It’s quite difficult to see how we arrest it.

“Two things: we need politicians who are tough enough to deal with some very difficult problems, and we need to agree what the problems are.”

Politicians need to make decisions which are good for the country, not good for themselves and their Party. And we haven’t had one of those for a long time.”

Britain’s biggest taxpayer, Fred Done, echoed Ratcliffe’s words, saying that while he is “too old” to join the ranks of rich residents fleeing, he would not be able to dissuade his children from moving to tax-friendly destinations.

The Betfred founder added that he “would not wish to be reborn in the UK”, blaming the tax system for his views.

Ratcliffe also warned that failure to invest in North Sea oil and gas was “insanity” and that the UK could run out of gas this winter because of low storage.

Prime Minister Andy Burnham is facing growing pressure to approve the Jackdaw and Rosebank oil and gas fields, but granting permission could throw his net zero goals into question and antagonise the left of his party just as he faces a by-election battle in London against the Greens.

Burnham insisted he was “determined” to achieve net zero by 2050.

Ratcliffe, the Manchester United owner, also called on the government to focus on immigration as well as high taxes, criticising politicians for being reluctant to act on what he called an “immigration problem” as well as the “benefits problem”.

In a separate interview with the Sunday Times, he urged Burnham to make “tough” cuts, likening doing so to his project to slash 450 jobs and introduce cost-cutting measures.ng measures.

The pound weakened over the week, slipping from the mid‑1.35s against the dollar toward the mid‑1.33s as Central Bank policy signals favoured USD strength.

After raising its benchmark interest rate for the first time since 2023 to curb stubbornly high inflation, the Fed signalled that another rate hike could occur later this year.

The quarter-point increase lifts the Fed’s key rate to about 3.9% and, over time, could lead to higher borrowing costs for mortgages, auto loans and credit cards. In a set of quarterly projections, the Fed also signalled that the FOMC could raise it a second time to 4.1%.

The move comes as Americans are already struggling with high costs for groceries, gas and housing. Affordability has taken a leading role in the upcoming midterm elections, just weeks away.

It adds another potentially dicey economic variable for Republicans and U.S. President Donald Trump, who blasted Wednesday’s decision and accused the Fed’s top policymakers of trying to hurt him politically.

Fed Chairman Kevin Warsh, who Trump nominated, emphasised after the announcement that the economy has shown signs of gathering speed since the central bank decided to keep rates unchanged in late July. Inflation has also remained stubbornly above the Fed’s 2%, and he noted there is little sign it is cooling.

Speaking to reporters in North Carolina ahead of a midterm campaign rally, Trump didn't mention the policies that influenced the decision, instead framing the historically independent Fed as another political actor in Washington.

“The board is very hostile. They’re very political. They’re doing the wrong thing. They’re a bunch of politicians,” he said, adding, “They’re raising rates to make Trump do as badly as they can do.”

Warsh noted that other central banks are hiking interest rates in response to global turmoil and higher gas prices. The European Central Bank raised its key rate last week, and the Bank of Japan did the same on Friday.

The FOMC next meets in late October, and most economists expect officials to keep rates unchanged then, as it is just a week before the midterm elections. But Wall Street analysts now see a rate hike by December as almost certain, according to futures prices.

Factory production unexpectedly fell in August, and higher oil prices and rising interest rates could offset some support from an artificial intelligence build-out, likely keeping activity moderate for the rest of the year.

The decline in output, reported by the Federal Reserve on Friday, followed seven straight months of increases. Oil prices are hovering above $100 a barrel, with no end in sight to the US-Israeli war with Iran.

Manufacturing output fell 0.3% last month after an unrevised 0.2% rise in July. Economists polled by Reuters had forecast a 0.3% increase. Output advanced 0.9% YoY in August, a modest increase that, according to some economists, indicated the Trump administration's aggressive trade policy had not had the desired effect of rejuvenating the nation's industrial base.

Production in the sector, which accounts for about 9.4% of the economy, received a boost in prior months as businesses rushed orders to avoid shortages and higher prices from the escalation of the war in the Middle East.

