03/10/2026 by Tony Redondo
Andy Burnham used his leader’s speech at the Labour conference to set out the options for UK–EU ties, all the way up to a second referendum and a bid to rejoin. He told the BBC’s Today programme, “We could stay as we are. That’s definitely an option, if people think this is the right place to stay. We could look at what George Osborne has said about a customs union, we could look at what the Liberal Democrats said at their conference about the single market, or we could go all the way.”
He has said before that he’d like Britain back in the EU in his lifetime. But he’s pledged to respect the red lines in Labour’s last manifesto. No rejoining the EU, no rejoining the single market, no new customs union during this parliament.
Electorally, he’s playing with fire. The Red Wall seats he’s fighting Reform for voted Leave, by and large, in 2016.
Whatever else the speech achieves, it has reopened major dividing lines, and some old wounds. With the PM now open to everything from a customs union and the single market to full-fat EU membership, Brexit could well be back on the ballot.
A UK-EU reset summit is planned for 20 November.
And it’s quite a shift. Only three months ago he said, “I’m not proposing that the UK considers rejoining the EU,” and “I respect the decision that was made with the referendum.” For the avoidance of doubt, he added, “the last thing we should do right now is re-run those arguments.” No wonder some call him “continuity Starmer with a TikTok account.”
Labour itself is split. Michael Marra, the Scottish party leader, has warned that full UK membership is unlikely to be a realistic prospect for a generation.
If Brexit is to blame for Britain’s economic woes, what’s the EU’s excuse?
The Commission’s spring forecast has euro area growth slowing to 0.9% this year, with EU inflation rising to 3.1%. Germany, its biggest economy, is coming off two years of recession and a 0.2% crawl in 2025, with just 0.6% pencilled in for 2026.
The plain fact is that the big Western European economies have grown at similar, low rates since 2016, at 1.2% a year in France, 1.1% in the UK, 0.8% in Germany, 0.7% in Italy. The only major Western economies to manage a half-decent rate are the non-EU ones, the US, Canada and Australia, all at around 2%.
Each country has its own quirks, but weak growth right across Western Europe points to common causes, centred on the productivity puzzle.
Productivity growth is the key variable. It delivers higher living standards and the revenue to pay for public services. Since Brexit it has run at the same rate we saw between the financial crisis and the referendum.
Critics will say the UK simply sank to its peers’ level after 2016, and that convergence is exactly what a Brexit drag looks like, but productivity growth was already stuck at 0.5% a year before the referendum and has stayed there since, so whatever Brexit cost us, it’s not what broke the trend.
Yes, business investment has lagged our peers since 2016, and Brexit uncertainty didn’t help, but Britain has had one of the weakest investment rates in the G7 for decades, and the post-crisis drought began years before anyone put a cross on that ballot paper.
The financial crisis is the watershed, the real break with past performance, not Brexit. All this harking back won’t get us out of the unholy mess we’re in.
Currency Exchange Rates Update
The Pound outperformed the Euro this week, finishing up over 1% at its highest level since the 21st of July as French bond market tensions hit the single currency. The gap between French and German ten-year borrowing costs blew out to 146 basis points. The Euro was the worst-performing G10 currency.
The Pound is far from immune to the global selloff in government debt. The UK 30-year gilt yield skimmed 6.04% on Thursday, the first time since 1998, putting Chancellor John Healey on a collision course with the markets. Long-term gilt yields set the cost of UK government borrowing, and the timing could hardly be more awkward with the Budget under four weeks away. On top of higher debt interest, Healey faces pressure to fund extra defence spending and deliver immediate help to families with the cost of living.
UK bonds were among the worst performers in Thursday’s global sell-off, with yields rising further than in the US, Japan and Germany. Britain is paying its highest rate to borrow since 1999 as fears over inflation and debt pile yet more pressure on the public finances. On Tuesday, the Debt Management Office sold £4.25bn of 10-year gilts at 5.38%, the highest rate to borrow since 1999.
Britain’s near-£3tn debt pile is 94% of GDP. France’s is bigger, at 119%, yet its 10-year yield is lower than ours: 4.78% against 5.37%. America’s $40tn is around 125% of GDP, and Washington pays 5.24% on its 10-year bonds.
It’s worth remembering that 50 years ago, on 29 September 1976, Labour Chancellor of the Exchequer Denis Healey announced he would apply to the IMF (International Monetary Fund) for a $3.9bn loan, the largest ever requested at the time. Britain, The Economist declared, was “bust”.
