30 September 2026: It looks like a rate hike in November is ‘baked in’

Prime Minister Andy Burnham promised greater public control over essential services yesterday, vowing to reverse decades of privatisation in an emotional first speech to his Labour Party's annual conference as leader.

The former mayor of Manchester, in office for just 10 weeks, choked back tears as he spoke about his late father and outlined his long-term ambitions to establish free social care, reform the UK's electoral system, and controversially adjust the triple lock on the state pension. Rumours had suggested the triple lock could be removed entirely. Still, Burnham and his team have proposed an innovative solution whereby just the third leg, the attachment to average wage increases, would be removed.

"I accept people will not agree with every part of it, but I believe it can turn Britain around," Burnham told a packed audience in Liverpool, who punctuated his hour-long address with several standing ovations.

He launched into an impassioned defence of his plans to introduce free social care in England for people who need help living with illness or disability.

"I won't pretend some of this won't be difficult. I accept I may pay a political price. But someone has to go through the pain barrier and rip the plaster off. It's the leadership I promised you when I asked to be your leader," he said.

Burnham has re-energised the centre-left party since MPs parachuted him into Downing Street in July, ending Keir Starmer's two-year premiership, which was dominated by numerous domestic policy missteps and infighting after Labour won the 2024 general election. However, this speech was far more left-wing than the conference delegates had imagined.

He has been under pressure to lay out how he plans to fulfil lofty and costly pledges, including reindustrialising the country, ending rough sleeping, and building thousands of new council houses. Reindustrialisation is a thorny issue for a Labour Party born in the coal mines of South Wales and the steelworks of the Midlands and the North.

Burnham failed to explain how he will fund the country’s commitment to increase defence spending to 3.5% of GDP by 2025. The Prime Minister must find billions of pounds for the UK's defence to meet NATO commitments.

It comes as the UK economy, like many European countries, is weighed down by sluggish growth and soaring borrowing costs. At the same time, Britons are squeezed by high energy prices exacerbated by wars in the Middle East and Ukraine.

During his speech, Burnham told Labour MPs and delegates that greater public control over housing, energy and water, coupled with more powers for local leaders, would help spur Britain's struggling economy.

"I will make a break with the direction of the past 40 years and put Britain on a new path, build a new economy and a new politics," said Burnham, the UK's seventh Prime Minister in a decade.

He said his government would soon introduce a bill to repeal Margaret Thatcher's "ideological ban on public ownership of water companies" from 1979 to 1990.

"These policies have taken Britain backwards. More of the same isn't good enough and isn't going to get us where we need to be," he insisted.

Burnham vowed to build a "National Care Service" that would be "free at the point of use," which he described as a "landmark policy as significant as the creation of the NHS itself" in 1948, though not until after the next general election, expected in 2029.

The premier is hamstrung by Labour's 2024 election-winning manifesto, under Starmer, which ruled out raising income tax and two other main taxes.

External member of the Bank of England Monetary Policy Committee Alan Taylor noted that an interest rate hike is "not compelling" unless energy prices remain elevated long term and show signs of spreading to other parts of the economy.

Taylor is the MPC’s most dovish member. Speaking before the National Institute of Economic and Social Research (NIESR), Taylor noted the BoE's "flexible" approach to monetary policy, without a "clearly illuminated" rate path. He explained that the Bank is assessing energy prices, inflation expectations and their reactions, their effect on wages and prices, and demand.

"On the evidence so far, higher energy costs still appear largely concentrated within the energy sector itself rather than spreading more widely through the economy. Monetary policy should respond to the risk that a relative-price shock becomes a general inflation process," he said. "If pressure builds and second-round effects begin to gain traction, the policy assessment would have to change."

The Bank’s Governor has reiterated that high energy prices will make it “harder” to keep interest rates at their current levels and avoid an increase.

Andrew Bailey indicated the Bank may have to raise interest rates if energy prices “remain higher” amid pressure linked to the conflict in the Middle East.

This comes only a day after his Deputy said a rate hike is looking “increasingly likely” if energy prices remain elevated.

Bailey and Taylor were among the six-to-three majority who voted to keep UK interest rates at 3.75% earlier this month.

Sterling was broadly weaker against the dollar but slightly firmer against the Euro yesterday, mirroring the global pattern of USD strength across major FX pairs.

St. Louis Fed's Musalem said earlier this week that more rate hikes are likely, calling the current 3.75-4.00% rate "accommodative" and warning that inflation could remain well above 2% without further tightening. He favours earlier, incremental hikes over later, larger ones, Reuters reported.

Musalem's comments reinforce a hawkish tone within the Fed just days after this month's rate rise. His preference for acting sooner rather than later aligns with market pricing, which already points to further tightening ahead, with investors currently expecting three more quarter-point hikes across the next five meetings through Q1 '27 and roughly even odds of an October move.

His description of the current 3.75-4.00% policy rate as still "on the accommodative side" suggests he sees meaningful room for further increases before policy becomes restrictive.

For commodities specifically, his explicit inclusion of base metals such as copper alongside oil broadens the inflation narrative beyond the Middle East-driven energy shock that has dominated recent Fed commentary. It may draw closer market attention to industrial metals pricing as a policy-relevant input alongside crude.

His colleague from Chicago, Austan Goolsbee, joined Musalem in saying that inflation remaining above the Fed's target for 5-1/2 years represents a dangerous situation that may require policy action.

