28 October 2026: What can we expect, and how will the BoE react

Markets will focus today not on political point-scoring, but on whether the Chancellor can convince investors that the UK's fiscal position remains credible.

What can we realistically expect from Healey today? It will likely be a relatively cautious Budget rather than a major fiscal event. Healey has repeatedly stressed fiscal discipline and the need to work within the government's fiscal rules. The Budget will include targeted cost-of-living support, particularly for lower-income households facing higher energy costs this winter, as well as revenue-raising measures, with the banking sector the most likely target. Markets have been pricing in a higher bank surcharge for several weeks. Healey has increasingly presented additional defence and industrial investment as part of a broader growth and reindustrialisation strategy.

The Chancellor won’t announce any dramatic loosening of fiscal policy. With gilt yields elevated and investors sensitive to any signs of fiscal indiscipline, a repeat of a large unfunded spending package is highly unlikely.

While the Bank of England will not respond to the Budget itself, Andrew Bailey and his colleagues will assess how today's measures affect inflation, economic growth, and Government borrowing.

For a decade, British governments have observed a ‘Basil Fawlty-esque' rule: Don’t mention Brexit. In particular, don’t suggest that voters should review or reverse their 2016 decision to leave the European Union.

Prime Minister Andy Burnham, who marked his 100th day in office yesterday, has broken that code of silence and reignited a debate that bitterly divided the country. He believes Brexit has failed and that the U.K. should seek a much closer relationship with the EU, including the option of rejoining the European Union.

“I am positive about closer ties with Europe, and I’m not hiding that,” Burnham told the Sunday Times. “I think it will add to British GDP. I think it will give us stronger control of migration. I want to consider those arguments.”

In other recent interviews, Burnham has said the country should have an “evidence-based debate” about the consequences of Brexit. He cited immigration. Brexit supporters argue it gave the country control over its borders by ending the right of EU citizens to live and work in the U.K., and the right of British nationals to settle across the bloc.

While Britain now sets its own immigration policy, Burnham said leaving the bloc had made it harder to control unauthorised migration because Britain has lost access to EU databases and agreements.

“The truth of the matter is we’ve lost immigration control in the way that we once had,” Burnham told ITV News on Monday.

Unfortunately, Brexit has become a highly emotive subject, with even Nigel Farage’s Reform UK Party creating an entire political doctrine around the UK’s continued absence from the rest of Europe.

Many economists agree that Brexit has hurt the British economy, but few politicians have wanted to reopen the painful debate.

British voters, by 52% to 48%, decided to leave the bloc after four decades of membership, and the decision was followed by years of U.K.-EU wrangling over divorce terms. Britain finally left the EU in 2020 with a bare-bones trade deal that erected new barriers to doing business with the bloc of 450 million people on the U.K.’s doorstep.

In seeking closer ties, Burnham remains bound by Keir Starmer's pledge, whom he replaced as Labour Party leader and Prime Minister, not to rejoin the bloc’s tariff-free customs union or frictionless single market for goods, services and workers.

Burnham says that could change after the next national election, which must be held by 2029.

It is increasingly feeling like the next General Election will be a proxy referendum on several of Burnham’s policy ideas.

Sterling had a generally firm session yesterday, especially against the euro, though it weakened against the US dollar. Traders expect the ECB to stand pat on monetary policy tomorrow, while the BoE is almost certain to raise the base rate next week. This will make it more expensive to be short Sterling versus the common currency.

Confidence in the economy rebounded somewhat in October as gas prices fell modestly, though filling a tank remains much more expensive than it was at this time last year.

The Conference Board said yesterday that its consumer confidence index rose 7.5 points to 91.7 in October, up from 84.2 last month. September’s reading was the lowest in the board’s survey since April 2014 and below the lowest level reached during the pandemic.

Yet Americans remain flustered by the economy after five years of elevated inflation, potentially posing a risk to President Donald Trump and Republicans in next Tuesday's midterm elections.

Respondents’ views of their present situation rose by 6.9 points to 72.6, while their short-term outlook climbed 8.6 points to 120.4.

“The recovery was in line with retail energy prices easing from September to October,” said Fergus McCormick, a senior economist for The Conference Board. “Yet, despite the increase in October, consumer confidence remained on the long-term downward trend that’s persisted over the past few years.”

According to the American Auto Club, AAA, the average price for a gallon of regular gas in the U.S. was $4.27 yesterday, down from $4.48 a month ago. At this time last year, a gallon of regular in the U.S. averaged $3.05.

Write-in responses to the board’s survey, collected between October 1-21, remained broadly pessimistic this month, with frequent references to the high cost of energy, goods, and services.

Trump has continued to blame high prices on his predecessor, Democrat Joe Biden, yet inflation has risen since Trump’s inauguration last year. The President is clearly in denial, given his major policy initiatives around tariffs and his war with Iran.

Earlier this month, the Administration reported that consumer inflation accelerated in September as goods and services became more expensive, evidence that rising prices remain an economic challenge just seven days before midterm elections that have focused heavily on affordability.

