2 November 2026: Healey promises the benefits bill ‘will come down under Labour’

Many economists believe rate-setters will aim to curb rising UK inflation by tightening monetary policy. Financial markets widely expect rates to rise from 4% to 3.75% when the Bank’s Monetary Policy Committee announces its decision on Thursday. This would mark the first time the Bank has increased borrowing costs since August 2023.

Pressure on the MPC to act has intensified since official figures showed CPI inflation rose to 3.5% in September, the highest level in 11 months.

The conflict in the Middle East has pushed CPI further from the Bank’s 2% target, with a surge in energy prices a major driver.

Inflation is expected to rise further this winter, as Ofgem’s energy price cap rose by 3.6% for a typical household on October 1 and is forecast to jump by a further 22% in January.

Many committee members’ patience with the recent rise in inflation has worn thin. The longer energy prices remain elevated, the greater the risk that a temporary price shock becomes more permanent; a ‘pre-emptive’ hike would guard against this.

Producers might “not be willing or able to shoulder the burden of higher energy prices for much longer, and that this could push up prices in shops.

Suren Thiru, chief economist for the Institute of Chartered Accountants in England and Wales (ICAEW), said an “interest rate rise to 4% looks all but certain”, agreeing that it would likely be viewed as a “precautionary hike to contain price pressures”.

“The Bank of England’s updated forecasts are likely to show a mixed picture of the UK economy, as slightly stronger growth this year is overshadowed by weaker growth further out as rising inflation and higher energy costs bite, keeping further rate rises on the table.”

The economy unexpectedly grew by 0.1% in August, suggesting resilience in the UK despite pressure on consumer spending and wider volatility due to the Iran war.

The MPC will also take into account the UK’s unemployment rate, which fell to its lowest level in more than a year in the three months to August, at 4.7%.

The Prime Minister and Chancellor have confirmed they are removing import tariffs on more than 100 products. The government is helping to lower import costs for family favourites, including baked beans, chocolate and gherkins.

It also says it is supporting farmers facing higher fertiliser bills and households that rely on kerosene heating oil. Together with tariff suspensions already introduced, households could save up to £21 on their weekly shop each year.

Despite the changes, the SNP claimed Mr Burnham's "minuscule announcements" were "insulting" to voters. Kirsty Blackman, the SNP’s economy spokesperson at Westminster, said: "In the face of a cost-of-living emergency, Andy Burnham has broken his promise to cut bills and is insulting voters with minuscule announcements that won’t scratch the surface."

Sterling ended the week on the front foot, buoyed by hawkish BoE expectations, resilient UK economic data, and ongoing weakness in the Euro and the U.S. dollar. Among G10 currencies, the pound was one of the week's standout performers.

Several Fed officials reaffirmed the need for further interest-rate hikes while pushing for a gradual tightening to minimise disruptions to financial markets and the economy.

“It remains clear to me, given the current outlook, that the FOMC needs to implement at least two more 25-basis-point rate increases,” Dallas Fed president Lorie Logan said on Friday. “Adjusting policy more gradually can help households, businesses and market participants adapt to higher rates and reduce the risk that economic activity deteriorates more sharply than necessary.”

Logan’s speech, along with similar remarks from Richmond Fed president Tom Barkin and the St. Louis Fed’s Alberto Musalem, followed Wednesday’s FOMC decision to leave its benchmark interest rate unchanged. The FOMC previously voted in September to raise the rate for the first time since 2023.

The Dallas Fed President, who holds a vote on rate decisions this year, said: “Skipping a meeting does not change the monetary policy destination”.

Barkin, speaking in a radio interview on Friday, said: “A gradual approach is a good way to go”. At the same time, Musalem, at an event in New York, argued, “incremental adjustments made earlier are usually less disruptive than larger and abrupt actions taken later”.

Most Fed officials, in projections published after the September meeting, viewed an additional rate hike this year as likely necessary. Investors now see that happening at the Fed’s last meeting of the year on Dec 8-9, according to futures contracts, which also indicate they will likely opt for another pause in January and then consider a third rate hike in March.

On Wednesday, Fed chairman Kevin Warsh refrained from sharing his outlook for the economy or interest rates, but said elevated inflation remains the Central Bank’s main focus. He also described financial conditions as tighter following the rate hike in September, while adding that he is “unwilling and unable to call them tight”.

Friday's remarks suggested a growing consensus on the need to deliver further tightening gradually. Logan voted with the majority on this week's decision to hold rates steady, after dissenting from a similar decision in July, and Barkin will re- enter the FOMC voting ranks in 2027.

