06/06/2026 by Tony Redondo
These 11 words will haunt Labour for years to come. Pat McFadden, one of Starmer’s most loyal lieutenants, privately accused backbench MPs of caring only about “who can we tax in order to pay benefits to others.” The remark emerged during extraordinary exchanges with Peter Mandelson amid Labour’s winter fuel payments crisis and a growing backbench mutiny over the two-child benefit cap, both flashpoints in the summer and autumn of 2024, in the weeks following Labour’s election victory on 4 July.
https://bmmagazine.co.uk/news/mcfadden-mandelson-who-can-we-tax-business-owners-reaction
It puts into sharp context the two budgets delivered by Starmer’s Chancellor, Rachel Reeves. In autumn 2024, Reeves raised taxes by £40 billion a year, primarily through increases to Employer National Insurance Contributions, Capital Gains Tax and Inheritance Tax, alongside the abolition of non-dom tax status and the introduction of VAT on private school fees. Her 2025 budget added a further £26.6 billion a year through a stealth income tax threshold freeze, higher taxes on dividends, savings and property income, a high-value council tax surcharge, and a new Electric Vehicle Excise Duty.
These £66.6 billion a year in tax increases stand in sharp contrast to Labour’s 2024 manifesto, which set out a specific and limited package of tax changes projected to raise roughly £8.5 billion over the entire five-year parliament, ring-fenced to fund distinct policy commitments.
The latest OECD forecasts make sombre reading, predicting UK economic growth of less than 1% in 2026 and while economies across the globe are under pressure, the UK faces acute challenges stemming from its vulnerability to volatile energy markets and persistently weak productivity growth. The result: weaker growth, sticky inflation, and mounting pressure on public finances. The OECD expects the economy to slow from 1.4% in 2025 to 0.9% in 2026, with only a modest recovery to 1.1% in 2027.
Inflation will remain above the Bank of England’s 2% target throughout. Consumer prices are forecast to rise from 3.4% in 2025 to 3.7% in 2026, before easing to 2.4% in 2027, placing the Bank of England in an uncomfortable position. Ordinarily, weaker growth leads to lower inflation and falling interest rates. But the OECD warns that global energy shocks, supply constraints, and geopolitical instability are pushing prices back up, leaving policymakers caught between two risks. Cut too soon and inflation could escalate; hold too long and growth stalls. The OECD accordingly expects interest rates to remain at their current level until a first cut in early 2027.
Meanwhile, UK public debt is forecast to rise from 102.3% of GDP in 2025 to 105% by 2027, with the fiscal deficit remaining above 4% of GDP. Slower growth, weaker tax receipts, and high debt-servicing costs leave the Government with little room to manoeuvre.
The Chancellor’s fiscal rules are now on course to be breached, forcing her hand. That points toward a further reliance on stealth taxation, frozen thresholds, and reduced public spending, options that are, respectively, unpopular with the country and unpopular with her own parliamentary party.
The OECD’s message is clear: the UK economy is entering a period of fragility, and the Government faces difficult decisions ahead.
Currency Exchange Rates Update
The Pound underperformed in May, making it the weakest G10 currency of the month.
In the first week of June, it steadied, gaining 0.32% against the Euro and still over 1% above its post-Brexit average.
Against the US Dollar, Sterling fell sharply on Friday to a three-week low after much stronger-than-expected US payroll figures. More on this below.
Against the Australian Dollar, the Pound had a better week, climbing over 1.1% to a seven-week high.
Against the Canadian Dollar, the Pound hit a seven-week high on Thursday before finishing the week little changed.
The latest CFTC (Commodity Futures Trading Commission) data shows persistently negative sentiment on the pound with hedge funds and other leveraged speculators remaining net short throughout May, with bearish bets fluctuating between roughly 40,000 and 60,000 contracts, unusual given the Pound’s carry trade advantage over currencies such as the Euro and Swiss Franc. Only the Australian Dollar, 2026’s standout performer, can rival it on real interest rate terms.
