14 October 2026: Greene says growth upgrade is proof a rate hike is needed

Andy Burnham’s newfound desire for the UK to possibly rejoin the EU after the next General Election needs to be tempered by an understanding of how Europe has changed over the past ten years.

If elections were held now in the region's two largest economies, Germany and France, the AfD in Germany and the National Rally in France, two far-right parties, would likely each gain enough seats to form a government. Meanwhile, Italy has had a far-right (maybe more temperate) government since 2022, and Spain is about to oust its socialist government in an upcoming General Election.

By the time the UK gets its ducks in a row to reapply, the EU may look more like Reform UK than any of the current ‘left-leaning’ parties.

Burnham’s comments on the foiled attack at RAF Fairford were unusually direct and mark the UK’s firmest attribution of responsibility to Iran’s Islamic Revolutionary Guard Corps (IRGC). Burnham told Parliament that the suspected plot was: “Highly likely to have been coordinated in Iran, almost certainly directed by Iran’s Islamic Revolutionary Guard Corps.”

Despite the absence of explosives, UK and US intelligence assessments pointed to a foreign-directed plot, with a known individual based in Iran believed to be involved.

Burnham has recently highlighted Russian interference in the 2016 Brexit referendum, saying he was told there was interference when he entered Downing Street. He has also discussed foreign disinformation campaigns targeting European politics, warning voters in France and Germany about Moscow-backed influence efforts. Boris Johnson was quoted yesterday as saying that, when he was Foreign Secretary, he asked the security services directly whether Russia was involved in the Brexit referendum and was told that no evidence had been found.

Faster-than-expected UK economic growth and a resilient jobs market suggest the Bank of England isn't doing enough to bring down inflation, rate-setter Megan Greene said.

Speaking to the Atlantic Council at the International Monetary Fund meetings in Bangkok, the external member of the Monetary Policy Committee said interest rates should be higher than the current level of 3.75% and warned her colleagues against relying on financial markets to do the hard work. She spoke after the IMF upgraded UK growth this year to 1.3% from 1%.

"The GDP data that we've seen recently suggests that monetary policy is not that restrictive, that there's not that much slack in the economy," she said. "There's more recently been some labour market data that has also suggested that maybe slack in the labour market has peaked, so the labour market is loose."

Greene, one of the committee's more hawkish members, has voted for a quarter-point hike to 4% to stave off a wage-price spiral for the last few months, but has so far been in the minority on the nine-member MPC.

UK inflation is 3.1% and is forecast to reach around 4%, double the 2% target, due to rising energy prices caused by the conflicts in Iran and Ukraine. Markets expect the committee to raise rates at the next meeting early next month.

Some MPC members have argued that tighter financial conditions and rising borrowing costs for households are weighing on inflation, but Greene cautioned that a hands-off approach was too complacent.

When asked about the UK budget on October 28, she said the Bank would be watching closely to see whether the announced policies push up prices. So far, "government spending is doing quite a lot of work in maintaining disinflationary pressure."

The pound was slightly firmer against the dollar but weaker against the euro yesterday, a mixed, range-bound session, largely shaped by a softer USD and quiet UK data.

White House National Economic Council Director Kevin Hassett said the Federal Reserve could keep inflation under control without harming the US economy, expressing confidence in the Central Bank's new leadership.

Speaking to Fox Business yesterday, Hassett said the economy was expected to remain strong well into the New Year. He also suggested that a slowdown in inflation could give the Fed a reason to hold interest rates steady.

Hassett's remarks come amid ongoing debate over balancing inflation control with economic growth (as reflected by job creation). The Fed must weigh price pressures against the risk that tighter monetary policy could slow economic activity.

He also said markets had confidence in the new Fed chair, signalling optimism about the Central Bank's leadership.

In a separate part of the interview, Hassett expressed strong disappointment with the Congressional Budget Office (CBO), describing its estimates as indefensible. The CBO provides independent analysis of the budgetary and economic effects of proposed legislation.

Higher yields on U.S. bonds are a good thing, Federal Reserve Governor Christopher Waller has said, arguing they reflect stronger economic growth rather than rising inflation concerns.

“If this is all because of higher growth, that’s a good thing,” Waller said at a Bloomberg event in Mumbai yesterday. “I’d rather have higher growth and higher yields than low growth and low yields.”

Yields on 10-year U.S. Treasuries were falling on Tuesday, down 0.027 basis points to 5.217. Despite the decline, yields remain near their 24-year high.

Fed policy kept bond yields down for years, including forward guidance that the policy rate would stay low, large central bank bond purchases, and expectations of sluggish growth.