In 1976, inflation was running at 21%, Denis Healey had just hiked corporation tax to 52%, roughly double today’s rate, and introduced a top marginal rate of 98% on investment income. But one thing is much worse today. Our national debt is almost £3trillion, roughly the size of our entire economy. Back then it was below £55billion, just under half of GDP.
Perhaps we need the IMF after all. With the bond markets, it may just force our politicians to make the tough decisions required to dig us out of the hole we’ve dug ourselves. Again.
Against the US Dollar, the Pound had a flat week. The Dollar continues to reign supreme, accounting for 57% of the world’s reserves, with the Euro on 20%, the Yen 5% and the Pound 4%. The Canadian and Australian Dollars, Swiss Franc and Chinese Yuan together add up to less than 7%.
In the coming week, the key economic data releases and significant events include:
What’s in the news?
UK
Within 24 hours of his Labour conference speech on Tuesday, Andy Burnham was forced to admit there may be a ‘shortfall’ in his plans to fund a new National Care Service, with economists warning that taxes will have to rise. Burnham announced plans to rework the triple lock from 2030, effectively creating a double lock, and to use the savings to pay for the new service. The state pension would rise by inflation or 2.5%, whichever is higher. Wage growth drops out of the equation altogether.
Baroness Ros Altmann said pensioners ‘are not stupid’ and can see the numbers ‘just do not stack up’ on funding free social care from the proposed triple lock reform.
The change puts greater pressure on savers to fund their own future. The key question is no longer simply how much they can expect from the State Pension — it’s how much income they will need in retirement, and how much they must build themselves to fill the gap.
https://www.ftadviser.com/content/285705cb-c274-4591-ab00-4d4664e31e25
The unsustainable expansion of the welfare state is the most important domestic political issue of our time.
In 2025/26, the UK was projected to spend almost £335bn on social security and welfare benefits, 10.6% of GDP. As of 2026, over half the population are net recipients of the state rather than net contributors. The Taxpayers’ Alliance found that a fifth of working-age adults in England and Wales receive universal credit. Of Labour’s 366 seats in England and Wales, 212 have more PIP claimants than the MP has majority. According to Joseph Dinnage of the Prosperity Institute, over 100 Labour MPs also have more claimants for mental health conditions than their majorities. Even those with relatively safe seats are at risk. Pat McFadden, MP for Wolverhampton Southeast and the man responsible for delivering welfare reform, has a majority of 9,188 but 11,646 PIP claimants. Wes Streeting is the most exposed, with 6,284 PIP claimants in Ilford North against a majority of 528.
Burnham has said he is not ‘squeamish’ about welfare reform. But only two years ago, Starmer called the welfare state the ‘worst of all worlds’, a system he promised to fix with his flagship welfare bill. Then came the backbench rebellion and a humiliating climbdown by the former Prime Minister. The central plank of the bill, the PIP cuts, was shelved, and at the start of this year the legislation didn’t even merit a mention in the King’s Speech.
Good news
The ONS has revised UK GDP growth for the three months to June up to 0.5%, from a first estimate of 0.4%, cementing Britain’s position as the fastest-growing economy in the G7. Services did the heavy lifting with better-than-expected output from the sector that generates around 81% of GDP drove the upgrade. The ONS now puts the economy 2% larger than in December 2024, up from 1.9%. But don’t get carried away. Growth for 2025 as a whole was revised down, from 1.3% to 1.2%.
Rolls-Royce is investing £300mn across its UK manufacturing network, boosting production and engineering capacity at five sites, Derby, Bristol, Glasgow, Rotherham and Warwickshire. The money will support manufacturing infrastructure and the development of future aerospace and defence programmes.
Not so good news
Ineos said on Tuesday it is mothballing all three acetyls’ plants at its Hull site: Europe’s last world-scale operation of its kind. The reason, it says, is European gas at twelve times the American price. The plants support almost 4,000 jobs, though no redundancies are planned for now. Ineos, founded by Jim Ratcliffe in 1998, is also urging the government to reopen the North Sea for drilling, and lashing out at its latest energy cost scheme for business. Labour’s British Industrial Competitiveness Scheme (BICS), it says, fails to help industries that rely “far more heavily on gas than electricity”. BICS lets manufacturers apply for a cut of up to 25% on their electricity costs. Announced in June 2025 as part of the industrial strategy, it opened for applications on Thursday. Business Secretary Jonathan Reynolds said it will “help companies spend less on energy and more on growing their business”. Ineos calls that a “fundamental misunderstanding” of what companies actually need as gas and oil prices climb.