The USD strengthened across FX markets last week, driven by a hawkish Federal Reserve, rising US yields, and a clear policy divergence with the ECB and BoE. The dollar index broke above 100 and held those gains throughout the week.

The ECB cannot formally push Christine Lagarde to leave early, but it can create political and institutional pressure that makes an early exit more likely.

Lagarde’s mandate runs until October 2027, and under EU law the ECB President can be removed only for “serious misconduct or inability to perform their duties.” The Governing Council or ECB staff cannot dismiss her simply because they prefer a leadership change. This is why every report stresses that any departure is Lagarde’s decision alone.

ECB staff have already raised alarms about prolonged uncertainty over Lagarde’s future, warning that rumours of her early departure “inevitably raise institutional questions” and complicate leadership planning. This is a clear signal from inside the institution that they want clarity, which itself is a form of pressure.

Multiple senior ECB terms end in 2027, including those of Philip Lane and Isabel Schnabel, and governments are already negotiating successor packages. France is reportedly backing Klaas Knot as part of a broader political bargain. These manoeuvres create a context in which an early transition could be framed as “orderly” and institutionally desirable.

Persistent rumours have already affected market perceptions. Staff explicitly warned that leadership uncertainty could undermine trust in ECB communication. Such an institutional argument could nudge the President toward a decision.

The ECB Board will certainly miss Isabel Schnabel when she leaves next year, likely to join the IMF. She keeps inflationary pressures in the spotlight with numerous hawkish comments on monetary policy.

In a Friday interview, she told reporters that a 50bp hike may be necessary if the war in Iran continues after year-end, which currently looks likely.

This is the first time during the current cycle that a so-called “jumbo hike” has been mentioned. It is far from certain that Schnabel will receive support for such a measure from her colleagues on the Governing Council, but it will create discussion as the New Year approaches.

Once labelled one of Europe’s most fragile economies, Spain has undergone a dramatic reversal. After the housing bubble burst and the sovereign-debt crisis left unemployment above 26% in 2013, the country is now recording growth of 3.2% in 2024 and 2.8% in 2025, well ahead of the Euro area’s modest 1% expansion.

This resurgence stems from a sustained structural adjustment programme that broadened the economic base and lifted productivity. While the recovery is evident, challenges persist. Unemployment, though reduced to roughly 10%, remains high by continental standards, and public debt hovers just below the 100% of GDP threshold.

Nevertheless, the latest figures from the Bank of Spain show the debt ratio fell to 99.9% in July 2026 – the first dip below the critical mark since early 2020 – suggesting a gradual fiscal stabilisation. Post-crisis labour reforms, wage moderation and the consolidation of regional savings banks have restored the competitiveness of Spanish firms. Unit labour costs have fallen, allowing exporters to regain market share across the EU.

German Chancellor Friedrich Merz suffered a bruising electoral setback in two state elections on Sunday, including a historic defeat for his party, but vowed to press ahead with potentially painful reforms for Europe's biggest economy.

Projections by public broadcaster ARD on Sunday night indicated that Merz's centre-right Christian Democratic Union (CDU) scored just 4.9% in Mecklenburg-Western Pomerania, the Party's worst result in any state since World War II. The anti-migration, Russia-friendly Alternative for Germany (AfD) made significant gains on Sunday. ARD television based its projections on exit polls and partial counting.

If the CDU stays below 5% in the final vote count, it would mark the first time the party has failed to win seats in a state legislature anywhere in Germany.

Merz acknowledged his party's result as a "disaster" but struck a defiant note, rejecting any retreat from his government's reform agenda. He argued that Germany's economic and political problems made difficult and potentially unpopular reforms more urgent, not less so, and pledged to press ahead.

The euro weakened modestly last week, pressured by a stronger US dollar, hawkish Fed expectations, and a post‑ECB‑hike pullback. Across major pairs, EUR drifted lower throughout the week, with intraday rallies failing to hold.

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