1 July 2025: Rachel Reeves is urged to ‘means test’ the state pension

The UK economy grew at its fastest pace for more than a year at the start of 2025, official figures have confirmed, as buoyant household spending helped drive the rebound. The Office for National Statistics said gross domestic product rose by an unrevised 0.7% between January and March. The ONS said that while the quarterly outturn was unrevised, monthly growth was slightly higher than first thought in March, at 0.4% compared with the initial estimate of 0.2%.

The data will provide a lift to Chancellor Rachel Reeves as she prepares to have her Welfare Reform Bill debated in the House of Commons, with the result far from certain. Whether the Government wins the vote following the debate. Reeves will need to revise her plans for the rest of 2025 and try to “find” an extra sum of up to £5 billion, since that is the sum that has been wiped off the level of savings that the Bill was designed to accrue.

One idea that is “doing the rounds” within the Treasury is the means testing of the State Pension. This would be yet another deeply divisive decision that would be almost certain to draw a similar, perhaps even greater level of anger on the back benches. Currently, anyone aged 66 or over is entitled to receive the state pension, worth up to £11,973 a year.

Chancellor Rachel Reeves is facing growing pressure to impose means-testing on the State Pension amid stark new forecasts showing the bill could soar to £181.8 billion by 2030. The sum, released by the Office for Budget Responsibility, reveals that nearly half of all welfare spending will be swallowed up by payments to pensioners by 2029/30 - up from £150.7 billion this year.

Pensioners’ groups feel that the State Pension has been earned throughout their working life and should not be subject to any form of means testing, since any change would penalize anyone who had been frugal throughout their entire working life.

It is interesting to note that the one area that the Labour Government would have been expected to have little or no issue is on the subject of Social reform. Reeves's efforts to balance the books and create an economy where day-to-day spending is paid for by day-to-day income is a most “unlabourlike” premise.

One pension-related matter that may well be under threat later in the year is the triple lock on the state pension, where The amount the pension rises on an annual basis is determined by the level of inflation and is highest of average earnings, annual inflation and 2.5%.

Critics say this universal approach is becoming unsustainable, with Britain's ageing population placing an ever-greater strain on the welfare budget. Overall, total welfare spending is forecast to hit £373.4 billion by the end of the decade - an increase of nearly a fifth, or £60.4 billion, on current levels. of that, just under 49% will go towards age-related benefits, including the State Pension, housing support, Pension Credit and winter fuel payments.

The Intergenerational Foundation warns this could fuel a growing divide between age groups, and is urging Labour to act before the system becomes ‘structurally unfair’. The group’s analysis shows that real per-person spending on pensioners surged by 55 per cent between 2004/05 and 2023/24, while equivalent spending on children rose by just 20 per cent over the same period.

The pound ended the first half of 2026 on a strong note, rallying to a high of 1.3740 and closing at 1.3716.

Self-sustainability is becoming the watchword in the U.S. farming community as it begins to take hold across the entire country. Trump’s threat to impose tariffs on nations that have “taken advantage of the U.S. for decades, is leading farmers to believe that “what we grow, we keep”.

U.S. farmers have traditionally sold their excess crops, primarily grain, at below market levels as a form of aid to the rest of the world. The United States is the world’s largest producer and exporter of corn, and corn farmers are bolstering the U.S. economy and building strong communities, according to a new study released by the National Corn Growers Association (NCGA). Corn grower leaders say they could make an even bigger contribution to the U.S. economy through increased sales of ethanol.

A recent study noted the contribution of corn farming and its upstream linkages extended across 506 different industry sectors in all 50 states, generating an estimated $123 billion in total economic output in 2024. The report also shows that corn farming supported over 440,000 jobs and provided $29 billion in wages, strengthening communities in rural America and across the entire nation.

Corn grower leaders have been advocating for Congress to pass legislation that would allow for the nationwide, year-round sale of fuel with a 15% ethanol blend. They have also worked to make an aviation fuel tax credit accessible so that ethanol and other biofuels could be used in the aviation sector.

The NCGA and state corn grower groups will visit Capitol Hill officers in early July to continue their advocacy efforts on these key priorities.

