13/09/2025 by Tony Redondo
The UK is the sixth most indebted nation in the world with a sovereign debt level a fraction below 100% of GDP (Gross Domestic Product). First place goes to Japan at 256%, then Italy at 135%, the USA at 119%, France at 110%, and Canada at 107%. At the bottom of the Top 10 is Germany at 63%. Yet Japan is currently paying 1.59% for its 10-year money, the US 4.06%, France 3.5% but the UK is paying 4.65%.
Bond yields reflect perceived default risk, inflation expectations, and currency stability. Japan benefits from being seen as extremely creditworthy due to about 90% of Japanese government debt held domestically by Japanese banks, pension funds, and the Bank of Japan itself. This creates a captive market with predictable demand. In contrast, the UK faces concerns about fiscal discipline and higher inflation expectations.
https://www.express.co.uk/finance/personalfinance/2102240/rachel-reeves-debt-trap
Mervyn King, the former Governor of the BoE (Bank of England) has raised alarm at the UK’s high levels of debt, stating that the UK debt is ‘not in a comfortable position’ and the government faces a “real challenge” in managing fiscal policy.
The UK is currently paying £105bn to service its sovereign debt, more than it spends on defence and education.
Currency Exchange Rates Update
The Pound gained 0.25% last week on the Euro and 0.37% on the US Dollar but continues to face challenges with UK growth stalling and inflation remaining elevated. Beyond relatively attractive yields, the pound lacks a convincing fundamental driver for sustained upside. In a stagflationary environment, higher rates reflect economic stress rather than strength, undermining investor confidence and dampening the appeal of the Pound in the currency markets. The Pound has lost 5.1% of value against the Euro since last December and last week hit its lowest level against the Australian Dollar since March.
This week, the key economic data releases include:
Monday China Industrial Production & Retail Sales
Tuesday UK Employment and Wages data
Germany ZEW Business Confidence
Canada CPI Inflation
US Retail Sales & Industrial Production
Wednesday UK CPI Inflation
EU CPI Inflation
Canada Interest Rate Announcement
US Interest Rate Announcement
Thursday Norway Interest Rate Announcement
UK Interest Rate Announcement
Friday UK Retail Sales
What’s in the news?
UK
Nearly 895,000 people have signed a petition demanding an immediate general election. The online document reads: “We want an immediate general election to be held. We think the majority need and want change.” The House of Commons’ Petitions Committee is obligated to respond to all petitions that garner at least 10,000 signatures and consider for debate all that reach 100,000.
It comes as Rachel Reeves faces continued criticism over her handling of the economy with fears growing that further tax rises are on the way when the Chancellor presents her Budget on 26 November. Sven Jari Stehn of Goldman Sachs said, “The historical record shows that growth tends to hold up better following spending cuts than revenue increases”.
https://londonlovesbusiness.com/reeves-warned-this-is-the-last-chance-saloon-and-starmer-knows-it
Angela Rayner resigned last week. This week, Keir Starmer sacked Peter Mandelson as UK ambassador to the US after leaked emails uncovered his close relationship with Jeffrey Epstein. A collection of emails sent by Mandelson to Epstein showed the former ambassador express his support for the paedophile after he was convicted. The pair had also worked on a £1bn business deal of a UK-taxpayer owned banking business while he was a government minister.
The Halifax reported that UK house prices have reached a record high after an increase of 0.3% month-on-month in August, marking the third consecutive month of increases.
Good news
UK total retail sales increased by 3.1% year on year in August, above the 12-month average growth of 2%.
Not so good news
The ONS (Office for National Statistics) reported that the UK economy flatlined in July. GDP rose 0.2% in the three months to July and services output grew 0.1% month-on-month, whilst construction output grew 0.2% month-on-month. Production output fell 0.9% month-on-month. Reeves has made reviving the UK economy a top priority, but so far has struggled to turn her pledges into reality.
Jonathan Moyes, Head of Investment Research at Wealth Club said, “The UK economy is firmly back in the slow lane. Stagflation remains the key challenge for policy makers. With anaemic growth and inflation running at 3.8%, the BoE may feel its hands are tied. Overdo it on rate cuts to help revive an ailing economy and you could risk runaway inflation. The chancellor appears to be running out of road.”