"The fact that we have been 5-1/2 years above the inflation target is playing with fire," Goolsbee said yesterday. He added that the Fed may need to respond to supply shocks that show lasting effects.

Goolsbee described the current situation as unpleasant and said the Central Bank must consider responding to persistent shocks. He noted that before the Fed can cut rates, "we've got to get some evidence that inflation is coming back down, that these things that are supposed to be temporary are in fact receding."

Fed Presidents and Governors John Williams, Chris Waller, and Michael Barr all spoke yesterday, each with varying degrees of agreement that rates will need to increase further.

The possible rise pencilled in for October 28th will come just a few days before the Midterm elections. This means that the economy will be fresh in voters' minds as they head to the polls.

Americans’ confidence in the economy sank to its lowest level in more than a decade this month, as prices remain elevated and wages stagnate amid the ongoing war in Iran.

The Conference Board reported yesterday that its consumer confidence index fell 6.7 points to 81.9 in September, down from 88.6 in August. That marks the lowest reading in the board’s survey since April 2014 and is even below the lowest level reached during the pandemic.

Respondents’ views of their present situation fell 7.9 points to 109.3. Their short-term outlook also slid, down 5.9 points to 63.6.

Americans remain frustrated by the economy after five years of elevated inflation, potentially posing a risk to President Donald Trump and Republicans in the midterm elections.

Write-in responses to the board’s survey, collected from September 1-23, were largely pessimistic this month, with frequent references to the high cost of energy, goods and services.

“The Consumer Confidence Index deteriorated notably in September, following two prior months of softening,” said Dana Peterson, the Conference Board’s Chief Economist, adding that consumers’ views of current business conditions turned negative for the first time since September 2024.

Trump has continued to blame high prices on his predecessor, Democrat Joe Biden, yet inflation has risen since Trump’s inauguration for his second term.

The USD strengthened across most major FX pairs yesterday, supported by surging US Treasury yields, hawkish Fed commentary, and geopolitical risk premia. It was the strongest G10 currency.

Diesel prices are likely to remain elevated because shrinking global refining capacity threatens to push up core inflation across the Eurozone, ECB Vice President Boris Vujcic has said.

Diesel prices have surged to record highs as conflicts in the Middle East and Ukraine disrupt supplies, adding to inflation pressures in the Eurozone, which imports most of its diesel. This complicates the ECB's efforts to keep price growth under control, Reuters reported.

"Energy prices, particularly diesel, will probably stay high for a long time, and that will feed into inflation because diesel is used in many products," Vujcic told an event at the Federal Reserve Bank of Cleveland.

He said drone attacks on Russian refineries had curbed supply, while the war in Iran was disrupting traffic through the Strait of Hormuz, and Chinese refiners appeared to be prioritising domestic demand over exports.

The diesel market, already squeezed by supply disruptions linked to the conflicts in Ukraine and the Middle East, was jolted anew this week when US President Donald Trump voiced support for a potential ban on US diesel exports.

Businesses across the Eurozone grew slightly more optimistic about their prospects in September, even as consumers grew gloomier amid elevated energy costs that further weighed on overall sentiment.

The European Commission reported that its economic confidence gauge fell to 97.9 from 98.4 in August. Economists polled by The Wall Street Journal had expected the measure to rise to 98.9.

The decline was largely driven by a fall in consumer confidence, while sentiment in industry and services continued to improve.

Confidence had been gradually recovering in recent months after tumbling following the first U.S.-Israeli strikes on Iran. Despite this unexpected resilience, September’s reading suggests that ongoing uncertainty from the energy crisis is taking a toll on consumers.

The pickup in business sentiment adds to optimism in September business surveys, which point to increased activity. The region’s composite purchasing managers index rose for a fourth consecutive month, climbing to 53.1 from 52.0 in August, indicating an acceleration in private-sector activity.

Hopes for a recovery in sentiment had been building at the start of the year, when easing concerns about the impact of U.S. tariffs and Germany’s plans to commit more than $1 trillion to infrastructure and defence spending raised hopes of a broader economic recovery.

Spain’s candidate to succeed European Central Bank President Christine Lagarde next year is set to receive strong backing from other Eurozone countries, according to Bank of Spain Governor José Luis Escrivá.

“It is very good news for Spain that, for the first time, we have a candidate who, as can be seen, is among those proposed by the Heads of Government,” Escrivá said in Madrid.

Acknowledging that Bank for International Settlements chief Pablo Hernández de Cos “is not the only” contender for the job, he stressed that his predecessor at the Bank of Spain “has considerable support.”

ECB Executive Board member Isabel Schnabel’s announcement last week that she’ll leave by early January has accelerated the race for the top jobs in Frankfurt. While Lagarde has repeatedly hinted at an early exit, finance ministers now have a real impetus to decide on replacements for three seats on the ECB’s Executive Board.

De Cos’s main competitor for the ECB role is former Dutch Central Bank chief Klaas Knot, though it’s too early to say who has the advantage. The Prime Ministers of both countries used the sidelines of the United Nations General Assembly in New York last week to endorse their candidates.

The Euro weakened yesterday across major FX pairs, with EUR/USD sliding to a fresh 16‑month low as soft Eurozone data and broad USD strength dominated trading.

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