1 September 2026: Healey is expected to shelve his defence spending target of 3% of GDP by 2030

Andrew Bailey has become the latest high- profile figure to warn about the risks posed by frontier artificial intelligence models.

Bailey, who also leads the Financial Stability Board, wrote in a two- page letter to G20 Finance Ministers and Central Bankers, warning that these frontier models “were showing increasingly sophisticated autonomy and problem- solving abilities, as well as threat capabilities”.

“This is particularly important from a financial stability perspective. The risks associated with frontier AI will not respect national borders,” he wrote ahead of the finance ministers' meeting in North Carolina.

The Bank of England Governor joined a long list of figures warning about the dangers of advanced AI. An open letter signed by more than 1,300 tech employees warned that the world currently lacks the tools to deliberately pace frontier-wide progress.

Bailey wrote, “Recent developments have also highlighted to me that many jurisdictions do not have the protocols in place to manage the development, release and deployment of advanced frontier AI models, heightening risks for the financial sector and beyond.”

The open letter and Bailey's comments come after an OpenAI model went rogue during a security test and hacked the tech firm Hugging Face.

In a new blog post on Monday, OpenAI said it considered the incident to be a " warning shot' for us and for the world, evidence that, without proper safeguards, highly capable AI agents are now able to work around technical controls, collaborate through unapproved channels and take dangerous actions that no human directed.

The maker of ChatGPT said preventing similar incidents in the future will require sustained investment in aligning and controlling sophisticated systems.

Although he did not directly address the Hugging Face incident, Mr Bailey cautioned that financial institutions and technology providers must strengthen vulnerability management and prepare for more severe scenarios.

“These developments are another reminder of the pace at which the financial system continues to evolve. New technologies and changing market structures present significant opportunities, but they also require continued vigilance and international cooperation.”

Having resigned from Keir Starmer’s Cabinet, John Healey is now said to be reconsidering the UK’s commitment to invest 3% of the nation's GDP in defence.

The Chancellor will shelve his own target of spending 3% of Britain’s GDP on defence by 2030 when he presents his first Budget in October, with tough decisions on how to fund the military now on the table. Healey resigned as Defence Secretary in June over what he saw as inadequate ambition for military spending by Sir Keir Starmer’s government, but since arriving at the Treasury has had to grapple with financial constraints.

Healey’s previous insistence that Britain should spend 3 percent of its GDP on defence by 2030, as a milestone towards reaching a Nato target of 3.5% by 2035, is now up in the air. Government insiders told the FT that Healey’s Budget would focus on filling a defence equipment funding gap of nearly £5bn left by the former Prime Minister, amounting to about £1.2bn a year.

Burnham’s “smooth ride” ends the moment Parliament returns, as his inbox is full of politically explosive decisions he can no longer delay. The Guardian makes this abundantly clear: the summer of easy cost-of-living announcements is over, and Burnham now faces the same structural traps that crippled Starmer.

Burnham must decide whether to approve the Jackdaw and Rosebank gasfields, a decision that pits unions, climate activists, Labour’s left, and global energy pressures against one another. Jackdaw is believed to supply around 6% of future UK gas output, and Burnham is expected to approve it. Meanwhile, Rosebank is far more controversial, with former energy secretary Ed Miliband calling it “climate vandalism.”

A rebellion from Labour’s left and attacks from the Greens are guaranteed. This is the first issue that forces Burnham to choose between climate credibility and economic pragmatism.

The pound has drifted modestly lower against most major currencies since last Thursday, with moves small but consistently negative across the G10. Across USD, EUR and other majors, the pattern is the same: GBP has softened by roughly 0.2–0.9% over the period, driven largely by a stronger US dollar and fading expectations of near‑term Bank of England tightening.

The likelihood of a Federal Reserve rate hike in September has surged following remarks by Kevin Warsh at the Jackson Hole symposium, with odds now at 66.1%.

This uptick in market-implied probabilities comes as analysts from Citi and JPMorgan express scepticism, citing insufficient data to justify such a move. Market reactions suggest Warsh’s comments last week have been interpreted as a potential policy shift toward tightening, even as the Fed Funds rate remains unchanged.

Cleveland Fed President Beth Hammack told Bloomberg on Friday that the Federal Reserve should move towards rate hikes, warning that delay would create pain. She said inflation is set to end the year around 3%, well above the Fed’s 2% target, and argued that financial conditions are not restrictive, with “not much restriction in the economy right now”.

Hammack added that interest rates are the Fed’s most easily understood policy tool, that she approaches each meeting with an open mind, and that the low-interest-rate era may have been unusual, driven by the end of the Covid pandemic.