UK natural gas is now around eight times the US price at £18 a unit against £2.19 in North America.
Diesel has hit a record high, with the average forecourt price approaching £2 a litre, up almost 40% as the US-Iran conflict drives another surge in fuel costs.
Business confidence is sliding. The IoD (Institute of Directors) reports 65% of leaders are pessimistic about the economy, and over 70% of firms are freezing or cutting investment on the back of tax worries and policy uncertainty.
The Lloyds Business Barometer shows headline confidence in London down 15 points to 46%, from 61% in August and below the 12-month average of 57%. It’s almost all down to a collapse in economic optimism. London firms’ view of the wider outlook fell 32 points to 31%, while confidence in their own trading prospects held at 60%. Firms trust their own ability to get through the next year far more than they trust the economy around them.
Nationwide says house prices fell 0.2% in September, the fastest drop since May, faster than economists expected and reversing August’s 0.2% rise. Expensive mortgages and nerves ahead of the Autumn Budget are keeping buyers cautious. HMRC figures show residential transactions in August fell to 96,250, down 11% on July and 9% on August 2025. Bank of England mortgage approvals sit at 54,900, the lowest since December 2023. And the Home Builders Federation says new-home planning approvals in the year to June are the lowest 12-month total since 2013. Then there’s the mansion tax. David Starkie, long-standing member of the IEA’s (Institute of Economic Affairs) Academic Advisory Council, thinks it will damage growth as homeowners cut back on renovations, extensions and landscaping. The OBR estimates it will raise just £400m in 2028-29, having cost £275m to set up. Starkie’s verdict, “It is difficult to think of a less efficient tax. Or to avoid the conclusion that its purpose is merely performative, serving the equality agenda.”
USA
Inflation cooled more than anyone expected. The Fed’s preferred gauge, PCE (personal consumption expenditure) price index for August came in at 3.4% headline and 3.0% core, both well below estimates. Spending was stronger than expected, though income was light. Markets trimmed the odds of an October rate rise but still expect a Fed rate rise in December. Second-quarter GDP was revised higher on stronger consumer and government spending and private sales. The Commerce Department now has first- and second-quarter growth at 2.5% and 2.2% respectively. The Atlanta Fed is tracking Q3 at 3.7%.
Equities rose as investors bet the Fed won’t need to raise rates as aggressively as feared. The US added just 29,000 jobs in September against expectations of nearly 100,000, according to Friday’s figures. The labour market is steady, but it looks unable to deliver the consistent, sizeable gains of the past. Unemployment ticked up to 4.2%. The private sector was the bright spot: 90,000 jobs added, up from 36,000 the previous month and well ahead of the 68,000 consensus.
The Nasdaq rallied 1.2%, the Dow added 0.5% (250 points) and the S&P 500 gained 0.7% this week.
Bonds are under pressure. Treasury yields keep climbing. The benchmark ten-year, the rate that effectively underpins bond markets worldwide hit a 24-year high this week.
US consumer sentiment sank to its lowest level since 2014 on weak jobs figures and elevated energy prices.
Wall Street enters Q4 short of momentum. The Dow fell more than 4% in September, ending a five-month winning streak. The S&P 500 posted its third losing month of the last four, though it still closed the third quarter in the green. The Nasdaq outperformed, helped by Meta’s biggest one-month rally since 2022.
Foreign investors piled a record $426 billion net into US equities and investment fund shares in the second quarter as overseas capital chases an AI boom showing few signs of slowing. Nvidia has launched the biggest share buyback ever by a US company, $150 billion, taking the total programme to $235 billion.
The 30-year fixed mortgage rate jumped 15 basis points to 7.12%, the highest since May 2024. Rates have drifted up since February, and an already subdued market is straining under them. Applications are falling. The MBA purchase index is at a four-week low and the refinance index at its lowest since February 2025, with the 7% threshold weighing on buyer confidence. Existing home sales fell in August to a more than one-year low, though economists reckon the market is near its floor.
