27 October 2026: Healey backs oil drilling at Rosebank

An updated Bloomberg Economics model shows Bank of England officials are at their most hawkish since early 2023. Markets are now factoring in a near-certain rate hike next week.

The Bank’s Monetary Policy Committee has remained on the sidelines while other G7 Central Banks have tightened official rates. Inflation has risen largely due to the Middle East conflict, and higher energy prices have driven it up.

Bloomberg Economics has created BOESPEAK, a language-processing model that scores MPC members' tone. Scores above zero signal hawkish sentiment, meaning a preference for higher interest rates.

The index jumped after MPC members made public appearances, including at International Monetary Fund meetings in Bangkok.

The model currently expects hikes in November and February. However, economists believe the committee may simply be talking tough.

At the MPC's most recent meetings, the committee has voted 6-3 to keep rates unchanged, so it will take two votes to change the result. Deputies Dave Ramsden and Clare Lombardelli have both recently hardened their stance on inflation.

Governor Andrew Bailey has consistently warned that rates will need to rise if inflation appears to be affecting wage demands. It would be highly unusual for the MPC to vote for a change (in either direction) without the Governor’s vote.

Deputy Governor Sarah Breeden said on Oct. 15, 2022, that firms may absorb costs rather than raise prices, while doves Alan Taylor and Swati Dhingra, who favour looser policy, urged caution.

Tomorrow, John Healey's first budget as Chancellor of the Exchequer in Andy Burnham’s government is due to be published. He faces pressure from all sides, as his boss wants more defence investment and higher funding for ‘social benefits’. Labour backbenchers oppose any welfare cuts and have been militant in the past.

Kemi Badenoch and Nigel Farage have likely already written speeches condemning Healey, since he has little ‘wiggle room’ for surprise measures or giveaways.

Healey also has very little fiscal headroom, given recent increases in government debt and longer-term interest rates.

The Chancellor is backing drilling at the Rosebank oil field, according to The Daily Telegraph.

He is understood to favour giving the green light to extract 500 million barrels of oil at the site, 80 miles west of the Shetland Islands.

However, Miatta Fahnbulleh, the Energy Secretary, who will make the final decision in the coming weeks, has indicated she is minded to turn down the application on environmental grounds.

It could split the Cabinet, with Ed Miliband, the Foreign Secretary, also opposed. He previously described proposals to extract oil at Rosebank as “climate vandalism” that would conflict with the Government’s plans to reach net zero.

It would leave Andy Burnham to referee the two sides, although Downing Street insisted on at the weekend that the Prime Minister was not involved in the decision.

Sterling underperformed slightly yesterday, slipping against the dollar as the greenback regained some ground. The move was notable but not large enough to alter the broader picture of GBP/USD trading within its recent range around 1.33-1.34.

Many of President Donald Trump's policies, particularly tariffs, have increased consumer costs. For example, research cited by CBS News reports that tariffs contributed to higher inflation, while some economists attributed part of the rise in consumer prices to those measures.

Given the current inflation picture, the FOMC could vote to raise the Fed Funds rate twice this year.

The rate-setting committee meets tomorrow and again on December 9th. Several prominent Wall Street voices suggest it will hike at both meetings to demonstrate its commitment to lower inflation.

This is exactly the reaction Fed Chair Kevin Warsh favours, as he has eschewed advance guidance to the markets since taking over from Jerome Powell earlier this year.

If the Federal Reserve voted to hike rates twice before year-end, the economic impact would depend on whether markets had already priced them in. If they were at least partly unexpected, the effects would likely include a stronger US Dollar, tighter financial conditions, slower US economic growth, and lower inflation over time.

Inflation would not fall immediately, as these changes take time to filter through prices.

Financial markets would see growth and technology stocks as the most vulnerable, since higher discount rates reduce the present value of future earnings. Financials may initially benefit from higher rates, but concerns about loan growth could offset that benefit. In the bond market, short-dated Treasury yields would likely rise further. But if investors feared a recession, longer-dated yields might rise less or even fall, deepening the yield-curve inversion. Corporate bond spreads could widen as investors demand greater compensation for risk.

Donald Trump is reworking the scope of the 50% tariffs he imposed on a range of Canadian imports as part of a back-and-forth trade war between the two countries.

Starting October 30th, the tariffs will no longer apply to several previously affected goods, including plywood, certain industrial machinery, and select packaging and paper materials, according to a proclamation Trump signed last Friday. Meanwhile, other imports will now face the levies, including carpets and air conditioners.

