06/09/2025 by Tony Redondo
A torrid first week of Starmer’s “phase two” reset of his government with three resignations and a wholesale cabinet reshuffle. It’s been like watching a game of musical chairs, only on the Titanic.
First, Deputy PM, Deputy Leader of the Labour Party and Housing Secretary Angela Rayner jumped before she was pushed out of office after being found in breach of the ministerial code. Rayner admitted to underpaying stamp duty on her second home in Hove. Not a good look for a self-proclaimed socialist and senior Minister (of housing, no less) in a government that has put raising taxes, including on property, and clamping down on tax dodging at the heart of its agenda. Aside from the culpable failure to understand that her ongoing interest in her underage son’s trust meant she was still deemed to own the house for tax purposes, she has also continued to designate her Ashton-under-Lyne home as her ‘primary residence’ to avoid paying council tax on her central London grace and favour flat. Politicians never learn. Then deputy PM John Prescott was caught in a similar scandal in 2006 that established that ministers’ grace and favour flats are their primary residence for council tax purposes, because it’s where they actually live. Putting the Ashton-under-Lyne house into the son’s trust in the first place was almost certainly a device to avoid paying inheritance tax on it. Legal, of course, and even understandable but hypocritical for a ‘socialist’ Labour Housing Minister in a government clamping down on tax dodging and hiking property taxes. There’s also of course the hypocrisy that Rayner lead a witch hunter against various Tory Ministers including Nadhim Zahawi in 2023, calling his position “untenable” over a similar ‘inadvertent’ tax avoidance scandal.
Poppy Gustafsson also resigned, less than year after being appointed as investment minister by Starmer. Gustafsson was one of the very few members of the government front benches with business experience, having run cyber-security firm Darktrace before entering politics.
James Lyons, Starmer’s top spin doctor resigned just days after Starmer dismissed one of his most senior civil servants, Nin Pandit, just ten months after she got the job. Lyons only stepped up to the role last October following the resignation of Matthew Doyle, who only survived nine months in the job.
Rayner’s exit marks the seventh departure in nearly a year for Labour following resignations from former Transport Secretary Louise Haigh and City minister Tulip Siddiq.
These resignations come in a week that started with a major shake-out of the Treasury with Starmer taking Darren Jones who had been chief secretary to the Treasury (Reeve’s number two) and appointing him to the new post of chief secretary to the Prime Minister, a new ministerial role in which he will attend Cabinet. The appointment follows the recruitment of Baroness Minouche Shafik, an economist, former president of Columbia University in New York and former deputy governor of the Bank of England, as his chief economic adviser, a move designed to build economic expertise within the Government ahead of the budget this autumn.
https://londonlovesbusiness.com/reeves-warned-this-is-the-last-chance-saloon-and-starmer-knows-it
No surprise then that YouGov found Labour’s approval rating has slumped to minus 59, with 70% dissatisfied with their performance and 11% satisfied. The net figure was down five points on a week ago, and the worst the firm has yet detected.
Following these resignations and Treasury changes, the week ended with Starmer sacking his first batch of ministers in a major reshuffle of his top team. Lucy Powell, leader of the House of Commons, and Ian Murray, Scotland secretary, were sacked. Yvette Cooper left the home office with former justice secretary Shabana Mahmood taking the role. Cooper is headed to the Foreign Office where she will replace current foreign secretary David Lammy. Lammy will take up the role of Deputy Prime Minister.
This year’s Labour Party conference, set for 28 September to the 1st of October in Liverpool should be a lively affair.
Currency Exchange Rates Update
A lively week to open the new month for the Pound saw it slump over 1.3% against the Euro on Tuesday before recovering to end the week just 0.3% down on fresh concerns about the UK’s fiscal outlook with UK gilt yields sharply up. The yield on the 30-year gilt is at its highest since 1998, the yield on the 10-year is at its highest since May.
Against the US Dollar, the Pound fell over 1.5% on Tuesday before recovering on Friday to finish the week almost unchanged following some very poor US employment figures.
September is historically a weak month for the Pound versus both the Euro and the US Dollar with the Pound showing a median drop of -0.9% against the euro and -1.1% versus the dollar over the last decade.
