14 October 2025: Mann believes the UK’s issues stretch back to Brexit and Truss

Brexit and former Prime Minister Liz Truss made the UK a less competitive, slower-growing economy that faces a greater risk of inflation, Bank of England policymaker Catherine Mann said.

Mann, the MPC’s resident hawk, believes the UK economy's demise began long before the country voted to leave the European Union in 2016. The loss of the country’s reserve currency status was a significant factor in the slow but steady de-sterlingisation of the global economy. While the UK’s departure from the Exchange Rate Mechanism in 1992 was significant for the UK, it confirmed the end of the pound as a global determinant of value.

The vote to leave the EU destroyed several long-term partnerships. Unravelling Britain’s deep trading relationships with the EU took it further down that road and reduced the economy’s speed limit, which has made the country more inflation-prone, she added.

Mann voted to hold interest rates at the last two policy meetings, to bear down on inflation, which is almost twice the BOE’s 2% target, at 3.8%. In a recent speech, Mann said she needed to keep rates restrictive for longer to ensure inflation is beaten.

Mann said the lesson to take from “all these episodes” across the past 100 years of UK history was not to expect a currency shock, but a slow erosion caused by policy missteps.

Average mortgage rates have risen for the first time since February, as lenders are concerned about the “Reeves effect”. Those concerns are primarily due to fears about what the budget will contain when it is delivered late next month.

The average for two and five-year fixed-rate loans is close to 5%. While this is lower than the long-term average, it is still a shock for those relatively new to the market.

The latest surge in global share prices and other assets has left markets susceptible to a crash, given the current uncertain economic and geopolitical backdrop, the G20's risk watchdog said on Monday.

Financial Stability Board Chair, and Bank of England Governor Andrew Bailey, told G20 ministers in a letter that the elevated risks made maintaining multilateral co-operation crucial. Not just to prevent crises, but also to support sustainable economic growth.

That warning came just days before US President Donald Trump threatened "massive" new tariffs on China in retaliation for Beijing tightening rare-earth restrictions, triggering Wall Street's biggest drop in nearly six months.

Bailey also pointed to the ongoing rise in sovereign debt levels, noting that financial system vulnerabilities remain high.

"The need for global standards and cooperation, therefore, remains abundantly clear," the letter said.

In response to the elevated risks, the FSB, which groups Central Banks and Financial Regulators from the Group of 20 Economies, will "pivot" its focus, Bailey said.

It will shift it from policy development to monitoring and facilitating the implementation of agreed global financial reforms that have not yet been fully achieved.

"The effectiveness of these measures depends on their timely, consistent and comprehensive implementation across all jurisdictions," Bailey said.

The pound has remained in a relatively narrow range for most of the past two weeks, but it appears to be on a sustained downward trajectory. Yesterday it fell to a low of 1.3315 and closed at 1.3329.

It will be tough for the FOMC to make a considered judgment about whether to change monetary policy at its meeting, which begins two weeks from today, if the shutdown of the Federal Government continues past October 28th.

While Donald Trump makes grand, if unconfirmed, statements regarding peace in the Middle East, at home, the economy is beginning to suffer.

Treasury Secretary Scott Bessent told CNBC that the government shutdown could hurt U.S. economic growth.

“This isn’t the way to have a discussion, shutting down the government and lowering the GDP,” Bessent said during the interview. “We could see a hit to the GDP, a hit to growth, and a hit to working America.”

Growth in the U.S. has been on an upward trajectory over the past two quarters after the economy slogged through the early part of the year.

Gross domestic product rose at a 3.8% annualised pace in the second quarter, and, according to the Atlanta Federal Reserve GDP Now tracker, is on track to grow at the same rate for the recently completed third quarter.

Though previous government shutdowns have shown little impact on growth, a prolonged stoppage could inflict some damage, particularly if President Donald Trump follows through and permanently fires a significant number of the 750,000 or so federal workers impacted by the current situation.

Asked about whether Trump is considering that move, Bessent called it a “talking point.”

