29 October 2026: Underwhelming

Every year, the budget highlights differences between the government and the opposition, and this year was no exception. However, both Kemi Badenoch and Sir Ed Davey agreed that they were disappointed that John Healey had not been bold enough in the measures he announced.

While not wishing to decry a £100 ‘gift’ arriving in 20 million voters' bank accounts before Christmas, the fact that it was considered the budget's most ‘headline’ measure told Healey’s audience all they needed to know.

He was not in a position to upset his own backbenchers by cutting the country’s burgeoning welfare bill; despite Andy Burnham and Wes Streeting recently making what now feel like hollow promises, there were no ‘specifics’ on defence spending. The only overwhelming impression of this budget was that Healey would rather have been somewhere else, since he had little to offer and was in no mood for controversy.

He began by showering his predecessor with undeserved praise, but at least Rachel Reeves was prepared to face the problems she was dealing with and accept the ‘brickbats’.

Healey comes across as a thoroughly decent individual, but he lacks the ‘spark’ to drive radical policies forward.

Nothing was mentioned that would blow the Bank of England off course; it is steering towards a rate hike next week, so the pound had a relatively solid session in the markets.

The Financial Times reported that ‘before Chancellor John Healey stood in the House of Commons to deliver the Budget, we already knew much about the performance of the UK and world economies, and about the difficult challenges the government and country face’.

What we now know is that the government is, in essence, hoping for the best. We also know it is as good as its predecessors at offering spending gimmicks and tax tweaks that achieve nothing significant, other than making people’s lives even more complicated.

Is there a serious political strategy here? Maybe. But given forecasts of harsh future curbs on public spending, that strategy might aim for an early election. Is there an economic strategy? Not an obvious one. Healey told MPs he will steer the economy through ‘troubled and stormy waters’ in the next few years, but his strategy seems to remain solidly in the harbour, hiding rather than facing the ‘rough weather’.

There had been some discussion about amending or even abolishing the Bank of England’s 2% inflation target, or appointing a Treasury representative to join the MPC. Still, Healey was not in the mood to ‘rock any boats’.

The overriding message was that the government is subject to considerable outside influences that will be difficult to negotiate, but it can do little to influence the outcome.

Sterling finished the day firmer against the US dollar, supported by renewed expectations that the Bank of England may keep policy restrictive as UK inflation risks remain elevated. The pound outperformed the dollar during the latter part of the session and ended the day stronger, reversing earlier weakness. The move suggests markets were relatively more constructive on UK rates than US rates by the close.

Chairman Kevin Warsh left the Federal Reserve on track to raise interest rates again this year, even as he maintained his refusal to offer explicit guidance on the future policy path.

Operating within his self-imposed communication boundaries, Warsh used his assessment of a strong economy and warnings about persistent inflation to signal that the Fed’s job is not yet done. The message reinforced expectations that officials will raise borrowing costs in December after holding them steady this month, with another increase possible in early 2027. Still, Warsh left his options open.

He was clearly setting up more tightening, but he added a caveat, saying it need not be much more.

Warsh opened his press conference by cataloguing the economy’s strengths: first-half GDP revised up to 2.4%, third-quarter growth tracking north of 3%, double-digit gains in business investment, and near-historic lows in jobless claims. That underlying resilience, Warsh argued, gives the Federal Open Market Committee the room it needs to focus squarely on an inflation rate that has lingered above the Fed’s 2% target for nearly six years.

He also underlined the Fed’s willingness to act, pointing to its unanimous September decision to hike for the first time in three years as evidence. And he emphasised that the Fed would benefit from the “information-rich interval” between now and its December meeting, which will include new growth and inflation readings on Thursday.

“It’s our responsibility to get inflation down,” Warsh said following the central bank’s 10-2 vote to hold the benchmark federal funds rate in a range of 3.75% to 4%. “That’s the reason the FOMC’s discussion over the last couple of days focused mainly on the price stability side of our remit.”

