25 September 2026: Sadiq Khan lays out three demands for Healey’s Budget

Three members of the Bank of England’s Monetary Policy Committee delivered speeches yesterday, discussing the need to raise the base rate of interest in the coming months.

Swati Dhingra is widely regarded as one of the Committee's more dovish members. She said the full scale of long-term inflation pressures stemming from the Iran war will become clearer in the winter months.

Speaking at a conference hosted by the National Institute of Economic and Social Research, Dhingra noted that Britain is not seeing the widespread price increases that marked 2022, when energy costs surged following Russia’s invasion of Ukraine. She added that the country’s labour market has weakened since then.

She explained that key indicators will emerge over the coming months. "I think the timing issue here is that we’re going to know from the winter energy pricing what happens there, we’re going to know much more about wage settlements and where they end up, and financial repricing is already underway," she said.

Dhingra previously supported reducing borrowing costs as the Bank of England cut rates. In recent decisions, she has aligned with the majority of the Monetary Policy Committee in keeping interest rates unchanged.

Meanwhile, Bank of England Deputy Governor Sarah Breeden said it would be "increasingly appropriate" to respond to rising inflation risks by raising interest rates.

Breeden, Deputy Governor for financial stability, said policymakers should not wait too long for signs of second-round effects to feed through from high energy prices, otherwise they might regret it.

"The larger and longer the shock, the more likely it is that we’ll see the material second-round effects that policy needs to respond to," Breeden told the same conference. “I wasn’t there in September in terms of being ready to vote for a rate hike, but I was mindful that the balance of risks had shifted, and as risks crystallise it’s increasingly appropriate for Bank Rate to respond," she added.

Finally, Deputy Governor Clare Lombardelli cautioned that a rate hike becomes more likely the longer the Middle East conflict drags on.

In a speech at a conference in Poland, she said businesses have absorbed higher energy costs so far but can’t keep doing so indefinitely.

A lengthy shock, she argued, raises the danger of inflation spreading through the economy via higher wage demands and prices. "Monetary Policy is increasingly likely to need to tighten if elevated energy prices persist, absent clear evidence of disinflation or weaker activity," she said in the prepared text.

She stressed, though, that monetary policy shouldn’t respond "mechanically" to energy price swings. Policymakers instead need to judge whether conditions for indirect and second-round effects are becoming more entrenched.

Viewed as a key swing vote, Lombardelli backed the 6-3 majority in holding rates on Sept. 17 but hinted she could move to the hawkish camp as inflation risks build.

In her individual comments alongside that decision, she said the case for raising Bank Rate strengthens the longer the conflict continues.

The Mayor of London has set out his three main demands for Andy Burnham in next month's Autumn Budget.

Sir Sadiq Khan said he was pressing the new Prime Minister and his Chancellor, John Healey, on fiscal devolution, funding for housebuilding and more money for "core public services" such as policing.

The Mayor, like Mr Burnham, is a long-time advocate of greater devolutionary powers, and praised the new administration for enacting a "fundamental change" that will "free London to do more for itself".

The Prime Minister has already announced a significant expansion of powers for Mayors across England, including plans for them to retain a share of income tax and to press on with the previous government's promise to allow authorities to impose and retain an overnight levy on visitors.

Sterling extended its recent losing streak yesterday, weakening across global FX markets as hawkish signals from the U.S. Federal Reserve and firm U.S. data kept the dollar ascendant. The move was driven far more by continued dollar strength than by any UK-specific catalyst.

Philadelphia Federal Reserve President Anna Paulson said yesterday that inflation requires attention and that further interest rate increases might be necessary.

Paulson, who holds a voting seat on the rate-setting committee this year, had previously supported keeping rates unchanged. However, by last week's policy meeting it was clear underlying inflation was not easing.

In remarks delivered in Philadelphia, Paulson said the rate increase approved last week moved the fed funds rate closer to the level she believes is needed to guide inflation back to 2%, at a pace that balances inflation against risks to the labour market.

She added that if conditions develop as she expects, a modest amount of further tightening could be justified. Price pressures tied to tariffs have diminished, while pressures linked to the conflict in the Middle East and the build-out of artificial intelligence capacity have grown. She described the economy as resilient and showing signs of gathering momentum despite tariffs and elevated oil prices, pointing to strong consumer spending, investment driven by the AI build-out, and a stable labour market.

Even so, she said underlying inflation remains stubbornly elevated and that the risk of persistently high inflation has risen.

Separately, New York Fed President John Williams, who had appeared to believe inflation might decline on its own, said in London that he does not think the data have suddenly shifted. He said AI demand is generating inflation in certain sectors but that he does not see a broad, cyclical imbalance. Asked about the latest interest rate projections from his colleagues, Williams noted that the median pointed to another rate increase possibly being appropriate by the end of the year, a view he described as a reasonable way to think about the situation, while adding that the outcome remains to be seen.