The Pound faces a choppy autumn as we head towards the 26 November budget.
This week, the key economic data releases include:
Monday China Trade Balance
Germany Industrial Output
Wednesday China CPI Inflation
US PPI Inflation
Thursday EU ECB Interest Rate Announcement
US CPI Inflation
Friday Germany CPI Inflation
UK GDP & Industrial Production
France CPI Inflation
US Consumer Sentiment
What’s in the news?
UK
The BoE (Bank of England) Governor Andrew Bailey warned that risks around inflation and the financial markets remaining jittery over the UK fiscal situation is casting doubt over future base rate cuts.
Good news
The ONS (Office for National Statistics) reported that UK retail sales beat expectations in July with a rise of 0.6% month-on-month, exceeding expectations for 0.3%. The release of this data was delayed by a month due to errors at the ONS.
The IoD (Institute of Directors) optimism index improved to minus 61 in August, its highest since last October. However, concerns about potential tax rises in the autumn budget persist.
Not so good news
Britain’s borrowing costs rose faster than any other G7 country last week with the yield on 30-year UK gilts reaching a 27-year high last Monday, a big problem for a government that is spending a lot more money than it has.
https://www.express.co.uk/finance/personalfinance/2102240/rachel-reeves-debt-trap
The latest S&P Global Manufacturing PMI (Purchasing Managers Index) data showed a ‘steep drop’ in new orders in UK manufacturing with output falling to a three-month low in August. Job losses continued for the tenth month, with manufacturers expressing concerns over taxes and energy costs affecting competitiveness.
The CBI (Confederation of British Industry) warned that the private sector is set to shrink due to fears of tax increases in the upcoming Budget. CBI economist Alpesh Paleja said, “The autumn Budget must not add to that strain with further tax rises that risk undermining investment and growth.”
The NFH (National Federation of Housebuilders) warned that a proposal to increase landfill tax could add £24,000 to new-build home prices that could lead to fewer homes being built, exacerbating the housing crisis. The plan, being considered by the Chancellor, aims to replace the lower rate for inert waste with a higher standard levy, potentially raising costs from £690 to £24,820 per home. Graham Matthews from Business Waste said, “Builders may treat the increase as a permanent cost, which could ultimately be reflected in the prices paid by homebuyers.”
A BoE survey of chief financial officers showed companies cutting employment by an annual rate of 0.5% in the three months to August. This is the worst figure since 2021. Expectations for employment growth over the next year have also weakened, falling by 0.3% to 0.2% in the three months to August, the lowest reading since October 2020, when the UK economy was starting to claw back from the blow of the Covid-19 pandemic.
Stephen Jen and Joana Freire, from Eurizon SLJ Capital, are warning that the UK is crossing over onto the “wrong side” of the Laffer curve, switching places with Italy as it returns to the “right side”.
Jen & Freire said, “We are worried about the UK. Until there is a political and social recognition that a welfare state funded by ever-higher taxes is unsustainable, the fiscal trajectory will likely deteriorate until there is a ‘Starmer Moment’” (a reference to the “Truss moment” when the bond market turned against Truss in 2022). Eurizon says the tax-take in the UK has jumped by 51% between 2019 and 2024 due to fiscal drag, compared to cumulative inflation of 24% and a rise in nominal GDP of 28% but the UK has ended up with 17 times more working-age people per capita on jobless benefits than the US, often on grounds of unverified mental illness. They also note that this Labour government has made wealth so unwelcome that some 16,500 millionaires have emigrated from the UK so far this year, double the number of Chinese millionaires fleeing China despite the top 10% of earners in the UK generating 60% of income tax revenue. Eurizon says the UK is now so far along the path towards welfare dependency that the “fundamental economic DNA” of the country is changing, subverting the implicit contract that it has with its global creditors and the owners of UK equities.