Market commentary is flagging the “Labour leadership crisis” as a growing threat to the Pound with Andy Burnham singled out as the single biggest risk to the Pound and Gilts ahead of the 18 June Makerfield by-election. Analysts warn that a Burnham victory, seen as a potential springboard back into Parliament and towards a leadership bid would represent the most significant leftward shift in Labour’s direction, rating him a “high” market risk. The by-election is being described as a critical risk event.
For the Euro to become a true global reserve currency, the EU needs a fully integrated Capital Market. With Brussels accused of dragging its feet, the six largest member states, Germany, France, Italy, Spain, the Netherlands and Poland have formed the E6 to drive the project forward. Their goal is a single market for capital, allowing money to flow freely across borders without regulatory barriers, and granting ESMA (the European Securities and Markets Authority) direct regulatory powers. That last point almost certainly explains Brussels’ reluctance, since it would mean ceding pan-European regulatory authority. The E6 still need a further nine countries to reach the 65% threshold required to advance the project.
In the coming week, the key economic data releases and significant events include:
Monday Japan – GDP
Germany – Industrial & Manufacturing Orders
Tuesday US, China & Canada – Trade Balance
Wednesday China – CPI & PPI Inflation Index
US – CPI Inflation Index
Canada – BoC Interest Rate Announcement
Thursday EU – ECB Interest Rate Announcement
US – PPI Inflation Index
Friday UK – GDP & Industrial Production
Germany & France – CPI Inflation Index
US – Consumer Sentiment
What’s in the news?
UK
A survey conducted by JL Partners, found Labour and Reform UK tied on 28% among union members, a remarkable shift that will fuel concerns within Labour ranks about Nigel Farage’s growing appeal among working-class voters. The findings represent a dramatic decline for Labour compared with its position before the General Election, with support among union members reportedly falling by 20% since 2024. Reform are doing particularly well among members of some of Britain’s largest trade unions including Unite, one of Labour’s most influential union affiliates, where Reform was found to be leading Labour by 36% to 30% and among GMB members, where Reform secured 31% support compared with Labour’s 22%.
Recent surveys have suggested Reform’s support continues to strengthen in many former industrial areas where Labour has traditionally dominated. The party’s message on immigration, economic frustration and perceived political disillusionment has resonated with sections of the electorate who feel little improvement has followed recent changes in government.
Data from the Electoral Commission shows Reform UK topping donations in the first quarter of 2026, raking in millions more than both Labour and the Conservatives.
Good news
Bank of England data shows mortgage approvals soaring to a 15-month high in April, despite economic uncertainty linked to the Iran war, which has affected consumer confidence. KPMG analyst Karim Haji said the optimism of prospective buyers contrasts with existing homeowners, who remain gloomy.
Figures from the SMMT (Society of Motor Manufacturers and Traders) show the UK car market posted its strongest May since 2019 with registrations rising 7.1% on the back of the EV surge. However, volumes remain 12.6% below pre-Covid levels.
Not so good news
S&P Global’s monthly survey of the dominant services industry that accounts for some 81% of the UK economy declined in May, ending a 13-month run of growth. This ‘reversal of fortunes’ for the UK economy was blamed on the turmoil at the heart of the Labour government and the Iran war. Of concern, the data shows the UK economy is set for a ‘stagflationary’ outlook.
Rain Newton-Smith, CBI (Confederation of British Industry) chief executive has slammed the government’s £345bn business tax burden amid what she called a ‘cost of doing business’ crisis, warning that the heavy business tax burden is nudging British firms towards a “tipping point”.
BP is preparing to quit the North Sea after more than 60 years as Labour ramps up taxes on oil and gas. The £80 billion energy giant had been close to selling its UK offshore operations to rival Ithaca in recent weeks, according to the Financial Times. It is said to still be actively considering other deals. It comes as energy giants grapple with the North Sea windfall levy, which has pushed industry taxes on oil and gas profits to 78%. Chancellor Rachel Reeves launched a fresh tax raid last month on the sector, including BP and Shell, to fund £1.8 billion of cost-of-living support.
