22/08/2026 by Tony Redondo
The next UK budget has been confirmed for 28 October. In Labour’s first two budgets, under Chancellor Rachel Reeves, we’ve seen one of the biggest transfers of wealth from households and businesses to the Treasury in decades with Britain’s tax burden up to 37% of GDP and forecast to reach a post-war high of 38.5% by 2030/31 according to the OBR (Office for Budget Responsibility), while the structure of the tax system has grown steadily less growth-friendly over the same period. Changes to the UK tax system in the 2024 and 2025 budgets include: –
• Employer National Insurance increased from 13.8% to 15%
• The employer NI threshold cut from £9,100 to £5,000
• Income Tax and National Insurance thresholds frozen until 2031
• Capital Gains Tax increased from 10% and 20% to 18% and 24%
• Business Asset Disposal Relief increased from 10% to 14%, then 18%
• Investors’ Relief increased and its lifetime allowance cut from £10 million to £1 million
• Carried interest taxation increased and moved towards the Income Tax regime
• Dividend tax rates increased by 2%
• Savings-income tax rates increased by 2%
• Property-income tax rates increased by 2%
• Most unused pension funds brought into the Inheritance Tax net
• Agricultural Property Relief restricted
• Business Property Relief restricted
• Inheritance Tax thresholds frozen for longer
• The non-dom regime replaced with a more extensive residence-based system
• VAT imposed on private school fees
• Business-rates relief removed from private schools
• Stamp Duty increased on second homes and buy-to-let properties
• The Furnished Holiday Lettings tax regime abolished
• Pension salary-sacrifice benefits capped at £2,000 before National Insurance applies
• The Cash ISA allowance cut to £12,000 for most under-65s
• A 22% charge introduced on interest from cash held inside non-cash ISAs
• Restrictions introduced on transfers and cash-like holdings within ISAs
• The Energy Profits Levy increased and extended
• Investment allowances for oil and gas producers reduced
• Vehicle Excise Duty increased for many new cars
• Electric vehicles brought into the Vehicle Excise Duty system
• A new mileage tax announced for electric and plug-in hybrid cars
• Air Passenger Duty increased
• Climate Change Levy rates increased
• Plastic Packaging Tax increased
• A new Carbon Border Adjustment Mechanism introduced
• Making Tax Digital extended to more landlords and self-employed people.
Fiscal drag means the share of adults paying higher rates of income tax has risen from 3.5% in 1990 to a projected 14% by 2027, while Britain now raises more in property taxes as a share of GDP than any other country in the OECD (Organisation for Economic Co-operation and Development).
Higher domestic inflation sticky points, elevated borrowing costs, and weak business investment keep the UK’s baseline growth ceiling lower than historical pre-2008 averages.
Like Winston Churchill said in a speech to the Free Trade League in February 1904, “I contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.”
Currency Exchange Rates Update
The Pound is trading at its highest level against the Dollar since February, a six-month high.
The Dollar dropped further in the last 24 hours after the US Treasury said it will increase its purchases of long-dated bonds to prop up a bond market that’s been on a losing run, with prices falling to multi-decade lows. The effect of falling bond prices is a surge in yields, now at a 19-year high leaving the US government facing surging borrowing costs.
The Treasury announced it is at least doubling the size of liquidity support buyback operations for longer-dated nominal coupon securities (10y–20y and 20y–30y). The current maximum of $2bn per operation rises to at least $4bn, effective from 9 September and running for the remainder of the current refunding quarter.
The Dollar is the first casualty of this move.
This is Dollar weakness, not Pound strength, plain and simple.
Against the Euro, the Pound fell fractionally this week but remains at the top end of its 12-month trading range.
In the coming week, the key economic data releases and significant events include:
What’s in the news?
The latest survey by Survation shows the Prime Minister’s net approval rating has dropped by five points. The Prime Minister’s net approval rating now stands at 11 points following the dip. It comes as Labour has been enjoying a poll bounce following Sir Keir Starmer’s exit and Mr Burnham’s coronation. But the party remains at 27% in this week’s Opinium poll. Nigel Farage’s Reform UK is second with 25%, while the Tories are on 18%.
Even worse news for Sir Sadiq Khan who is looking to stand for a fourth term as London Mayor. A new YouGov poll has found that 55% of Londoners think the capital has become a worse place to live since he was first elected 10 years ago.
UK
Property portal Rightmove reported that UK house prices have suffered their biggest August drop since 2018, as a usually quiet period for the property market is stifled further by fears of Budget tax rises.
House prices are down 1% year-on-year, the largest annual drop since December 2023 with London’s housing market the worst affected by higher mortgage rates and fears of tax hikes.
House prices across the south of England are down by 1.8% year on year, while the average price in the north has risen by 1.5% in the past year.
