12 November 2026: Economists warn that the Base Rate could hit 5%

For Andy Burnham, the political appeal of closer ties with the EU single market is obvious. Britain’s weak growth, sluggish trade performance, and chronic investment shortfall make the promise of smoother access to Europe attractive. Yet Burnham may be underestimating just how difficult any meaningful return to the single market would be.

The single market is not a menu from which governments can simply select the benefits they like. The EU has consistently maintained that participation requires acceptance of common rules, regulatory alignment, European Court oversight in certain areas and, in the current regulatory framework, some degree of labour mobility. These conditions proved politically contentious before Brexit and remain so today.

Trust is also a question. After years of fraught negotiations and disputes over post-Brexit arrangements, many EU governments would require assurances that Britain’s commitment would be durable and not subject to reversal after the next change of government. Rebuilding that confidence would take time.

None of this means closer economic integration is impossible. Incremental agreements covering trade, professional qualifications and regulatory cooperation could prove achievable. However, the idea that Britain could quickly or easily re-enter the single market under favourable terms risks underestimating both the political realities in Brussels and the domestic compromises that would be required. Burnham may be right about the economic destination, but the journey looks considerably harder than he suggests.

The key distinction is between joining the EU and joining the single market. Countries such as Norway, Iceland and Liechtenstein participate in the single market through the European Economic Area (EEA) while retaining their own currencies. They are not members of the eurozone.

If the UK were seeking a Norway-style arrangement, no precedent suggests that adopting the euro would be required. More likely demands would include accepting large parts of EU regulation, making financial contributions, accepting dispute-resolution mechanisms, and allowing some form of free movement of people.

If Britain sought to rejoin the EU itself, the issue would be more complicated. The EU treaties state that new member states are generally expected to adopt the euro once they meet the relevant criteria, with Denmark being the notable opt-out.

Even then, the requirement is often more theoretical than immediate. Several EU members have retained their own currencies for many years after joining because they have not met all the conditions for euro adoption.

However, Brussels could make joining the single currency a condition of entry to ensure British commitment to the Union.

Politically, Burnham's bigger problem is unlikely to be the euro. The much tougher obstacles would be persuading the UK to accept free movement, EU rule-making and judicial oversight, while persuading EU governments that Britain would remain committed to the arrangement over the long term. Those issues would probably dominate any negotiation long before the question of replacing sterling arose.

Burnham’s handling of the British economy is so “reckless” that he would be struck off for negligence if he were a medical doctor, according to one of his former aides.

Former Bank of England chief economist Andy Haldane believes the Prime Minister’s failure to reduce the UK’s borrowing costs in the Budget could cause the nation to suffer an economic “heart attack”.

Writing in The Independent, he compared Mr Burnham’s approach to “not renewing your home insurance at the same time your next-door neighbour’s house is ablaze”.

In a devastating attack, Haldane, who informally advised Burnham on economic policy after taking office in July, said Britain’s finances were “on a knife-edge with most of the lights on the fiscal dashboard flashing red”.

He criticised Burnham’s “rails against crude cuts”, arguing his policies could have that effect by risking a repeat of Liz Truss’s catastrophic 2022 Budget and “swamp the poor” in the process.

Haldane also dismissed Burnham’s proposed sweeping economic reforms, hailed as “progressive” by his supporters, as “neither prudent nor progressive”.

Haldane, the current President of the British Chambers of Commerce, turned down Mr Burnham's offer of a formal No. 10 role, saying it would be a “mistake to take comfort” in recent reports suggesting the UK has “weathered the worst of recent financial storms, and is on an upward trajectory”.

In fact, the UK’s current fiscal position was “more precarious today than at any time in the past half-century”, he says in his article.

The UK’s borrowing costs were higher than any other G7 nation, despite a lower debt burden.

He suggested this was because Burnham and Chancellor John Healey’s plans, which include reducing the UK’s “fiscal headroom” from £23bn to £16bn, “lack credibility in the eyes of financial markets”.

