13 October 2026: MPC voters hold their fire as the dissenters turn more hawkish

As Party conference season ends, focus will shift to Chancellor of the Exchequer John Healey. He wants to help the British public with the cost of living while staying within the limits of his country’s stretched public finances. To square the circle, he’s planning a series of strictly short-term giveaways and hopes the wars in Iran and Ukraine end.

At the budget on Oct. 28, Healey is due to unveil further support for energy costs this winter, including through the existing warm homes discount. However, the extra spending will leave his key fiscal target largely unaffected, as the measure will expire before 2029-30, when the government’s main budget rules bite, according to government fiscal policy experts.

Last month's MPC decision was a classic hawkish hold: the majority kept the Base Rate unchanged, but dissenters are becoming more hawkish, and several centrist swing voters are drifting towards them. This widens the gap between the headline vote and underlying policy momentum.

The MPC's next meeting is scheduled for November 5th, when the budget will still be fresh in members’ minds. It is unclear how much the budget will affect the vote, though members will discuss it, depending on how the markets view Healey’s actions.

The dissenters, Greene, Mann, and Pill, are no longer isolated. Centrists: Bailey, Lombardelli, Breeden, and Ramsden are now signalling conditional support for hikes.

Pill has been vocal for a considerable time, consistently raising concerns about inflation. He said Central Banks must remain firmly focused on tackling inflation amid rising bond yields in financial markets worldwide.

He added that inflationary pressures remained a concern and that monetary policy needed to stay focused on bringing them under control. He also stressed the importance of ensuring the financial system continued to function effectively so that monetary policy could be transmitted to the broader economy.

For the Bank of England, the key challenge is assessing whether inflationary pressures will persist and necessitate further monetary tightening. Policymakers are also monitoring the impact of the war in Iran on energy prices and the broader inflation outlook. The MPC's differing views underscore the uncertainty over the timing and scale of any future rate increases.

Sterling weakened modestly in global FX markets yesterday, slipping against the US dollar, holding firm against the Euro, and trading mixed across the broader G10.

This year has been marked by a change of the guard at the summit of the UK economy. Longtime CEOs Warren Buffett and Tim Cook handed over the keys to their successors, and President Donald Trump's nominee for Fed chair, Kevin Warsh, became only the 17th head of the Central Bank on May 22.

Warsh had to wait three months before he felt confident enough to do what he had intended all along: hike interest rates. Now he has the flavour of the inflation-buster role; the question is when he will feel safe repeating the trick.

Market sources do not see a hike later this month as especially likely. However, a December hike is rated between 75% and 80%.

Analysts overwhelmingly agree that Trump’s turn to Russian diesel will deliver little to no price relief because the volumes are too small, shipping is slow, and global diesel markets are structurally tight.

Trump’s deal promises: 300,000 tons immediately, 500,000 tons in November, and a million tons thereafter. But analysts note that this is less than a day’s U.S. transport-sector demand and a “drop in the bucket” globally.

This is the core reason prices won’t fall meaningfully.

Yet again, Trump is treating the American public as fools. Experts say the fuel will take weeks to ship, so it cannot affect prices before the midterms. Analysts call this little more than a gesture, which will likely do more harm than good to Trump’s approval rating.

Treasury Secretary Scott Bessent labelled Senator Elizabeth Warren an “inflationista” while releasing the “Trump Affordability Tracker” to counter her economic claims. Bessent published the data to directly compare economic and cost-of-living metrics between the Donald Trump and Joe Biden administrations.

Bessent took to X to criticise Warren’s “Trumpflation” tracker, stating he was providing “Another day, another ’Economics 101’ lesson for Professor Warren.” He argued that her tracker “conveniently ignores the Bidenflation tidal wave that crushed American families” and “cherry-picks wage growth by refusing to acknowledge positive real wage gains” under President Trump.