The BoE meets on Thursday and is expected to hold UK interest rates steady after cutting them in August by 0.25% to 4% on a tight 5–4 vote in the MPC (Monetary Policy Committee).
The respected NIESR (National Institute of Economic and Social Research) says Reeves is facing a ‘trilemma’. How to pay for her spending plans, keep her promise not to raise taxes on working people, and still stick to her own borrowing rules. The outlook for the UK remains weak, weighed down by persistent inflationary pressures, and ongoing uncertainty. Business investment is now projected to grow by just 1.6% in 2025, a significant downgrade from 4.8% in the last forecast and export growth is forecast to remain modest.
Government measures to “level the tax playing field” between high street and online retailers risk backfiring with Britain’s largest retailers, from supermarkets and department stores to out-of-town chains, facing the steepest costs not only on their stores, but also on their corporate headquarters and distribution centres. From next April, the Treasury will introduce a new business rates surcharge of up to 10p on properties with a rateable value of £500,000 or more. The aim is to fund permanently lower multipliers for smaller retail, leisure, and hospitality premises. Analysis shows the policy will widen not close the tax-to-turnover gap. Alex Probyn, Practice Leader, Property Tax (Europe & Asia-Pacific) at Ryan, said, “The bluntness of this policy is stark. Only 129 properties are pure online retailers, yet thousands of supermarkets, department stores and out-of-town chains — plus the HQs and distribution centres that support them — will be dragged into this new tax. Instead of targeting the online operators it was designed to address, the policy risks penalising the very businesses that anchor the high street and provide mass employment.”
Last week’s Tube strike in London is set to have cost the UK economy £230 million.
Keir Starmer will face intense lobbying from both businesses and trade unions over former deputy prime minister Angela Rayner’s flagship Employment Rights Bill, with the package of reforms still passing through parliament. The OBR (Office for Budget Responsibility) have suggested the bill will have a “net negative effect” on the UK economy. Sick days taken by British workers have already surged to a record high as Labour prepares to force companies to offer more generous benefits to staff off work with illness. New figures from the CIPD (Chartered Institute of Personnel and Development) showed that UK workers missed nearly two full weeks of work in the last year because of sickness, equal to 9.4 working days on average. This is the highest level of absence recorded by the CIPD since 2010, when the organisation started tracking sick days. It means 4.1% of working time is now lost to sick days, a figure far higher than any in the past 15 years.
A recent survey carried out by the CLA (Country Land and Business Association) has highlighted the far-reaching consequences of the Treasury’s plans to cut vital inheritance tax reliefs for farms and family businesses from next April with nearly 80% of respondents worried their business will not survive the next 10 years and over 60% considering selling their farm and leaving the industry. The Agricultural and Business Property Relief changes represent a seismic shift from tax-free succession to potentially crippling liabilities, transforming inheritance from a seamless transition into a financial crisis that could force the break-up of family farms with the broader consequence that Britain’s food security left hanging in the balance as agricultural land is lost to development or non-farming uses to pay inheritance tax bills. The UK already imports around 40% of its food.
The latest jobs report from KPMG and the REC showed demand for workers has “continued to deteriorate” with both permanent placements and temp billings slumping further. Permanent staff places and hires with no fixed end dates both fell for the fifth consecutive month. Starting pay growth at slowest pace since 2021. It also marked the 33rd consecutive month of growing permanent staff availability.
ManpowerGroup UK reported that the UK has experienced the steepest decline in hiring intentions among 20 European countries.
Oxford Economics warned the UK economy is in a “exceptionally fragile” position with businesses and households contending with sluggish growth and high inflation. Andrew Goodwin, chief UK economist at Oxford Economics, said, “Just to comply with the fiscal rules using the same wafer-thin headroom as the last two fiscal events, the Chancellor will likely need to tighten fiscal policy by around £30bn. We expect the freeze on tax thresholds and allowances to be extended beyond fiscal year 2027-2028, with more narrowly focused tax hikes biting sooner.”
US pharma giant Merck scrapped its proposed £1bn London research centre in the latest blow to the government’s growth agenda. In a statement, Merck said, “Unless a change is made to the operating environment, the undervaluation is corrected, and the investment is put back in the right places, more and more companies will be making these sorts of decisions. Simply put, the UK is not internationally competitive.” The move follows a similar decision by Cambridge-based drugmaker firm AstraZeneca earlier this year, after it walked away from a £450m plan to expand its vaccine production facilities in the UK.
