3 November 2025: Reeves’ Budget will include tax rises to protect a £50bn NHS cash boost

There was good news in the September food inflation figures, with food inflation being at its lowest level for a year at 4.5 percent. This is the first fall in 16 months. However, any rejoicing may be premature, as this measure is likely to return above 5 percent over the winter months.

Overall inflation is still at 3.8%, almost double the Bank of England target.

No one yet feels financially better off, as the UK economy struggles to deliver growth.

In September of last year, UK inflation was 1.7 percent. Chancellor Rachel Reeves’s October budget fuelled the flames of inflation by increasing National Insurance contributions and the minimum wage.

Following the 2024 General Election, public sector workers were given pay increases of 15 percent to 25 percent, and doctors were awarded increases of up to 29 percent.

By also acquiescing to the rail unions' pay demands, further confrontation was avoided.

However, no one at the Treasury or the Government seems aware that the private sector has to pay the bill.

When private sector businesses falter, the economy suffers. One agricultural contractor confirmed that the increase in National Insurance alone has cost his business an extra £11,000 per year.

Likewise, pubs and restaurants are reducing staff working hours and staff recruitment to reduce outgoings.

In simple terms, UK inflation is homegrown and could have been avoided.

Government is all about choice, and the choices it has made have led to economic stagnation.

Business growth across all sectors has not occurred, and our manufacturing industries are paying energy prices four times higher than those in competitor countries.

UK energy is 63 percent higher than in France, and UK prices are the highest in the world. This is a consequence of the Prime Minister’s fascination with net-zero, driven by an overzealous energy minister.

The Chancellor is understood to have decided that the increase in funding for the health service must be protected "at all costs".

Yesterday, Defence Secretary John Healey repeatedly refused to say Labour would stick to its manifesto commitment not to raise income tax, national insurance or VAT. He admitted there will be "consequences" from recent weaker economic forecasts at this month's Budget.

Reeves is said to be considering raising the basic rate of income tax, the first since 1975. She is also weighing up higher council tax bands to boost revenue from the most expensive homes.

The Chancellor is reported to have told colleagues at the Treasury that her two priorities are "cutting waiting lists and cutting national debt", according to The Sunday Times. She is focused on delivering a 2.8% increase in the NHS's annual budget, on which she refuses to compromise.

However, Reeves was dealt a blow when the Office for Budget Responsibility (OBR) downgraded the UK's productivity levels by 0.3%. This is expected to translate to a £20 billion increase in public sector net borrowing without tax rises.

The pound remains under pressure from falling growth expectations. Last week, it fell to a low of 1.3092 and closed at 1.3157.

Whether he is allowed to interfere with Central Bank independence or not apparently makes no difference to President Trump, as the FOMC was influenced at its most recent meeting by his supporters voting to cut rates.

There is a “chorus” of FOMC members who are neither loyal to Trump nor in favour of rates being cut since they are concerned that cuts will stoke the flames of inflation.

A clutch of Federal Reserve Bank presidents on Friday aired their discomfort with the U.S. central bank's decision to cut interest rates this week, even as influential Fed Governor Christopher Waller made the case for more policy easing to shore up a weakening labour market.

This yawning divide within the Fed's policymaking ranks poses a challenge for Jerome Powell as he seeks to forge consensus in his final six months in the chair.

While it is not unusual for Fed policymakers to differ on policy, particularly when the economic data is mixed, the frank expression of that disagreement and the explicit focus on what the Fed ought to do at its next meeting, on December 9-10, was striking.

"I did not see a need to cut rates this week," Dallas Fed President Lorie Logan told a banking conference. "I'd find it difficult to cut rates again in December unless there is clear evidence that inflation will fall faster than expected or that the labour market will cool more rapidly."

"Given the move that we just made, I think we're right around my estimate of neutral: I think we're barely restrictive if at all," Cleveland Fed President Beth Hammack said at the same conference. Like Logan, she does not have a vote on policy this year but opposed this week's rate cut. Both will have a vote next year.

Waller, who has a permanent vote and is among the candidates President Donald Trump is considering naming Fed chair when Powell's term is up in May, told the very opposite story.

