27 November 2025: Badenoch and Davey rip into Reeves

“The guest who turns up uninvited, then eats all the Quality Street in ten minutes”. That is how Opposition Leader, Kemi Badenoch, described the Chancellor of the Exchequer, Rachel Reeves, following the delivery of the Budget to the House of Commons yesterday.

Unfortunately, Reeves' big moment was upstaged by the Office for Budget Responsibility, which mistakenly uploaded its full report on the Budget to its website half an hour before Reeves was due to begin her speech.

Clearly shocked and livid over the error, Reeves stumbled over parts of her speech but still managed to blame the Conservatives for the problems that persist in the economy. However, as a method of getting voters back on side and placating rebellious backbenchers, the Budget will have been considered a success by Reeves and Sir Keir Starmer.

The tax burden on working people will be the highest it has ever been by 2029, with critics commenting that tax rises are simply to fund welfare payments that have become unmanageable. As expected, Reeves confirmed that the two-child benefit cap will be removed from next April, while drivers of electric and hybrid vehicles will face a new pay-per-mile tax on their vehicle usage.

A mansion tax was also confirmed, with houses valued at over two million pounds paying a surcharge of £2,500, and those valued at over five million paying £7,500.

The Chancellor also confirmed that the freeze on income tax thresholds, which was due to end in 2027, will be renewed for a further two years. While technically this does not break the Government’s pledge not to raise income tax, national insurance or VAT, by 2028, at least 40% of workers will be paying more income tax.

The OBR, which is yet to explain how it managed to publish its review of the Budget early, has downgraded its growth forecast for each fiscal year that is covered by the spending review, a fact that Reeves failed to mention even as she was “crowing” over the fact that the forecast was increased for this year from 1% to 1.5%.

Online casinos and bookmakers will pay billions of pounds more in tax under a steep rise in duties levied on their takings from British gamblers.

In her second budget as chancellor, Rachel Reeves announced duty changes expected to raise an extra £1.1bn a year by 2029-30, raiding a fast-growing sector that made £12.6bn from punters last year.

By the end of the day, three major gambling companies, Rank Group, Evoke and Entain, had either revised down profit forecasts or warned of significant job losses.

In summary, this budget had more to do with Labour Party unity than with growth, its intended purpose.

The markets were more excited about the report's publication than about its contents. Sterling rose to a high of 1.3241 as investors were pleased to see Reeves’ fiscal headroom more than double, which will, in time, lower the public sector borrowing requirement; it eventually closed at 1.3235.

Traders are suddenly piling into bets that the Federal Reserve will trim interest rates by a quarter-point next month, but a still-resilient jobs market and a stock rally mean Jerome Powell could yet keep his foot on the brake.

For a job that seems to have its favourite candidate change every day, the fact that Kevin Hassett is still favoured to replace Jerome Powell next May means that he truly could be the President’s choice.

White House insiders repeated that Trump’s economic advisor is the top contender to lead the Central Bank, signalling another shift in monetary policy direction.

The relationship between Trump and Hassett goes beyond typical political partnerships. The President values loyalty and a shared economic philosophy, qualities that Hassett consistently demonstrates. Unlike Powell, whom Trump came to view as an obstacle during his first term, Hassett aligns closely with the president’s belief that interest rates should be cut more aggressively to stimulate economic growth.

However, there will be concerns among traders and investors that the Fed Chair could be considered “in the President’s pocket”.

Trump’s frustration with the current Fed chair has become increasingly public. The president has repeatedly criticised Powell for moving too slowly on rate cuts and has even considered whether he has the authority to remove him from the position. These tensions have created an uncomfortable dynamic between the White House and the independent Central Bank, raising questions about institutional boundaries and presidential influence over monetary policy.

The search for Powell’s replacement falls primarily to Treasury Secretary Scott Bessent, who faces the delicate task of identifying someone Trump trusts while maintaining credibility with financial markets. Since summer, Bessent has interviewed nearly a dozen candidates, narrowing the field to five finalists, including Hassett, former Fed official Kevin Warsh, current Fed governor Christopher Waller, Fed Vice Chair for Supervision Michelle Bowman, and BlackRock’s Rick Rieder.