Good news
GfK’s consumer confidence index rose to -14 this month, up three points from the net score last month and the fourth straight monthly increase in a sign that the UK consumer may be buying into the government’s push to tackle the cost of living.
Neil Bellamy, insights director at GfK suggested that the higher score may suggest that people had “greater faith” in Healey and Andy Burnham.
Not so good news
Investors are growing increasingly wary of the government debt mountain, which now stands at £2.99 trillion, representing roughly 95% of GDP (Gross Domestic Product) as borrowing costs surge across the globe, complicating the fiscal outlook for Andy Burnham’s administration just as pressure mounts for further cost-of-living support.
2-year gilt yields are around 4.35%, their highest level since before the GFC (Great Financial Crash of 2008). The benchmark 10-year gilt yield stands at 5.05%, its highest level since the GFC and the 30-year bond yield at an astonishing 5.8%, its highest level since 1997.
John Healey oversaw an unexpected deficit in public sector finances over his first month as Chancellor, according to new data from the ONS (Office for National Statistics). New figures released on Friday showed that government borrowing was at £1.8bn in July with the markets expecting the ONS data to show no difference between expenditure and receipts in July. The figure was also above an estimate for borrowing by the fiscal watchdog, the OBR (Office for Budget Responsibility).
This week, the ONS also reported that the headline inflation rate rose in July for the first time in four months, to 2.9% y/y in July, from 2.6% in June, above the Bank of England’s 2.8% forecast.
Importantly, despite the rise in the headline rate of inflation, underlying inflation pressures remain relatively contained. Core inflation was unchanged at 2.6%, while services inflation eased from 3.6% to 3.4%, suggesting that the increase in CPI largely reflects energy-related factors rather than a broadening of inflationary pressures across the economy.
The ONS also reported earlier this week on the latest employment data in the UK. June’s unemployment rate held steady at 4.9%, contrary to expectations for a dip to 4.8%. Payroll employment fell by 13k in July versus expectations for no change, while employment growth in the three months to June came in at 84k, undershooting forecasts of 130k. Of serious concern, the data showed that lowest level of job vacancies (707,000) outside the pandemic since 2014 and there was some upside surprise in the wage data. Average Weekly Earnings rose 4.1% in the three months to June, slightly ahead of the 4.0% consensus estimate. Private sector pay growth came in at 2.8%, matching expectations.
The Insolvency Service reported that UK personal insolvencies rose sharply in July as IVAs (Individual Voluntary Arrangements) hit highest level in nearly four years as the cost of living and of doing businesses crises continue. A total of 7,442 IVAs were registered during July, 27% more than in July 2025. The number was the highest monthly total since November 2022, excluding a temporary spike in December last year caused by the clearing of a backlog. Overall, 11,926 people entered insolvency in July, 14% more than a year earlier. The total included 3,820 debt relief orders and 664 bankruptcies.
The latest government data on UK business behaviour, published by BIST (the Department for Business, Innovation, Science and Trade) indicates a long-term decline in the proportion of companies selling abroad. Data gathered in 2025 showed exporting levels consistent with the previous year, although over a four-year period the proportion of exporting businesses fell from 45% to 35%, with lower levels of exporting than 2015 and 2020 (40% to 42%) that were also deemed statistically significant.
The most commonly reported barriers to trade were related to “customs procedures and compliance regulations” (53%) and “administrative costs and regulations abroad” (28%). It was found that among all businesses with a turnover of £500,000 or more, 76% had heard of free trade agreements (FTAs) but only 20% “reported any knowledge of them”.
Britain’s biggest banks have issued a warning to Prime Minister Andy Burnham over a potential windfall tax on the financial sector, arguing that further levies could damage investment, competitiveness and ultimately the tax base the government is seeking to expand. UK Finance, the banking industry’s main lobby group, wrote to the government on Thursday as speculation intensified that Chancellor John Healey could target bank profits in his October 28 Budget.
The industry’s argument rests partly on the already high effective tax burden facing British banks. UK Finance estimates that the sector pays close to 47%, significantly above comparable financial centres. The equivalent rate is about 28% in New York, 39% in Frankfurt and 42% in Amsterdam.
Hays, the UK’s largest recruiter, reported a £54.5m loss before tax for the year ending June, marking its first annual loss since 2003. The company attributed this downturn to political instability, economic uncertainty, and increased reliance on AI in hiring processes. The UK recruitment sector is struggling, with net fees dropping by 10% and job vacancies at a five-year low, as businesses hesitate to hire amid rising costs and inflation.
USA
The US debt mountain now stands at $40 trillion, twice where it stood in 2016 at the outset of the first Trump Presidential term. President Biden added $8.4 trillion but Trump has increased it in his one and a half terms of office to date by $11.6 trillion. The cost of servicing that gargantuan debt mountain now costs more than $1 trillion per annum which, given the increased size of the debt and much higher interest rates than the Covid subsidised rock bottom rates of 2020 means that debt servicing costs have doubled for the US since 2020.
