29 September 2026: Burnham is concerned about diesel shortages as prices hit a record high

Chancellor of the Exchequer John Healey found himself in an impossible position yesterday at the Labour Party’s Annual Conference, with the chance to show a ‘captive’ audience that he understands where his party has gone wrong over the two-plus years it has been in power. He couldn't provide any ‘meat on the bones' of his plans for the economy, welfare and defence spending, given the proximity of his budget, which he will deliver to Parliament in a little over four weeks.

He finished with empty promises in a speech littered with clichés like “it would be better to provide a young person with a job, rather than benefits”, without offering any hope of how that could or would happen.

Naturally, he received a very warm, if not rapturous, reception from delegates used to the tepid offerings from Sir Keir Starmer and Rachel Reeves. However, there was a sense of an opportunity missed when he sat down after making the second most important speech of his career.

His boss, Prime Minister Andy Burnham, missed most of yesterday’s Conference as he dealt with events in Gloucestershire. He paused to tell the media he was concerned about the rapid rise in diesel prices and its widespread impact on the economy.

40% of UK goods are delivered by road by lorries and vans, which use diesel, and the price has reached two pounds per litre because the UK cannot refine the raw product in sufficient quantities and because the war in Iran has created an inevitable shortage.

President Trump is expected to limit U.S. exports of heavy fuel to safeguard his country’s stocks. Burnham is expected to speak to Trump, hopefully leveraging the warm relationship they forged last week during their first face-to-face meeting, to seek an exemption for the UK.

After two members of the MPC confirmed they are likely to vote to increase interest rates at their next meeting, another member, Deputy Governor Dave Ramsden, may have joined those considering a rate hike. “Whilst the policy stance continues to be restrictive, were upside pressures on the inflation outlook to continue to build, there could be a case for increasing Bank Rate," Ramsden said in a speech to London’s Money Macro and Finance Society.

Ramsden was part of the 6-3 majority on the BoE’s Monetary Policy Committee who voted to keep interest rates on hold this month.

Unlike the European Central Bank or the US Federal Reserve, the BoE has not increased interest rates since the start of the Iran war, partly because its policy stance was already sufficiently restrictive. That view has changed, given pessimism about the likelihood of the war in Iran ending before the end of the year, even after Trump’s optimism that an end will come following the Midterms in early November.

Sterling posted a modest rebound yesterday, but the broader picture remained weak against both the dollar and the Euro. The move was driven by bets on tighter Bank of England policy, as several MPC members have now warned of rising inflation risks from surging energy prices.

The sharp rise in US borrowing costs has been attributed to a mix of factors, both good and bad, including rising inflation, persistently large budget deficits, and even strong economic growth, which is boosting demand for capital.

But the increase in Treasury yields looks more like a credibility windfall for Federal Reserve Chair Kevin Warsh. Nestled in the details of the yield curve is newfound market faith that the new Fed chair will meet the day's challenges with the sustainably higher interest rates the economy demands.

It seems there is little to choose between Kevin Warsh's inflation-fighting credentials and the more assured style of his predecessor, Jay Powell.

This is an excellent sign for market participants who worried about the independence and integrity of monetary policy, crucial to keeping consumer prices in check and the economy on a healthy growth path.

Treasury Secretary Scott Bessent will see things differently. For him, the bond market’s awakening means he will struggle to keep deferring the consequences of his poor financial management. If these high yields persist, karma will almost certainly come calling before the end of Donald Trump’s Presidency, spelling failure for Bessent’s efforts to avoid locking in high interest costs on America’s debt.

Significantly, the breakout began immediately after Chair Warsh delivered his most hawkish speech to date in Jackson Hole, telling fellow Central Bankers that they “must be confident that underlying inflation is moving to our objective.” If not, they had “work to do.”

Warsh, it appears, is ready to ‘do the work necessary’ despite the President’s delusion that U.S. interest rates should be close to 1%.

White House National Economic Council Director Kevin Hassett has suggested that, while the US economy is now on track for strong growth, “outside” factors could derail the administration’s hopes for at least annualised 3% GDP growth.

Given gains in US productivity and wages, economic growth “should be cruising around 4% instead of 3%,” Hassett said at the Economic Club of New York yesterday. He said that was his “sort of base case, with no disruptions from the outside world.”

While administration officials, including Treasury Secretary Scott Bessent, have targeted a sustained 3% pace of GDP growth during President Donald Trump’s second term, most economists expect growth closer to 2%.