The comments follow remarks on Wednesday by Fed Governor Michael Barr, who said further rate increases are needed to bring down sticky inflation. Markets are increasingly pricing in a higher probability of a second rate increase next month, with odds now above 60%, according to CME Group.

The other ‘Kevin’, Hassett, has shown over the past couple of days why Donald Trump’s nomination of Kevin Warsh was the correct decision.

He has gone on record twice this week, telling reporters that the FOMC’s decision to raise interest rates was ‘plain wrong’.

“Why are they hiking?” Hassett asked at an event at Georgetown University, against a backdrop of recent annualised core inflation at 2%. Chairman Kevin Warsh is “managing an unusually partisan Fed.”

“While history shows that Fed chairs and vice chairs typically leave when their terms end”, Hassett said that precedent isn’t being followed, pointing to current board members Jerome Powell and Michael Barr.

Powell stayed on as a Governor after his chairmanship ended earlier this year amid what he said was a battle with the Trump administration over the Central Bank’s independence. Barr, who served as vice chair for supervision, has remained on the board since stepping down from that role last year.

“The market is worried, too, because if you look today, a lot of the people who President Trump didn’t appoint are giving speeches over the last couple of days, saying we need a lot more hikes,” Hassett said.

The fact that they were not appointed by the President both illustrates the Fed’s continued independence and shows that Hassett believes the Central Bank should “dance to Trump’s tune”

The US dollar strengthened broadly yesterday, reaching multi-week highs across global FX markets as US yields surged, PMI data beat expectations, and Federal Reserve officials issued distinctly hawkish guidance. The move was global and decisive, driven by fixed-income repricing rather than typical currency factors.

Executive Board member Isabel Schnabel will leave the European Central Bank early to take a senior role at the International Monetary Fund.

The German official has been appointed Director of the Monetary and Capital Markets Department, where she will start on Jan. 4, the ECB said in a statement on Thursday.

“The new role offers an opportunity to promote global monetary and financial stability and foster international collaboration at a time when the global economy faces profound transformation,” Schnabel said in a letter to staff, seen by Bloomberg News.

Her early departure adds urgency to next year’s leadership shake-up at the Frankfurt-based ECB, with President Christine Lagarde and Chief Economist Philip Lane also set to leave.

European Union leaders will try to agree on all three appointments at once, potentially at a December summit. France and Germany are seeking to maintain their presence on the ECB’s Executive Board, while Spain is pushing for a seat after Vice President Luis de Guindos retired earlier this year.

Europe’s economy is proving more resilient than expected, European Central Bank Governing Council member Martin Kocher has remarked, suggesting it can withstand higher interest rates if further tightening is needed.

“We’ve been seeing stronger signals in the European economy, with somewhat more momentum since the summer,” the Austrian Central Bank Governor told a local newspaper, highlighting improving sentiment indicators and a recovery in industry.

Still, “the economic situation remains fragile,” he said, adding that “necessary rate moves are being made, while the Governing Council discusses every change very carefully.”

“As I have said, rate hikes always dampen aggregate demand and are, naturally, unpleasant,” Kocher said. “It is preferable if we can achieve the 2% target without further rate hikes.”

Eurozone consumer price indices may remain elevated for an extended period, as a renewed jump in energy costs is driving up prices, European Central Bank Chief Economist Philip Lane said in an interview yesterday.

Lane spent this week describing a second surge in prices for both crude oil and natural gas, adding that the ECB expects this energy-led wave to generate stronger and longer-lasting inflation before it eases towards the target, starting midway through 2027 and concluding by the end of Q3.

He cautioned that the current energy price surge is likely to push up costs for food, power and other energy, and for merchandise more broadly, while cost pressures in services should remain in check.

Since the conflict with Iran sent energy prices soaring, the ECB has raised borrowing costs twice, and officials have indicated more tightening lies ahead, including a potential further quarter-point rise as soon as October after this month's increase.

In the near term, Eurozone inflation is expected to hover around 4%.

According to the ECB's most recent projections, it will be 3% this year and 2.5% in 2027, both considerably above the 2% goal, even as the wider economy remains resilient.

Turning to downside risks, Lane warned that a stronger, longer-lasting shock this autumn would drag on economic activity. He took a brighter view of a gentler outcome, observing that if the shock proves less severe, several favourable elements should bolster expansion, including significant government expenditure in some European regions.

He singled out Germany's infrastructure and defence initiative, adding that Germany looks to have begun the long road to recovery.

The Euro weakened yesterday across global FX markets, almost entirely pressured by broad US-dollar strength as US yields surged, Fed officials adopted a hawkish tone, and US data came in above expectations. Eurozone data was mildly supportive, but nowhere near strong enough to offset the USD’s momentum.

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