12 June 2025: Reeves “wheels out and oldie but goldie!”

Within a few days of taking office, Rachel Reeves caved in and agreed to seriously inflationary wage increases for NHS staff, particularly Junior Doctors and Nurses.

Now, almost one year later, she has sacrificed defence and police spending in favour of another rise in funding for the NHS. Until she can get a grip on immigration and who is allowed free treatment from the NHS, she will need to continuously increase the amount that has to be poured into public health.

Police chiefs warned that Labour’s flagship election promises on reducing crime could be missed after the Chancellor set out her spending review yesterday. At the same time, former military leaders criticised her “totally inadequate” plans for the Armed Forces.

A year ago, Reeves stated that there would be no additional funding for the NHS without detailed reform of working practices and staffing levels.

Now, she has prioritised a “record” funding boost for the NHS, which will now get an extra £29 billion a year compared with 2023-24, despite the lack of a detailed reform plan.

Economists believe tax rises in the autumn Budget are now certain. Treasury documents revealed that the Government was already forecasting a 5 per cent increase in council tax each year until 2028, meaning an extra £395 for the average Band D property nationally.

Chris Philp, the Conservative shadow home secretary, said: “Despite the biggest tax rises for a generation, this Labour Government has made the wrong choices and is leaving our country’s national security at risk.

“The military is not receiving the money they need to face a dangerous and uncertain world, and, likely, we will not see the record police numbers I delivered as police minister last year being maintained.”

Opposition MPs feel they must have been dreaming that the Prime Minister stood in front of them recently and announced a record increase in defence spending.

The spending review set out three years of day-to-day spending and four years of capital investment, with an extra £300 billion spent after money-raising measures last autumn.

But there was immediate scrutiny of the Chancellor’s priorities, which Sir Mel Stride, the Conservative shadow chancellor, described as a “spend now, tax later”.

There were also accusations of questionable accounting, as critics asked whether Ms Reeves was being fully transparent on spending levels.

Health spending will rise by £17.2 billion a year between 2025-26 and 2029, almost 90 per cent of total additional day-to-day spending, leaving budgets in real terms flat or falling per person for most other Whitehall departments.

The starting position is that debt is very high, and we may be in the early stages of Britain going into a debt crisis. The UK is not the only country facing this problem, but the Chancellor’s speech lacked a lot of the detail about what is needed to happen if the economy doesn’t grow at the rate that is hoped.

Reform UK’s demand that the Bank of England stop paying interest on deposits from commercial banks that it holds has been ignored. This allows banks a free ride with no pressure to go out and use the “free” deposits that they have to drive the economy forward.

The pound rose steadily throughout the day. It reached a high of 1.3556 before a bout of profit taking drove it back briefly to close at 1.3540.

The Administration is fully behind Donald Trump’s continued criticism of the Federal Reserve, with Vice President Vance labelling the Fed's actions since the turn of the year in not cutting rates even once, monetary malpractice.

Meanwhile, Treasury Secretary Scott Bessent dismissed rumours that he is about to replace Jerome Powell. He told reporters that he wants to remain in his current position but remains open to following whatever Donald Trump decides.

“I think that we are making great progress at the Treasury,” he told lawmakers on the Ways and Means Committee.

“I would like to stay in my seat through 2029,” he added, referring to a period through the end of Trump’s second presidency.

Bessent’s comments came after a Bloomberg News report earlier this month that he was being considered for the job at the Central Bank.

Trump has pressured Powell to cut interest rates in recent months, accusing him of being too slow in doing so to boost economic growth.

Powell’s successor, who must be confirmed by the US Senate, will have to demonstrate that the Fed’s independence remains intact despite political pressure.

Powell, who was first nominated by Trump to lead the Federal Reserve in 2017, has defended its independence when it comes to interest rates, constantly reminding investors of the Central Bank’s dual mandate.

President Trump chose to highlight the one-month section of the inflation report that was published yesterday. Inflation did indeed fall by 0.1% in May, although it increased by 0.1% year-on-year.

In truth, inflation is continuing to fall, but not by any significant amount, and the FOMC is concerned that the full effect of tariffs that have already come into practice and those that are still no more than a threat will see inflation increase.

The only way that the tariffs, if or when fully implemented, will not be inflationary is if importers absorb the cost themselves, which would see the economy collapse into recession.

The cooling of inflation raises the chances of a loosening of monetary policy in September marginally, but markets are not expecting anything next month, given not just Powell’s concerns but those of the FOMC too.

Failing a large uptick in unemployment, which has been predicted since last December, Fed watchers' attention is firmly on inflation. The Fed's unofficial goal is core inflation of 2%. Personal Consumption Expenditure inflation is the Fed's favoured measure. In April, core PCE was 2.5%.

The dollar is playing a waiting game, expecting the next seismic event from Donald Trump. Yesterday, it ran into heavy selling interest as traders “front ran” corporate sell orders around 99.20 to push the index to a low of 98.56, from where it rallied to close at 98.68.

Chief Economist Philip Lane believes that the European Central Bank’s latest rate cut will help inflation bounce back to its 2% goal after an expected sag over the next year and a half. “This cut helps ensure that the projected negative inflation deviation over the next eighteen months remains temporary and does not convert into a longer-term deviation of inflation from the target,” Lane said. “This cut also guards against any uncertainty about our reaction function.”

The European Central Bank stands ready to react as necessary to the flow of economic data in the face of currently high uncertainty, ECB policymaker Francois Villeroy de Galhau said on Tuesday.

The ECB cut rates for the eighth time last Thursday and signalled that it may now pause after its fastest policy easing cycle, eleven since the 2008/2009 global financial crisis.

"We will remain pragmatic going forward, according to the data and will be as agile as necessary," Villeroy, who is also head of the French central bank, told a financial conference in Paris.

There are signs of an upturn for the economy in the eurozone and Germany, in particular, in June.

The overall index for the Eurozone climbed by 8.3 points to +0.2 points. The increase of +10.5 points in the expected values, in particular, gives cause for hope. The Eurozone is benefiting from a recovery in Germany. The increase in the Sentix economic indices is even stronger there.

Expectations rose by +12.0 points to +17.5 points, while the assessment of the current situation rose for the fourth time in a row. The overall index for Germany is at its highest level since March 2022.

The Eurozone’s services sector contracted modestly in May, with the final PMI Services reading falling to 49.7, down from April’s 50.1, marking a six-month low. This decline pulled the Composite PMI down to 50.2, indicating only marginal overall growth in private sector activity.

The divergence in national performance was notable: Italy led with a 13-month high of 52.5, while Germany and France both remained in contraction, with Germany posting a five-month low of 48.5 and France improving to a nine-month high of 49.3.

Starting in October, citizens of eurozone countries will be able to send instant bank payments without incurring additional fees.

In Poland, this rule will not come into force until 2027, and even then it will only apply to transfers in euros, not zlotys. Poles can use the Express Elixir system, which allows for instant transfers in zlotys, but the cost of this service depends on the pricing policy of the given bank; with a few exceptions, it is not a free service.

This is just one of the more recent benefits that Poland must forego, as it remains remarkably sceptical about joining the European single currency.

Europeans overall appreciate the euro. According to the latest Eurobarometer survey, 74% of residents of the European Union support the common currency, and in the Eurozone, 83% of citizens are satisfied with it.

The Euro broke above the elusive 1.15 level yesterday, but its breakthrough did not herald further strength. The single currency closed at 1.1508.

Have a great day!