08/11/2025 by Tony Redondo
Tuesday, 4 November. In an unusual move, Chancellor Rachel Reeves assembled a hastily arranged press conference at short notice just three weeks ahead of her second budget, due on 26 November. In October 2024, the Chancellor’s first budget statement increased tax by £40 billion per annum on average and annual borrowing by £30 billion. The biggest tax increases of any budget since 1993. Reeves insisted this was a “once in a generation” fiscal statement, to consolidate the public finances and “fix the foundations of the economy”. She promised again and again that October 2024 was “very much a one-off budget … I won’t be coming back for more”. Last Tuesday, the Chancellor spent twenty minutes blaming everything from Brexit’s “poor productivity” to Donald Trump’s tariffs tantrums for the UK’s current financial woes, from “volatile global supply chains” to Liz Truss’s mini-Budget in 2022 saying “The world has thrown even more challenges our way”.
On Tuesday, Reeves refused to rule out income tax rises, while making the “necessary choices” in her upcoming Budget, hinting strongly that Labour is about to break its pledge to avoid lifting the UK’s main tax levers. Stressing the importance of restoring stability to our public finance, Reeves explained that “Each of us must do our bit.”
The reality? Reeves’s huge tax rises announced in October 2024 have seriously harmed the public finances by stalling the economy with hiring down sharply down since last October, business confidence crushed and investment sluggish. Labour’s policies have hammered the retail and hospitality sectors in particular and the changes in Business Property Relief are already having a profoundly negative effect on family businesses which employ over 15 million people or 60% of the UK’s private sector workforce. GDP growth has slowed sharply over the last twelve months and is currently almost non-existent, which has undermined tax revenues. And as the public finances have weakened, borrowing costs have spiralled, pushed up by Labour’s hard left who refuse to countenance any form of spending controls.
Is Reeves brave enough to face off Labour’s hard left on 26 November and cut spending or announce any meaningful spending control? Doubtful because if she did, Labour backbenchers would rebel and use internal party procedures to remove her.
Faced with what many economists think is a slowdown-induced hole in the public finances of £30-40 billion, Reeves will attempt to close the gap entirely with tax rises and could well raise the 20% basic rate of income tax by up to 2p in the pound, while raising higher rates taxes too, along with additional levies on wealth and more expensive properties.
Pre-Budget Anxiety – Cosmos Currency Exchange
Those of us with long economic memories may be experiencing a sense of Deja-vu. The last Labour Chancellor to increase income tax was Denis Healey in his budget of April 1975. And the following year, as the economy lurched, the UK was forced to go “cap in hand” to the IMF (International Monetary Fund) for a bailout.
Currency Exchange Rates Update
Another torrid week for the Pound which fell last week to its lowest level against the Euro since May 2023.
Against the US Dollar, the Pound touched its lowest level since April.
The pound has weakened notably since May (down around 5.5% against both of its G3 currency peers, the Euro and the US Dollar) driven by a combination of softer UK data, heightened fiscal uncertainty, and dovish interest rate expectations. The anticipated tax rises and tighter fiscal policy are expected to dampen UK growth over the medium term. That softer growth outlook reduces inflationary pressure, giving the BoE (Bank of England) scope to ease rates. Market expectations for the terminal rate for mid-2026 have moved from 3.6% to 3.3%.
Reeves’s second budget, on 26 November remains a key risk event, leaving the Pound on the back foot. Persistent speculation of significant tax increases is stirring uncertainty, a dynamic the Pound historically dislikes.
On Thursday, the BoE held the UK base rate steady by the narrowest of margins with Governor Andrew Bailey casting the decisive vote in a 5-4 outcome to keep interest rates unchanged at 4%. The BOE said in a statement that the inflation rate, at 3.8% in September, had likely peaked and that a disinflationary trend was underway. The BOE cautioned that future rate cuts “will therefore depend on the evolution of the outlook for inflation. If progress on disinflation continues, Bank Rate is likely to continue on a gradual downward path.”