The S&P Global’s UK Construction Purchasing Managers’ Index posted a score of only 38.2 in May (50 represents no change from the prior period) showing the construction industry has been hit by the sharpest fall in work since first Covid lockdown in 2020. This also represents a 17th successive month of falling activity and the greatest decline in work since May 2020. Housing was the weakest sector last month, posting 36 on the index, with civil engineering only slightly better at 36.2. Commercial work fared the brightest at 39 but still saw dramatic reductions from April.
Investment firm Rathbones are warning that up to £100bn could leave UK if Labour leadership contenders pursue aggressive new taxes on the wealthy, raising fresh concerns over Britain’s competitiveness as a destination for global capital. Mark Bibby, an investment manager at Rathbones, said the introduction of a wealth tax could prove decisive for globally mobile individuals weighing up their long-term tax residency, saying, “For economically mobile high net worth individuals with ties to multiple countries, the introduction of an additional tax in the form of a wealth tax could well be the straw that breaks the camel’s back, spurring them to leave the UK.”
HMRC data, obtained through a Freedom of Information request, shows Chancellor Rachel Reeves’s salary sacrifice raid will leave almost three million poorer in retirement including over half a million affected are basic rate taxpayers despite Treasury claims move will only hit high earners. The savings shortfall comes after Labour’s announced restrictions in 2025 on so-called “salary sacrifice” schemes from 2029 onwards.
The Food and Drink Federation are warning that Keir Starmer’s flagship EU trade deal threatens to make soaring checkout prices even worse as more than 400 UK regulations will need to be brought into line with Brussels laws as part of the planned trade agreement, forcing UK businesses to make costly changes to supply chains and manufacturing processes.
USA
The US economy continues to outperform with Friday’s US payrolls rising by 172,000 in May, far above the Dow Jones consensus estimate for 80,000 and the unemployment rate staying at 4.3%. Average hourly earnings rose 0.3% for the month and were up 3.4% over the past year, both in line with the Wall Street consensus. Gus Faucher, chief economist at PNC, said, “This is a labor market that is stronger than it was last year and is looking pretty darn solid, despite high energy prices and higher inflation generally. There’s no indication that the labor market needs support.”
Heather Long, chief economist at Navy Federal Credit Union commented, “The hiring recession is over. American firms are hiring again. This is a strong jobs report from every angle.”
Data from the Atlanta Fed shows broad economic growth has been solid, with GDP rising at a 1.6% annualized rate in the first quarter and thus far tracking at a 3% gain in the second quarter.
The May ISM manufacturing report was strong on the surface and better than expected. The headline index rose from 52.7 to 54.0, above the 53.0 consensus, while new orders climbed from 54.1 to 56.8.
The Trump administration is proposing new tariffs on its biggest trading partners. Washington said it would impose a 10% levy on Canada, the EU, Mexico, and the UK and 12.5% on China, India, and others for failing to crack down on forced labor.
President Donald Trump announced a major new $700 million federal funding package (with total project impacts reaching up to $850 million when factoring in corporate matching) aimed at propping up and expanding the US coal sector.
The Trump administration is investing $2 billion in nine quantum computing companies, a major bet on the nascent technology becoming commercially viable. The US government will receive some equity in return, as it acts ever more like a sovereign wealth fund after recently backing a rare-earths magnet maker and a mining company.
The EU
The markets have already priced in the possibility of the ECB (European Central Bank) raising rates on Thursday by 0.25% to 2.25% with a possible follow-up in September.
Eurozone inflation rose from 3% in April to 3.2% year-on-year in May, continuing its recent upward trend. The largest contributor was again energy inflation, which rose slightly from 10.8% in April to 10.9% in May, reflecting the continuing impact of the Iran conflict on global energy markets. There was also early evidence that higher energy costs are feeding through to the wider economy, with core inflation rising from 2.2% to 2.5% and services inflation rising from 3.0% to 3.5%.