The artificial intelligence investment boom has supported GDP growth in recent quarters, but economists point to a slowdown in labour force growth as a key headwind. Sectors including housing have continued to struggle, even as consumer spending has proved resilient despite elevated inflation.

Efficiency gains from artificial intelligence are unlikely to cool near-term inflation, according to Federal Reserve Governor Lisa Cook, who cautioned that heavy infrastructure spending in the sector may actually fuel short-term price increases.

Speaking at an event in Oakland, California, Cook noted that while AI promises long-term economic gains, delivering it poses challenges for monetary policymakers, with chip shortages and borrowing for vast data centres driving demand bottlenecks.

Cook projected that productivity gains from AI would provide only minor disinflationary relief in the coming years, too late to curb the broader price growth expected in the near term.

"Currently, I anticipate that productivity gains will provide modest disinflation within the next few years," Cook said. "However, I do not expect those effects to arrive in time to offset the broadening inflationary pressure later this year."

She characterised AI as potentially "the most significant technological shift of our lifetime," but emphasised that significant uncertainty remains over how quickly those efficiency gains will materialise.

The U.S. dollar continued to strengthen yesterday, moving towards two-month highs as Treasury yields reached multi-decade peaks and markets priced in further Federal Reserve tightening. The move was broad-based across major FX pairs.

Concerns seem to be arriving for the Eurozone economy not as single, manageable events, but in droves that could overwhelm it.

These concerns include an Iran-war-induced energy price shock, an onslaught of Chinese exports, and a spike in long-term bond yields as part of the global government bond market meltdown.

Such a combination of problems would pose strong headwinds to the economic recovery in the best of times. However, they could be particularly problematic today, when France, the Eurozone’s second-largest economy, seems to be on the cusp of a sovereign bond crisis ahead of next April’s Presidential election.

The last thing the French economy needs is a slowing Eurozone economy that will make it even harder to extricate itself from its current debt woes.

Since the start of the US-Iran war, oil prices have risen by around 50%, while natural gas prices have risen by 65%.

At the same time, Eurozone natural gas stockpiles have fallen to low levels, at a time when they are usually restocking at lower ‘summer prices’, leaving the region exposed should there be a colder-than-normal winter.

This shock is sufficiently large to shave close to a full percentage point off Eurozone GDP growth, which is already threatened, and add a similar amount to inflation. That is likely to force the ECB to keep raising interest rates.

The shock of a Chinese export onslaught could be more serious for the Eurozone economy than higher energy prices. The core problem is that China remains highly reliant on an investment- and export-led growth model.

With US import tariffs now making it harder for China to export to the US, it is flooding the Eurozone with exports. In 2025, Europe’s trade deficit with China hit a record €360 billion, with European exports to China declining by 6% while imports from China rose by a similar amount. Early indications suggest that the Chinese drag on the European economy could be worse this year. year.

Germany is set to face up to €25 billion in lost output from the 2026 heat wave, according to a new joint study by Allianz and Allianz Trade.

The study, the Allianz Climate Risk Tracker, assessed how much heat waves have contributed to economic losses across Europe through lower labour productivity, longer breaks and absences, and infrastructure impacts.

Over the past five years, total economic losses from extreme weather events in Germany have totalled around €50 billion, almost twice the annual average recorded between 2000 and 2019.

Insured losses rose by 80% to almost €17 billion annually, compared with a global average increase of 76%. Around 33.5% of Germany’s economic losses were insured during this period.

‘Germany is currently not adequately prepared for heat waves,’ the study noted. ‘Consequently, the effects are a greater economic factor there than in many other European countries.’

Across all Eurozone countries, heat-related economic losses are estimated at €113 billion, with Germany the second hardest-hit in Europe, behind Italy at €28 billion and ahead of France at €20 billion.

ECB President Christine Lagarde confirmed yesterday that higher energy prices are increasing inflation risks in the Eurozone, although there are no signs yet that these effects are becoming embedded in the broader economy.

Speaking at a hearing of the European Parliament's Committee on Economic and Monetary Affairs in Brussels, Lagarde said the ECB, which raised its three key interest rates by 25 basis points earlier this month, was closely monitoring wage and price growth. The Central Bank does not react to energy prices per se, but to the risk that higher energy costs could become embedded in inflation, she said.

The euro weakened yesterday in global FX markets, slipping modestly against the U.S. dollar and showing mixed performance against other major currencies. Rising U.S. Treasury yields, a stronger dollar, and investor reaction to Lagarde’s comments about higher medium-term inflation drove the move.

Have a great day!