The US Treasury secretary’s pledge to expand a bond buyback program in order to lower borrowing costs has so far done little to quell market unease. Scott Bessent’s remarks to CNBC followed this week’s announcement of the government’s unusual intervention in longer-dated debt, a move that initially cooled bond yields before the optimism fizzled. Economists have voiced scepticism over the long-term impact of the strategy. One told The Wall Street Journal it was “a Band-Aid … [that] doesn’t really fix the problem,” while another said is like “paying your mortgage with your credit card”.
JPMorgan reckon the US government’s efforts to manage pressure in the Treasury market may merely shift the problem down the road as a surge in global debt issuance tests investor demand.
The 30-year Treasury yield hit a 19-year high this week.
America’s housing market is showing increasing signs of struggling as inflation and economic uncertainty weigh on would-be buyers. US housing starts, including construction of single-family homes and apartments, fell 12.4% in July from the previous month, much higher than investors expected.
Treasury Secretary Scott Bessent announced plans on CNBC to reveal on Monday “exactly what we’re going to do” to ratchet up economic pressure on Iran. Bessent said, “If you insist on doing business with them, either transferring money, buying their oil, or doing seaborne ship transfers, then the US Treasury … will put its full might and force toward enforcing against you”. Bessent went on to suggest that the administration’s new efforts could affect China, saying that “it would do them a big service to get with the program.”
Water levels at the largest reservoirs in the US fell to their lowest in decades with lakes Mead and Powell, which provide water to around 40 million people, have seen levels decline for decades as climate change has brought the region’s longest dry spell for at least 1,200 years.
Walmart posted the slowest US sales growth in six years this week, the latest sign that consumers are feeling strapped. Higher fuel costs caused by the Iran war have driven up prices across the board, and retail sales were down 0.6% in July, the steepest monthly drop in more than a year. As America’s biggest retailer, Walmart is keenly sensitive to the Trump administration’s affordability push, and plans to put a band-aid on the price pain: it’s steering some of its $2.9 billion worth of tariff refunds into cutting prices in its grocery and general merchandise categories.
Google reportedly plans to move its smartphone supply chain outside of China by 2027, the latest sign of a deepening tech decoupling as tensions mount between Washington and Beijing. The Silicon Valley giant has told suppliers it will shift manufacturing largely to India and Vietnam and is far from alone in reducing its reliance on China. Rival Big Tech firm Microsoft has shut at least 15 joint ventures and branch offices over the past five years.
The EU
Euro Zone GDP outlook is forecast to expand 0.8% in 2026, revised up from 0.5% in July, driven by a stronger than expected second quarter. Improved sentiment stems from renewed Middle East peace efforts, potential Strait of Hormuz reopening, and Germany’s defence spending boom.
Europe is unlikely to refill its gas stockpiles ahead of the winter, risking skyrocketing prices for consumers and a cascading impact on the region’s moribund economies according to analysts at research firm Rystad Energy said. Their data shows that European countries are importing less than three-quarters of the shipments required to reach targeted storage levels for liquefied natural gas, adding that “a secure supply this coming winter depends on the goodwill of the US.” Inventories are at their lowest levels in 17 years, hampered by interruptions to supply from the Gulf because of the Iran war, as well as Europe’s own plans to bar Russian imports.
German companies cut their US investments to a three-year low in the first half of 2026 as firms limited their exposure to Trump’s erratic trade policies and Spain cancelled an order for Lockheed Martin F-35 jets last year amid disagreements with the US over defence spending.
Imminent changes to Germany’s pension system could, like reforms to retiree accounts in the Netherlands have huge implications for financial markets in the months to come. The €2 trillion Dutch pensions system is part of the way through a years-long shift from guaranteed payouts to one that is more dependent on market performance, driving a pivot from dependable but low-return bonds to riskier stocks. Germany’s private retirement pot is smaller, potentially worth about €500 billion in a decade, but Berlin is loosening its regulations to allow pension fund managers to deploy cash into assets including private credit and index trackers.
Australia
Australian employment fell by 15,800 in July, missing expectations for a 12,000 increase and reversing part of June’s revised 82,200 gain. The unemployment rate edged up from 4.4% to 4.5%, signalling a softer labour market. Full-time employment rose by 16,300 but slowed sharply from June’s revised 48,900 increase. Part-time employment dropped by 32,200 after a revised 31,400 gain previously. The participation rate held steady at 66.9%, matching expectations.
Better news on consumer confidence which improved for a second straight month, with the Westpac-Melbourne Institute Consumer Sentiment Index rising from 83.9 to 88.9 in August. The rebound was led by mortgage holders after the RBA kept interest rates unchanged at their 11 August policy meeting.