Jerome Powell appears to be “painting himself into a corner” with his recent comments regarding the economy, which seem to be more dovish than usual.

"The pace of economic growth has moderated," said Powell. He's right about that, even though it has picked up recently. In the first half of 2024, the economy grew by only about 1.5%. Much of the deceleration was due to a slowdown in consumer spending, which accounts for about two-thirds of U.S. economic activity.

"Activity in the housing sector remains weak," he said. He's right about that, too. It was a blue, blue summer for the housing market. New home construction slowed, and existing-home sales fell in August, putting the housing market on track for its worst year in three decades. Elevated mortgage rates and limited inventory have put home purchases out of reach for many Americans.

Powell said that inflation "remains somewhat elevated relative to our 2% longer-run goal." According to the latest readout of the Personal Consumption Expenditures Price Index, the Fed's preferred metric for gauging inflation, prices rose by 2.7% in August, and the adjusted index that excludes volatile food and energy prices rose by 2.9%. Both figures were well above the Fed's 2% inflation target.

Any change in monetary policy will be challenging to justify later in the month, since the Fed is committed to a reactive stance, which cannot be maintained without access to accurate and timely data.

The dollar index may be running out of steam as it approaches the 100 level. Yesterday, it rallied to a high of 99.35, but sales orders above 99.50 deterred further optimism, and it drifted back to close at 99.26.

The ECB is struggling to avoid mentioning the dire situation in France, which is worsening almost by the day. As commentators shift from economic to social issues, it is clear they feel the situation is beyond control.

President Emmanuel Macron has run out of prospective Prime Ministers, so he has returned to a former incumbent, Sébastien Lecornu, in an effort to find a solution to the thorny issue of agreeing on an acceptable budget. However, there is no shortage of candidates for Macron’s job, with members of hard-left and hard-right parties forming a disorderly queue outside the Élysée Palace.

France has been gripped by political instability since President Emmanuel Macron called snap polls last year, hoping they would consolidate power, but which instead resulted in a hung parliament and gains for the far right.

Macron reinstated Lecornu late Friday, just four days after the premier resigned, and his first government collapsed, triggering outrage and vows from opponents to topple any new cabinet at the first chance.

The former defence minister must now assemble a government to present a 2026 draft budget before today’s deadline, giving parliament the constitutionally required 70 days to scrutinise the plan before year-end.

But the right-wing Republicans, a key political ally, dealt a blow to his chances Saturday by announcing they would not take part in the new government but only cooperate on a "bill-by-bill" basis.

Eurozone government bond yields hovered near multi-week lows on Monday, as investors priced in another European Central Bank rate cut and turned their attention to U.S. President Donald Trump's threat of tariffs against China.

Traders slowly increased their bets on future ECB rate cuts in the last few days, including late on Friday after Trump said he was weighing a 'massive increase' in tariffs on Chinese imports.

Traders priced in about a 65% chance of a 25-basis-point ECB rate cut by the middle of next year, up from around 45% on Friday before Trump remarked on China tariffs, and 35% in early October.

The key rate is seen at 1.90% in February 2027, down from 2% in late September.

Euro area borrowing costs had been in limbo in the last couple of weeks, as a U.S. government shutdown and a well-established ECB rate outlook left markets with no clear direction.

Germany faces mounting fiscal pressure as 10-year real bond yields have climbed above GDP growth, signalling potential challenges to debt sustainability for Europe's largest economy.

Germany is hitting a rough patch in which the cost of borrowing is outpacing actual economic gains. Real yields on 10-year government bonds have now pushed past GDP growth rates, creating a troubling dynamic for the country's fiscal health.

When your debt costs more than your economy is growing, you're running to stand still.

The euro is struggling to reach levels it reached earlier in the year, as traders begin to look for sustainable growth. With the region's two largest economies in serious difficulty, the euro may struggle to advance before the end of the year. It fell to a low of 1.1557 and closed at 1.1569 yesterday. The crucial support is at 1.1480; a break of it may well open the way to 1.10.

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