The two dissenters were one obvious, Cleveland Fed President Beth Hammack, and one slightly more unusual, Fed Governor Lisa Cook.

For some traders, Warsh’s performance wasn’t sufficiently hawkish. The yields on two-year Treasuries, which are more sensitive to Fed policy, fell four basis points to 4.7%. Long-term yields edged slightly higher.

But several economists expect the Fed to hike twice more this cycle, effectively reversing the cuts it made in late 2025 to shore up a wobbly labour market. As of yesterday afternoon in New York, futures-contract pricing priced in rate hikes in December and March.

One change was announced that will leave markets with an unusually big gap between rate decisions. Warsh told reporters the committee believes eight meetings per year is the right number. Still, in 2027, one meeting will focus exclusively on broad monetary policy strategy, with no vote on the federal funds rate or policy statement expected.

The dollar retained underlying support from a hawkish Fed message and two hawkish dissents. Still, it failed to sustain broad gains and finished the day softer against sterling as FX markets focused on relative rate expectations rather than the unchanged policy decision itself.

Corporate bankruptcies in Germany are projected to remain consistently high, at 26k cases annually, through the end of 2026 and 2027. This forecast comes from Allianz Trade, the German branch of the international credit insurer Allianz.

The last time a comparable number of bankruptcies was observed in the country was in 2013, at the end of the European debt crisis. According to Milo Bogarts, head of Allianz Trade's German division, Germany's situation is not expected to improve in the near future.

He cited geopolitical tensions around Iran, weak economic growth, an acute shortage of qualified personnel, and high operating costs as the main reasons for the stagnation, seemingly following John Healey's lead.

Reports from the Federal Statistical Office of Germany show that the number of insolvent companies in the country has grown continuously in previous years: from 17.8k and 21.8k cases to 24k bankruptcies in 2025. In the first half of this year, the agency has already recorded 12.8 bankruptcies, up 6.7% from the same period last year.

Allianz Trade says the total increase over the full 12-month cycle will be 8%. Among the most high-profile recent cases, experts single out the bankruptcies of the Galeria department store chain, the Kodi discounter, and the battery manufacturer Varta.

Allianz Trade assumes that the number of company bankruptcies in Germany will begin to decline in 2028. It is expected that the figure will then fall by 5% to 24.6k cases. The German government's anti-crisis and opportunistic measures are expected to take effect only then.

The ECB has raised interest rates twice this year in response to energy pressures linked to the war in Iran. The Bank now faces a more complex picture than its counterparts, largely because of the volatile French bond market.

Since the ECB's last interest rate hike in September, government bond yields in the eurozone, the US, and many markets worldwide have risen sharply as energy prices continue to climb.

Notably, a large budget deficit, a deadlock in budget negotiations, street protests, and divisive elections expected next year have put pressure on the French bond market. This has further fuelled the ECB's concerns about diverging financial conditions among eurozone member states. This clearly indicates that the ECB’s one-size-fits-all policy framework does not work.

The Bank’s failing is the apparent belief that, since each economy lives under the same monetary policy, it should react similarly. This does not ‘factor in’ any localised fundamentals such as immigration, employment or trade differences.

So far, the ECB has been skilful in avoiding direct mention of the French public debt issue. This suggests the situation in France has not yet influenced policymaking in Frankfurt, while the ECB has publicly emphasised that Paris authorities are responsible for resolving the issue.

ECB President Christine Lagarde has previously stated that the bank would take a more cautious approach to further tightening monetary policy. However, that statement was driven less by the situation in France and more by her belief that the current wave of inflation has not yet produced significant secondary effects.

Markets are overwhelmingly discounting a rate hike at today’s ECB meeting, and since inflation is ‘scheduled’ to fall in the spring, rates may remain unchanged for the rest of the current cycle.

The euro had a reasonably constructive session, holding its ground against a dollar that failed to extend its post-FOMC gains. While the Fed's message remained hawkish, FX markets appeared to focus on the fact that rates were left unchanged, allowing the common currency to edge higher throughout the day.

Have a great day!