04/07/2026 by Tony Redondo
Today marks anniversaries on both sides of the pond and a striking contrast in national temperament.
The United States turns 250. Over two and a half centuries it has gone from an agrarian republic of 13 colonies to the world’s dominant economic power, generating 26% of global nominal GDP from just over 4% of the world’s population. Strip the union apart and four US states alone would rank in the global top 20: California 4th, Texas 8th, New York 11th, Florida 16th. For context, China sits 2nd, Germany 3rd, Japan 5th, the UK 6th.
Yet Americans are in a sour mood. A recent Gallup poll found only a third of US adults “extremely proud” to be American, the lowest reading in the poll’s 25-year history, down from 55% in 2001 and a post-9/11 peak of 70% in 2004. The drop cuts across party lines, though Republicans, down seven points on last year remain far prouder than Democrats or independents. A further 22% say “moderately proud,” 15% “only a little,” and 9% “not at all.”
Today also marks two years since Labour’s 2024 election win and the picture here is one of fiscal strain and political flux.
Economic growth has been anaemic. Headline CPI sits at 2.8%, 40% above the Bank of England’s target. The base rate has eased from a peak of 5.25% to 3.75%, but unemployment has climbed from 4.4% to 4.9%. Most striking is the rise in NEETs, the 16-24-year-olds not in education, employment or training which passed 1.01 million in the first quarter of 2026, up nearly 90,000 in a year.
Gilt yields tell their own story. The 10-year sat around 4.0-4.2% back in July 2024; it peaked at 5.17% in May 2026 and now sits at 4.78%. With public sector net debt at roughly £2.98 trillion (about 95% of GDP), even fractional moves matter enormously. A sustained 1% rise in rates adds £10-11 billion a year to the debt interest bill as debt rolls over. That bill already runs £100-110 billion annually, making debt interest the third-largest line in state spending, behind only health and social protection. The recent yield spike alone has added a penalty roughly matching the entire budget of several government departments.
With Starmer gone, the questions pile up. Will Andy Burnham be crowned unopposed or face a contest? Who becomes Chancellor? Is an early election coming?
Burnham has opened his pitch, to “rewire Britain” on a programme built on devolution, infrastructure and housebuilding, anchored by a new “No10 North,” and pitched as the answer to a model broken by 2008 and Brexit. He’s signalled room for “movement on tax” to fund council housing, infrastructure and defence spending, while insisting he won’t “take risks with public finances.” Markets and households will likely read this as the prelude to further tax rises, echoing the pre-Budget retrenchment of 2024 and 2025, when the Pound slid ahead of Reeves’s Budgets before recovering once they passed.
Burnham’s choice of Chancellor will define his premiership. Keeping Reeves signals the continuation of Starmerism; Miliband would mark a leftward shift; Streeting would suggest the Blairites are regrouping.
Behind all this, ONS data shows the share of UK individuals receiving more in benefits than they pay in tax has risen from 37% in 1977 to 53.3% today, a trajectory that can’t continue indefinitely.
Yet Labour’s barely moved in the polls despite the leadership change. YouGov has them up two points to 20%, within margin of error and still four points behind Reform UK on 24%, down one and level with the Conservatives. The Greens and Lib Dems both sit on 13%, down two and one points respectively.
Some see echoes of Harold Wilson, another northern Labour PM whose prescriptions look similar to Burnham’s today. In 1966, UK debt was 84% of GDP and falling. It’s now 95% and rising. If it didn’t work then, the obvious question is why it would work now.
Currency Exchange Rates Update
The Pound reached a one-year high against both the Euro and the Swedish Krona this week.
BoE Governor Andrew Bailey said lower UK interest rates are “off the table at the moment”, a comment that has sharpened the Pound’s carry-trade advantage over the Euro, with the UK base rate at 3.75% against the eurozone’s 2.25%.
Eurozone rate expectations are moving the other way. A soft inflation reading cast doubt on the need for last month’s ECB hike from 2% to 2.25%, with eurozone inflation undershooting forecasts significantly by 2.8% in June, down from 3.2% in May, against a forecast of 3.0%. Core CPI fell from 2.6% to 2.4%, also below the 2.5% consensus.
The Pound hit a two-week high against the US Dollar.
Against the Australian Dollar, the Pound reached a three-week high as the Aussie softened on fading rate-rise expectations. Commerzbank analysts note the risks facing Australia’s economy are shifting away from inflation and towards weaker growth.
The Pound also rose to its highest level against the Canadian Dollar since the Brexit vote of June 2016.
We may be heading into one of the biggest shifts in monetary policy since the GFC of 2008. For eighteen years, central banks have leaned on clear forward guidance, believing that suppressing uncertainty made policy more effective. New Fed Chair Kevin Warsh takes the opposite view, that excessive certainty traps policymakers in promises made for a world that no longer exists.
