22 July 2025: Starmer is still facing welfare challenges

Despite a Pyrrhic victory in the House of Commons recently, when the Welfare Reform Bill was passed after the threat of a revolt by backbench government MPs was averted after a climbdown and two U-turns by the Cabinet, the Prime Minister is still facing challenges.

Sir Keir Starmer clashed with one of his senior MPs over welfare reform, as she said she felt “ashamed” of the “poor” legislation the Government had put forward.

Work and pensions committee chairwoman Debbie Abrahams said the welfare bill was “far removed” from Labour values as she questioned the Prime Minister at the Liaison Committee. She asked Sir Keir what he would like to say to the disabled people who experienced “fear and anxiety” before the Government made concessions on its bill.

“It’s imperative that they feel secure and supported, and that is at the heart of what we are doing in the changes we are making to welfare and related areas,” he said.

Sir Keir said he did not accept that it would take several years before labour market changes allow more disabled people to be employed following Sir Charlie Mayfield’s review, due in the autumn.

Mrs Abrahams asked what he would do to mitigate against a potential 50,000 newly disabled people being pushed into poverty.

Sir Keir said: “I don’t accept that everything is going to take years. Some changes do take years, but not all changes take years, and we have to do work in the interim to give that support to those with disabilities.”

Chancellor of the Exchequer Rachel Reeves should bring forward a change to fiscal rules to ease pressures faced at Spring fiscal events, an economic think tank has urged.

In a new briefing on public finances, the Institute for Fiscal Studies (IFS) said Rachel Reeves should refrain from changing the number of times the Office for Budget Responsibility (OBR), the fiscal watchdog, produces a central forecast and instead make a slight adjustment to rules that offer her greater flexibility in Spring Fiscal Events.

A spokesman for the IFS told a press conference that the fixation on the narrow concept of fiscal headroom gives a way for the rules to be “tweaked” to stop policy tinkering, which leads to both confusion and uncertainty.

IMF-led calls for the OBR to publish just one central forecast a year rather than two would reduce transparency and lead to other downsides. However, it may prevent excessive “policy volatility”.

The Bank of England is facing pressure to hold onto more than a quarter of its bond holdings, potentially for decades, after recent market turmoil highlighted the fragility of demand for long-dated UK government debt.

Forecasters, including Oxford Economics and HSBC Holdings Plc, expect the Central Bank to limit sales of its remaining £163 billion of gilts with a term of over 20 years, or even stop the disposals altogether, in a shift to the way it is reducing its crisis-era balance sheet.

The BOE is selling its gilt portfolio, which was built up over more than a decade of quantitative easing, amid warnings of heightened volatility as a market once dominated by steady buyers such as pension funds becomes more dependent on flightier hedge funds and foreign investors. Over the lifetime of quantitative tightening, the vast majority of the losses from the sales have come from long-dated bonds.

The pound has begun the week in a positive mood, rallying to a high of 1.3510. It ran into some mild selling pressure above 1.35 and closed at 1.3491.

No matter how hard he tries to drive public attention away from speculation about his relationship with disgraced financier Jeffrey Epstein, who committed suicide in prison in 2019, the President cannot shake himself free of the potential scandal.

One of Jeffrey Epstein’s accusers claimed she met Donald Trump in the convicted paedophile’s New York office in what was described as a “troubling encounter,” according to a report.

Artist Maria Farmer said she urged the FBI to look into people in the disgraced financier’s social circle, including the president, after the alleged encounter in the 90s, she told The New York Times.

Farmer and her younger sister Annie, who testified at Ghislaine Maxwell’s 2021 sex trafficking trial, have spoken publicly about their experience with Epstein before. But her account now sheds light on how the Epstein files could contain material that is “embarrassing or politically problematic” to the president.

It follows a turbulent few weeks for the Trump administration after MAGA outrage over the Epstein files boiled over last week. Despite campaigning on a promise to release the files, Trump’s Justice Department announced recently that no further evidence in the case would be released, unleashing turmoil among the president’s MAGA supporter base.