The American economy has been able to remain relatively healthy in the face of a tsunami of economic headwinds, but that could soon shatter. After months of steep tariffs on almost all imports and the mounting crisis in the Middle East, inflation is still held steady, unemployment is close to record lows, and the stock market has just set new highs last week.

Yet, pending deadlines could quickly thrust millions of Americans into economic hell. The initial significant flashpoint is set to arrive on July 9, that is, when US President Trump's 90-day tariff pause expires. It is a halt he had granted after imposing sweeping "reciprocal" tariffs earlier this year on virtually all of America's trading partners.

Without trade agreements between those countries and the United States, dozens of nations will face even steeper tariffs. That will make everything from electronics to appliances suddenly more costly, just as many households are already reducing spending, according to the report.

Trump’s attitude to reaching an agreement is one of “you have been told the consequences”. This appears to be mostly aimed at the European Union, which, typically, is “dragging its feet”, making little or no progress in negotiations.

Today, the “employment data” week begins with the publication of the JOLTS job openings data for June. It will be a holiday-shortened trading week in the US due to the 4 July holiday. As a result, US markets will be open for just half a day on 3 July and closed on 4 July, making it a hectic period, with a packed schedule of economic data over just three and a half days. During this brief week, key US economic data releases include the ISM manufacturing and services reports, ADP private payrolls, job openings, and US unemployment figures.

The preliminary expectation is that headline creation of new jobs in June will have been 110k. As long as the headline number is above 100k, the Fed will be unmoved. The last time the non-farm payrolls were in double figures was in October 2024. Just a glance at the chart shows why the Fed is content to wait and see when it comes to loosening monetary policy.

The dollar ended the half-year continuing a run of lower daily closes. Yesterday, the Greenback fell to a low of 96.77 and closed at 98.78.

The Kremlin has warned that there will be “severe consequences” should Brussels inflict further sanctions on the Russian state following a significant increase in the bombing of several Ukrainian cities.

President Vladimir Putin's conditions for ending the war in Ukraine include a demand that Western leaders pledge in writing to stop enlarging NATO eastwards and lift a chunk of sanctions on Russia, according to Russian sources.

U.S. President Donald Trump has repeatedly said he wants to end the deadliest European conflict since World War II and has shown increasing frustration with Putin in recent days, warning earlier that the Russian leader was "playing with fire" by refusing to engage in ceasefire talks with Kyiv as his forces made gains on the battlefield.

After speaking to Trump for more than two hours last week, Putin said that he had agreed to work with Ukraine on a memorandum that would establish the outlines of a peace agreement, including the timing of a ceasefire. Russia says it is currently drafting its version of the memorandum and cannot estimate how long that will take.

Kyiv and European governments have accused Moscow of stalling while its troops advance in eastern Ukraine.

The European Central Bank on Monday warned of “new challenges”, from trade tensions to AI, that could make inflation more volatile, and pledged flexibility in its monetary policy.

The warning came in the first major review of the ECB’s strategy since 2021, and follows several tumultuous years in which the Central Bank has had to battle a historic surge in consumer prices. The Frankfurt-based Central Bank, which sets interest rates for the 20 countries that use the euro, maintained its inflation target at two per cent. But it said that “the world has seen major changes that present central banks, including the ECB, with numerous new challenges”.

“The inflation environment will remain uncertain and potentially more volatile, posing challenges for the conduct of monetary policy.”

The ECB pledged to use all its available tools in a “sufficiently flexible” manner to enable an agile response to changes in the inflation environment.

It listed myriad challenges facing central bankers from changes in US trade policy under President Donald Trump to the rapid digitalization of the economy, highlighted by the emergence of artificial intelligence.

It also noted that the potential longer-term effects of AI remain highly uncertain.

New threats to Europe’s security had emerged that could affect price stability, the central bank noted, with Russia waging war on Ukraine.

Eurozone economic sentiment worsened slightly in June amid a drop in manufacturing confidence, offsetting the slight improvement in services sector confidence. The overall reading remains relatively subdued since last year, though it hasn't got much worse as the economy has been a bit more resilient than expected, especially in Q4 2024 and Q1 2025.

The Euro ended the month continuing a run of six consecutive higher monthly closes. Such a run is unprecedented since the single currency fell to a low of 0.9535 in September 2022.

It closed yesterday at 1.1787, having risen from 1.1358 during June.

Have a great day!