He also accused her of swapping “official medical-care CPI data for premium projections when it suits her narrative.” Bessent dismissed her claims, writing, “Congress’ inflationista is offering a statistical sleight of hand, not a serious assessment of today’s U.S. economy.”

Bond investors are bracing for fresh inflation data and comments from Federal Reserve Chairman Kevin Warsh that could reshape expectations of further interest-rate increases, Bloomberg News has reported.

Treasury yields held near a 24-year high last week after surging following the Fed's unanimous rate hike in September. Signs of slowing job growth helped stabilise the bond market as traders weighed the Central Bank's next moves.

Tomorrow's consumer price index report could challenge the Fed's outlook. Economists surveyed by Bloomberg expect monthly inflation to accelerate to 0.6% in September from 0.4% in August. Core inflation, which excludes food and energy, is forecast to slow to 0.2% from 0.3%.

Annual headline inflation is projected to reach 3.6%, while core inflation is expected to rise to 2.5%.

The USD strengthened across global FX markets yesterday, holding near an 18-month high and gaining against all major currencies. This was driven by safe-haven demand, elevated U.S. yields, and expectations of further Fed tightening.

The French bond turmoil is already causing contagion across the Eurozone, though it is not yet a full-blown sovereign crisis. Clear spillovers into Italy, Spain, Greece, bank CDS, and the euro itself have begun in recent weeks.

Three independent sources confirm that stress in French OATs is spilling into other Eurozone markets: Reuters reports that the surge in French borrowing costs has started to spill over into the broader Eurozone, pushing the euro to a 17-month low and widening Italian spreads, while Allianz Research believes a “short Europe” positioning shock is amplifying moves across the bloc, with Spanish and Italian spreads circa 20bps wider, bank CDS widening, and liquidity collapsing to 50% below normal. Business Insider notes that Italy and Greece saw 10-year yields jump by around 18bps in sympathy with the French sell-off, reflecting investor fear of “wider financial contagion.”

France faces mounting pressure from Eurozone governments and financial markets to secure its 2027 budget as borrowing costs climb towards levels not seen in more than two decades, raising questions about Paris’s ability to regain control of its public finances.

The warning follows a sharp rise in French government borrowing costs. Yields on ten-year sovereign bonds have risen by nearly 80 basis points since September, reaching levels last seen in 2002. Investors are demanding higher returns to finance a government whose debt keeps rising, while parliamentary divisions limit its ability to impose spending restraint.

At the Eurogroup’s October discussions, finance ministers and European Central Bank officials pressed Paris to demonstrate it can adopt a credible budget and meet its commitments under the EU’s fiscal framework.

France’s difficulties have implications beyond its domestic politics. As the Eurozone’s second-largest economy, France occupies a fundamentally different position from smaller countries that experienced sovereign debt crises over the past decade.

The sorry state of France’s public schools (the UK’s are not much better), which sparked angry demonstrations across the country, was a symptom of chronic austerity. But that did not stop the sirens of deeper austerity from rehearsing their song.

Emmanuel Moulin, the Governor of the Banque de France, is calling for large budget cuts to avert the “risk of being gradually strangled by rising interest rates.” If that happens, social tensions will be further inflamed and desperately needed investment will vanish, with Germany already confronting deindustrialisation and surging support for far-right forces.

Against this backdrop, Jean-Luc Mélenchon, leader of La France Insoumise and a left-wing presidential contender, has proposed a plan worth around €600 billion ($673 billion), or 18% of France’s aggregate public debt. The plan involves the Banque de France holding French government bonds to maturity, at which point taxpayers would have to pay more taxes or borrow more to repay the Central Bank.

Mélenchon’s point is that it is absurd for one arm of the French state to borrow €600 billion to pay another. His alternative is a debt swap between the Treasury and the Central Bank that, in practice, retires that debt and creates fiscal space for desperately needed investment.

The Euro weakened across global FX markets yesterday, losing ground against the US dollar, trading heavily against sterling, and showing only marginal stability against the yen.

Have a great day!