23/05/2026 by Tony Redondo
Mark your calendars: Thursday, 18 June 2026. This is the date of the Makerfield by-election, likely the most consequential by-election in decades. The poll was triggered by the resignation of Labour MP Josh Simons, clearing the way for Greater Manchester Mayor Andy Burnham to contest the seat in a bid to return to Westminster and mount a challenge to Keir Starmer for the Labour leadership and the office of Prime Minister. Burnham launched his campaign on Friday, but before Labour crowns its new messiah, some sobering context is in order.
Only last month, Reform UK performed strongly across the constituency’s wards in the local elections. This is shaping up to be a highly consequential and closely watched campaign, and the outcome will set the country on one of two trajectories: Andy Burnham on a fast track to Downing Street, or a full-blown Labour meltdown with consequences that could prove deeply damaging for the government.
The electoral backdrop
Makerfield voted 66% Leave in the 2016 EU referendum. At the 2024 general election, Reform captured 32% of the vote, finishing second just 13 points behind Labour — making it the seventh most marginal Labour-Reform contest in the country. For context, Reform overturned a 35-point Labour lead in the Runcorn & Helsby by-election last year.
The local election results last week were even more striking: across wards wholly or mostly within the constituency, Reform surged to 50% while Labour collapsed to just 23%.
Labour’s majority at the 2024 general election was 13.4%, but that figure conceals several complicating factors. Turnout was 52%, not unusually low, but likely to rise given the intense press attention and the national and international interest the by-election is already attracting. Meanwhile, the recent dramatic local election swings to Reform, only partially offset by modest Green gains, suggest the political ground has shifted considerably. With Conservative and Lib Dem votes expected to remain broadly stable, the contest will hinge on a single question: how much of Labour’s defecting vote flows to Reform?
The wider stakes
The stakes could scarcely be higher. Of all the potential candidates to succeed Starmer as Prime Minister, the bond markets view Andy Burnham with the greatest unease — a concern rooted in comments such as his description of the UK as “in hock to the bond markets.” That kind of rhetoric sits uneasily against the reality of Britain’s fiscal position: public sector debt stands at £2.9 trillion, over 94% of GDP, or roughly £103,500 per household.
Currency Exchange Rates Update
The Pound finished the week nearly 1% up against the Euro. Brent crude oil prices fell by almost 8% as hopes grew that the Middle East conflict is nearing an end, pulling UK gilt yields lower in turn. The benchmark 10-year yield dipped below 5% to its lowest level in two weeks.
Under normal circumstances, falling yields would fuel speculation of a Bank of England rate cut, a typical headwind for the Pound. However, with economic data signalling that inflationary pressures are building, the Bank has little choice but to hold rates where they are. This preserves the UK’s interest rate advantage over the Eurozone, which continues to lend the Pound support.
Against the US Dollar, Sterling gained 0.78% last week, as improving prospects for a Middle East peace deal reduced demand for the Dollar’s safe-haven appeal.
In the coming week, the key economic data releases and significant events include:
Tuesday US Conference Board Consumer Confidence Index
Wednesday NZ RBNZ Interest Rate Decision
Thursday EU Consumer Confidence Index
US GDP & New Home Sales
Friday France GDP & CPI Inflation
Germany Employment & CPI Inflation
Canada GDP
What’s in the news?
UK
The North Sea once represented one of the UK’s great strategic advantages. During peak production in the late 1990s and early 2000s, the country was extracting nearly 4.5 million barrels of oil equivalent per day. Over the past two decades, that output has collapsed by more than 70%. In the same period, Britain grew increasingly dependent on imported energy while shutting down domestic capacity.
After years of aggressively pursuing Net Zero policies, discouraging North Sea investment, raising windfall taxes on producers, and assuming that renewable systems alone could power an advanced industrial economy, the UK is now being forced to confront a simple reality: energy shortages destroy economies from the inside out.
Energy is not just another sector of the economy. Energy is the economy. Every industry depends on it. Food production, transportation, and manufacturing all depend on it. When energy prices rise high enough, inflation spreads through the entire system, because energy sits beneath every layer of economic activity.
The consequences follow a familiar and damaging pattern: deindustrialisation, rising debt, and declining living standards. Manufacturing weakens, capital flees, energy costs climb, and governments respond with more taxation and regulation, measures that only accelerate the decline. It becomes a vicious cycle.
