17 October 2025: Bank of England’s Bailey Airs Concern Over UK Jobs Market

Smashing the gang was a central plank of the Prime Minister's pledges when he took office, but almost eighteen months later, he is no closer to solving the issue of undocumented immigration than he was when he started.

This is an important issue for several reasons. First, the cost to the Treasury is more than five million pounds a day, while the number of undocumented migrants housed in hotels and HMOs continues to inflame right-wing factions who are just waiting for Labour to either fail or revert to type.

Keir Starmer abandoned the previous Government’s Rwanda scheme, since he said it was an “insufficient deterrent” only to replace it with a “one in one out” deal with France, where every genuine asylum claimant who arrives on a small boat replaces an undocumented one who is sent back to France.

The Government has gone quiet on the numbers, so it can only be assumed that the scheme is not working. On the first day that an illegal migrant was returned to France, seven hundred arrived on the Kent coast.

More than 35,000 people have crossed the Channel in small boats this year, with no sign of that slowing. By year-end, that figure may surpass the 2022 record of about 45,700 known crossings.

The real issue that politicians and policymakers are not addressing—or even recognising—is that many people around the world are compelled to move, whether to seek asylum, greater economic opportunity, or both. And without more legal pathways for those seeking to emigrate, with robust checks to root out visa and asylum fraud, people will continue to seek out the assistance of smugglers.

Starmer will have realised by now that there is a lot more wrong with this country than its outdated sense of superiority. The real question is whether he has the gumption to answer the root cause of these manifold issues, or indeed simply revert to type.

Bank of England Governor Andrew Bailey spoke yesterday of his concerns about the UK economy running “under potential” and a softening jobs market, as Chancellor of the Exchequer Rachel Reeves flew to Washington to make her growth pitch to investors at the IMF’s annual meeting.

Bailey warned of competing threats from above-target inflation and a weakening labour market, which have raised uncertainty about when the Bank will next cut interest rates. The Governor is the swing vote on the BOE’s nine-member Monetary Policy Committee, which is divided, with investors seeing only a modest chance of another reduction before the end of the year.

Earlier in the week, the International Monetary Fund predicted that Britain would suffer the fastest price growth in the G7 over the next two years, and official data also showed unemployment rising to its highest level since 2021.

Also, yesterday, Rachel Reeves, in an interview with the BBC, acknowledged that cutting inflation should be a joint effort between the BoE and the Treasury. This led to speculation that she plans to cut the VAT rate on energy bills, which currently stands at 5%.

The pound continued its recent rally yesterday, reaching a high of 1.3454, but it is now approaching a level where several sell orders have been placed. This caused traders to take profit on long positions, pushing Sterling down to close at 1.3433.

Jerome Powell has performed an almost unnoticed pivot in his attitude to monetary policy. While the FOMC appears to be split about a cut in the Fed Funds rate at its upcoming meeting next week, the Fed Chair commented yesterday that, based on data currently available amid the ongoing government shutdown, “it is fair to say that the outlook for employment and inflation does not appear to have changed much” in the past four weeks. His comments appear to signal that the Fed is on track to make additional rate cuts, following its September rate cut.

His newest colleague on the FOMC, Stephen Miran, certainly agrees with Powell’s new stance, fulfilling the task Donald Trump placed him on the committee to complete.

Mirin said in a speech yesterday that increased uncertainty in the growth outlook makes it more important for policymakers to lower interest rates quickly.

“There’s now more downside risks than there were a week ago, and I think it’s incumbent upon us as policymakers to recognise that should get reflected in policy,” Miran said Wednesday during an event organised by CNBC. Higher uncertainty around trade policies between China and the US has introduced a “new tail risk,” he said.

“I wouldn’t say that I want even lower rates now than I did a week or a month ago,” Miran said. “However, with the change to the balance of risks, I think it becomes even more urgent that we get to a more neutral place in policy quickly.”

Businesses across the semiconductor supply chain are bracing for a full-blown trade war after President Donald Trump threatened to impose an additional 100% tariff on China last week. The move followed restrictions imposed by the Asian nation on rare-earth mineral exports, to which the US responded that it would also consider controls on its sales of “all critical software.”