The consumer price index rose 3.7% in September compared with a year ago, according to the Labour Department, up from 3.4% in August. Month on month, prices jumped 0.6% from August to September, the biggest gain in five months.

Six weeks ago, the Federal Reserve raised its benchmark interest rate for the first time since 2023 to tamp down stubbornly high inflation, and the Central Bank signalled another rate hike later this year, though few expect it at today’s FOMC meeting.

The quarter-point increase lifted the Fed’s key rate to about 3.9% and could, over time, raise borrowing costs for mortgages, auto loans and credit cards.

The most recent measure of the Federal Reserve’s preferred inflation gauge, the personal consumption expenditures price index, or PCE, rose 3.4% in August from a year earlier. That’s slightly better than July’s 3.7% year-over-year increase but up from 2.8% before the Iran war began on Feb. 28. It was 2.5% when Trump was inaugurated in January 2025.

The government will release its September PCE data on Thursday.

American factories received another vote of confidence in September. Durable goods orders rose 1.8% for the month, driven by a jump in aircraft demand and steady spending on AI hardware.

The total reached $345.4 billion, up $6.3 billion from August, and beat analysts’ expectations.

Transportation equipment was the headline driver. Orders in that category climbed 4.6% in September.

Within that figure, orders for non-defence aircraft and parts were the real outlier, surging 28.4% in a single month.

Economists are now also looking at a narrower gauge. Core capital goods orders strip out defence and aircraft to show what ordinary businesses are spending on equipment. This should remove volatility from the report and give a more realistic view of the data.

That measure rose 0.5% in September. It followed a 1.6% gain in August, so the category held most of its prior strength rather than giving it back.

The US dollar strengthened against most major currencies yesterday, with the US Dollar Index up about 0.4% to 102.35, marking its strongest close in several sessions.

Eurozone banks tightened their lending standards for businesses over the three months to September, while demand for credit fell, suggesting the European Central Bank’s rate hikes are helping to cool activity ahead of a policymakers' meeting tomorrow.

Publishing the results of a quarterly survey of 159 banks from Sept. 21 to Oct. 6, the ECB said tighter loan-approval criteria were largely driven by increased perceived risk stemming from the war between the U.S. and Iran.

“Heightened risk perceptions and banks’ reduced risk tolerance remained the main drivers of tighter credit standards, with some banks reporting increased pressure from geopolitical uncertainty and energy developments,” the ECB said.

Banks reported a higher share of rejected loan applications during the quarter.

The survey also showed a decline in loan demand, contrary to banks' expectations, largely due to higher borrowing costs.

“Loan demand was primarily dampened by the overall level of interest rates,” the ECB said.

In a separate release, the ECB said new loans to businesses rose to 13 billion Euros in September, up from 11 billion Euros in August, but remained well below the level seen in June.

After a demonstration in Paris on Oct. 17, the statue of Marianne in the Place de la République was left bearing a ‘Les Misérables or A Tale of Two Cities’-style inscription, “Those who sow poverty reap anger.”

According to the Interior Ministry, around 550,000 people took to the streets across the country, though the protest organisers put the figure at a far higher number.

Public discontent began in late September with a blockade of a high school near Paris, where students complained of teacher shortages, overcrowded classrooms, and crumbling buildings.

A month later, trade unions and the Yellow Vests joined the students, broadening the demands to include more hospital funding, higher wages, lower fuel prices, and wealth redistribution. In Limoges, the historic city hall was set on fire; in Marseille, protesters stormed a government building; and in Paris, stores were looted.

President Emmanuel Macron addressed the nation on television, speaking of “anger and shame” and insisting that the protesters’ demands had been heard.

However, he said nothing about money, finance or credit; after all, parliament is debating the 2027 budget, which must convince France's creditors that Paris can rein in its growing debt.

Debt servicing is becoming increasingly expensive. Next year, the public sector will pay €91.2 billion in interest, up from €79.2 billion this year. Debt-servicing costs in the Central Government budget will rise by €10.3 billion. No other spending item is growing as fast. Excluding civil-service pensions, interest payments are now the government’s largest expenditure, surpassing both defence (€64 billion) and education (€62.2 billion).

Consumer confidence in Germany fell sharply, dragged down by rising energy prices as tensions escalated in the Middle East.

Germany’s consumer-climate index, published on Friday by the Nuremberg Institute for Market Decisions and GfK, fell to -30.6 in its October forecast, its lowest level since May, down from -26.8 in September. Economists polled last week by The Wall Street Journal expected a smaller decline to -27.2.

“The majority of households expect high energy prices to reduce their purchasing power,” said Rolf Buerkl, head of the survey at NIM. “As a result, they are more sceptical about their income expectations for the next twelve months.”

Those expectations fell to their lowest since April, shortly before the German government introduced a temporary fuel tax rebate after the war in Iran began. The survey also found that households were more willing to save.

The single currency was generally weaker across global FX markets, losing ground against the U.S. dollar and remaining under pressure against several major currencies as investors focused on higher energy prices, fiscal uncertainty in Europe and relatively resilient expectations for U.S. and UK rates.

Have a great day!