Trump’s apparent intention to dismiss Fed Chairman Jerome Powell, is also causing him to tread carefully, as Congress is concerned that the President may be considering weakening the Central Bank’s independence as he attempts to bend it to his will.

This independence is crucial for maintaining monetary policy credibility, controlling inflation, and ensuring financial stability.

There are several factors, such as operational and goal independence, which build into the necessity for Central Bank independence, which maintain public confidence. Independent Central Banks are typically required to report on their activities and decisions to the public and government bodies.

This accountability helps maintain trust and credibility.

As far as markets are concerned, Central Banks should not be subject to the same Governance as Governments, which would lead to constant changes in policy to comply with any given government’s political ambitions.

Nearly two-thirds of Americans disapprove of how President Trump has handled inflation — one of his key campaign promises, a poll has found six months into his second term. The CBS News/YouGov poll released on Sunday also found that half of U.S. adults think the Trump administration’s policies have made them “financially worse off,” and 62 percent think the White House’s policies have driven food and grocery costs up.

Inflation rose by 2.7 percent in June, as businesses passed the costs of Trump’s tariff hikes onto consumers. Trump has insisted, though, that inflation has settled, pressing Federal Reserve Chair Jerome Powell to lower interest rates.

The White House has cited “core inflation,” which excludes energy and food prices, as an indicator of positive movement on the issue. Core inflation hit 2.9 percent in June, below the expected 3 percent but up from 2.8 percent the month earlier. Trump, writing on the Truth Social Media site, described the economy as “rocking” as he urged Jerome Powell to act at their upcoming meeting.

The dollar index has run into stubborn resistance around the 98.65 level as it tries to shake off Trump’s two most serious current concerns: the Epstein files and Central Bank independence.

Yesterday, the index fell to a low of 97.70 and closed at 97.84.

As the height of Summer approaches, French economic protests traditionally begin.

While the Prime Minister’s most recent controversial policies do not rank alongside the raising of the retirement age or the cutting of farm subsidies, more work, more growth is a slogan that could inflame French artisans.

That's the thinking behind French Prime Minister François Bayrou's plan to cut two public holidays, announced on Tuesday, July 15, as part of a broader effort to reduce the deficit to 4.6% of gross domestic product by 2026.

The government claims that the gains from these two extra working days would amount to €4.2 billion in increased production.

"It's a triple penalty," said Sophie Binet, secretary general of the hardline CGT union. "We'll work more to earn less, while seeing our social rights taken away," she added. If the measure is adopted, employees will therefore work two more days for the same salary. In exchange for this additional working time, companies will pay a contribution to the state, though the terms have yet to be determined.

"One of the keys to restoring the country's economy lies in the length of the work week," argued the Prime Minister when presenting his plan to save €43.8 billion. "We need to work more. The entire nation must work more to produce more," he stated. “The French work on average 100 fewer hours per year than Germans.”

Meanwhile, Germany is beginning to see the benefits of proposals put in place by the New Chancellor, Friedrich Merz. More than 60 of Germany’s leading companies unveiled an investment drive worth at least €100 billion ($116 billion) in new projects to help lift Europe’s biggest economy out of stagnation.

As part of the initiative, led by top executives including the heads of Deutsche Bank AG and Siemens AG and coordinated with Chancellor Friedrich Merz’s government, members have committed to new investment in Germany by 2028, according to an emailed statement Monday.

With factory output rising four months in a row, policymakers prefer trade clarity before making any further moves.

The European Central Bank’s Governing Council is set to leave interest rates unchanged for the first time in almost a year when policymakers meet this week, despite concerns over the potential impact of higher US tariffs on the eurozone economy.

The Council’s 26 members will meet just over a week before an Aug 1 deadline set by US President Donald Trump for the imposition of his government’s punitive tariffs.

Trump has threatened to triple a basic tariff on imports from the EU to 30% if Brussels does not cut a deal by the end of the month, casting uncertainty over the future of transatlantic trade.

It is prudent in such uncertain times to leave monetary policy unchanged, according to ECB sources.

The euro built upon the gains it made on Friday, rising to a high of 1.1718, although it was unable to cling on to all its gains, closing at 1.1695.

Have a great day!