To meet its fiscal challenges, the government needed to raise £30bn to £40bn through tax rises or spending cuts, but avoided this in its “do no harm Budget”.

Sterling endured another difficult session in global FX markets yesterday, extending the decline that began after stronger-than-expected US inflation data revived expectations of further Federal Reserve tightening.

The pound fell sharply against the US dollar, dropping below $1.33 and closing around $1.3274, down roughly 0.5% for the session and marking its second straight significant daily loss. The move left sterling nursing its largest two-day decline since June, as investors responded to higher US Treasury yields and renewed demand for the dollar.

The dominant driver was the ongoing fallout from October's hot US CPI report, which strengthened market expectations of a December Fed rate increase. Hawkish rhetoric from Federal Reserve officials further supported the greenback, prompting investors to trim long sterling positions despite the Bank of England's recent rate hike.

The midterm elections have unquestionably made Trump’s impeachment more feasible and more likely than before. With Congress now demonstrably more hostile to Trump, the political barriers to launching investigations, holding hearings and ultimately drafting articles of impeachment have been considerably lowered.

Impeachment is, at its heart, a political process. A President does not need to lose the support of the country as a whole to face impeachment; he merely needs to lose the support of a majority in the House of Representatives. A Congress emboldened by strong midterm results is likely to feel it has both the mandate and the political cover to pursue a more aggressive line towards the White House.

The political consequences of the midterms may extend beyond simple arithmetic. Trump's opponents have been strengthened, while some Republicans may view the results as evidence that association with the President carries electoral jeopardy. That could encourage greater scrutiny of his past and current actions and make impeachment talk harder to dismiss than before.

None of this means that removal from office has become likely. Conviction would still require a two-thirds majority in the Senate, an exceptionally high constitutional hurdle. Nevertheless, the midterm outcome has altered the political landscape. Impeachment has shifted from a largely theoretical threat to a real risk facing the President for the remainder of his term.

Since becoming Federal Reserve Chair in May, Kevin Warsh has found himself at the centre of an increasingly difficult policy debate. Inflation has remained stubbornly persistent, forcing the Fed to maintain and strengthen a restrictive stance even as concerns mount over housing costs, consumer borrowing and the wider affordability squeeze facing American households.

That tension has put Warsh on a collision course with Senator Elizabeth Warren and other critics who argue that elevated interest rates are making life more expensive for ordinary Americans. Higher mortgage rates, rising debt-servicing costs and tighter financial conditions have intensified political pressure on the Fed to adopt a more accommodative approach.

Yet Warsh's challenge is that inflation itself remains a major driver of affordability problems. Premature rate cuts risk reigniting price pressures and undermining the Fed's credibility after years of battling above-target inflation.

The result is a difficult balancing act. Warsh must convince markets that the Fed remains committed to price stability while responding to growing criticism from politicians concerned about the cost-of-living crisis. As inflation persists, the debate between inflation control and affordability is likely to remain a defining feature of Warsh's chairmanship.

Raising interest rates is no longer the Federal Open Market Committee's central issue. After an extended period of policy tightening, the debate has shifted to how long rates should remain restrictive and when conditions may justify starting an easing cycle.

Inflation remains above the Fed's target, but policymakers are increasingly focused on balancing price stability against the risk of unnecessarily slowing economic activity. The question is no longer whether rates need to move higher, but whether existing policy settings are sufficiently restrictive to bring inflation back under control.

For financial markets, timing now matters more than the direction of the next move. Investors are seeking clues about how long tight monetary conditions will persist and the pace of any eventual rate cuts. As a result, Fed communication has become as important as policy itself despite Warsh's commitment to the opposite path. The FOMC's challenge is to avoid easing too soon and reigniting inflation, while also avoiding keeping rates elevated for longer than economic conditions require.

The US dollar was the standout performer in global foreign exchange markets yesterday, rallying broadly against most major currencies after US inflation data came in stronger than expected, reinforcing expectations of further Federal Reserve tightening.