Trump announced a $15 billion steel plant in Iowa, billed by the administration as the largest in US history. Minnesota-based Mesabi Metallics will build it, with production due in 2030 and 1,750 permanent jobs. Steel sits at the heart of the tariff agenda, with the administration arguing that protecting domestic production is critical to rebuilding US industry, yet tariffs have pushed US steel prices to among the highest globally.
Trump also said South Korea plans to invest $200 billion in the US under a trade pact signed last year. $54 billion is earmarked for the stalled Alaska LNG pipeline.
The EU
Eurozone inflation jumped to 3.8% in September, above expectations and the highest reading in three years. Daniele Antonucci, head of investment and chief strategist at Quintet Private Bank, said, “The latest inflation print is an upside surprise and strengthens the case for another ECB rate hike.”
The EU is threatening to drastically ramp up trade restrictions on China. Relations between the two giants are fraying over Brussels’ allegation that Beijing abused commercial ties. European countries have hardened their stance on Chinese imports in recent months, worried that a flood of goods such as solar panels and EVs could hollow out the bloc’s industries. The two sides are haggling over EU quotas, Euronews reported, though “it is unclear how China would accept and respect such quotas.” The European Commission has set an October deadline for progress.
Germany’s Chancellor Friedrich Merz is under growing pressure from allies and rivals alike over electoral and legislative failures, enough to raise the possibility that the leader of Europe’s biggest economy could be ousted. His government yesterday withdrew a key tax proposal, and the labour and pensions reforms economists see as essential to revive the country’s languid growth are also in trouble. The retreat follows a string of embarrassing election results in which the AfD made huge inroads. Germany has little history of changing federal leadership mid-term, but Handelsblatt has already branded him a “pseudo-dead man”.
France continues to worry bond investors. Two-year yields have jumped to their highest level since 2008. “It is precisely because France won’t be allowed to default that you should worry,” says Jeroen Blokland, founder of Prestige Investment Partners. France borrows in a currency it co-controls with other eurozone states, which leaves the ECB, and by extension the euro carrying the burden of keeping French debt sustainable. Blokland continues, “As the European debt crisis showed, eurozone policy, including monetary policy, is ultimately shaped by the need to prevent its weakest links from breaking the system. And today, France is increasingly becoming that weak link, not least because of its sheer size. The sheer scale of money creation and yield suppression required to keep an ever-growing debt mountain sustainable risk creating relentless inflationary pressure and should force you to rethink both the value of money and the role of debt in your portfolio.”
France’s debt agency, the Agence France Trésor, put numbers on the strain on Tuesday. Borrowing needs rise to a record €340bn in 2027. The deficit stands at 5% of GDP. The interest burden climbs to €73bn. Redemptions rise to €190bn. Higher yields lift the cost of servicing the debt, which widens the deficit the market is already worried about. Scope Ratings downgraded France to A+ this month, just as the 2027 budget process starts to heat up. The draft budget must pass a parliament with no majority, in the final session before April’s presidential election.
Spain is tightening the screws on foreign-owned property as it tackles a housing shortage, and expats could face a 100% tax surcharge on a Spanish property left empty for three years. The surcharge applies to the local property tax bill (IBI), not the value of the property. Under a proposal made on Wednesday, Spain’s socialist government would let local authorities apply a 50% surcharge on homes left empty for two years, rising to 100% after three. Owners of two or more properties face a maximum surcharge of 150%.
Australia
The RBA (Reserve Bank of Australia) raised the official cash rate target by 0.25% to 4.60%, its highest level since October 2011. The decision by the Monetary Policy Board was unanimous. The rate rise matched broader market and consensus expectations, ending the pause in rate changes that had been maintained since May. The core reasons cited by the RBA include persistent Inflation. The Board noted that recent inflation data came in higher than anticipated at its previous meeting, with several upside risks to inflation starting to materialize yet economic activity and growth outcomes in Australia have remained stronger than projected.
Despite the rate increase, the Australian dollar underperformed this week, falling by nearly 1% against the Pound and just over 1% against the US Dollar after the RBA cast doubt on its willingness to raise interest rates further, lowering the odds of a November move to 60%.
Housing market values have tumbled across several capital cities, with nearly $60 billion wiped off the ASX amid economic tightening. The RBA issued a warning regarding first-home buyers with high loan-to-value ratios being at elevated risk of falling into negative equity.
Unemployment ticked up slightly to 4.6%, even as overall job creation remained steady, pointing to a growing labor force facing higher cost-of-living strain.