Waller, a member of the Fed’s Board of Governors, challenged some analysts' view that inflation fears tied to the Iran war and tariffs were pushing yields up. He was considered a frontrunner on the original list of contenders to replace Jerome Powell, and these remarks reflect the views he was advancing at the time.

“Inflation expectations are well anchored, so all of the build-up is not coming from an inflation premium,” Waller said. “That’s not where it’s coming from. So it is a factor of real growth. If you have real growth and real productivity and these investments are going to pay off, you are willing to pay more in terms of your interest costs.”

Chicago Fed President Austan Goolsbee has expressed a different view, believing AI-driven spending could fuel inflation beyond the tech sector and raising concerns that overheating demand is pushing prices higher across the economy. “Prices are going up in spaces that are not just components in data centres and the directly adjacent industries; I’m getting increasingly nervous that that’s just straight, old-fashioned overheating demand.”

Goolsbee added that AI has driven massive investment and “it’s clear what the Fed has to do” if inflation stays above the Central Bank’s 2% target.

He is not concerned that another rate hike in December, following last month's, will slow growth or economic activity.

Goolsbee went on to describe a scenario in which AI investments ‘don’t pay off’. That could lead to an “ugly” unwind similar to the Dotcom bubble crash. The scale of the unwind will depend on how much leverage is being used. Tariffs and elevated oil prices have also contributed to inflation, said Goolsbee. So far, neither factor has eased enough to allow rate cuts.

The dollar retreated from multi-month highs, driven by lower oil prices, reduced safe-haven demand, softer US Treasury yields, and position-squaring ahead of key US inflation data due later today.

The USD was broadly weaker, particularly against JPY, EUR, and GBP.

European Central Bank staff want to know whether President Christine Lagarde breached her own ethics standards by promoting her forthcoming book at an ECB press conference last month.

A Central Bank committee raised its concerns with the ECB’s chief compliance officer in a letter dated Oct. 9. Staffers are seeking clarity on whether Lagarde breached the Central Bank's code of conduct and have raised concerns about “potential double standards” between the ethics requirements for staff and those for the ECB’s six executive board members.

Lagarde mentioned her memoir, Lady First, during a monetary policy press conference on Sept. 10, when asked how she would keep the book’s commercial promotion separate from her ECB role. The Frenchwoman told reporters that “any marketing, publishing, commercial operations will happen either at weekends or on a day or two that I will take as a holiday.”

This may well be more of a ‘comment’ on other behind-the-scenes issues between Lagarde and ECB staffers. Their relationship has begun to sour this year, as Lagarde has been accused of failing to manage staff salary expectations and of downplaying their importance to running the Frankfurt-based organisation.

Deteriorating French public finances and rising political uncertainty are increasingly testing investor confidence. As bond spreads widen to levels last seen during the sovereign debt crisis, questions are mounting about the sustainability of the country's fiscal path.

What can the government realistically do to restore credibility? How far could the European Central Bank go to calm markets? Could Christine Lagarde face her own 'whatever it takes' moment?

These questions will dominate market participants' minds as the run-up to the French Presidential Election continues.

Prime Minister Sebastian Lecornu has a few key areas where he can begin to turn around a situation that is deteriorating almost daily. Markets now demand a hard-number fiscal path, not slogans, with clear multi-year deficit targets and detailed measures: spending cuts, tax changes, and pension and labour-market reforms.

The Government must front-load some pain; credibility comes from acting now: freezing parts of public pay and pensions, trimming low-efficiency subsidies, and ring-fencing investment that supports growth. A small, immediate package that actually passes Parliament is worth more than a huge plan that ‘withers on the vine’.

Markets are now pricing credibility, not ideology. A cross-party understanding that debt stabilisation is non-negotiable, no matter who wins in 2027, would calm risk premia more than any single technocratic tweak.

Germany's economy is expected to grow much faster this year than previously forecast, the International Monetary Fund (IMF) said on Tuesday, nearly doubling its 2026 growth projection to 1.3%.

The IMF had predicted growth of just 0.7% in July. For 2027, its economists now expect growth of 1.1%, up 0.1 percentage points from their September forecast.

The new figures match those the German government released last week. The Economy Ministry said the improved outlook reflected the German economy's unexpected resilience.

Economy Minister Katherina Reiche said government investment in infrastructure and defence drove two-thirds of the improvement, with exports accounting for the remaining third.

German exporters temporarily benefited from global supply shortages as buyers stepped up stockpiling of energy-intensive goods such as steel, fertilisers and aluminium produced in Germany amid the conflict in the Gulf region. German suppliers are also benefiting from the artificial intelligence boom.

The Euro rose modestly yesterday, with EUR/USD up about 0.32–0.37%. It was a broad but mild recovery, driven mainly by a softer USD and a technical bounce after heavy selling.

Have a great day!