The Dollar Index climbed about 0.5% to 102.20, while the greenback gained 0.47% against the Japanese yen and 0.89% against the Swiss franc, pushing the euro down almost 0.5% to $1.117. Sterling also came under pressure, with GBP/USD falling towards the 1.33-1.34 region as the stronger dollar dominated trading.

German inflation eased to 2.8% in October, as expected, while core price pressure cooled more sharply to 2.1% from 2.4%, final data showed, with a new fuel discount masking still-elevated energy costs.

The reading matched the 2.8% forecast and confirmed the Federal Statistical Office’s provisional result. Inflation was 3.3% in September and 2.9% in August.

Consumer prices fell 0.2% from September, in line with the forecast. The harmonised index of consumer prices rose 2.8% from a year earlier and fell 0.1% from September.

Energy prices were 12.2% higher than in October last year, after a 14.9% rise in September. Motor fuels rose 28.9% year on year, versus 37.1% in September, with the fuel discount in effect since 1 October likely to have dampened the increase, Destatis said.

Inflation excluding food and energy was 2.1% in October, down from 2.4% each month from July to September. Inflation excluding energy was 2.0%, and excluding heating oil and motor fuels it was 1.7%.

Service prices rose 2.5% from a year earlier, with net rents excluding heating expenses up 1.9%. Goods prices rose 3.0%. Food prices rose 0.4%, the same as in September, with eggs up 15.4% and butter at -18.9%.

Statistical Office President Ruth Brand said, “The persistently high rate of inflation continued to be primarily driven by the development of energy prices, even though the new fuel discount introduced at the beginning of October is likely to have dampened inflation somewhat.”

Joachim Nagel's assertion that the German economy is recovering more strongly than previously forecast will be welcomed by policymakers seeking evidence that the Eurozone's largest economy is emerging from its prolonged period of weakness. Germany has faced persistent challenges in recent years, including subdued industrial activity, weak external demand and intense competition from China. Any signs of a more robust recovery would therefore help ease concerns about the broader Eurozone growth outlook.

For the European Central Bank, stronger German growth could have important policy implications. A firmer economy may support employment, consumer spending and investment, while also reducing fears of a wider regional slowdown.

At the same time, stronger activity could reinforce concerns that inflationary pressures may prove more persistent than anticipated. As a result, financial markets are likely to interpret Nagel's comments as supporting a cautious approach to interest-rate policy, particularly if incoming economic data continue to exceed expectations.

Christine Lagarde's early departure as ECB President should not delay the introduction of the digital euro.

An ECB representative made the statement at the Web Summit technology conference in Lisbon, stressing that a pilot programme would begin next year and that European lawmakers were committed to agreeing the necessary legislation by the end of 2026, Euronews reported.

Alessandro Giovannini, an adviser to the head of the digital euro project, said the change in ECB leadership would not affect its implementation.

"I am not concerned that any change will affect the project because it is strategic," Giovannini said during a discussion moderated by Euronews.

He emphasised that the digital euro is a "European project", rather than an initiative solely led by the European Central Bank.

Last month, Lagarde announced she would step down on 7 February 2027, nearly nine months before her term ends. Germany's Isabel Schnabel will also leave the ECB's six-member Executive Board in January, while Chief Economist Philip Lane's term expires in May.

In March, EU leaders called for negotiations on the legislation governing the digital euro to be completed by the end of 2026, ahead of the pilot programme scheduled for 2027.

"This is the commitment we have from the two legislative bodies," Giovannini said, referring to the European Parliament and the governments of EU member states.

Since July, the two sides have been engaged in trilogue negotiations with the European Commission, the final stage of the EU legislative process.

The latest round of talks took place last Thursday, while Ireland, which is leading the negotiations on behalf of member states, is seeking an agreement on 18 November.

The euro came under broad pressure across global foreign exchange markets on 11 November, as stronger-than-expected US inflation data triggered a sharp repricing of Federal Reserve interest-rate expectations and boosted the US dollar. The single currency fell about 0.5% against the dollar, with EUR/USD dropping to roughly $1.1170, as investors shifted to price in a higher probability of further Fed tightening.

Have a great day!