If Warsh succeeds, markets will stop waiting for central bankers to spell out the next move and will instead need to get comfortable with greater uncertainty, spending less time deciphering central bank speeches and more time analysing the real economy. Expect interest-rate expectations to grow more volatile, and bond markets to react more sharply to data.
The Japanese Yen sank to a 40-year low against the US Dollar this week, keeping markets alert to possible intervention from Japanese authorities. The Bank of Japan recently raised its benchmark rate to 1%, the highest in more than three decades continuing the normalisation process begun in 2024. The quarter-point rise was the BoJ’s first since December, when rates were lifted to 0.75%, and takes borrowing costs to their highest level since 1995. The move comes as Japan contends with rising inflationary pressure, partly driven by higher energy prices during the Iran conflict.
In the coming week, the key economic data releases and significant events include:
Monday Germany Manufacturing & Industrial Orders
US ISM Non-Manufacturing Survey & PMI
Tuesday UK Halifax House Price Index
Canada Trade Balance
US Trade Balance
Wednesday NZ RBNZ Interest Rate Decision
Thursday China CPI & PPI Inflation
Friday Germany CPI Inflation
France CPI Inflation
Canada Unemployment
What’s in the news?
Following the US-Iran truce, investment banks are growing increasingly upbeat about the prospects for the global economy. In a note to clients, JPMorgan’s chief economist wrote that the interim deal, alongside a dampening of trade-war rhetoric and a surge in tech capex is laying “the foundation for a period of strong and balanced global growth.” Goldman Sachs, meanwhile, lowered its estimate of US recession risk over the next 12 months and noted that Asia’s “growth prospects are brightening again.”
Not everyone shares the optimism. The BIS (Bank for International Settlements), which advises the world’s central banks, warned in its annual report that lacklustre returns on the billion’s tech giants are pouring into AI could trigger a sudden pullback in financing. The scale of the AI boom, the report found, has dwarfed past bubbles, including the railway boom and the dot-com era. The warning adds to longstanding concerns over the sustainability of AI investment.
UK
A new report from Wood Mackenzie shows the Labour government could unlock £7bn of investment in the North Sea by reopening it to new drilling. The firm argues a supportive political climate could attract significant investment and unlock millions of barrels of oil while an uncompromising regulatory approach, by contrast, could cost £11bn in lost investment.
Separately, FCA data shows the number of mortgages taken out by people aged 51 and older rose 43% between 2020 and 2024, with 55,639 homes purchased by this age group over the period.
And a Polish-led consortium, SGE, has unveiled plans to build 14 small modular nuclear reactors across Britain in a £35bn investment programme. The fleet could be operational from 2034, generating enough electricity to power around eight million homes, roughly 11% of the UK’s electricity supply, and one of the most substantial nuclear expansion proposals in decades.
Good news
UK manufacturing powered through the turmoil of the Iran war, with output growing at its fastest pace in 21 months as firms rushed to stockpile goods ahead of expected further disruption in the Middle East. The overall PMI for manufacturing came in at 52.5 in June, down from May’s four-year high of 53.1 with output expanding even as new orders grew at a slower pace. Consumer and intermediate goods industries both recorded higher production, though researchers warned the momentum is likely to fade in the second half of the year.
The latest Lloyds Business Barometer showed London business confidence rising eight points to 55%, driven by stronger expectations for future sales and economic conditions. Firms’ optimism about their own trading outlook climbed to 71%, supported by resilient customer demand and increased spending on technology and capacity. Hiring plans also improved, with 51% of businesses expecting to expand their workforce over the next year, a 15-point monthly jump. Despite the rebound, confidence remains below its 12-month average as firms continue to navigate higher costs and economic uncertainty.
Not so good news
The ONS confirmed the UK economy’s growth was revised down despite a first-quarter spurt. GDP grew 0.6% in Q1, though the final growth figure for 2025 was revised down slightly from 1.4% to 1.3% The economy then contracted 0.1% in April, the second month of the Iran war. The current account balance also slipped deeper into negative territory, at –£22.2bn.
Separately, a report from UBS shows British families have suffered the biggest fall in wealth in the rich world since Covid, with average wealth down by more than a fifth over the past five years, the worst decline among the 37 countries surveyed. Typical individual wealth has fallen by around £28,500 since 2020 after inflation, leaving the median adult with assets of just over £95,500, slightly ahead of the French, but behind the Dutch and Italians. The UK’s fall was steeper than in Turkey, Bulgaria, Mexico or Kazakhstan.
HMRC has opened a consultation, running until mid-August, on plans to require businesses to pay PAYE and VAT liabilities by Direct Debit. Under the proposed rules, firms could face fines even when they pay in full and on time, simply for using the wrong payment channel. The stated aim is to reduce late payment, limit the flow of debt, and simplify the payment process to cut errors.
