24 June 2025: Reeves is facing a backbench rebellion

The Chancellor is facing a backbench rebellion against her plans to change the qualification for certain disability payments. A meeting last night heard from the Pensions Minister that the Government can not and will not spend its way to social justice.

The rebels believe their case has not been adequately addressed by Rachel Reeves and intend to table an amendment in the Commons next week, which will make the changes fairer for the disabled and their carers.

Labour rebels have said they will refuse to support Sir Keir Starmer’s plans to slash disability benefits, despite claims they could face deselection if they vote against the reforms.

At least 80 Labour MPs, including 12 ministers, are understood to be considering rebelling against the legislation needed to cut the welfare bill by £5bn a year. But the new amendment, which is understood to be fronted by the Treasury select committee chair Meg Hillier and other committee chairs, may garner even more support.

One senior MP told reporters, “The sharks are circling the Prime Minister.”

The Foreign Secretary is struggling with the legality of the U.S. strikes on Iran's nuclear facilities. In the Commons, David Lammy laid out the Government’s official view of the air strikes. The UK wants to support the U.S. incursion but also wants to stay on the right side of the UN resolution under which the strikes were made.

Despite all the other ramifications of the events of the past few weeks, one positive for Donald Trump is that the Prime Minister appears to be on the verge of accepting that the UK will have to agree to pay 5% of the country’s GDP into the NATO budget by 2035. Trump will want that to happen sooner, but he will accept the commitment from the UK, which will go a long way to convincing other NATO members.

Bank of England Governor Andrew Bailey defended the Central Bank's programme of government bond purchases and sales, which has come under fire from some politicians for its cost.

In a letter to Richard Tice, deputy leader of the Reform UK party, which former Brexit campaigner Nigel Farage leads, Bailey said claims that the programme was more expensive than those run by other central banks did not tell the full story.

Bailey is struggling to deal with criticisms of the Bank’s policies, including the failure to cut interest rates again last week. The MPC voted 6-3 to leave rates unchanged as its members were concerned about the rate at which foodstuffs were rising in price, which may see inflation increase in the coming months.

Bailey noted the increasingly worrying events in the Middle East, which have already seen the price of oil increasing as the market awaits a more telling response from Iran. Last night’s attempted missile attack on U.S. bases in Qatar was easily repelled, and leads analysts to believe that, given the rhetoric of the Iranian Government, more attacks may be on the way.

The pound gained ground on Monday, lurching higher after the US chose to get directly involved in the spiralling Israel-Iran conflict that started recently. It reached a high of 1.3523 and has continued to rally in Asia following the failed Iranian response.

It is interesting to note that Fed Governors, who have recently backed the Fed holding interest rates unchanged since the turn of the year, have suddenly decided that the time may be ripe for cuts in rates to return.

Federal Reserve Vice Chair for Supervision Michelle Bowman, recently tapped by President Trump as the U.S. central bank’s top bank overseer, said yesterday the time to cut interest rates is getting nearer as risks to the job market may be on the rise.

“It is time to consider adjusting the policy rate,” Bowman told a gathering held in Prague, Czech Republic. The official's shift was unexpected, as she had in recent months appeared sceptical of the need to ease monetary policy.

Bowman's comments are similar to those from fellow Governor Christopher Waller, who told CNBC on Friday that he also thinks the Fed could consider cutting in July.

“Should inflation pressures remain contained, I would support lowering the policy rate as soon as our next meeting to bring it closer to its neutral setting and to sustain a healthy labour market,” she said in prepared remarks. “In the meantime, I will continue to carefully monitor economic conditions as the Administration’s policies, the economy, and financial markets continue to evolve.”

Trump has been pressuring the Fed to lower interest rates as a way to save financing costs on the nation’s ballooning national debt. However, the Federal Open Market Committee at its meeting last week voted to hold its key interest rate in a target range between 4.25%-4.5%.

For her part, Bowman said she supported the change in approach the post-meeting statement took, noting that policy uncertainty has diminished, and the focus is now tilting toward potential labour market weakness.