What is the BOE expected to do with business rates? | Insider Media
This week, the key economic data releases include:
Monday China Money Supply
Tuesday UK Employment and wages
Germany ZEW Business Confidence
Wednesday Germany CPI Inflation
Thursday UK GDP & Industrial Production
US CPI Inflation
Friday China Industrial Output & Retail Sales
EU GDP
US PPI Inflation & Retail Sales
What’s in the news?
An internal whistleblowing memo leaked to the media shows the BBC doctored a Donald Trump speech, making him appear to encourage the Capitol Hill riot. A Panorama programme, broadcast a week before the US election, “completely misled” viewers by showing the President telling supporters he was going to walk to the Capitol with them to “fight like hell”, when in fact he said he would walk with them “to peacefully and patriotically make your voices heard”. The “mangled” footage was highlighted in a 19-page dossier on BBC bias, which was compiled by a recent member of the corporation’s standards committee and is now circulating in Government departments. The dossier said the programme made the US President “‘say’ things [he] never actually said” by splicing together footage from the start of his speech with something he said nearly an hour later. It claimed senior executives and the BBC’s chairman had ignored and dismissed a string of serious complaints raised by the corporation’s own standards watchdog. Other excerpts of the memo accuse the BBC’s Arabic service of bias over its coverage of the war in Gaza and accuse the corporation of “effective censorship” of its coverage of the transgender debate.
UK
Labour has fallen to fourth in a new opinion poll, putting the party on track for its worst election result in more than a century. Support for Labour has slumped to 15%, behind Reform UK, the Greens and the Conservatives. Modelling by Find Out Now predicts Nigel Farage would enter No 10 if the poll were replicated at a general election. Reform UK would win 386 seats under the scenario, enough to give it an overall majority. The Greens would win 55 seats; the Liberal Democrats would win 73 seats and become the official opposition to Reform UK while the SNP would win 46 seats. Labour would be relegated to the fourth-largest party in the Commons with just 25 seats, while the Conservatives would win just 17 seats in a total collapse for the traditional parties of government.
Good news
The latest Lloyds Business Barometer Business shows confidence climbing eight points to 50% in October whilst confidence in trading prospects increased by 11 points to 62%, and economic optimism rose six points to 39%. Hiring intentions also strengthened, with 60% of firms planning to recruit in the next year. Manufacturing confidence surged by 31 points to 62%, and construction saw its first rise in five months. Hann-Ju Ho, senior economist at Lloyds Bank Commercial Banking said, “Business confidence has risen following a fall in September, with trading prospects and economic optimism nearing summer levels”.
Accountancy and business advisory firm, BDO reported that optimism among mid-sized British businesses has increased, with 57% of leaders confident in growth prospects, up from 45% in June. Richard Austin, a partner at BDO, said “The UK’s mid-market has absorbed several years of economic uncertainty and is now showing real resilience.”
Not so good news
Analysis by Oxford Economics shows the UK’s national debt has almost tripled in the last 20 years and now totals £2.9tn. This is nearly as large as the entire economy and costs over £100bn a year in interest payments. The rate of increase in the debt burden is faster than any other advanced economy, with only the US and Spain coming close. Michael Saunders, from Oxford Economics, said “It’s something we should be concerned about. We do stand out, and not in a good way. The extent to which UK debt has risen is part of the cause of high UK yields.”
The ONS (Office for National Statistics) reported that public sector productivity has hit a new low, falling by 0.7% year on year, marking the steepest decline since late 2022. Healthcare productivity dropped by 1.5%, exacerbating the overall decline. Health Secretary Wes Streeting faces mounting pressure to enhance efficiency in the NHS, which is currently producing 7.8% less per pound spent compared to pre-pandemic levels.
