7 October 2026: Even if Burnham permits North Sea drilling, bills won’t fall

Inflation running above the Bank of England's 2% target appears to have become embedded in the British economy and risks getting further entrenched in wage negotiations early next year, BoE MPC member Catherine Mann said yesterday.

Mann said recently that the Bank had erred in March, just after the start of the Iran war, by letting investors think it was happy to take a wait-and-see approach to raising rates. She voted ⁠in July and September for a quarter-point hike.

"We've had inflation well ​above target for the entire time that I've been in my position, so ​it’s clear inflation has become embedded," Mann, who joined the MPC in 2021, said at a conference hosted by a firm of economic advisors.

Unlike the ECB and the Federal Reserve, the BoE has kept interest rates unchanged since the outbreak of the Iran war, although financial markets now expect a move at its November meeting.

Mann said she was particularly concerned that inflation looked set to hit 4% around the turn of the year, the most common period for employers to negotiate annual pay increases.

Other MPC members have said they will look for early signs of outsize wage increases, but have highlighted a weaker job market than when inflation last surged in 2022.

Mann said she did not ​think economic demand in Britain was particularly strong, but it was ​positive. Businesses she had visited appeared to be adjusting to higher energy costs.

Moreover, recent upward revisions to labour productivity data were driven by downward adjustments to hours worked, something she said might limit the economy's capacity to deliver non-inflationary growth in future.

With critical oil and gas shipping routes still blocked in the Strait of Hormuz, global energy prices have soared, making life less affordable for consumers. Meanwhile, the oil and gas industry raked in massive profits this year, with leading companies making half a billion dollars a day between April and June 2026.

Now the UK government is weighing up drilling in the North Sea as a potential solution to bring bills down.

In 2025, the Conservative government’s permits for the Rosebank and Jackdaw oil and gas fields were ruled unlawful because it did not properly assess their climate impacts. Yet, fossil fuel companies have continued lobbying ministers to approve the opening of these sites.

Rumours are now circulating that Andy Burnham’s government is considering granting the licenses, in response to claims from the oil industry that doing so would help jumpstart the UK economy.

But new drilling will likely only increase the burden on UK consumers.

Climate groups claim that the additional carbon pollution from these oil and gas fields would amplify climate damage and far outweigh any economic benefits.

Last year, Global Witness research found that climate damage costs amounted to an estimated £3,000 per household over 2025. This year, UK food prices are expected to be 50% higher in November compared to the start of the cost-of-living crisis in 2021, driven in part by climate impacts such as droughts, floods and heatwaves.

They feel the way forward is clear: make fossil fuel companies pay their fair share of tax, and use the income to support UK households and a fair green transition.

Burnham faces further scrutiny when Parliament reconvenes because of his support, and then his hasty adjustment, to his comments about Manchester City and its Chairman, Khaldoon al-Mubarak. Conservative Leader Kemi Badenoch, who will deliver a speech closing the Party’s conference later today, has voiced concerns about Burnham’s support for the Club’s role in Manchester's regeneration.

Sterling was modestly firmer across most major pairs yesterday, outperforming the Euro and edging higher against the dollar, supported by broad dollar softness and continuing Eurozone fiscal concerns, particularly in France.

Some companies are preparing for an AI-fuelled chip squeeze that could push up prices far beyond the data centre boom alone, according to Mary Daly, President of the Federal Reserve Bank of San Francisco.

Daly's district includes Silicon Valley, the site of many of the companies driving the AI boom.

She told reporters yesterday that, in conversations with business contacts, she's starting to hear signs that companies are bracing for tighter chip supplies, suggesting the AI boom is beginning to alter purchasing habits and product-design decisions outside the sector.

Daly says that some firms are seeking forward contracts for memory chips ‘so that they know they have a known supplier.’ Those contracts can give companies more certainty about future supply.

She says some companies are also beginning to "reengineer their products" to rely less on chips, giving them more room to manoeuvre in case supplies tighten. "I see that as a signal that there is a little bit of concern that this is going to spread more broadly." The fear is that the scramble for AI hardware will compete with the chips used in cars, appliances, and other goods, recreating some of the bottlenecks that drove prices higher after the pandemic.

Central Bank meetings are among the most important events on the market calendar, but traders do not listen to policymakers only when they announce an interest rate decision. Speeches, interviews and comments from individual Central Bank members can move markets just as sharply because the market is forward-looking.

Markets constantly try to anticipate what these institutions will do next, and any comment that shifts those expectations can trigger an immediate repricing that affects bonds, currencies, equities, commodities, and cryptocurrencies.