Her colleague from Chicago, Austan Goolsbee, speaking to CNBC at the Jackson Hole Symposium, aligned with Fed Chair Kevin Warsh on the state of the economy and said inflation remains the Federal Reserve’s main concern. He also said that inflation driven by overheated demand is difficult to address, and that price pressures have persisted for longer than expected.

On policy, Goolsbee said he was comfortable holding rates steady at the July FOMC meeting and had no strong view on how many FOMC meetings to schedule. He also said he did not think the Fed and the Treasury were working at cross purposes.

The Federal Reserve’s upcoming policy meetings will be crucial in determining the direction of interest rates. Observers will be closely monitoring statements from Fed officials and upcoming economic data releases, such as this week’s employment data and inflation figures due in the next couple of weeks, for further indications. Developments that reinforce or contradict current rate-hike pricing could significantly shift market expectations. As the September meeting approaches, Warsh and FOMC members’ public comments will be key indicators of potential policy actions.

Donald Trump has threatened to hit Iran "hard" after the two foes traded fire for the first time in a month, as his Treasury Secretary vowed to maintain pressure to hobble Tehran's economy. After six months of war, the countries remain at an impasse, with Iran keeping the strategic Strait of Hormuz closed and the US continuing a counter-blockade of Iranian ports.

On Sunday, the United States carried out strikes on an Iranian island in the Strait of Hormuz, and Tehran quickly retaliated by attacking US military targets in the Middle East, mainly in Jordan and the UAE.

The exchange raised fears of a return to major hostilities, with the US president vowing to respond. "We're going to hit them hard," Trump said, according to a Fox News reporter who spoke to him briefly. "There will be a response."

The dollar has strengthened across most major FX markets since last Thursday, with the USD recording broad, steady gains against both major and minor currencies. The data shows a clear pattern: the dollar has appreciated, driven by tighter U.S. monetary expectations and global risk aversion.

European Finance Ministers and officials bristled on Monday over Russia's participation in the G20 finance meeting, with Germany's Finance Minister saying there could be no normalisation of relations with Moscow while its war against Ukraine continued.

Russian Finance Minister Anton Siluanov attended the meeting in Asheville, North Carolina, alongside representatives of the Russian Central Bank. Russia's Finance Ministry said Siluanov held talks on the sidelines with host U.S. Treasury Secretary Scott Bessent, discussing Russia-U.S. cooperation on financial matters and interaction within the G20 framework.

German Finance Minister Lars Klingbeil said Europe was preparing a further package of sanctions against Russia and hoped for close cooperation with Washington on measures.

"A joint approach would be best, yet it is sometimes unclear whether there might be a loosening of the stance over here. That is why I find the signal sent by the Russian Finance Minister and officials from its Central Bank quite troubling," Klingbeil told reporters in Asheville. "I would have wanted greater clarity from the American side that they should not be received here as a normal guest."

European Ministers and Central Bankers also opposed taking the usual 'family photo' of participants, officials from European countries said. In the end, they decided to take the photograph without the Russian minister.

Klingbeil said Europeans, including British counterpart John Healey and European Central Bank President Christine Lagarde, had discussed Russia's involvement on Sunday evening and agreed that having an avenue for dialogue was at least good for delivering a frank message.

The next debt crisis may not start in the US but in the Eurozone. There are three significant issues underpinning concerns:

First, the US dollar remains the global reserve currency, and US Treasury bonds remain the most important asset for central banks worldwide, despite recent gold purchases and reserve restructuring.

Second, the political landscape in most major European Union economies is characterised by fiscal denial. Yields on French government bonds are now higher than those on Italian government bonds. No Eurozone government appears willing to cut spending or curb future liabilities. Unfunded commitments, debts already incurred but not yet issued, exceed 300% of GDP in core Eurozone economies.

Third, Eurozone sovereign assets have generated negative real financial returns since 2021, reducing international investors' appetite for them. US debt is a problem, but Eurozone debt is significantly more complex, as recorded debt reflects only the amount shown under the excessive deficit procedure, not total general government liabilities.

Eurozone debt, under the Maastricht criteria, records only consolidated currency and deposits, loans, and debt securities at nominal value. Therefore, it is significantly smaller than total liabilities on the general government balance sheet and even smaller than implicit pension and other public-sector commitments in the Eurozone.

The main lesson for investors is that they are rightly concerned about already issued debt, but they should be even more concerned about the expanding size of the state combined with unfunded liabilities in a region hit by economic stagnation. All this indicates that the recent global sell-off in the bond market is not temporary. Markets are sending a clear message to governments: no Central Bank will be allowed to hide its irresponsibility any more.

The Euro has been broadly stable to slightly stronger in global FX markets since last Thursday, with small gains against GBP and USD but mixed performance across the wider G10. The pattern is clear: EUR has nudged higher in most major crosses, but the moves have been modest, typically +0.15% to +0.34%, and not indicative of a major trend shift.

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