However, caution remains evident. House price expectations fell to their lowest level in three years, while concerns about personal finances persisted. Sentiment remains almost 10% below year-ago levels, and unemployment expectations moved above the long-term average.
Canada
At the time of writing, the Canada-US trade talks continue ahead of the extended tariff deadline, after which a number of Canadian goods will face 50% tariffs.
This follows Trump’s announcement in July to introduce levies in response to Canada’s “unequal treatment” of US goods like alcohol, dairy and cars.
The Canadian Broadcast Corporation have reported that some Canadian negotiators are not optimistic that a deal can be reached in time, with objections from some provinces threatening to undermine talks.
Canada is aiming not only to avert the 50% rate but also reduce the sectoral tariffs on steel and aluminium that have hampered Canadian industry.
The US wants to secure the sale of US alcohol into Canada, following a ban by some Canadian provinces in response to trade tensions.
Contributing to the tensions, a Canadian petition to expel the US ambassador Pete Hoekstra has gained 170,000 signatures. It only needed 500 to be discussed in Canada’s House of Commons.
Others
China faced deepening economic headwinds in July, with consumer spending and investment slumping further and a broad slowdown across key sectors, including industrial and services activity. China’s consistently weak domestic demand has long been outmatched by the country’s vast manufacturing capacity, leading firms to expand aggressively in and grow increasingly dependent on overseas markets to drive growth. That gap could widen, as Beijing directs more investment into AI to keep pace with the US, “turbocharging an already production-heavy economic model,” according to Axios.
This week, China ordered organizations and individuals not to comply with an EU probe of e-commerce giant JD.com and their acquisition of a German electronics retailer, escalating tensions between Brussels and Beijing. It’s the first Chinese takeover to be investigated under the bloc’s rules that scrutinize firms receiving foreign subsidies. Beijing said EU regulators’ request for documents “seriously undermined the international rule of law” and threatened retaliatory measures. The clash underscores the broader difficulties Europe faces in shielding its firms from China’s industrial policies, which Brussels has blamed for costing European jobs.
Dubai is planning to lay tracks connecting its two aviation hubs, as authorities plan to relocate traffic from Dubai International Airport to a larger site in the south of the city by 2032. The Roads and Transport Authority announced a shortlist of six bidders to design and build the Airport Express Line, connecting the old airport to the new Al Maktoum International. The project is in addition to a high-speed Etihad Rail line connecting Dubai with Abu Dhabi, which will have stops at Al Maktoum and the capital’s Zayed International Airport too. Dubai’s new airport, which will have triple the capacity of Dubai International once complete, is already accelerating activity along the otherwise sleepy corridor connecting the two emirates.
Crude oil prices have risen for the second week in a row, with Brent above $93/bbl. and WTI near $87/bbl. as the US-Iran impasse continued to disrupt Middle East supply flows with Hormuz traffic still well below pre-war levels.
The US military is reportedly shepherding 15 to 20 oil tankers in and out of the Gulf in scheduled convoys each night along a protected corridor that traces the southern edge of the Strait of Hormuz by Oman. Two US officials told Axios that close to 10 million barrels now exit the Gulf daily, though analysts cited by The New York Times put July flows on the protected routes closer to 5 million; prewar volumes were about 15 million. The US Navy has shepherded over 1,000 ships out of the strait since its efforts began in May, according to Central Command.
Gold has rallied to a three-month high at around $4,641 while silver outperformed sharply towards $70/oz.
Stranger than fiction
Voyager 2 will keep all three of its remaining scientific instruments running for another year after NASA engineers freed up more power. The probes, launched in 1977, are nuclear-powered; their plutonium power sources are slowly dying. Voyager 1 is down to just two out of 10 instruments. The remaining tools, though, are doing vital work, mapping magnetic fields, cosmic rays, and plasma density. It is humanity’s source of direct evidence from the solar system’s edge, and no successors are funded. In particular, solar winds which sweep past Earth a few days after leaving the sun take years to reach the Voyagers; Voyager 2 may just about survive long enough for some major perturbations to catch up to it around 2030.
The average CEO-to-worker pay ratio at S&P 500 companies rose from 285-to-1 in 2024 to 312-to-1 last year according to data released by the AFL-CIO, but that figure doesn’t include Elon Musk. The labour group estimates Tesla’s CEO earned 2,522,203 times the compensation of a median employee at the company.
A Chinese farmer made international headlines this week for unfortunate reasons. He trusted AI’s weed-killing instructions a little too much and instantly killed nearly 25 acres of sesame seeds.
Quote
Portuguese novelist and winner of the 1998 Nobel Prize for Literature, Jose Saramago, “Chaos is merely order waiting to be deciphered”