15 October 2026: BoE’s Pill is sceptical of four rate hikes in the next 12 months

After the IMF's recent optimism, the economy's fragility is becoming clear. The economy is forecast to have shrunk in August, on the back of a decline in the services sector, according to experts. The Office for National Statistics will unveil the latest monthly UK economic growth data later this morning.

Economists say the economy likely contracted in August as a “correction” after stronger-than-expected June and July figures. In June, the UK economy grew 0.3% as hospitality and leisure firms benefited from football fever and prolonged hot weather.

Gross Domestic Product was widely expected to plateau but unexpectedly rose 0.4% in July, boosted by the services sector and increased AI use.

However, experts have said the latest data likely stumbled after Andy Burnham’s positive start as Prime Minister.

GDP is forecast to have declined by 0.3% in August.

Economists have predicted weaker output across most of the economy, with the three key service sectors, professional services, administration, and information and communication, showing notable weakness.

The service sector reported a particularly strong July, rising 0.6% on strong demand for AI and cloud computing services.

The ‘big three services’, which together account for 19.7% of GDP, had a strong July, with the strongest monthly growth since April 2022.

The crucial question for August is how much of that surge has unwound.

Meanwhile, former Bank of England Governor Mervyn King said in a radio interview that he expects GDP growth to return to its pre-financial crisis level in 2008, and that he thinks Andy Burnham deserves credit for decisions made so far in his term.

The International Monetary Fund said this week it predicts the UK economy will grow more than previously expected this year, before higher energy prices and interest rates hit the economy in 2027.

Bank of England Chief Economist Huw Pill has expressed scepticism about market expectations of four quarter-point interest rate increases over the next year, signalling uncertainty over the pace of monetary tightening as policymakers assess the inflationary impact of the Iran war.

Pill, who voted to raise interest rates at the Central Bank's September meeting, said it was not yet clear whether borrowing costs would need to rise as much as financial markets anticipate. He made the remarks at a Citibank-organised event on the sidelines of the International Monetary Fund's semi-annual meetings in Bangkok, according to Reuters.

Pill said the Bank needs to ensure monetary policy is appropriately positioned to address inflationary pressures, while questioning whether four rate increases would be warranted over the coming 12 months.

These comments highlight divisions within the Bank of England's Monetary Policy Committee over how to respond to the energy shock from the Iran war. Pill and two other MPC members voted for a rate increase in September.

The Bank of England and the International Monetary Fund have warned that a growing wave of cyberattacks could erode public confidence in the financial system.

The warning came during a panel on online fraud at the IMF and World Bank meetings in Bangkok. Bank of England Governor Andrew Bailey cited troubling recent reports, including self-replicating AI agents taking control of personal devices and a hack at French supermarkets that pushed fridge temperatures to 50C.

He argued that the AI debate ultimately centres on maintaining human oversight so people can continue to rely on technology.

IMF managing director Kristalina Georgieva shared his concerns, suggesting the mounting cost of cyber-fraud could drive people away from mainstream finance entirely. She drew on her upbringing in Bulgaria behind the Iron Curtain, where distrust of institutions led people to hoard cash at home, and said those on the margins of the financial system faced the greatest danger.

Sterling weakened yesterday across global FX markets, driven primarily by a stronger US dollar after hotter-than-expected US CPI data and a sharp rise in US Treasury yields. This pushed GBP lower against the USD and left it mixed to weaker across most major crosses.

Consumer prices accelerated in September as energy costs surged, dealing another blow to President Donald Trump and his Republican Party and putting an interest rate hike later this month back on the radar.

The Labour Department's Consumer Price Index report on Wednesday showed price pressures broadening beyond energy, raising economists' concerns that underlying inflation could be becoming sticky. AI also boosted inflation last month. Financial markets now view the Federal Reserve's interest rate decision at its October 27-28 meeting as a closer call than before the data was released.

The report added to surveys this month showing further deterioration in consumer sentiment and the plunge in Trump's approval rating, driven by anxiety over the rising cost of living.

"The inflation we're experiencing right now is largely the result of erratic policy from the executive branch," said Kyle Moore, Chief Economist at the Century Foundation, a progressive think tank. "Worse still, the directionless war in Iran continues to disrupt global supply chains. This administration has also been wholly unwilling to moderate the pace of the AI and data-centre buildout."

President Trump’s overall approval rating hit another record low for either of his terms, according to a new Fox News survey amid growing voter dissatisfaction with his handling of key issues.

The Fox News poll found that 36% of respondents approved of Trump’s overall handling of the Presidency, while 64% disapproved.

Fox News noted the decline was most pronounced among likely voters aged 45 and under, those with an annual household income below $50,000, non-White voters, and, most surprisingly, those without a college degree.

Among Republican respondents, 76% approved of Trump and 23% disapproved, while 98% of Democratic respondents disapproved and 2% approved. Meanwhile, 78% of independent respondents disapproved of Trump.

The poll also reported that only 22% approved of Trump’s handling of inflation, compared with 36% in a survey from last summer.

Disapproval of the President on other issues included 70% for his handling of the economy, 69% for tariff-related issues, 64% for foreign policy, and 56% for immigration.