HMRC Could Fine Firms That Pay VAT and PAYE on Time Under Direct Debit Plans | Business Matters
The latest FDF (Food and Drink Federation) Trade Snapshot shows UK food and drink exports have fallen to their lowest level in a decade, down 4.8% year-on-year to £5.7bn in Q1, with volumes down 8.9%. Exports to the US fell 28%, hit by tariffs imposed by President Trump.
Standard Life research shows millions of homeowners face rising mortgage costs despite the BoE holding rates at 3.75%. Homeowners rolling off a 2.5% five-year fix taken in 2021 onto the current average rate of 5.63% could see monthly repayments on a £500,000 loan rise by around £866 over a 25-year term.
An IoD (Institute of Directors) report shows business confidence has declined sharply, with its sentiment index dropping to minus 61 in June from minus 53 in May. Revenue expectations hit their lowest point this year, with the relevant sub-index falling to 11 from 27. IoD chief economist Anna Leach said overall operating conditions worsened in June despite a fragile Middle East peace.
USA
US stock indexes closed out their best quarter since 2020 on Tuesday, as strong corporate fundamentals outweighed lingering geopolitical risk. Generally upbeat economic indicators also helped drive gains, with consumer confidence rising and job openings ticking up. According to Goldman Sachs Research, company earnings alone accounted for the S&P 500’s entire 21% return over the last 12 months.
The June NFP (nonfarm payrolls) employment report came in well below expectations with 57,000 jobs created versus a Dow Jones consensus of 115,000. The unemployment rate fell to 4.2%, largely because the labour force participation rate dropped 0.3 points to 61.5%, its lowest level since March 2021. Markets are reading this as a sign the Fed won’t need to stay as hawkish near-term, particularly with falling oil prices easing inflationary pressure. Average hourly earnings rose 0.3% on the month and 3.5% year-on-year, both in line with consensus.
Average gas prices have dropped sharply from a wartime high of $4.56 a gallon to around $3.85. President Trump again pressed gas station owners to cut prices further, calling for a target of “around $2.50 a gallon”, lower than at any point in the last five years.
The US death rate hit its lowest level on record last year, down a fifth over the past quarter-century. The main driver was a sharp fall in drug overdose deaths, down 14% from 2024, a third consecutive annual decline suggesting the decade-long opioid crisis may be easing. Deaths from influenza rose slightly, partly due to an unusually virulent strain, though falling vaccination rates may also have played a role.
The EU
China runs a €1 billion-a-day trade surplus with the EU, and leading EU politicians are increasingly calling the imbalance unsustainable, some suggesting China consider a Plaza Accord-style reset, echoing 1985, in which the Yuan would revalue by 25% in an agreed move with the EU. An article in the South China Morning Post quickly dismissed any prospect of Chinese authorities agreeing to such a move.
German politicians vowed on Monday to prevent Volkswagen from cutting 100,000 jobs, as Berlin confronts the scale of the country’s industrial troubles. The prospective cuts are the latest blow to Chancellor Friedrich Merz’s government, already under pressure amid the rise of the right-wing AfD.
French public debt reached a record 117.5% of GDP in the first quarter of 2026.
Spain has triggered one of Europe’s fiercest migration battles by launching the continent’s biggest-ever amnesty for undocumented migrants. Prime Minister Pedro Sánchez’s move has opened the door to a potential 1.3 million applications, far exceeding early expectations of around 500,000 igniting a political row over pressure on Europe’s migration system and the future of the passport-free Schengen zone.
Gibraltar has raised the qualifying threshold for high-net-worth tax residents from £2m to £5m. Under the jurisdiction’s Category 2 regime, approved residents are taxed only on the first £118,000 of assessable income, subject to a minimum annual tax payment. The change takes effect on 15 July, alongside the UK-EU treaty on Gibraltar’s economic future.
Europeans are estimated to hold €37 trillion largely uninvested. It’s not entirely clear why Europeans invest less actively than their American counterparts. Lower financial literacy is one theory, but the key structural difference is market integration. The US market is broadly unified despite regional variation, while the EU comprises 27 separate national markets that remain unintegrated.
Australia
Australia’s S&P Global Manufacturing PMI rose from 50.7 to 51.5 in June, its highest reading since January and a third consecutive month above the 50 threshold, supported by stronger hiring and higher input inventories. However, factory output contracted for a fifth straight month, and new orders fell again as economic uncertainty and higher prices continued to weigh on demand. Price and supply pressures remained elevated, though inflation eased from May levels. Overall, the data points to gradual improvement in manufacturing conditions, but weak production and ongoing supply challenges continue to temper the outlook.