In its latest forecast for UK economic growth, leading UK economic forecasting group EY ITEM Club has suggested that the UK jobs market is set to see a further decline in the next few months with the UK unemployment rate forecast to hit 5% in 2026. The unemployment rate has already risen from 4.4% to 4.8% in the last 12 months. Inflation is also set to remain above the BoE’s 2% target rate throughout the next 12 months.
The UK’s construction industry suffered another crippling hit in October with the rate of job losses hitting its steepest level in just over five years. This marks the tenth consecutive month the industry has remained below the all-important 50.00 mark, which indicates whether a sector is growing.
The FSB’s SBI (Small Business Index) for the third quarter of this year shows overwhelming pessimism among small firms in the London region. Across the UK, small business community, confidence fell to -58 points in the third quarter, a notable deterioration from Q2’s -44 points. Across the UK as a whole, the percentage of small firms specifically predicting that they will close the business in the next year has jumped to 6%, up from 4% in Q2, equating to more than 330,000 potential business closures.
The IoD (Institute of Directors) said readings in polls of optimism in the economy remain at a historic low. Anna Leach, the chief economist at the IoD, said, “Business confidence remained at rock bottom in October, as businesses expect the worst from the autumn Budget. Policy uncertainty ahead of the Budget and a rumour mill is really leading to a lot of wait-and-see behaviour.”
Accountants Price Bailey reported that Labour’s tax hikes have led to nearly 5,000 pubs being rated at maximum risk of insolvency. This marks a 14% increase from last year. In the second and third quarters of 2025, over 200 pubs closed. The British Beer and Pub Association has urged the Government to address rising regulatory costs to save these vital community establishments.
McCain Foods inaugural Farmdex report shows a third of British farmers are operating at a loss or merely breaking even, as post-Brexit subsidy cuts and impending inheritance tax changes threaten the viability of the sector. Only 14% of respondents reported profits exceeding 10% last year, with 35% making a loss or breaking even. Even among farms valued at over £2.5m, more than a quarter saw no profit.
USA
The US ISM manufacturing index for October showed factory activity declined for an eighth consecutive month, with the headline index signalling continued contraction. Inflationary pressures eased with the prices paid index falling to its lowest level since the start of the year.
Private companies added 42,000 jobs in October, following a decline of 29,000 in September. All of the job creation came from companies employing at least 250 workers. That category added 76,000 jobs, while smaller businesses lost 34,000.
In contrast, data from Challenger, Gray & Christmas showed companies last month announced 153,074 job cuts, driven primarily by the technology and warehousing sectors, nearly triple the number recorded in the same month last year.
Zohran Mamdani has become New York City’s first Muslim mayor after the democratic socialist scored a resounding victory beating former state governor Andrew Cuomo with the highest voter turnout in decades.
All three benchmark indexes closed in the red last week, as fears about elevated tech sector valuations and a highly concentrated market persisted with the Nasdaq down around 3% last week, its worst performance in a five-day period since the week ended 4 April when the index dropped 10% on Trump’s ‘Independence Day tariff announcement. The S&P 500 and the Dow each lost more than 1% on the week.
Microsoft is joining the race for superintelligence, but the company plans to ensure humans stay in charge of the technology at the expense of maximum capability. Microsoft AI CEO Mustafa Suleyman said Microsoft is focusing on “humanist superintelligence” instead of accelerating at all costs: It’s “a very tough trade-off,” but the alternative is “a crazy suicide mission,” Suleyman said. AI critics will be sceptical of Microsoft’s ability to keep that promise but Microsoft’s customers “would be happy with average intelligence with superhuman reliability.”
The EU
An economic role reversal is underway in the EU with southern European economies doing better than their northern counterparts, driven in part by austerity programs in formerly troubled markets. Spain’s economy has grown 3.5% this year, and Greece 2.3%, compared to France’s 0.7% and Germany’s 0.2%. The north’s deficits are growing, albeit from a lower base, while the souths are shrinking. That success is driven partly by tourism with Greece and Cyprus seeing construction booms while the north is finding it politically difficult to reduce spending.
