11 May 2026: Starmer is on the rack

The Prime Minister discovered over the weekend that his future is no longer in his hands. Former minister Catherine West has informed the Cabinet, via the media, that if it does not make clear its intention to hold a leadership election by this morning, she will herself challenge Keir Starmer’s leadership.

The north London MP has threatened to begin canvassing support if Sir Keir's address later today leaves her "dissatisfied" with his plan to turn the party's fortunes around.

Although she has made it clear she is not seeking to replace the Prime Minister personally, her move could provide a route for other contenders to come forward, including former Deputy Prime Minister Rayner and Health Secretary Wes Streeting.

Greater Manchester mayor Andy Burnham is also seen as a potential leadership rival, although a swift contest would hamper his chances, as he would first need to become an MP to stand for election.

Starmer is set to promise bolder action to tackle "big challenges" facing the country as he battles to persuade his MPs not to ditch him as Labour leader.

The Prime Minister will seek to reset his premiership in a speech later today, after heavy election losses left him facing renewed calls to quit.

Over the weekend, growing numbers of Labour MPs went public with calls for him to go, with potential challenger Angela Rayner saying the party needed to do more to appeal to voters whose living standards had been squeezed.

The Chancellor, Rachel Reeves, is also facing pressure, as it is believed that, should the Prime Minister be replaced, the new leader would be unlikely to retain her in the role.

Following last week’s calamitous election results, it feels like Labour’s almost two years in power have been for nothing.

Bank of England Governor Andrew Bailey has warned that international regulators face a "coming wrestle" with the U.S. Government over stablecoin standards, widening a transatlantic policy rift as Washington pushes dollar-denominated stablecoins as a global payments infrastructure.

"If we want stablecoins to be part of the architecture of payments globally, they're only going to work if we have international standards," Bailey said at a BoE-hosted conference on financial imbalances.

Bailey, who also chairs the Financial Stability Board, zeroed in on a specific vulnerability: some U.S. stablecoins cannot be readily converted to dollars without routing through a crypto exchange, potentially limiting their convertibility in a crisis.

If dollar-pegged stablecoins become widely used for cross-border payments, he argued, a crisis could trigger a flight from tokens with weak redemption guarantees to jurisdictions with stricter convertibility rules. "We know what would happen if there was a run on a stablecoin; they'd all turn up here," Bailey said.

A Veteran financial commentator has issued a stark warning about the UK economy's trajectory, asserting that severe spending cuts are unavoidable regardless of which political faction holds power in Westminster.

Drawing on five decades of observing global financial crises, Alex Brummer outlined a grim fiscal prognosis. He argues that persistent structural deficits, combined with an unforgiving international bond market, have stripped the British government of its financial autonomy, forcing a radical recalibration of the welfare state and public sector investment.

He observes that, rather than implementing the necessary austerity measures to balance the national ledger, successive administrations, including recent Labour policy proposals, have continually added to the expenditure burden. This relentless expansion of state financial commitments has pushed the national debt to levels not seen since the immediate aftermath of the Second World War.

The pound traded with a slightly firmer bias, supported by broader risk sentiment and a constructive short‑term trend versus the dollar. Its performance was mixed across the G10, with clear strength versus SEK and JPY but weakness versus CAD and NOK. Against the euro, sterling was effectively unchanged, reflecting a stable trading environment.

Against the dollar, Sterling reached a high of 1.3658 but then ran into selling pressure as the situation in Iran deteriorated again.

Incoming Federal Reserve Chair Kevin Warsh won’t be looking to cut interest rates and, in fact, may want to consider raising them, veteran investor Paul Tudor Jones told reporters last week. “Do I think he’ll cut rates? No chance,” Jones said during a wide-ranging CNBC interview.

Warsh has made no secret of his belief that the Central Bank should consider lowering interest rates. The Fed’s benchmark overnight rate is currently in the 3.5%-3.75% range, where it has been since December.

Though Warsh sees a path to easing, he will face a Federal Open Market Committee that is coming off a meeting with the most dissents in nearly 34 years. Most of the disagreements have come from regional presidents who objected to the language in the post-meeting statement, which was interpreted as a nod to the potential for further cuts after the three in the latter part of 2025.

Jones said there’s even a case to be made for hiking.

Any decision to leave rates unchanged or raise them as inflation remains uncontrolled will likely bring Warsh into direct conflict with President Donald Trump.