Canada
The trade spat with the US continues to hog the headlines with America’s Canadian import restrictions coming into force on Tuesday. The products are estimated to total around $19.9 billion of Canadian imports by the American Action Forum. The import ban, announced earlier this month by the Trump administration, is the latest step in a war of words and tit-for-tat tariffs between the US and Canada.
Canadian Trade Minister Dominic LeBlanc told a press conference on Friday that the US was “imposing illegal and unjustified tariffs on sectors of our economy that are causing considerable hardship to businesses and workers across the country.”
Canadian Prime Minister Mark Carney has spent the month courting closer ties with the European Union as relations with the US fray. The EU and Canada will consummate their expansive new partnership at a Montreal summit in November furthering Canadian Prime Minister Mark Carney’s efforts to shore up cooperation between the world’s “middle powers.” Brussels and Ottawa plan to reduce trade barriers and collaborate on supply chains and minerals projects.
Canada has imposed tariffs ranging from 15% to 50% on CA$27.6 billion worth of a slew of US goods.
The BoC (Bank of Canada) warned this month that new tariffs had made the country’s growth prospects more uncertain and increased upside risks to inflation.
A group of oil companies led by Shell took a final investment decision worth up to $23 billion on a massive expansion of Canada’s LNG export capacity. The project started exports last year, after numerous cost and deadline overruns, but Canada’s LNG exports remain far below those of the US and other big exporters. The terminal expansion, however, could push Canada into the top five exporters as it races to gain market share in Asia, ahead of the US.
Others
China’s official manufacturing PMI rose from 49.8 to 50.1 in September, back into expansion, with production up 1.3 points to 51.7. New orders eased to 50.5, and export orders slipped to 50.0. The non-manufacturing PMI improved from 49.0 to 50.2, lifting the composite to 50.7. A separate survey was stronger still: manufacturing at 52.1, services at 51.6 and a composite of 52.4.
Beijing has vowed to bolster flagging growth as the property downturn drags on domestic consumption. It has largely resisted calls for fiscal stimulus, but the pressure is building. Today officials signalled they will stabilise the property sector, boost employment and support household spending, which ING’s China chief economist called “a bit of a shift in tone”. Exports remain buoyant, yet China is still likely to miss its growth target, already the lowest in decades. Household spending is far below that of high-income nations as a share of GDP, held back by an estimated $327 billion of bad consumer debt. Some analysts fear a deflationary spiral.
The 80-kilometre stretch between Abu Dhabi and Dubai, farms, factories, warehouses and not much else is now drawing multibillion-dirham property projects. Aldar, the capital’s biggest developer, and Sharjah’s Arada have formed a 15-billion-dirham partnership, centred on a villa and townhouse community at Seih Sdeirah, on the border between the two emirates. Arada is also buying three Yas Island plots, its first move into Abu Dhabi. The project joins others along the strip that may eventually form a megalopolis over the coming decades.
Saudi Arabia’s September crude exports hit 5.28 million barrels a day, the highest since the Iran war began, after the kingdom rapidly resumed Hormuz shipments. Middle East crude exports have recovered to almost 80% of pre-war levels, a sustained rise showing Iran’s grip on the Strait of Hormuz has weakened.
Brazil votes on Sunday 4 October in a high-stakes first-round presidential election, with US-China rivalry and the debt burden looming large. Incumbent Luiz Inácio Lula da Silva and Senator Flávio Bolsonaro dominate the polls. The result could shape Brazil’s relationships with the US and China, including over trade and critical minerals: Bolsonaro stresses alignment with Washington, Lula stresses Brazilian sovereignty. Whoever wins inherits the fiscal problem. High government debt, a large budget deficit and elevated borrowing costs have put fiscal policy at the centre of investor attention.
Stranger than fiction
SpaceX’s Starship reached orbit for the first time on Monday, deploying Starlink satellites and returning to Earth in one piece. A landmark moment. Starship is slated to replace the Falcon 9, the reusable workhorse that handed Elon Musk’s company a lucrative near monopoly on satellite launches. Scientific American calls it the “linchpin of SpaceX’s grand vision, but the economics only work if it can keep “entering orbit, deploying payloads, surviving re-entry, making pinpoint landings and achieving smooth recoveries” time after time without issue.
Quote
German playwright and poet Bertold Brecht, “Those who don’t know the truth are fools but those who know the truth and call it a lie are criminals”.