Mark Dowding, from RBC BlueBay Asset Management agrees, “The central issue is the perception that welfare expenditure remains on an unsustainable path. Tax measures by Labour so far have only made the problem worse. They are creating more inflation and when you have got so much inflation-linked debt, that will come back and bite you. Rachel Reeves has been very badly advised. They are telling the world that the only lever they can use to control the deficit is more tax, but more tax is never going to work. It has been very damaging to the UK’s credibility. Ever since that moment we have seen gilts underperforming other debt markets”. Downing estimates that interest costs are already over 10% of total tax revenues, a level that typically signals a red warning for rating agencies.
Polish citizens are leaving the UK in record numbers, prompting removal firms to establish direct routes to Poland. Simon Hood, Executive Director of John Mason International, reported a 4,066% increase in inquiries over the past year. Many Poles cite high taxes, crime rates, and the cost of living as reasons for their departure. Hood noted that most inquiries come from young families and entrepreneurs.
USA
The US economy only added 22,000 jobs last month in the latest sign that the labour market is cooling, intensifying pressure on the Federal Reserve to cut interest rates when they next meet on 17 September. The markets were expecting a figure of 75,000, raising the odds that the Federal Reserve cuts interest rates by a significant 0.5%.
Job openings also fell, to a 10-month low in July. The report also showed a notable uptick in layoffs with revisions also lifting prior month’s figures, underscoring a clear shift in trend.
Adding to the uncertainty, the US Court of Appeals rejected President Trump’s proposed tariffs, while speculation around Federal Reserve Governor Lisa Cook’s potential removal added further tension.
The EU
Eurozone inflation rose above expectations to 2.1% in August whilst core inflation, which strips out more volatile food, energy, alcohol and tobacco prices, was unchanged at 2.3%.
In France, PM Bayrou called for a vote of confidence in his minority government on Monday, 8 September to push through austerity measures, but opposition parties appear poised to reject the proposal. Bayrou warned that his government faces a real risk of collapse, admitting that ongoing parliamentary talks may not be enough to hold it together. Bayrou’s finance minister Éric Lombard has said the government would inevitably have to compromise on plans to cut the budget deficit if prime minister François Bayrou is toppled in Monday’s confidence vote. Reflecting wider financial market nerves around the parlous state of French politics, the yield on France’s 30-year bond yield rose above 4.5% on Tuesday, hitting its highest level since 2008.
Italy continues to attract a fresh influx of ultra-wealthy arrivals looking to make the most of the flat-tax regime, investor friendly environment and thriving real estate market all adding to Italy’s allure as a hub for business, travel and culture. This despite doubling the one-off charge paid by high-net-worth individuals on their foreign income to 200,000 euros in 2024. Italy’s flat-tax regime was introduced in 2017 as part of a wider push by the then centre-left government to attract foreign investors while encouraging homegrown talent to return to the country following the eurozone debt crisis. Henley & Partners estimates the total number of new high-net-worth arrivals in Italy so far this year could be as high as 3,600. Real estate group Tecnocasa report that property prices in Milan have risen 49% since the country’s flat-tax regime was introduced in 2017, compared to 10.9% across the rest of Italy’s big cities.
Others
China services PMI rose slightly in August from 52.6 to 53.0. In contrast, China’s manufacturing sector contracted for the fifth consecutive month in August to a figure of 49.4, slightly below forecasts and virtually unchanged from July. New orders and export demand remained flat, while construction and services edged up to 50.3. The composite PMI rose to 50.5. A figure of 50 and below signals contraction.
Australia’s economy grew 0.6% in the second quarter of 2025, up 1.8% year-on-year, beating expectations. Household and government spending drove the gains, while a drop in public investment capped stronger growth. Exports, particularly from the mining sector, provided a solid boost. RBA (Reserve Bank of Australia) Governor Michele Bullock said that Australians are spending more as incomes and household wealth rise, and that could delay interest rate cuts.
Gold prices are up 38% this year, have nearly doubled since early 2023 and now make up 20% of global official reserves, driven by expectations of a US interest rate cut, a weaker dollar, and renewed trade tensions following Trump’s “liberation day” tariffs.
Quote
Michael Corleone (played by Al Pacino) in the 1974 film The Godfather Part II, “My father taught me many things here—he taught me in this room. He taught me: keep your friends close, but your enemies closer.”