This dynamic is well documented.
According to Wood Mackenzie’s latest Fiscal Service report, governments repeatedly resort to politically popular windfall levies whenever oil prices surge, often with lasting consequences for investor confidence. The consultancy’s analysis, drawing on upstream fiscal changes across more than 150 jurisdictions since 2002, found that countries with relatively flat tax systems are far more likely to impose emergency windfall measures during price spikes. By contrast, nations with more progressive tax regimes, where the state’s share of revenues rises automatically as oil prices increase, rarely feel compelled to introduce additional levies.
The report warns that sudden fiscal interventions create lasting uncertainty for investors, particularly in capital-intensive upstream oil and gas projects that require stable, long-term policy frameworks.
Good news
The UK announced on Wednesday a landmark trade deal with the GCC (Gulf Cooperation Council), the first such agreement among the G7 (Group of Seven) nations. The DBT (Department for Business and Trade) predicts the deal will add £3.7 billion to the UK economy annually in the long run.
The GCC comprises Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates. The British government said the agreement reflects the UK’s “solidarity and long-term cooperation with its Gulf partners.”
Once fully implemented, it will eliminate an estimated £580 million in annual duties on current UK exports to the region, with £360 million of that taking effect on day one. British exports of cereals, cheddar cheese, chocolate and butter are among the goods set to become tariff-free under the terms of the deal.
This marks the fifth major trade agreement secured by the current UK government, following deals with India, the US, the EU and South Korea.
On the investment front, new figures from the City of London Corporation show the UK has retained its position as Europe’s leading financial investment hub. The UK attracted £1.7 billion in financial and professional services foreign direct investment (FDI) in 2025, ahead of Spain (£1.3bn) and France (£1.1bn). Drawing 226 investment projects from 164 overseas firms across 34 countries, the UK’s financial sector generated more than 12,200 jobs nationwide.
While London remains the dominant destination for international capital, the report highlights a broad spread of activity across the country, with 53% of jobs created by foreign investment located outside the capital. Belfast, Birmingham, Cardiff and Glasgow all featured among the leading destinations for financial and professional services investment, what the City of London Corporation describes as a “broad-based national success story.” The United States was the largest single source of investment, accounting for 53% of total value, followed by India at 9% and Switzerland at 4%.
Separately, the ONS (Office for National Statistics) reported that inflation fell to 2.8% in the year to April, down from 3.3% in March, as Chancellor Rachel Reeves’ Budget policies helped stall an expected surge in price growth. Core inflation, which strips out volatile items such as food and energy, came in at 2.5%.
Not so good news
Fiscal Outlook
The IMF (International Monetary Fund) has warned that the UK is approaching peak tax, the point at which further increases risk damaging growth and called on the Labour government to focus on welfare cuts to balance the books. In a thinly veiled jibe, it also signalled that an Andy Burnham premiership could undermine market confidence, following his 2025 comment that Britain must not be “in hock to the bond markets.”
The OBR has previously echoed this concern, cautioning that higher taxes risk constraining growth. April borrowing came in as the second highest on record for that month, at £4.9bn (25%) above the same period last year and £3.4bn over OBR forecasts. Interest payments on government debt reached £10.3bn, reflecting the mounting cost of servicing Britain’s debt in a high-inflation, high-rate environment. Welfare spending rose by £2.7bn to £29.5bn.
Richard Carter of Quilter Cheviot said, “Based on today’s figures, the deficit will be difficult to close, especially with additional cost of living measures being announced. The focus will shift onto personal taxation again when the Budget comes around.”
Labour Market
Unemployment has risen to 5%, the highest since the peak of the Covid pandemic while vacancies fell to around 705,000, the lowest since early 2021. Private sector pay growth dropped to a six-year low of 3%, compared with 4.8% growth in the public sector. Youth unemployment has reached its highest level in 11 years, with 16.2% of 16–24-year-olds out of work, the highest rate since January 2015.
Business Conditions
UK business activity fell for the first time in over a year in May, hitting a 13-month low according to the S&P Global Flash PMI. Chris Williamson of S&P Global Market Intelligence described “a perfect storm” of rising political uncertainty, Middle East conflict, falling output, surging inflation, supply shortages and job cuts.