In August, Trump invoked Section 338 of the Trade Act of 1930 to impose the levies after negotiations between the U.S. and Canada broke down. The statute allows a president to impose tariffs of up to 50% to address discrimination against U.S. commerce. When ordering the tariffs, Trump alleged that Canada unfairly imposed duties and quotas on U.S. car imports, halted alcohol imports, and set tariff-rate quotas on certain dairy products.

In Friday’s Executive Order, Trump said he decided to tweak the list of goods covered by the Section 338 duties after senior executive branch officials advised him that doing so would still offset the alleged discrimination while serving the public interest.

The air conditioners newly subject to tariffs are limited to self-contained window and wall units, which are likely used most frequently in residential or small commercial settings. The tariffs on carpeting apply to a wide range of product types. Tariffs also apply to textile floor coverings other than carpeting.

It is hard to fathom which industries and goods Trump is trying to affect by constantly changing the scope of his tariffs; he may have been ‘button-holed’ on his recent midterm election ‘tour’ and decided to make changes based on limited voter opinions.

The US dollar strengthened modestly against major currencies, supported by expectations that US interest rates will remain restrictive and by a lack of significant economic data elsewhere that could challenge the dollar's yield advantage.

Waning economic momentum is one reason the European Central Bank will likely hold off on raising interest rates when its Governing Council meets tomorrow and Thursday.

While much of the region’s attention is focused on France’s fiscal and bond-market woes, data due Friday will also show a slowdown in Eurozone growth and a less urgent need for further action on inflation.

A Bloomberg poll suggests third-quarter expansion moderated to 0.2%, down from a blowout 0.6% jump in the second quarter, which was boosted by Ireland's bumper result. Separate surveys, meanwhile, show no clear upward shift in inflation in October across the bloc’s four biggest members.

Looking ahead, the resilience that’s characterised Europe since the Iran war erupted may be wavering, with business activity starting to fade. While the continent is still holding up well, Simona Delle Chiaie, Chief Eurozone Economist at Bloomberg Economics, sees reason to be cautious.

“The bigger question is what comes next,” she said. “With inflation remaining high and financial conditions tightening sharply, downside risks to growth are mounting.” Output between July and September was hit by summer heatwaves, low levels in key waterways, and surging global bond yields. The backdrop has worsened since then, as France faces mass protests and doubts about its public finances.

As the country’s private sector shrank in October, supermarket operator Carrefour warned that nationwide looting would weigh heavily on its performance. Its shares registered their worst week since the global financial crisis.

France faces mounting pressure on two fronts: growing public anger over the cost of living and an economy struggling with high debt, taxes, and weak growth. Student protests that began with school blockades have spread and turned violent, spotlighting the country’s economic troubles and deepening political tensions.

The issues are not unique to France, but they come at a difficult time for the country’s economy.

France is also struggling to bring its public finances under control. France is not Greece in the context of the financial crisis that shook the European Union in 2009. However, it has repeatedly failed to meet its targets for spending, economic growth, and cost-cutting. With President Emmanuel Macron nearing the end of his nearly decade-long tenure, the state of the country’s finances is also expected to be a key issue in the race to succeed him next spring, with hard-right candidate Marine Le Pen ahead in the polls.

France’s public debt stood at nearly 3.6 trillion euros at the end of June, equivalent to 119% of its gross domestic product.

The government has warned that the figure could rise further. Three weeks ago, it said the budget would again exceed European Union spending limits, with public debt expected to reach nearly 122% of GDP, setting a new record, AP has reported.

The growing debt leaves the government with difficult choices. It must either reduce spending or raise taxes, which are already among the highest in Europe. Gilbert Cette, an economics professor at Neoma Business School in Paris, described the debt as “enormous”, saying, “France’s entire economic policy is constrained by such a sizable debt level.” Cette said France had shown “talent” in both increasing government spending and cutting taxes in recent years, making it harder to get public finances back on track.

He also warned that France’s approach to economic reforms was eroding its credibility. Greece’s credibility was destroyed by false statistics; France’s is being eroded by false promises and the inability or unwillingness to start fiscal and structural reforms.

The euro traded with a generally soft tone against the US dollar, as the dollar remained supported by relatively high US yields and expectations that the Federal Reserve will maintain a restrictive policy stance. While moves were not especially large, investors continued to favour the dollar's interest-rate advantage.

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