22 June 2026: Economic benefit of Heathrow expansion slashed by 90 percent

It is increasingly likely that there will be an imminent change of Prime Minister in the UK.

Andy Burnham is known to want a “bigger” Government, with more utilities taken back into public ownership and greater devolution of decisions that affect local communities, as he has in Manchester. The Tories are committed to reducing public involvement in public services and to cutting taxes to allow a reduction in the welfare budget. At the same time, Reform wants to curb all immigration and send illegal arrivals back to where they came from immediately.

They all want to increase the defence budget but disagree on how to do so.

Each of the policies has its supporters, but they also chime with voters who may not necessarily agree with everything else Burnham, Badenoch and Farage say.

The main parties in Westminster jealously guard the power that a majority gives them. However, a coalition is likely to bring greater stability, broader representation, and more balanced policymaking, especially in a fragmented political landscape. The key benefits fall into three areas: democratic legitimacy, policy moderation, and constitutional stability.

Coalitions force multiple parties to share power, meaning government policy reflects a wider range of voter preferences rather than the agenda of a single party with a narrow mandate. Research shows that in coalition Governments, parties exert roughly equal influence over policy compromises, regardless of their seat share, thereby enhancing representativeness.

Because coalition partners must agree on a common programme, extreme or highly partisan policies are less likely to dominate. Studies of coalition negotiations show that policy outcomes tend to reflect policies acceptable to all governing parties, not just the largest one.

The UK’s electoral landscape will become increasingly multi-party, with more MPs from smaller parties and more hung parliaments.

A UK coalition like those in the Netherlands, Germany, Denmark, Sweden, or Belgium would require structural changes to the way MPs are elected and governments are formed. Right now, the UK’s political system discourages coalitions; most continental European systems produce them by design.

Until Parliament changes its “first past the post” mentality, the country faces more radical but less supported Governments, which could cause greater disaffection amongst voters.

The volume of goods bought in retail sales is estimated to have risen by 0.4% in the three months to May 2026 compared with the three months to February 2026. Non-food store sales volumes rose, with department stores performing well in May due to good weather.

Also within non-food stores, computer and telecoms retailers continued to grow following product releases in March 2026. Non-store retailers rose following the strong March and May periods.

Retail sales volumes are estimated to have risen by 1.2% in May 2026. This follows a 1.0% fall in April 2026, revised up from a 1.3% fall in the previous numbers, and a 0.7% rise in March 2026, revised up from a 0.6% rise in the bulletin. Retailers suggested that promotions and the hot weather in May increased sales volumes for non-store retailers and department stores."

Heathrow’s third runway could boost the UK economy by just 0.05 percent, a 90 percent loss of the economic benefit that had been previously forecast.

The expansion of the UK’s biggest airport will boost GDP by 0.05 percent at best, but this impact could be as little as 0.3 percent, government analysis has found.

Heathrow had previously promised that its expansion would deliver a 0.5 percent economic boost, ten times the amount that is now expected.

The airport says it is nearing capacity and claims that a third runway is essential to unlock the UK’s economic potential.

Responding to the Department for Transport’s publication of a draft policy backing the project, Heathrow’s chief executive, Thomas Woldbye, urged the government to go faster to back the expansion.

The pound lost ground last week as the market accepted that the Bank of England will try not to raise interest rates for the rest of the year, given that economic growth is at a premium. At the same time, the tentative peace deal between the United States and Iran should see energy prices return to pre-March levels.

It fell to a low of 1.3163 but recovered, closing at 1.3235.

The Federal Reserve has entered a new phase under the leadership of Kevin Warsh.

In his first press conference as Chairman of the US Central Bank, Warsh hinted at major changes by reducing forward guidance, which has been a key reference for market participants in gauging interest rate direction.

Over the past two decades under successive Chairmen, the Fed has become increasingly transparent in communicating economic projections and monetary policy directions. However, Warsh believes the market has become overly dependent on the Central Bank's signals, thereby reducing the market's price function as an independent economic indicator.

As a first step, Warsh reduced the policy statement to 132 words, down from April's 341. Warsh emphasised that the latest statement deliberately contained no clues about the direction of interest rate policy at the next meeting.

The change in approach immediately triggered market reactions. The yield on 10-year US government bonds rose to 4.49% from the previous 4.43%, and the yield on two-year bonds rose to 4.16% from 4.05%. In the stock market, the S&P 500 index corrected by 1.2% following the policy announcement and Warsh's press conference.

A public spat between former US President Donald Trump and Italy’s Prime Minister Giorgia Meloni is deepening into a diplomatic rift. Once on good terms, the two leaders are trading sharp attacks after Italy blocked the US from using its bases for a strike on Iran. The dispute has led to cancelled visits and growing tensions, raising concerns about NATO unity and transatlantic relations, as Meloni defends Italian national sovereignty against Trump’s criticism.