Still, Wednesday's vote also saw two dissenters who instead favoured a second consecutive increase this month: Fed governor Lisa Cook and Cleveland Fed president Beth Hammack.

The Fed is seeking to bring down inflation, which has been above its 2% target for more than five years. Data published Thursday showed the Fed's preferred measure accelerated to 3.36% in September amid a renewed rise in oil prices.

A separate report on Thursday also indicated the economy expanded in the third quarter at the fastest pace in a year, driven by strength in consumer spending and business investment, itself fuelled by the boom in spending related to artificial intelligence.

“If we do see a continued surge in demand, that would be the kind of thing you might want to lean against,” Barkin said.

Logan said that after the two additional rate increases she is projecting, the Fed should pause to assess economic and financial developments and determine whether further hikes are necessary.

“The end goal should be to make policy modestly restrictive so we can sustainably deliver both maximum employment and stable prices,” she said.

Meanwhile, Federal Reserve Bank of San Francisco President Mary Daly told reporters that artificial intelligence matters for central bankers as they think about policy, not just in the longer term, a nod to the growing salience of the new technology for the Fed as it sets interest rates.

Artificial intelligence "really matters for how we think about policy in the near and medium term," Daly said at the opening of a conference on AI and the economy at the regional Fed bank. "And we have to know how technology affects growth, productivity, and the labour market in the United States for us to think about our inflation, price stability and full employment mandate."

The dollar finished the week on the defensive. Lower yields, a cautious Fed, and improving sentiment towards rival currencies left the greenback without a clear catalyst, making it one of the weaker performers among the major currencies.

European Central Bank President Christine Lagarde's decision to step down nearly nine months before the end of her term has sparked debate over the implications of her early departure and raised questions about the Eurozone's monetary policy outlook.

The move comes as the Eurozone faces renewed inflationary pressures, mounting fiscal strains and growing political uncertainty ahead of France's 2027 presidential election.

The ECB announced on Thursday that Lagarde, 70, would leave office in early February, ahead of the scheduled end of her eight-year term in late October.

A former French Finance Minister and CEO of the International Monetary Fund, Lagarde took over the ECB presidency from Mario Draghi in November 2019.

Her tenure has spanned a succession of crises, from the COVID-19 pandemic and the energy shock following the outbreak of the Russia-Ukraine conflict to record-high inflation and, more recently, renewed price pressures stemming from the conflict in the Middle East.

Under her leadership, the ECB launched an emergency asset purchase programme to stabilise financial markets during the pandemic. It later embarked on an aggressive tightening cycle, raising its deposit rate from minus 0.5% to a record 4% in just over a year to curb soaring inflation.

Lagarde said at a news conference on Thursday that she wanted greater freedom to speak and engage on public issues beyond monetary policy. While the ECB's independence required its President to remain politically neutral, she said she no longer felt able to stay silent on broader international issues.

Much of the attention, however, has focused on the timing of her departure and its political implications.

France is due to hold its presidential election in spring 2027. German media reported that Lagarde's early exit would allow Macron, Merz and other European leaders to agree on her successor before the vote, amid concerns that gains by France's far right or other Eurosceptic forces could complicate the appointment process.

Marcel Fratzscher, Head of the German Institute for Economic Research (DIW), welcomed the decision, saying that Lagarde had shown a strong sense of responsibility towards Europe and the ECB. Clemens Fuest, President of the Munich-based IFO Institute, also said her departure would allow the ECB's top post to be filled before the French election, warning of a significant risk that radical candidates could win the vote.

However, Markus Ferber, a German member of the European Parliament, questioned whether the ECB was making itself dependent on election dates in member states despite its longstanding emphasis on independence.

Europe and Germany risk deindustrialisation, Kärcher CEO Hartmut Jenner has warned. He is urging major cuts in bureaucracy, incentives for extra work, and a firm EU trade policy towards China and the US.

Jenner, CEO of German cleaning equipment manufacturer Kärcher, believes Germany and Europe are facing a "perfect storm" in the continent's economic situation.

"Geopolitical crises are casting a shadow over the European economy. The unpredictable trade policy of the U.S. keeps threatening, without warning, to raise tariffs and erect trade barriers, a toxic scenario for free global trade and export-oriented companies.

In addition to US trade policy, he also pointed to the threat posed by China's tech growth: "China is no longer merely a low-cost manufacturer but has become a highly aggressive technological competitor that, with its tremendous speed, threatens to outpace key European industries in future-oriented fields."

The Euro had a mixed but generally disappointing week in global FX markets. While the single currency recovered some ground against the U.S. dollar as the greenback softened after the Federal Reserve left rates unchanged, it continued to struggle against a stronger pound.

Have a great day!