26 September 2025: Reeves dismisses Burnham coup rumour

The market view is that the November budget is beginning to take shape, as Rachel Reeves starts to balance the need to fill the gap, which is somewhere between £15 billion and £50 billion, with the need not to disappoint large sectors of the population.

Her Treasury “minions” have been having surreptitious meetings with journalists as they try to socialize some of the ideas that have been percolating in the mind of the Chancellor for the past three months.

If some of the ideas were considered too “wacky” even to be considered, it is surprising that the thought of imposing VAT on taxi fares made it as far as it did. This was a classic example of an idea that wasn’t thought through at all, given its implications for the elderly and infirm, together with the extra costs it would incur for local government.

Reeves’ second attempt at balancing the books may be important from both a national and a personal point of view, since it is unlikely she will survive another furore like the one her last attempt caused.

She took a break from writing her speech yesterday to defend her boss from the idea that the Manchester Mayor, Andy Burnham, is considering challenging Sir Keir Starmer for the Leadership of the Party.

When she returns to her desk, she will need to consider two changes that are receiving the support of the same backbench MPs who railed against the changes to the welfare budget in the Spring.

The two-child benefit cap has been contentious since its introduction in 2017 and needs to be removed, according to many Labour MPs. Meanwhile, an increase in the levy on on-course gambling in horse racing could harm the sport, according to the 'bookmakers' federation.

Whatever she does, many economists believe that she will not be able to close the black hole in a single attempt.

Nigel Farage has escalated his calls for the Bank of England to halt its bond-selling programme in his first formal meeting with its Governor. Reform UK argues the process, known as quantitative tightening, is saddling the taxpayer with billions in losses and pushing up government debt costs.

Its deputy leader Richard Tice, who also took part in the meeting with Bank chief Andrew Bailey, said Rachel Reeves needs "all the help she can get" ahead of her Budget at the end of November.

The pair also appealed directly to the Bank to relax its approach to cryptocurrencies, accusing it of holding back innovation.

The bank began its quantitative tightening programme in 2022 as it unwound the emergency support it gave starting in 2008 and continuing through the Eurozone debt crisis, the Brexit Referendum and the COVID-19 pandemic.

The Bank is now in the process of unwinding those purchases, a move that has been criticized for raising long-term borrowing costs to levels not seen in more than twenty-five years.

The pound lost ground as the dollar rallied due to the positive economic data which emanated from the U.S. yesterday. It fell to a low of 1.3324 and closed at 1.3344.

In the six months that began fittingly on April 1st, traders and investors have found themselves being herded into taking positions that feel alien to them due to the unpredictability caused by the introduction of tariffs on U.S. imports of raw materials and finished goods.

It was feared that inflation would cause irreparable damage to the U.S. economy, and it has coincided with the expected fall in job creation as part of the cyclical slowing of the economy due to the high rates that were considered necessary to counteract the massive amount of financial support that followed the end of the Pandemic.

The fall in the dollar has seen a consequent rise in the value of the Euro, during which time the same traders and investors avoided standing in front of a speeding train.

Yesterday's publication of the final numbers for Q2 GDP has gone some way to redressing the balance, with the dollar reacting to the economic inequity that is taking place on each side of the Atlantic.

Although inflation has returned to target in the Eurozone, the region is struggling with growth, while the UK is not only expected to have the highest inflation in the G7 group of industrialized nations, but its economic policies are also causing growth to be anaemic at best.

Fed Chair Jerome Powell has been proven right yet again in prioritizing the reduction of inflation, as the economy continues to grow despite the cyclical decline in job creation.

Powell has also gone on record as saying that he expects the imposition of tariffs to have a singular effect on inflation and not be a lasting threat.

As the Fed continues to fight inflation, while the ECB may well cut rates again in the fourth quarter, the dollar may be able to look forward to a period of strength between October and year-end.

There will naturally be provisos, not least linked to President Trump’s unorthodox approach to the economy, but just as importantly, job creation will need to stay positive.

The economy grew by 3.8% between April and June, surpassing even the positive data that had gone before.

The dollar gained against peers, including the Euro and yen, on news that the U.S. economy grew faster than previously thought in the second quarter, which would likely restrain the future interest rate cuts by the Federal Reserve.

The Commerce Department reported that U.S. gross domestic product rose at an upwardly revised rate of 3.8% from April through June, higher than the initially reported 3.3%. Economists polled by Reuters did not expect the rate to be revised.

The dollar strengthened 0.33% to 149.39 against the Japanese yen, rising to its highest level since August 1.

The dollar index rallied to a high of 98.60 and closed at 97.47.

Annual growth rates of lending to households and non-financial corporations increased in August, indicating that the economy continues to experience moderate support.

Bank lending data published yesterday indicates that the transmission of monetary policy is working well, despite all the global uncertainty. Worries about faltering investment, driven by businesses seeking more clarity on the economic outlook, seem to be overstated, looking at yesterday’s numbers. Borrowing continues at a decent enough pace to expect economic growth to continue to be supported, albeit at a moderate pace.

The business climate in Germany saw a slight monthly deterioration in September, with the headline index going from 88.9 in August to 87.7, the Institute for Economic Research (IFO) said in its report published on Wednesday.

Meanwhile, the Current Assessment Index fell from 86.4 in August to 85.7 in September. The Expectations Index decreased from 91.4 in August to 89.7 in September.

"Sentiment among companies in Germany has deteriorated," IFO President Clemens Fuest said. Firms "were less satisfied with current business, while their expectations clouded noticeably," hitting services and manufacturing in particular. Fuest stressed that "Prospects for an economic recovery have suffered a setback."

Germany must accelerate potentially painful economic reforms, economists warned yesterday.

This latest criticism highlights growing unease about Chancellor Friedrich Merz’s efforts to revive Europe’s largest, struggling economy.

Merz has promised to boost Germany’s economy through a debt-fuelled public spending programme focusing on defence and infrastructure.

The German people, by and large, have reacted stoically in the face of the country’s economic decline. If this had been seen in France, Italy or even the UK, there would likely have been strikes and more general unrest.

The euro fell back yesterday as the U.S. economy grew at three times the rate seen in the Eurozone in the second quarter.

The common currency fell to a low of 1.1645 and closed at 1.1657.

Have a great day!