Factory orders contracted in April at the fastest rate since April 2020. Retail sales fell 1.3%, the largest monthly drop since May last year, defying forecasts following a 0.6% rise in March. Consumer confidence fell to a two-year low, with GfK finding that consumers are stockpiling cash for essentials.
Retail & Price Controls
M&S chief Stuart Machin attacked Chancellor Rachel Reeves over reported plans for supermarket price controls, branding them “completely preposterous” and warning they risk dragging Britain back to “1970s-style” intervention. He urged ministers to ease the tax and regulatory burden on retailers instead.
Lord Stuart Rose was equally scathing, calling the proposals “stuff and nonsense”, comparing the proposals to the failed interventionist economic policies of the 1970s under former prime ministers Edward Heath and Harold Wilson. “Fundamentally these things don’t work,” he said. “We have no better system than a free market economy” he told the BBC Radio 4 “Today” program.
Senior industry figures warned the measures could distort competition, undermine investment and ultimately cause shortages or higher prices elsewhere.
Property Market
Property developers will be liable for Labour’s new mansion tax if they take more than a year to sell newly built luxury homes, raising fears that housebuilders will be further discouraged from building in London and other high-value areas. Estate agents report that transactions above £2m have plummeted since the levy was announced, while listings priced just below the £2m threshold have risen sharply.
USA
Kevin Warsh was formally sworn in as the new Federal Reserve Chair at a White House ceremony on Friday, hours after data showed US consumer confidence fell to a record low in May. The University of Michigan’s consumer confidence index attributed the decline to sharp drops among independents and Republicans. Consumer spending has remained resilient despite rising prices, but the prolonged conflict in Iran continues to push energy prices higher, increasing the likelihood that the Fed will need to act to curb inflation.
Minutes from the April Fed meeting signal a shift in policymakers’ stance. Most participants noted that if price pressures remain above the 2% target, tighter policy settings may eventually be required. Many also felt the official statement should have dropped its easing bias at that meeting, reflecting broader agreement beyond the small number of formal dissents.
The latest PMI (Purchasing Managers’ Index) data paints a steady picture of the US economy. Manufacturing improved from 54.5 to 55.3, while services held largely steady at 51.0. A reading above 50 indicates economic expansion.
The EU
Eurozone Data Continues to Weaken
This week’s PMI releases painted a fragile picture of the eurozone’s growth outlook, with survey data pointing to a potential contraction in the second quarter of this year. Germany and France led the declines. Manufacturing PMIs fell from 52.2 in April to 51.4 in May, while the services index dropped from 47.6 to 46.4. Any reading below 50 signals contraction.
Holger Schmieding, chief economist at Berenberg, has warned that the ECB risks making a serious error by remaining “hell-bent” on raising interest rates despite growing recession risks. He argued that widely expected rate rises next month would be a mistake given signs of weakening growth and softening demand. Eurozone inflation stood at 3% last month, its highest level since September 2022.
France
France’s unemployment rate has climbed to its highest level in five years, dealing a blow to President Emmanuel Macron as his second term approaches its end in April 2027. The jobless rate hit 8.1% in the first quarter of 2026, its highest since the pandemic in 2021, with the number of unemployed reaching 2.6 million. While still below the 10.5% peak seen under François Hollande in 2015, unemployment in France remains significantly higher than in Germany, the UK and Italy.
Economic sentiment is also deteriorating. A government gauge of business climate fell three points to 94 in April, its lowest reading outside the pandemic since 2015, when France was still emerging from the eurozone debt crisis. Employers are growing anxious that the government, facing a debt pile of 116% of GDP, will scrap payroll tax breaks for low-income workers. Household confidence is similarly subdued, with consumption contracting in Q1. A recent Eurobarometer survey found that 40% of French people cited the cost of living as their primary concern — more than double the share naming any other issue.
Spain
Spain’s ruling Socialists suffered a heavy defeat in a regional election, as the right surged following Prime Minister Pedro Sánchez’s move to offer legal residency to 500,000 undocumented migrants. The party won just 28 of 109 seats in the regional parliament. The loss in Andalusia is a particular blow for Sánchez, whose candidate was former deputy prime minister and ex-finance minister María Jesús Montero. The result follows recent Socialist losses in Extremadura, Aragon and Castile and León, heaping further pressure on Sánchez ahead of a general election expected in 2027.
Australia
Australian economic data has deteriorated sharply.