The recent reaction to Federal Reserve Bank of New York President John Williams is a good example. Before his comments, markets were pricing roughly a 70% probability of another Fed rate hike in October. Williams said that, following the September rate increase, there was "no need for urgency" and that if the economy evolved broadly in line with forecasts, another rate increase later in the year could be appropriate.

The comments pushed back against the idea of an imminent October hike. They caused markets to reprice the earlier expectations, reducing the probability for a rate hike in October to roughly 50% and leading to a pullback in various assets.

Not every comment has the same market impact. Central Bankers generally develop recognisable policy biases based on their previous comments and the way they assess the economy. A policymaker who consistently emphasises inflation risks and the need for higher rates is generally labelled hawkish.

Someone who focuses more heavily on employment risks and the need for lower rates will generally be seen as dovish. Others take a more neutral or data-dependent position. The FOMC has become far more ‘fractured’ in its view of the economy recently, particularly since Donald Trump’s second term began.

The United States and China share one of the world's largest and most closely monitored bilateral trading relationships. Yet the official statistics used to assess that relationship are sending sharply different signals. China reports exporting more goods to America than the United States says it imports, particularly since early 2025, when the Trump administration sharply increased tariffs on China.

Among possible reasons for the gap, the evasion of US tariffs appears to be an important factor. As a result, US bilateral import data for China appear less reliable. The reported decline in US imports from China should not be treated as a clean measure of either economic decoupling or the effectiveness of the tariffs.

From January through July 2026, the US Census Bureau recorded $158.3 billion in merchandise imports from China, including Hong Kong. Over the same period, China reported $258.1 billion in merchandise exports to the United States. The $99.8 billion difference was 63 percent of reported US imports from China. This share was nearly five times its 2021–24 average. If the average monthly gap observed from January through July persists for the rest of the year, the cumulative gap for 2026 will exceed $170 billion.

The USD was broadly flat on global FX markets yesterday, showing no meaningful change against major currencies and trading in an unusually narrow range compared to recent trading days.

German factory orders dropped sharply in August, more than forecasted, as large-scale orders for aircraft, ships, trains and military vehicles declined, official data showed Tuesday, underscoring the fragility of a recovery in Europe's biggest economy. This is despite the Merz administration investing more than a billion Euros in infrastructure and defence contracts since the start of the year.

New orders, a key indicator of future business activity, were down 10.6% from a month earlier due to a drop in large-scale domestic orders, according to provisional data from Destatis.

It was the first decline in four months and more than the 1% decrease forecast by analysts surveyed by the financial data firm FactSet and Reuters.

The long-stagnant German economy has been slowly recovering on the back of massive public spending, with some recent data generally pointing to signs of growing strength.

The economy ministry said August's order data thus represented a "marked setback."

The decline was entirely attributable to a 61.5% slump in what the statistics office classifies as "other transport equipment," a category that more than doubled in July due to an exceptionally high volume of large-scale orders of ships, railway rolling stock and aircraft.

When large-scale orders are excluded, new orders in August were 0.1% lower than in the previous month.

​The digital Euro could give European banks and payment providers a stronger position in a market increasingly shaped by foreign card networks and new forms of digital money, according to European Central Bank Executive Board member Piero Cipollone. The ECB sees the project not only as a digital version of cash but as infrastructure on which private companies could build new payment services.

Cipollone said yesterday the project could provide European payment companies with a platform for innovation and help them compete more effectively. The ECB is preparing for a possible first issuance in 2029, while a 12-month pilot is scheduled to begin in the second half of 2027, Bloomberg reports.

One of the ECB's central concerns is Europe's dependence on international payment networks, including Visa and Mastercard, as well as the growing use of dollar-linked stablecoins. A digital euro would provide a common public payment instrument available across the Eurozone rather than replacing existing bank products.

That distinction is important for banks. The ECB wants commercial lenders and other payment service providers to distribute digital euros and develop services around the system instead of competing directly with central-bank accounts.

The project has already attracted financial institutions. The ECB selected 36 payment service providers for the pilot after receiving more than 50 applications. Participants include banks and non-bank providers from across the Eurozone.

The resilience of the Italian economy should make it possible for wages here to recover over the next two years, with soaring inflation currently eating into households' purchasing power, European Central Bank Chief Economist Philip Lane said in an interview with ANSA yesterday.

The euro weakened slightly on global FX markets yesterday, losing ground against sterling while posting small gains versus the dollar and several other majors.

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