USA
The US Federal Reserve meet on Wednesday and are expected to cut rates for the first time this year amid signs of softening labour market. Morgan Stanley economists expect the Fed to cut rates by 0.25% at its next four meetings to January 2026. They previously expected two 0.25% cuts in September and December.
August’s PPI inflation figure fell 0.1% month-on-month, while July’s figure was revised lower. On a year-over-year basis, prices rose 2.6%, still elevated, but less threatening than feared.
US core inflation rose 0.3% in August and 3.1% year-on-year, matching forecasts but a sharp rise in jobless claims, the highest in nearly four years has strengthened expectations that the Fed will cut interest rates to address the cooling job market. The US Labor Department revised down job’s growth figures by 911,000 through March, signalling the economy is on a shakier footing than was previously thought.
US equities closed at new record highs last week with the S&P 500 and Nasdaq both notching fresh peaks.
The average 30-year mortgage rate fell to 6.35%, its lowest level in a year.
US Energy Secretary Chris Wright described the plans for net zero by 2025 as a ‘colossal train wreck’ that is just ‘a monstrous human impoverishment program and of course there is no way it is going to happen’.
Math and reading scores for US high school seniors fell to their lowest levels on record last year. New national test results deepen concerns that students aren’t learning as much as they used to, furthering a slide that began before the pandemic.
Charlie Kirk, an influential conservative activist and close ally of US President Donald Trump, died after being shot in the neck at a university event in Utah. Kirk was a transformative figure on the American right as the founder and executive director of Turning Point USA, a conservative youth organization that became a national juggernaut and helped propel Trump to victory last year. A man is in custody.
The EU
The ECB (European Central Bank) left euro zone interest rates unchanged for the second month in a row and stated that growth risks are now ‘becoming more balanced’ and no longer ‘tilted to the downside’. It’s 2027 inflation forecast was revised down slightly from 2% to 1.9%.
Germany’s trade surplus narrowed slightly in July, undershooting expectations as exports to the US slumped to their lowest since 2021 but industrial production surprised to the upside, rising 1.3% on the month, driven by strength in machinery, autos, and pharmaceuticals.
President Emmanuel Macron appointed Sebastien Lecornu as France’s new prime minister, the fifth in the last two years and tasked him with forming a government and securing support across party lines to pass the 2026 budget. The unfolding political drama comes as Francois Bayrou lost a confidence vote in parliament and was ousted from his role as Prime Minister after nine months in the role. Macron, a lame duck without the control of parliament is facing calls to resign and call another snap election.
French 10-year bond yields have risen above Italian borrowing costs for the first time since 1998. The eurozone’s second biggest economy is struggling with high levels of government debt and concerns about the country’s fiscal stability. French industrial output slumped in July according to figures from the French statistics agency.
Greece’s Prime Minister Kyriakos Mitsotakis presented a tax cuts package worth €1.6 bn affecting about 4 million citizens. The tax cuts are financed by better-than-expected tax revenue and a primary budget surplus, despite EU spending constraints. A new 39% income tax rate will be imposed on incomes from €40k to €60k, while the under 25’s making less than 20,000 euros will pay no tax.
Others
China saw deflation in August with CPI at -0.4% year on year. China’s shipments to the US plunged 33% in August as overall exports growth hit a 6-month low.
Australian business conditions improved in August, rising 2 points to reach their long-term average of 7. Confidence, however, dropped sharply, halving to 4 points and hitting a three-month low but remains within its typical range. Sales held steady at 12, while profitability and hiring both doubled, reaching 4 and 6 points respectively.
Gold prices have rallied further to storm past $3,600 a troy ounce on hopes of US interest rate cuts.
Stranger than fiction
Queen ants of one species can have offspring of another, a startling discovery that breaks a fundamental rule of biology. Messor ibericus queens use stored sperm to lay eggs that contain male M. structor ants, which they then mate with to create worker ants to labour in the hive, as well as the next generation of males to keep the cycle going. The two species separated around 5 million years ago, making the finding comparable to learning that a human could give birth to a chimpanzee. It is as though, one scientist told Nature, M. ibericus has domesticated its relative.
Quote
George Orwell, “The further society drifts from the truth, the more it will hate those who speak it”