The services PMI fell from 50.7 to 47.7, while manufacturing edged down from 51.3 to 50.2.
The latest labour market report was soft across the board. The unemployment rate rose by 0.2% to 4.5%, with employment falling by 16k. Full-time roles are down 10.7k and part-time jobs fell by 7.9k.
Minutes from the RBA’s May meeting revealed that rising inflation expectations and a deteriorating outlook led the board to raise rates by 0.25% to 4.35%, rather than hold. The move was seen as reinforcing confidence that underlying inflation will return to the 2.5% target, while giving the board room to monitor the economic fallout from the Iran war. Members acknowledged, however, that the rate rise is unlikely to materially influence near-term inflation. Borrowing conditions are expected to tighten modestly. One dissenting member cautioned that a prolonged Iran war could weigh more heavily on demand. The board also discussed a potential framework for deploying additional policy tools if conditions warrant.
Canada
Alberta Premier Danielle Smith has announced plans for the oil-rich province to hold a non-binding vote in the autumn on whether residents wish to remain part of Canada, or proceed to a second, binding referendum on separation. The move marks the first time in Canadian history that a province other than Quebec has put the question of separation to the public and follows months of campaigning by a separatist group.
Backers of the citizen-led Stay Free Alberta say they collected more than 301,000 signatures in support of their campaign, which is partly driven by the view that the province has long been overlooked by decision-makers in Ottawa.
The vote, scheduled for 19 October, will ask Albertans, “Should Alberta remain a province of Canada, or should the Government of Alberta commence the legal process required under the Canadian Constitution to hold a binding provincial referendum on whether or not Alberta should separate from Canada?”
Alberta is Canada’s fourth most-populous province, with an estimated population of around 5 million. Its oil sands hold proven reserves of approximately 158.9 billion barrels, giving it the fourth largest such reserves in the world, after Venezuela, Saudi Arabia and Iran.
Others
New data suggests China is struggling to contain the economic fallout from the Iran war. Industrial output grew by just 4.1%, missing the 6% forecast and marking the slowest growth rate in nearly three years. Retail sales fell to a 40-month low as producers and consumers grappled with higher energy prices stemming from the closure of the Strait of Hormuz. Investment contracted too. Between January and April, fixed asset investment shrank by 1.6%, a significant miss against expectations of flat growth, while year-to-date property investment plunged 13.7%, exceeding the forecast decline of 11.5%.
The weak figures come just days after a US-China summit at which the two countries’ leaders failed to agree on any major economic breakthroughs. China’s capacity to support its economy remains limited, with national debt as a share of GDP having risen sharply in recent years.
Meanwhile, New Zealand Finance Minister Nicola Willis has announced plans to cut around 8,700 public sector jobs — nearly 14% of the workforce — and merge several government departments, targeting NZD 2.4bn in savings over four years. Willis said the move will help fund new initiatives ahead of next week’s budget, as sluggish growth weighs on revenue and the government seeks to rein in spending before November’s election. For investors, the plan signals a tightening of fiscal conditions.
Stranger than fiction
Knuckle-Walking and Human Evolution
The last common ancestor of humans and chimpanzees may have walked on its knuckles, much like modern African apes. Humans are entirely bipedal, but most primates spend some time on all fours, monkeys typically flat-handed, orangutans on the backs of their clenched fists, and chimps and gorillas on their knuckles. Gibbons, when not swinging through trees, walk upright with arms outstretched for balance, like tightrope walkers. If the chimp-human ancestor did not knuckle-walk, it would suggest the practice evolved independently in chimps and gorillas. New research supports the former theory, finding that the bones of the human wrist are arranged in a way consistent with knuckle-bearing ancestors.
Neanderthal Dentistry
A 60,000-year-old Neanderthal tooth appears to contain the oldest known evidence of dental work, predating the previous record by some 46,000 years. The infected tooth was seemingly drilled or picked at with a sharp stone shard to relieve pressure from beneath. Whether the procedure was self-administered or performed by another Neanderthal remains unclear, with two researchers offering differing accounts to the Financial Times and Scientific American. Either way, the finding reinforces the view that Neanderthals possessed dexterity and cognitive ability comparable to our own, a picture further supported by a study published last month suggesting their brains were more similar to those of Homo sapiens than previously thought.
Quote
Alfred North Whitehead, “The art of progress is to preserve order amid change and to preserve change amid order.”