"The biggest concern we have right now is the labour market," he told Fox Business Network. "We know inflation is going to come back down, so this is why I'm still advocating that we cut policy rates in December, because that's what all the data is telling me to do."

Unfortunately, the data is currently shrouded in the fog created by the Federal Shutdown, so Waller is, to a large extent, “singing Trump’s tune.”

The strain on lower-income and younger Americans is becoming harder to ignore. After the central bank's latest rate cut, Fed Chair Jerome Powell said the economy remains resilient overall but acknowledged that the strength is uneven, with spending increasingly concentrated among higher-income households.

"Consumer spending has been growing and has defied a lot of negative forecasts," Powell said at his post-decision press conference last week.

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"It may be mostly higher-end consumers," he admitted. "But the consumer is spending. That's a big chunk of what's going on in the economy, substantially bigger than AI productivity gains"

Powell's remarks come as economists credit artificial intelligence with keeping the economy out of recession, arguing that a surge in data centre and chip investments has driven stock market gains and, in turn, boosted spending among higher-income households most exposed to those assets.

The dollar index reached its highest close since mid-May last week as the “trump effect” continues to wane. It reached a high of 99.84 and closed at 99.72.

The European Central Bank (ECB) on Thursday kept its benchmark interest rate unchanged at 2% for the third consecutive meeting, signalling confidence that monetary policy is appropriately positioned as the eurozone economy steadies despite months of global volatility.

ECB President Christine Lagarde, speaking after the meeting in Frankfurt, described the current stance as being “in a good place,” a phrase she repeated to underscore the bank’s cautious optimism.

“Is it a fixed good place? No. But we will do whatever is needed to make sure that we stay in a good place,” she told reporters.

The decision comes after a total of 200 basis point cuts earlier in the year that helped sustain growth across the 20-nation bloc, while inflation fell, in no small part due to the strength of the Euro. The ECB’s wait-and-see approach now appears to reflect a more balanced outlook, as recent data point to moderate but steady expansion. The eurozone grew 0.2% in the third quarter, outperforming both the ECB and market expectations.

According to Reuters, Lagarde credited several recent geopolitical developments for easing downside risks, including Europe’s new trade agreement with the United States, a ceasefire in Gaza, and a tariff-reduction deal reached Thursday between U.S. President Donald Trump and China’s Xi Jinping.

It is hard to understand why concerns remain on the inflation front. While growth has stabilised, the ECB expects inflation to undershoot its 2% target next year, a scenario that has divided policymakers.

“I think on that front, it’s a more balanced picture,” Lagarde acknowledged, noting that while some risks have receded, others persist — particularly those linked to energy and global supply chains.

The bank’s next set of projections, due in December, will include forecasts for 2028, the first time the horizon will extend that far. Many economists believe that the Bank is making a rod for its own back by making predictions that extend so far into the future, since current market conditions mean many pitfalls will render such calls redundant.

The German economy is not emerging from its crisis. The coming year could also be another difficult one. According to a survey, one in three companies plans to cut staff in 2026. A new economic survey by the Cologne Institute for Economic Research indicates this. According to the study, 36% of companies plan to cut jobs in the coming year, while only 18% plan to create new jobs.

According to the survey, the mood is particularly gloomy in industry: 41% of industrial companies plan to cut jobs, while only about one in seven plan to create new jobs. A change of mood in German companies and an economic turnaround with a pronounced upswing quality are not discernible.

After two years without economic growth, the government and financial institutions were expecting, at best, a mini-growth in the current year. After a springtime decline, gross domestic product stagnated in the third quarter in succession.

For the coming year, the government expects GDP to increase by 1.3%, with the main boost coming from billions in government spending on infrastructure, climate and defence. However, business associations are calling for fundamental structural reforms in view of the high energy prices and taxes compared to other countries, as well as rising social security contributions.

The Euro has begun a slow but steady drift lower as the dollar continues to benefit from the Fed's concerns about inflation. The single currency fell to a low of 1.1521 last week and closed at 1.1537.

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