Germany plans to invest $2 billion in nuclear fusion research in a bid to achieve net zero by 2045. Germany is a world leader in developing renewable energy, but renewables are intermittent leaving the country reliant on coal to smooth out supply. The fusion investment is a “long term strategic bet” to replace fossil fuels.
Others
China manufacturing PMI fell again between September and October. China’s composite PMI also dropped in the same period. China’s services sector expanded at its slowest pace in three months in October. Export sales weakened amid tariff uncertainty, but stronger domestic demand helped the index beat expectations. China’s exports unexpectedly contract in October as shipments to the US dropped by 25%.
China will suspend export controls on rare earths added during the recent trade war with the US in another sign of the easing of tensions between Washington and Beijing.
China plans to double its battery storage capacity by 2026, an ambitious goal that could have massive downstream impacts on the world’s renewable energy transition. Beijing says it will invest $35 billion to build a “new energy storage system,” which would significantly expand China’s already world-leading capacity. The breakthroughs in battery efficiency and manufacturing capacity needed to reach the goal could lead to a surge in global exports. Batteries are a key component in the energy transition as most solar electricity is generated when demand is low.
Top Japanese automakers are investing billions in India, marking a pivot away from China. Toyota, Honda, and Suzuki plan to increase manufacturing in India, leveraging the country’s low costs and massive labour pool. The recent US-China trade tensions have made India “a strategic hedge” for global companies.
The RBA (Reserve Bank of Australia) held interest rates at 3.6%, sticking to its cautious stance after inflation showed signs of heating up. Core inflation rose to 3% in September, the top of the Reserve Bank’s target range and accelerating for the first time since 2022. At the same time, unemployment jumped to 4.5%, the highest since November 2021. The RBA has cut interest rates three times this year but has paused since August.
The “Solar Sharer” program, set to launch in parts of the country before expanding elsewhere will give Australians three hours of free solar electricity a day, even if they don’t have solar panels during high-supply periods in the middle of the day, encouraging residents to make discretionary energy uses such as charging cars or using tumble dryers during those times. The cost of solar capacity has fallen by around 90% in the last decade, but it remains intermittent, meaning supply must be smoothed out with batteries or alternative sources such as fossil fuels or nuclear.
Stranger than fiction
A new study by Scale AI and the CAIS (Centre for AI Safety) suggests the technology can’t replace humans at work, even if it tried. The study put AI to the test completing various real-world freelance projects, including tasks across product design, game development, data analysis, and scientific writing. Manus performed the best, but with only 2.5% of its tasks considered acceptable work by a reasonable client, as determined by a panel of 40 judges. Gemini 2.5 Pro came up last, with only 0.8% of its work meeting expectations. The data suggests that while models are improving on benchmarks, there is still significant work to be done in meeting on-the-ground quality demands.
Gallup’s latest survey on global emotional health shows the world has become less grumpy with negative emotions dropping back to pre-pandemic levels with over 70% saying they smiled or laughed. Denmark tops the rankings, while war-torn and politically unstable nations like Chad, Sierra Leone and Iraq remain the least content.
Scientists have used artificial intelligence to create an enzyme that can eat one of the toughest plastics on Earth, the kind used in foam mattresses and sneakers. The enzyme breaks polyurethane down into reusable chemicals in just 12 hours at 50°C, turning it back into raw materials.
British and Australian chemists have discovered a powerful new antibiotic hiding in a well-known soil bacterium, methylenomycin A. The pre-methylenomycin C lactone molecule, is 100 times more potent than methylenomycin A and kills drug-resistant bacteria without triggering resistance. The find could reshape antibiotic discovery and revive the fight against superbugs.
Quote
Author Philip K. Dick, “We are living in a computer-programmed reality, and the only clue we have to it is when some variable is changed, and some alteration in reality occurs. We have the overwhelming impression that we were reliving the present – Deja vu.”
