19 September 2025: Retailers warn of an anaemic economy

The Chancellor told reporters that her November Budget will target high inflation. Analysts and economists have just one question: How?

This is a departure from her usual mantra of trying to promote growth, since promoting growth and tackling inflation are generally incompatible. Targeting high inflation through budgetary measures involves a combination of fiscal policies aimed at managing demand, stabilising prices, and addressing the underlying causes of inflation.

Cutting Government spending can help decrease overall demand in the economy. This can be particularly effective if inflation is driven by excessive demand. By cutting back on public sector projects or reducing subsidies, the government can help cool off inflationary pressures.

While this is a “traditional” method of lowering inflation, Reeves will still want to encourage investment. That is, of course, unless she believes that the investments announced by U.S. tech giants Nvidia, Google, and Microsoft this week are sufficient to begin to see growth return to the economy.

She will need to focus on spending on essential services and investments that promote long-term growth, such as infrastructure and education, while cutting back on non-essential expenditures can help manage inflation.

There is sure to be an element of tax increases, which she and her Treasury Team have been busy surreptitiously testing out on the public to gauge their probable reaction. In order not to cause widespread protests, she may need to break her promise not to increase VAT, since that is a tax that at least allows a degree of personal choice.

Reeves appears to be trying to extricate herself from a hole of her own creation by making it deeper and broader.

The Bank of England’s Monetary Policy Committee voted by a margin of 7-2 to leave the base rate unchanged at 4% following the conclusion of its latest meeting. As expected, both Swati Dhingra and Alan Taylor voted for rates to be cut to 3.75%.

At his press conference, the Bank’s Governor, Andrew Bailey, warned that he and most of the committee believe that the economy is not yet free of a cost-of-living squeeze. He told reporters that “although we expect inflation to return to our 2% target, we’re not out of the woods yet, so any future cuts will need to be made gradually and carefully.”

Donald Trump departed the UK yesterday following his State Visit, which Downing Street is regarding as an unqualified success.

At the press gathering yesterday, both Trump and Sir Keir Starmer spoke of the continuation of their special relationship. Their bromance has echoes of the relationship between Thatcher and Reagan in the 1980s.

There were areas where the two disagreed, such as undocumented immigration, over which the U.S. President recommended a far tougher approach than the government's one-in, one-out policy.

The pound struggled for support yesterday as it ran into significant sales orders at what are close to five-year highs. It retreated to a low of 1.3543 and closed at 1.3555.

Senator Elizabeth Warren, who in the past has been one of Jerome Powell’s fiercest critics, laid the blame for the Fed’s recent hawkishness squarely at the door of the White House, despite Wednesday’s rate cut.

Instead of lowering costs like he promised to do on ‘day one, ’ Donald Trump, with his reckless tariffs and failed economic policies, is making life more unaffordable for Americans.

“For months, families have had to pay more for basics like groceries, rent, and electricity, while job growth slows and incomes stall.

The Fed has no choice but to cut interest rates to protect American jobs; however, make no mistake, that alone will not undo the damage. It’s up to Trump and Republicans to reverse course, or Americans will continue to face higher prices and worse job outcomes.”

The Central Bank still faces threats to its independence, including a potential Supreme Court fight over the president’s ability to fire Fed officials.

The Federal Reserve’s interest rate cut on Wednesday underscored how little sway President Donald Trump has held, so far, over the Central Bank despite his aggressive campaign to bend it to his will.

The FOMC lowered the benchmark rate by a quarter of a percentage point, citing a cooling labour market, with only two dissents.

It was a far smaller cut than those championed by the president to drive the economy forward and help finance ballooning deficits.

Fed Chair Powell stressed afterwards that the decision was driven by the data, not by political pressure. “It’s deeply in our culture to do our work based on the incoming data and never consider anything else,” Powell said at his post-meeting news conference.

The number of Americans filing new applications for unemployment benefits fell last week, reversing the prior week's jump. Still, the labour market has softened as both the demand for and supply of workers have diminished.

Though the report from the Labour Department on Thursday confirmed layoffs remained relatively low, the hiring side of the labour market has almost stalled. Demand for workers has slowed, with economists blaming uncertainty stemming from tariffs on imports.

At the same time, an immigration crackdown has reduced labour supply, creating what Federal Reserve Chair Jerome Powell on Wednesday described as a "curious balance."

Economists welcomed the decline in applications as a sign of the economy's resilience. Some even suggested that the Fed’s concerns about the labour market were possibly overblown and that further interest rate cuts may be unwarranted.

"The market was battered by a lot of negative talk about the labour market in the Fed statements and Chair Powell's comments yesterday. "The steady trend in claims continues at a rate that is way too low to signal a recession. It also undermines calls for more and bigger rate cuts, both at the Fed and in the markets."

Traders and investors may feel that the recent falls in the value of the dollar have been excessive. The index rallied in the immediate aftermath of the rate cut announcement and continued to climb yesterday. It reached a high of 97.60 and closed at 97.36.

The potential for the Eurozone to outgrow the U.S. economy in the future depends on a variety of factors, including economic policies, demographic trends, structural reforms, and external conditions.

The Eurozone could easily enhance its growth potential through structural reforms aimed at increasing labour market flexibility, improving productivity, and fostering innovation.

Countries that implement effective reforms often experience faster growth.

If the European Central Bank, which plays a crucial role in shaping economic conditions in the Eurozone, were to adopt policies that effectively stimulate growth, it could help the Eurozone economy expand more rapidly. The Central Bank has been embroiled, ever since prices began to increase in the aftermath of the Pandemic, in a fight to lower inflation.

While ECB President Christine Lagarde declared victory in the war on inflation following last week’s decision to leave interest rates unchanged, her Vice President is less confident.

Luis de Guindos said yesterday that the ECB might not have completed its series of interest rate cuts that began in June 2024.

Speaking during a webcast, de Guindos stated that while the risk of inflation falling below the 2% target over the medium term is "not big," further reductions in the key rate cannot be ruled out.

"We do not know if the easing cycle is over," de Guindos said. "If circumstances change, then we will change."

The ECB Vice President also expressed concern about equity market valuations, describing them as "very high" as investors take a "benign" view of political and economic risks. He warned that the possibility of an "accident" in financial markets is high.

There were mostly peaceful protests on the streets of the French capital yesterday, as several unions showed their dissatisfaction with the government's attempt to lower the country's yawning budget deficit. Even so, there were a few more aggressive pockets with the protesters who were more interested in attacking the police than Emmanuel Macron.

With a budget crisis looming, lawmakers with the power to bring down President Emmanuel Macron’s third government in a year are demanding that the very wealthy pay more to help fix France’s finances, nearly eight years after Macron cut taxes on wealthy individuals and on companies to make the country more business-friendly.

But the tax plan, which would place a new 2 percent levy on assets above 100 million euros, is roiling an already fragmented political landscape.

Germany has for several years been considered the “Sick Man of Europe, having taken the title from the UK, but now France is on the brink of replacing Germany in the race to the bottom of growth charts.

Nevertheless, the euro continues to find support. Having broken through the 1.18 barrier on Wednesday, the value of the single currency moderated yesterday, although it still retains support at marginally lower levels.

It reached a low of 1.1750 yesterday and closed at 1.1787.

Have a great day!