Minneapolis Federal Reserve President Neel Kashkari expressed confidence in the U.S. economy, saying he does not foresee a significant surge in inflation or a sharp weakening of the labour market. Speaking at a town hall in Rapid City, South Dakota, Kashkari noted that while both risks exist, “there’s more risk of a labour market negative surprise than a big uptick in inflation.”

Kashkari, who backed the Fed’s quarter-point interest rate cut in September, even though he is not a voting member this year, believes two additional cuts may be appropriate by year’s end.

He described these rate reductions as precautionary measures to protect the economy against potential downturns that may not materialise. Reflecting on the previous year, he noted that the Fed’s similar moves helped stabilise what appeared to be a softening labour market, which later demonstrated surprising resilience.

Data for industrial production and capacity utilisation is due for release later today. It is expected that both will be only marginally lower than in August, at flat and 77.3% respectively.

The dollar index continues to be driven lower by speculation of rate cuts. It fell to a low of 98.30 yesterday and closed at 98.38.

European borrowing costs are at appropriate levels to deal with whatever turbulence the world economy may produce next, President Christine Lagarde said yesterday.

Risks to inflation and economic growth have become more balanced, Lagarde told a panel discussion chaired by Bloomberg’s Lisa Abramowicz on Thursday, signalling she’s comfortable with inflation and interest rates both at 2%.

“We consider that where we are today, we are in a good place, and we are well-positioned to face future shocks,” she said in Washington, where she’s attending the IMF’s annual meetings.

The IMF slightly upgraded its global growth forecast to 3.2% in 2025 this week, but highlighted “dim prospects” in the short and long term, as the world economy shows signs of strain from sweeping US tariffs and protectionism.

Since the Eurozone has trading relationships that outweigh trade between its members, the region is more susceptible to these shocks than other G7 members.

The European Central Bank is determined to stick to its commitment to take policy decisions based on data as they arrive, according to Chief Economist Philip Lane.

While uncertainty has abated since Europe struck a trade deal with the US, that’s no reason to consider a return of forward guidance, Lane said during a panel in Washington, where he’s attending the IMF’s annual meetings.

“We’re going to really be trying to be as open-minded as possible, going meeting by meeting,” Lane said. “If we want to do something, we will do it,” and “we can change our mind eight times a year,” but “we mean it when we say it’s kind of data dependent, meeting by meeting.”

While this is an admirable policy, it makes it easier to speculate on rate cuts. However, when the ECB fails to react to the data as the market expects, it undermines credibility and increases volatility.

The European Central Bank should maintain its current interest rate level, with price risks tilted to the upside, according to Executive Board member and resident hawk Isabel Schnabel. She has no desire for decisions to be taken on a meeting-by-meeting basis; she shares Catherine Mann's view at the UK’s MPC, who believes that rates should be changed less often to allow them time to work on the underlying problem, and then cut substantially to make a real impact on economic growth.

The German Chancellor is pushing the EU to undertake sweeping economic reforms as he comes under increasing political pressure at home to revive the stagnant German economy.

Speaking in the German parliament yesterday ahead of a summit of European leaders in Brussels next week, Merz urged the bloc to undertake sweeping economic reforms or risk losing global relevance.

“This is crucial for the future of our country and the countries of Europe, because in the coming weeks, months, and perhaps within a few years, it will be decided whether Europe will remain an independent economic power in the global economy or whether we will become a pawn of the major economic centres in Asia or America,” he remarked.

Merz’s centrist coalition has vowed to undertake labour market and welfare reforms. But in recent weeks, he has increasingly pointed the finger at Brussels, urging the bloc to cut red tape for business, strengthen the EU's internal market and strike more global trade agreements.

The euro continues to gain, but it lacks solid foundations for continued growth. Yesterday, it climbed to a high of 1.1694 and closed at 1,1687. There are rumours of sizable sell orders placed above the old resistance level at 1.1720, so they may cap any short-term advance.

Have a great day!