21 October 2025: Bailey gives evidence in Parliament this morning

Yesterday. I reported that Andrew Bailey believes that both inflation and growth in the UK are being adversely affected by Brexit. This is because UK firms have to pay more to import raw materials and spare parts from mainland Europe, while both their supply chains and customer bases have been diminished by the UK’s departure from the EU.

It was no surprise that Chancellor of the Exchequer Rachel Reeves jumped onto that bandwagon yesterday, since she is always looking for a reason to pin her poor performance as Finance Minister on someone or something else.

In remarks during an IMF committee, she told leading financial figures that the UK's productivity challenge has worsened since leaving the European Union.

Reeves said: "The UK's productivity challenge has been compounded by the way in which the UK left the European Union." "In 2019, she made a speech in the House of Commons which explained why you should never raise National Insurance on employers or employees, because it's a growth tax, yet she has done precisely that.

She is unable to own the problem that she has created, which results in lower growth, employers not employing people, which in turn means the country’s tax income is smaller, which means the economy is less productive.

The High Street is likely to be hit by the closure of two popular pastimes if Reeves raises taxes in her Budget and does nothing to support “bricks and mortar” businesses.

Betfred has said it will close all 1,287 of its high street betting shops if Rachel Reeves raises taxes on the gambling industry in next month’s budget.

The company’s threat comes amid speculation that the chancellor is considering a tax increase worth up to £3.2bn on sports betting to help to close a potential £30bn shortfall in the public finances.

Betfred said such a tax increase would ultimately force all its shops to close, putting 7,500 jobs at risk.

Most bingo halls could be forced to close if the industry is hit with a Budget tax hike, Chancellor Rachel Reeves has been warned. Bingo club operators fear they will be caught up in a crackdown in the broader gambling sector. It comes amid speculation that Ms Reeves could double taxes on betting firms to 30%, and ramp-up duty on slot and gaming machines from 20% to as high as 50%.

While such pastimes may not be everyone's “cup of tea” the effect on growth and employment from their closure will create more vacant shops in our town and city centres.

In another blow to the hospitality and high street sectors. Pizza Hut announced yesterday that it plans to close 68 restaurants and 11 delivery sites after the firm that owns them collapsed into administration. However, Pizza Hut's global owner Yum! Brands has agreed to save 64 restaurants, preserving 1,276 jobs.

The concerns about what will be contained in the Budget has been a drag on investment in the second half of 2025 with little prospect of an upturn in the country’s fortunes as we enter a new year.

Yesterday, the pound saw marginal losses as the market slipped into defensive mode given the significant drivers that will emerge over the next few weeks and traders begin to protect their year's profits. It reached a low of 1.3400 and closed at 1.3405.

Several members of the FMC are making comments about a downturn in the labour market, despite having no solid data to back their opinions up.

Yesterday, Federal Reserve Governor Christopher Waller suggested the Central Bank may need to cut rates by as much as 125 basis points to reach a more neutral policy stance, citing signs of disinflation and softening labour demand.

The government shutdown has cut off economic data, just as weak job numbers and strong GDP growth present a puzzle for the Central Bank. Right before the Federal Government shut down on Oct. 1, cutting off the flow of statistics, economic indicators were sending rare conflicting signals. Employment was barely growing, whereas growth as measured by real gross domestic product was tracking a solid 3% expansion.

Members of the FOMC have a history of “trusting their gut” first before considering economic data for confirmation of their views. They are going out on a limb by making statements about the way they intend to vote next week without the safety net of numbers to back them up.

The highest U.S. tariffs since the 1930s, while not triggering a sudden surge in prices as widely anticipated, will likely fuel a significant rise in inflation that lasts into next year, economists at the Federal Reserve Bank of Atlanta said, citing business surveys.

The absence of a sudden jump in prices has fuelled a debate over whether fears of price gains from import taxes were overblown, the economics said in a research note. Yet cost and price expectations, as gauged in recent business surveys, “suggest a delayed but meaningful impact from tariffs,” they said.

“Firms’ unit cost and price growth expectations have risen markedly since this time last year, with prices expected to remain elevated into 2026,” the economists said. “Even non-importing firms that are not directly exposed to increased tariff rates expect an acceleration in price growth, suggesting some broadening of price pressures,” they said.

In September, Fed Chair Jerome Powell and most Central Bankers gravitated toward the view that tariff-induced inflation will likely be short-lived. Yet they agree on a need to identify any signs of a sustained rise in prices, including an increase in inflation expectations.

“Though a partial pass-through of tariffs will permanently raise the price level, tariffs will only temporarily affect the rate of inflation,” Waller said in a Thursday speech.

Waller noted signs of a weakening labour market and said he believes that the Central Bank should trim the federal funds rate by a quarter percentage point at a two-day policy meeting next week.

Still, the central bank should be wary of reducing borrowing costs too fast, he said. “What I would want to avoid is rekindling inflationary pressure by moving too quickly and squandering the significant progress we have made taming inflation.”

The dollar index continued its move away from medium-term support yesterday, reaching a high of 98.65 and closing at 98.63. Traders remain mostly sidelined for the reasons above, although they are generally bullish about the prospects for the U.S. economy, particularly in comparison to the rest of the G7.

Isabel Schnabel must live in a protected bubble in her Frankfurt office. Yesterday, she spoke of her belief that the Euro has several facets that will give it a positive chance of replacing the dollar as the global reserve currency in the coming years.

The sheer size of the global bond markets in dollars compared to Euro denominated paper makes it impossible to consider such an event without some cataclysmic event befalling the U.S.

“For sovereignty, we need a strong currency, and this is our responsibility here at the ECB,” she said Monday in Frankfurt. “This is why we think it’s so important to foster the international role of the euro.”

Speaking on a panel chaired by Bloomberg’s Stephanie Flanders, she referred to comments by ECB President Christine Lagarde saying that “this role needs to be earned — it doesn’t just fall from the sky.”

Innovation, growth, integration and defence all are “the basis for a strong euro in the international sphere,” she said. “And of course, the international role of the euro would also be supported by a large and liquid European bond market.”

“We’ve made some important steps in that direction,” Schnabel said. “But more will be needed.”

Europe’s Policymakers have confronted a lot of surprises since Donald Trump’s return to the White House—one of the biggest: the prospect of the euro rivalling the mighty US dollar.

As investors reel from the trade jolts emanating from Washington, the value of the euro has surged. A group of emboldened policymakers is now cheerleading for the single currency to become a serious alternative to the greenback as a corner­stone of the global financial system. In May, Christine Lagarde, president of the European Central Bank, declared that uncertainties about the dollar’s role “create the opening for a ‘global euro moment.’

Lagarde then laid out a plan to seize that moment. In typical European Union fashion, the matter found its way onto the agenda of a summit in June, where leaders offered a thumbs-up, before kicking the details back to officials in Brussels and Frankfurt.

But recently, the euro has slipped back as familiar concerns begin to return. To seriously take on the dollar, the Eurozone will have to overcome internal differences and fragmentation on multiple fronts.

Further integrating the capital markets of member nations will make them deeper and more liquid, giving investors more incentive to hold euro-denominated assets. Jointly issuing government debt could create an alternative to US Treasuries for investors looking for low-risk assets.

Such projects have struggled to get off the ground for decades, and scepticism reigns over whether this time will be any different.

The Euro began the week on the back foot as, despite traders remaining on the sidelines and the FOMC likely to cut rates next week, the euro is still mired in its national inefficiencies and lack of solid growth. The common currency fell to a low of 1.1638 and closed at 1.1641.

Have a great day!