Those familiar with Hassett’s economic views say he would push for lower borrowing costs more aggressively than Powell has. He has publicly stated that current economic data support immediate rate cuts, and has criticised the Fed for allowing inflation to surge following the pandemic. This perspective mirrors Trump’s longstanding complaint that the Fed has been too cautious in its approach to monetary easing.

However, some analysts question whether Hassett could effectively build consensus among other FOMC members. The Fed operates through collective decision-making rather than top-down directives, and a chair who appears too closely aligned with White House preferences might struggle to maintain the institutional independence that markets value.

Today is Thanksgiving in the U.S., so markets will be closed. However, since Trump and Bessent have said that a decision would be made by the Holiday, the market is expecting a decision imminently.

Powell may well stay on as a lame duck chairman, since he is the type not to leave a job incomplete. He does have the option to leave early, which would be the best outcome for the President.

The dollar index is making a “head and shoulders formation on medium-term charts, which should mean that there is significant support around the 99.20 level. Yesterday, the index fell to a low of 99.56 and closed at 99.59.

During a week in which little changed as far as any likely turnaround in the fortunes of the German economy, the country’s Chancellor, who has only been in power six months, continues to make bullish comments about his country’s prospects.

Friedrich Merz said yesterday that there were signs the economy is turning a corner following his landmark reform of fiscal rules earlier this year, but the International Monetary Fund warned medium-term prospects remain constrained.

According to an IMF report, Germany is the only G7 economy that has failed to record growth over the past two years, and it is expected to expand by only 0.2% this year.

”Although we are in the middle and not at the end of our agenda, and the geo-economic and geopolitical winds have recently become even rougher, there are nevertheless signs of a trend reversal,” Merz said in a speech to the lower house of parliament, the Bundestag.

Germany’s economic landscape still presents a picture of stagnation, marking the longest such period since World War II. Recent assessments of the country’s GDP indicate no improvement, raising concerns about the overall economic health.

The European Union wants to believe that America is a reliable business partner, even if some doubts remain. On a political level it gives credit to the Trump administration, from an economic and financial point of view, the European Central Bank instead questions everything: “Risks of adverse spillovers from US Treasury markets are high, given concerns about US fiscal fundamentals and the evolving role of the dollar in financial markets,” said ECB Vice-President, Luis De Guindos, at the presentation of the Financial Stability Review Update.

Import-dependent industries have been left increasingly vulnerable following events that have dominated the global stage over recent years, including the pandemic, conflict in the Middle East, and disruptions to supply chains in the wake of Russia's invasion of Ukraine.

In turn, this has fuelled the assumption that firms would bring production closer to home to reduce exposure to external shocks and has raised expectations of deglobalisation.

However, the European Restructuring Monitor (ERM) shows that restructurings among eurozone businesses remain limited for now. The ERM tracks restructuring announcements by medium-sized and large firms across member states, as reported in local media or company websites. While these medium- and large-sized firms represent only 1.1% of total business in Europe, they employ more than half of the workforce and generate almost 70% of the value added.

They are also generally more “global” than their smaller counterparts, making them an essential contributor to industry trends. An event is included in the Monitor if it impacts at least 100 jobs or 10% of the workforce for companies with more than 250 people. The threshold does not apply to restructuring, as it is difficult to predict the number of jobs added as a result.

Reshoring has become a popular term in global trade. It represents the reversal of the trend of businesses moving offshore to take advantage of cheaper labour and resources.

Even in 2022, during the height of supply chain problems, with transport costs going through the roof and input shortages increasing, only 13 reshoring announcements were traced by the Monitor. And while the numbers are low to begin with, the instances before the pandemic were, interestingly, actually higher, even compared to the offshorings. Since 2019, reported reshoring cases have fallen to a lower level than in 2016-2018.

This is something ECB President Christine Lagarde has touched on several times in recent speeches. She feels that one of the greatest attributes of the European Union is the sheer size of its market and workforce.

The Euro rallied to 1.1610 yesterday. There has been some selling pressure as it has moved above 1.16 recently, and that was felt again, leading to a close of 1.1594

Have a great day!