23 July 2025: Reeves is expected to rule out wealth tax

It is impossible for the “man in the street” to comprehend the size of the figures that are discussed as commonplace in the financial markets. A prime example of this is the latest figures for government borrowing.

On our behalf, the Treasury borrowed approximately £20.7 billion last month, £6.6 billion more than in the same month the previous year.

It is the second-highest June borrowing since records began, and was only eclipsed in 2020 at the height of the pandemic.

This takes borrowing in the first three months of the financial year to £ 57.8 billion, and if the forecasts are to be believed, suggests the total tally for this financial year will be £130 billion, give or take a billion or two.

Perhaps an extra £6 billion a month doesn’t sound too much. However, there is a simple method to put the numbers in perspective.

How long would it take to count to a million? If you take one number at a time, about a second each, it would take an average person 11.5 days of continuous counting, or around 278 hours. To reach a billion? More than 31 years!

So, just for context, to count the extra sum that the Government borrowed last month would take 192 years. Imagine seeing that sum in £50 notes!

Now that we have arrived at some form of perspective, we should look at the practicality of paying it back. June’s horrifying monthly increase is because government spending outstripped tax receipts, while the cost of interest payments on the country’s nearly £3 trillion debt nearly doubled.

The interest alone amounts to £16.4 billion! This is close to £22 million per hour!

As the Office for Budget Responsibility chairman pointed out recently at the Treasury select committee, we have the sixth-highest debt, fifth-highest deficit and third-highest borrowing costs among 36 advanced economies.

Government bond traders smell trouble ahead. The recent rebellion in Parliament over welfare reform was a disaster for the Cabinet, and not just for the impression it gave of a Government in total disarray.

The Pensions Minister announced yesterday that a review of the state pension age, planned for four years' time, is going to be brought forward. Liz Kendall told MPs that it is because there needs to be some understanding of life expectancy, and how long people now continue to work.

The real reason is that the triple lock is now so expensive that it has the potential to bankrupt the country.

All we seem to hear from the Chancellor when data is published is that the numbers are “disappointing”. As if she has no idea how they have been arrived at.

The Tories may now be a “busted flush”, but the country is casting its collective eye to the policies of Reform UK, which, although they may not be fully funded proposals, are attractive to voters who are seeing their living standards disappear ever more quickly.

The pound rallied yesterday as the markets considered whether the Bank of England’s Monetary Policy Committee can afford to cut interest rates at its next meeting. It scrambled to a high of 1.3534 but appeared to be running out of steam as it closed at 1.3523.

There are so many explosive issues facing President Trump at the moment, it is hard to decide which one is potentially the most damaging, and whether that damage will be to the President personally or to the U.S. economy.

The ghost of Jeffrey Epstein refuses to go away, and it is understood that the justice department is now considering asking Epstein’s long-time associate Ghislaine Maxwell to testify. A possibility that Trump will fight hard against.

There is the continuing saga of the imposition of tariffs, which is due to come to a head next week, although the President could easily defer any decision until the fourth quarter. The position of Jerome Powell as Chairman of the Federal Reserve has the potential to damage both Trump and the economy.

Should he decide that he has the authority to dismiss Powell, he would face several legal challenges, as such a decision would be considered a direct challenge to the independence of the Central Bank. It is also likely that the economy would face both the wrath of financial markets and the possibility that interest rates would need to be raised, the one thing that Trump is fighting to avoid.

While the majority of FOMC members see the economy as robust, they are being constantly told that a storm is just around the corner by Wall Street.

In the past, Fed Chairmen have been considerably more proactive than Powell, who prefers to see the issue at first hand and decide what action to take.

In practical terms, he wants to wait until the inflationary effect of any tariffs is seen and understood before taking action. That action could be to cut rates if inflation is only marginally affected, since importers try to absorb the cost, or raise rates if inflation looks like not only rising but remaining elevated for a considerable time.

Trump still has to deal with the situations in both Ukraine and Gaza. In the Middle East, the fate of the Gazans has taken a turn for the worse as the humanitarian crisis there is spiralling. One saving grace could be that Trump won’t want to be seen as being ignored by the Israeli Prime Minister and may act simply to save face.

Should, by some miracle, these issues dissipate, he will then need to tackle immigration and government spending, which makes the situation in the UK like a child's pocket money.

Anyone who thought that the market volatility would calm following Trump’s first six months in power may be forced to think again.

Very few economists would feel confident to answer the following questions about the end of the year: What will the Fed Funds rate be? What will the CPI inflation rate be? How many jobs will be created in December? And, finally, where will the dollar index be trading?

There is an awful lot of money to be made (and lost) over the next one and a half quarters, and traders and investors would be well advised to put on their “big boys pants”.

The dollar index is beginning to enter the “summer lull”. Although liquidity may be suffering, there has been a fall in activity, with many traders now taking their annual holidays.

The index is at a critical short-term point. It closed last evening at 97.30, which is where there is likely to be strong support.

The jury is still out on whether the Governing Council of the ECB will continue its long run of loosening monetary policy by cutting rates at its meeting that takes place tomorrow, or if they believe that, since the 2% threshold for inflation has now and no further action is necessary in the short term.

The markets still believe that there will be one or possibly two more cuts in rates before the end of the year, but they are by no means certain.

Executive Board member and the Governing Council’s oft-heard mouthpiece Isabel Schnabel believed that the ECB has set an extremely high bar if it wishes to cut rates again.

She told reporters recently that she dismissed the need for further rate cuts as inflation risks remained skewed upwards and economic indicators suggested resilience, noting that while tariffs and fiscal policies posed uncertainties, the overall outlook did not support easing in the near term.

It is a point for discussion at the meeting tomorrow whether the economy is showing resilience. While there is anecdotal evidence coming in the form of German investment opportunities, the data still does not inspire confidence.

The European Central Bank should consider risks beyond trade tariffs, from security concerns to potential penalties on foreign investors, when it assesses the global landscape, the ECB's Chief Economist, Philip Lane, said recently.

This uncertainty extends beyond the calibration of new tariff regimes and includes the possibility of a broader set of non-tariff barriers, a deeper intertwining of economic policies and security policies and possible revisions to the treatment of foreign portfolio investors and foreign direct investors," Lane told an event in Brussels.

Guarding against the risk of temporary deviations from target turning into longer-term deviations was an important factor in the June decision to cut rates by 25 basis points.

Lane believes that currently, there is high uncertainty about the future of the international trade system, which extends way beyond tariffs, even if their threat began the conversation.

It looks as though the penny has finally dropped in Germany. While there was a hiatus in which private and public companies were looking to the Federal Government to turn around the economy, the largest corporations, Siemens, Mercedes and others have decided that they need to invest, and invest heavily, if they are not going to “go down with the ship”

More than 60 companies have announced plans to invest a total of over 630 billion euros in the country in the next three years. While some of the funds had already been pledged, the package also includes fresh capital for the German economy.

There is a feeling being expressed by the rest of the industrialised world that the EU cannot and will not function with Germany as its leader. The announcement of a Government-backed infrastructure fund and now private funding following, the outlook for Germany is suddenly infinitely brighter.

The euro may finally have some justification for its recent show of strength. Yesterday, it rallied to a high of 1,1764 and closed at 1.1751, as despite thin trade, there was renewed confidence that the 1.20 level could be achieved.

Have a great day!