Following recent inappropriate comments about Iran ‘taking out’ San Diego and the tasteless AI images he posted on social media trivialising the man who was recently mauled to death by a tiger here in the UK, many feel that his age is starting to catch up with him. Clearly, based on his ratings, Democrats hope to wrest control of both Houses of the Senate and inject more ‘Presidential behaviour’ into proceedings.

The labour market remained stuck in a low-hire, low-fire state, and inflation intensified across parts of the country in recent weeks, a Federal Reserve report showed, underscoring what’s at stake as the Central Bank weighs whether to deliver a second straight interest rate hike later this month.

While businesses in much of the country have a positive outlook, their “expectations tend to be for slight growth, weighted toward manufacturing and burdened by ​persistent uncertainties,” the Fed said in its latest “Beige Book” report, a compendium of survey-based data and commentary from businesses compiled by its 12 Regional Banks ‌to provide a read on economic conditions.

Three of the Fed’s districts described price growth as robust and eight as moderate, with three of the eight saying it was “intensifying.” With 21 references to high diesel fuel costs, versus two in the prior Beige Book and none in the surveys taken just before the start of the US-Israeli war with Iran in late February, the report illustrated the concern economists have about how surging costs for that important business input are threatening to broaden the scope of inflation.

“Contacts in multiple Districts also noted continued price pressure from other commodities, tariffs, and insurance,” the report ‌ said.

But as ​the Dallas Fed put it: “The higher diesel price reigned supreme in terms of the most commonly cited factor driving ⁠up costs, impacting freight, agriculture, and airline prices ⁠as well as causing widespread margin compression across numerous industries.”

The survey also serves as a barometer of the economic pressures voters face ahead of the November 3 midterm elections, which will determine whether President Donald Trump’s Republican Party maintains control of Congress.

Voters cited the cost of living as the top issue in a recent Reuters/Ipsos poll.

Several Regional Banks noted the absence of mass layoffs, but five said firms had reduced staffing by not replacing departing workers or by ​delaying hiring. “Several Districts noted that inflation has driven additional wage pressure in the form of higher cost-of-living demands from individuals as well as challenges from rising benefit costs,” the report said.

The report also noted AI’s disruptive influence on the labour market. One business services company told the Chicago Fed that productivity gains from adopting artificial intelligence allowed it to reduce employment through attrition. A staffing firm told the Dallas Fed that it had hired new recruiters to manage its AI expansion, citing an example of AI agents conducting more than 180 hours of interviews in two days and needing workers to review and make decisions.

The US dollar strengthened significantly across global markets yesterday, rebounding sharply after a hotter-than-expected September CPI report.

The ECB President has downplayed speculation about possible intervention in France's worsening budget crisis, according to CNN.

Speaking at the CNN Global Perspectives event in Bangkok, Christine Lagarde said the answer to the precarious financial condition of the European Union's second-largest economy would come from within the country. Lagarde noted that particular circumstances have left some countries more exposed than others, with France serving as an example.

For France, she said, the primary solution lies at home and concerns fiscal policy. France has been caught in a public debt crisis that has escalated quickly and risks pulling the EU down with it. Financial pressure mounted sharply in recent weeks as bond yields spiked and unprecedented student protests shook the country.

Public debt has climbed to nearly 120% of GDP, while the benchmark 10-year bond yield rose to almost 5%, the highest level in more than two decades, lifting borrowing costs and slowing economic activity. Those conditions, combined with heavy social welfare spending, leave the government with limited room to manoeuvre, let alone to meet student demands for solutions to staff shortages and deteriorating school buildings.

Investors are also worried that a presidential election next year could hinder efforts to cut the deficit. Lagarde also pointed out that rising bond yields are not confined to France. Yields in major economies, including the United States, Germany, and Japan, have risen in recent weeks, driven by factors such as rising government debt and a prolonged energy shock caused by the Iran war.

Meanwhile, France's Economy Minister, Roland Lescure, denied earlier this week that the country was trapped in a debt "snowball" as he urged opposition parties to pass the 2027 government budget.

President Macron's centrist government is eager to pass a budget before the end of the year to reassure markets that France can bring down its debt mountain.

Amid political jostling ahead of next year's presidential election, opposition parties on the left and right oppose the government's proposals, while public anger mounts over spending cuts.

Lescure told the lower house, the National Assembly, that government bond interest rates were worrying but insisted France is not yet caught in a debt "snowball effect".

Launching a debate on the budget, he admitted bond rates had risen to 5% in recent days but said they should average 2.5% in 2027. He did not explain why he believes rates would fall.

Lescure urged adoption of a budget targeting a 5% of GDP public deficit by 2027, through €43 billion in spending cuts and other measures.

The European Central Bank may need to raise interest rates again because data suggest price pressures are building, Governing Council member Gediminas Simkus has said.

September’s inflation reading came in above estimates, energy costs have been higher than predicted, and the labour market remains strong, the Lithuanian central bank chief said in an interview.

The Euro was broadly weaker yesterday, losing ground against the US dollar and recording mixed but generally subdued performance across global FX markets. Renewed USD strength, supported by higher US Treasury yields, stronger inflation data, and persistent euro‑zone macro concerns, dominated.

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