Meloni again hit back at US President Donald Trump on social media after he questioned her popularity and repeated his claim that she asked for a photo together "over and over".

Trump said on Saturday that the Prime Minister was "doing poorly in Italy with her level of popularity". He also accused her of not supporting US efforts to prevent Iran "from obtaining or developing a nuclear weapon".

In an Instagram statement, Meloni said Trump's "constant, unprovoked attacks" were "senseless". "As for my popularity, being your friend has certainly not helped it, nor does it depend on my relationship with you," said Meloni. "My popularity is none of your concern. I suggest you focus on yours," she added.

More turbulence looms in global trade, with a new wave of tariffs set to replace the 10% surcharge that the United States currently applies to all imports from all nations, a surcharge that expires in a matter of weeks.

The incoming tariffs, proposed under Section 301 of the US Trade Act of 1974, target 60 economies that account for nearly all US imports.

Most trade experts view these as part of an effort to recreate a tariff wall after US President Donald Trump’s “Liberation Day” tariffs, enacted in April 2025 under the International Emergency Economic Powers Act, were struck down by the Supreme Court in February.

In response, the administration immediately imposed a temporary global 10% tariff under Section 122, claiming that a balance-of-payments crisis threatened the US economy. This is set to expire on July 24.

Will the transition be smooth, and will the new tariffs attract lawsuits and survive them?

Several experts have told the media that the administration may not be fully ready to impose the new tariffs by July 24.

The dollar index rallied to 101.13 and closed at 100.76.

It’s difficult to argue that the ECB should have refrained from raising borrowing costs this month, according to the Bank’s Chief Economist, Philip Lane.

“It would be very hard to make the case we should have stayed” at 2%, Lane told a conference in Paris on Friday, citing above-target inflation and resilience in both the Eurozone economy and the region’s financial system.

“That’s fundamentally why we hiked,” he said. “It’s pretty straightforward.”

The ECB lifted its deposit rate by a quarter point to 2.25% last week to tame inflation, after the war in the Middle East drove up oil prices. Other G7Central Banks, except the Bank of Japan, have remained on hold. However, some analysts question the ECB’s decision.

While markets have curbed bets on further ECB monetary tightening following the US-Iran peace deal, they still price in one more move in 2026. What’s more, officials have warned that consumer price rises will remain elevated for some time and may require further steps to curb them.

“There’s enough cost increases in the pipeline that we think inflation will be above 3% the rest of this year,” Lane said, reiterating earlier remarks.

Speaking on Thursday, the Irish official said the neutral rate, at which ECB policy doesn’t constrain economic activity, has crept up to about 2.5%. That suggests the Frankfurt-based Bank could raise interest rates again without causing undue damage.

An ECB spokesperson on Friday highlighted that Lane first disclosed the revised calculation of the upper bound of the so-called neutral rate in a speech on March 23. Those remarks primarily focused on artificial intelligence. His comments on the rate had gone unnoticed since then.

Pierre Wunsch, who heads Belgium’s Central Bank and is often seen as a policy hawk favouring higher rates, said a confirmed deal between the U.S. and Iran should reduce inflation and support Eurozone growth, potentially even leading to an oil glut next year.

But he argued the ECB may still need to raise rates again if inflation rises in sectors such as services, even if that move is later reversed.

“We had a not-so-nice reading of services inflation,” Wunsch said in a Reuters interview on Thursday. He was referring to the rise in the Eurozone's services inflation rate to 3.5% in May, up from 3.0% previously.

"If we see more of that, maybe you want to hike another 25 basis points to be on the safe side, and then you can cut rates when you start seeing the dynamics in the other direction."

The market now expects a further rate hike in September, followed by another if the peace deal collapses, a possibility that has become increasingly likely.

Germany’s economic recovery is telling two very different stories. While households saw some relief as inflation dipped to 2.6% in May, down from 2.9% in April, producers are grappling with the steepest cost surge in over two years.

The prices manufacturers charge for their goods jumped 2.2% year-on-year last month, the strongest increase since May 2023. Energy was the driving force, with a 2.5% rise in the sector. Within that, mineral oil products became a staggering 34.9% more expensive. Analysts point to the conflict involving Iran, which continues to push global oil prices higher.

Not everything is rising. Food prices at the producer level actually fell 3.6% compared to last year. Butter was 40% cheaper, and pork prices dropped 16.7%. But the picture for intermediate goods was the opposite: precious metals surged 59.4%, and copper climbed 24.5%, adding pressure on manufacturers that depend on these commodities.

The Euro suffered last week as the peace deal drove oil prices lower. It fell to a low of 1.1417, but buying around that level helped it rally to close at 1.1471.

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