Australia’s services sector returned to growth in June, with the S&P Global Services PMI rising from 48.7 to 50.5, led by stronger consumer-related activity. Higher hiring supported output growth, but demand remained soft with new orders fell for a fourth straight month, and export orders declined again amid disruption linked to the Middle East conflict. Input cost pressures eased slightly but stayed elevated, with businesses slowing the pace of price increases to their weakest level since January. Without a pickup in demand, the recovery may struggle to gain momentum.
Canada
Canada’s economy is enduring a prolonged period of near-zero growth. Consensus GDP forecasts for 2026 have been downgraded from 1.2% to just 0.7%, and the economy has recently flirted with a shallow technical recession, marked by negative or flat GDP to start the year.
Real goods exports have fallen sharply year-over-year, as ongoing trade friction, tariff disputes and deep uncertainty over US trade policy weigh on corporate confidence and restrict export revenues, widening Canada’s current account deficit.
In response, Canada has announced plans to build a major oil pipeline to boost sales to Asia and significantly increase oil and gas production, aiming to reduce reliance on the US and become an “energy superpower.” The country currently sells nearly all its oil to the US, but with the White House threatening 100% tariffs on Canadian imports, Prime Minister Mark Carney has pledged to double non-US trade as a hedge against further disruption.
Others
China’s official manufacturing PMI climbed from 50.0 in May to 50.3 in June, beating expectations and returning to expansion territory. The non-manufacturing PMI inched up to 50.2, and the composite PMI rose to 50.6. New orders improved to 51.2, export orders returned to expansion at 50.1, and production strengthened to 51.4, supported by demand for high-tech exports.
Despite the stronger headline numbers, underlying demand remains fragile — retail sales and property market data continue to point to subdued domestic activity, while factory-gate prices fell further into contraction at 48.2. The latest readings ease immediate growth concerns but are unlikely to remove expectations for further policy support.
Beijing has criticised three local governments for falsifying data to boost their reported achievements, a practice experts say has long made official Chinese statistics hard to trust. State news agency Xinhua reported that Nanning, a regional capital, inflated its 2024 fiscal year revenue by more than $400 million, underscoring the scale of the distortion. Some experts rely instead on alternative indicators, such as power production, as a better gauge of the country’s GDP growth, a question that has grown more urgent as the world’s second-largest economy loses momentum.
A new Energy Institute report shows renewables were the world’s largest source of total energy supply growth last year for the first time outside a recession, with solar accounting for 72% of that growth. China delivered another record year for both solar and wind, more than the rest of the world combined though analysts say it is also stockpiling fossil fuels as insurance.
Crude oil prices fell for a fourth consecutive week, the longest losing streak since August 2024, virtually wiping out the geopolitical “war premium” built up earlier in the year. WTI finished the week at $68.78 a barrel, Brent at $72.12.
The shift reflects easing concern over potential disruption to energy routes through the Strait of Hormuz. Morgan Stanley analysts counted 35 oil tankers exiting the Strait on Thursday, close to the pre-war daily average and noted that traffic through Hormuz has more than quadrupled over the past week as confidence grows that the US-Iran 60-day ceasefire will hold, though they cautioned the backlog could take weeks to clear. Goldman Sachs cut its Brent forecasts for the fourth quarter of 2026 and 2027, while Morgan Stanley sees prices falling further still.
Stranger than fiction
The Vera C. Rubin Observatory, a telescope attached to the largest camera ever built has begun its survey of the night sky from a mountain peak in Chile’s Atacama Desert, where skies are dark and clear. The observatory is named for astronomer Vera Rubin, who noticed in the 1970s that galaxies rotate faster than gravity should allow, implying unseen mass we now call dark matter. The telescope’s mission is to track how light bends and how galaxies cluster, mapping how the universe’s hidden matter is distributed. The resulting Legacy Survey of Space and Time will also watch for anomalous phenomena, designed, as one scientist put it, to catch “even the things we don’t know what we’re looking for yet.”
Two planets in the constellation Volans are officially less dense than candy floss. TOI-791 b and TOI-791 c, both roughly Jupiter-sized, have densities of 0.038 and 0.047 g/cm³ respectively, against candy floss’s 0.05 g/cm³. For comparison, Earth comes in at 5.5 g/cm³.
NASA is recruiting volunteers for a year-long Mars simulation, studying the effects of isolation and confinement that long-haul space exploration will demand. The agency plans to land humans on the Moon by 2028 but is already looking further ahead. While a lunar trip takes days, a Mars mission would take months each way, and the planets align only every 26 months, meaning astronauts would need to remain on Mars for at least a year. Beyond the psychological and interpersonal strain, there are physical challenges too: astronauts would face solar radiation both en route and, on the surface, and would need to contend with Mars’s poisonous, jagged dust.
Quote
Jonathan Swift, “May you live all the days of your life”.