Economists had worried that Trump’s tariffs would spike inflation, but measures have shown little if any impact so far. At the same time, the president has softened his rhetoric and opened the door to negotiations with major trading partners.

However, Federal Reserve Bank of San Francisco President Mary Daly has expressed confidence in the current monetary policy stance of the central bank, describing it as "in a good place" with balanced risks to US employment and price stability. According to Bloomberg, Daly emphasised the importance of navigating policy with both objectives in mind during her address at the Western Economic Association International’s 100th Annual Conference in San Francisco.

It appears that the FOMC, as happens when monetary policy nears an inflexion point, is beginning to witness disagreements from its members about the path of interest rates. This will make Jerome Powell’s task in avoiding Trump's demands for rate cuts more difficult.

Another Regional Fed President, Austan Goolsbee from Chicago, has been constant in his view that the imposition of tariffs will see inflation increase, although so far that has not been the case.

“Somewhat surprisingly, thus far, the impact of tariffs has not been what people feared,” Goolsbee said in public comments before the Milwaukee Business Journal mid-year outlook.

The dollar index lost ground as Donald Trump signalled that he is willing for his negotiators to return to the table to discuss a lowering of the crisis in the Middle East. The index fell to a low of 98.29, having touched a high of 99.45 earlier.

The rhetoric emanating from Christine Lagarde and some of her ECB colleagues about the status of the Eurozone and the Euro’s possible replacement of the dollar as a global reserve currency has not been helped by the region’s almost stunned silence as the Middle East has descended into what is becoming all out war.

While it is not Lagarde’s job to comment on global affairs outside their economic effect, the role of President of the Central Bank often has blurred edges.

Ursula von der Leyen, whose job it most certainly is, appears to have withdrawn with very little response in support of the U.S. actions of the past forty-eight hours.

It has always been the case that the region is more driven by internal events, like activity data, and such was the case yesterday.

Eurozone PMIs showed little change in June. The Services PMI rose to 50.0 from 49.7 in May, matching the market estimate. This indicated a slight stabilisation in business activity.

The Manufacturing PMI remained unchanged in June at 49.7, pointing to a slight contraction and missing the market estimate of 49.8. In Germany, the largest economy in the eurozone, manufacturing and services remained in contraction. The Manufacturing PMI ticked higher to 49.0 from 48.9, while the Services PMI rose to 49.4 from 47.8.

The PMI reports point to a weak eurozone economy. The European Central Bank trimmed its deposit rate to 2.0% earlier this month in an attempt to kickstart the economy. The drop in May eurozone inflation cemented the ECB rate cut - CPI dropped to 1.9% in May from 2.2% in April, its lowest level since September 2024. Core CPI declined to 2.3% from 2.7%.

The current increase in energy prices already adds to headline inflation, and the energy-intensive manufacturing sector will see prospects weaken as energy prices trend higher, while concerns about escalation in the Middle East add a new downside risk to the growth outlook.

Portuguese Central Bank Governor, Mario Centeno’s recent comments regarding greater stimulus being required are already coming true, and another rate cut, despite the clear signal from the ECB that it is about to pause the easing of monetary policy, is a clear possibility now, with the market reconsidering its position.

French Central Bank Governor and ECB Governing Council Member Francois Villeroy de Galhau agreed with Centeno when he spoke yesterday of the need for possible further rate cuts despite the inflationary consequences of recent events.

Looking longer term, de Galhau commented that if the European Central Bank decides to move on interest rates in the next six months, it would most likely be a cut, ECB policymaker de Galhau said last week.

The ECB signalled a pause in policy easing this month despite projections showing price growth dipping below its 2% target temporarily due to the strong euro and low oil prices, reviving worries that the ultra-low inflation environment of the pre-pandemic decade could return.

The rise in the oil price is likely to be temporary, but it depends on the actions of Iran in the Straits of Hormuz.

The Euro gained yesterday, reaching a high of 1.1578 following a surprise improvement in risk appetite despite American bombing of Iranian nuclear facilities and the Iranian response.

Have a great day!