Policymakers face an environment in which the labour market appears to have stabilised. At the same time, the war in Iran and President Donald Trump’s tariffs have helped keep inflation well above the Fed’s 2% target.

Futures traders are pricing in a Fed hold that lasts through the year, with slightly and roughly equal chances of a cut or a hike, according to the CME Group’s FedWatch gauge.

The US economy created 115,000 jobs in April, as businesses continued to hire despite the economic fallout from the US-Israeli war in Iran.

The growth was stronger than expected, with the total almost twice what economists had predicted, as fears of a no-fire, no-hire situation proved unfounded.

The data, released by the US Bureau of Labour Statistics, also showed that the unemployment rate remained unchanged at 4.3%.

The closure of the Strait of Hormuz in response to US and Israeli attacks on Iran has caused a global energy shock, driving up the price of gasoline for American consumers.

Commentators who believe the economy is headed for a recession in the second half of the year cite the rise of AI as the trigger for a significant fall in employment, but so far, there is no sign of that happening.

The latest figures come after months of wide fluctuations in job numbers. Nonfarm payrolls fell by 156,000 in February before rising by 185,000 in March.

Strong April employment figures also added to expectations that the Federal Reserve will keep interest rates on hold as it seeks to keep inflation under control.

Revisions to the March and February figures mean that the number of jobs increased by an average of 48,000 over the past three months.

This is consistent with the so-called rate of return, the level of job creation at which new people entering the workforce can be absorbed.

Federal Reserve Chair Jerome Powell's decision to remain a Governor beyond May 15 violates all norms, and it would be appropriate for him to step down in the short term, according to fellow Fed Governor Stephen Miran.

Powell had said at his post-FOMC rate decision press conference that he would continue to serve as Governor for a time after his chair term ends in May.

"I'll say, from my own experience as the incoming Chairman of the Council of Economic Advisors, that transitions are important," said Miran, noting that Powell should help with the transition but little else.

The dollar fell modestly last week, with the U.S. Dollar Index (DXY) recording a small weekly decline as softer U.S. yields and improved global risk sentiment weighed on the currency.

The index reached a low of 97.62 and closed at 97.85.

European Central Bank President Christine Lagarde said on Saturday that the ECB faced "massive uncertainty" over the war in the Middle East and needed more data before deciding whether to raise interest rates in June.

Speaking to Spanish broadcaster RTVE, Lagarde declined to confirm whether the Governing Council would tighten policy next month, despite market expectations of a hike. "What defines the current situation is massive uncertainty," she said. 'We have established that our decision will be based on the depth, duration and repercussions of the crisis we are suffering.

“We need to see more data to observe where prices are heading".

The most important determinant of the European Central Bank’s June policy meeting will be whether energy flows from the Middle East have resumed, according to Luis de Guindos, outgoing Deputy of the ECB.

“The key factor will be the evolution of the conflict, whether Hormuz is reopened or not,” the Spanish official, who’ll leave before the ECB’s June 11 decision on interest rates, said Friday in Madrid. “The level of uncertainty is brutal.”

Markets and economists expect officials to raise the deposit rate to 2.25% from 2% next month, as soaring energy costs push inflation further above target. President Christine Lagarde has signalled that such a step will be considered.

There is a real chance that the conditions for a bout of stagflation are forming in the Eurozone. The latest data and institutional projections show a combination of slowing growth and re-accelerating inflation, driven primarily by the Middle East–related energy shock. This is exactly the mix that defines stagflation.

The war in the Middle East has pushed oil and gas prices sharply higher, lifting eurozone inflation. ECB projections indicate that energy spikes will push inflation higher this year, with a return to target only in 2027–28 if energy prices normalise.

Meanwhile, higher inflation is eroding household purchasing power, while uncertainty is weighing on domestic and foreign demand. The ECB expects weaker growth this year, with a recovery only in 2027–28.

Analysts describe the current environment as a “stagflationary shock”: inflation above target and growth slowing to 0.9% in 2026, driven by the energy surge.

Market behaviour also reflects stagflation fears: markets have repriced expectations for two to three ECB rate hikes in 2026, despite weakening growth, a classic sign of stagflation risk.

The euro was soft across the G10, with only very small gains against a couple of currencies. The dominant pattern was mild, broad weakness. It fell to a low of 1.1648 but rallied to close at 1.1786.

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