Eurostat, the EU’s statistics agency reported that the eurozone economy shrank by 0.2% in the first three months of 2026. Economists had been expecting growth of 0.1% during the quarter. The shock contraction puts the bloc at risk of recession. Two consecutive quarters of negative growth qualify as a technical recession. The first-quarter decline in GDP was led by a massive 12.1% contraction in the Irish economy. Excluding Ireland, the eurozone economy expanded by 0.2% in the first three months of 2026. Germany, the eurozone’s largest economy, grew by 0.3% in the first quarter after two years of stagnation. The Italian economy also expanded by 0.3%, while Spain recorded growth of 0.6%. However, France’s economy shrank by 0.1%, adding to the nation’s economic woes after figures released last month showed its unemployment rate had risen to 8%.
The Netherlands government have approved a 36% tax on unrealized gains from 2028, meaning the government will send you a tax bill if the value of your investment portfolio goes up on paper. 67,000 citizens petitioned against it. Parliament approved it anyway.
German MPs in Friedrich Merz’s CDU party have openly questioned the chancellor’s ability to reverse the party’s fortunes and like Starmer in the UK, Merz finds himself battling coup plots, dismal poll ratings, a resurgent Right and constant speculation over his position. The CDU are slipping ever further behind the AfD in national polls and 71% of Germans think Mr Merz is doing a bad job. One name keeps surfacing as a potential successor. Hendrik Wüst, the telegenic premier of North Rhine-Westphalia, who is the most popular figure in the party, Wüst remains on course to comfortably retain power when he stands for re-election next year in Germany’s most populous state, a traditionally centre-Left stronghold with a strong industrial heritage. The Bundestag breaks for the summer at the end of June. In early autumn, three pivotal state elections could further destabilise the coalition. In Saxony-Anhalt and Mecklenburg-Western Pomerania, the AfD is on course for commanding victories. In Berlin, meanwhile, the hard-Left Die Linke continues to gain ground. Heavy losses would intensify demands for change within both governing parties. Should that happen, some believe Mr Merz will face a serious challenge to his leadership by the end of the year.
SoftBank from Japan has pledged to invest up to €75bn in a vast network of AI computing clusters in France, backing what would be Europe’s biggest data centre project as the region races to catch up with the US and China in AI infrastructure.
Australia
ABS (Australian Bureau of Statistics) reported that Australia’s GDP grew by just 0.3% for the March quarter. Annual growth sits at 2.5%, but the economy is effectively stuck in first gear. Australia’s goods trade balance returned to a A$1.8bn surplus in April, beating expectations, after March’s revised A$1.0bn deficit, the weakest since 2016. Exports rose 7.2% month-on-month across the board, while imports increased 0.8%. Energy exports have trended lower over the past year but continue to provide strong support, with net energy exports at around A$77bn in April, or roughly 2.25% of the economy. The Fair Work Commission announced a 4.75% increase to the minimum wage, affecting roughly 3 million workers.
Australia’s greenhouse gas emissions dropped for the second year in a row, underscoring the resilience of the renewable revolution. Government figures showed that emissions in every sector barring industrial processes fell, even before a huge surge in EV sales since the start of this year.
Canada
Canada has recorded two consecutive quarters of negative GDP growth, meeting the traditional definition of a technical recession. Prime Minister Mark Carney and his government have pushed back, framing the contraction as a temporary “settling-in period” rather than a prolonged downturn. Top economists are divided on whether the underlying data supports a full recession narrative.
Others
China’s manufacturing sector slowed in May with the official PMI easing from 50.3 to 50.0 with both new orders (49.9) and export orders (48.6) slipping back into contraction and signalling persistent demand weakness. The Caixin manufacturing PMI also cooled, slipping from 52.2 to 51.8. Overall new orders continued to expand, though export demand softened. Services told a steadier story with the non-manufacturing PMI edged up from 49.4 to 50.1, while the composite PMI firmed from 50.1 to 50.5.
The RBI (Reserve Bank of India) held interest rates at 5.25% on Friday but cut its growth outlook from 6.9% to 6.6% for the year and raised its inflation forecast for the financial year ending March 2027 by 0.5% to 5.1%. Governor Sanjay Malhotra said in his statement that “monetary policy has turned more cautious” as the global economic outlook remains clouded by the “geopolitical impasse” in the Middle East. He added that “sharply escalating energy prices and global supply chain disruptions continue to hinder economic activity.”
Venezuela’s oil exports rose for the third consecutive month, to 1.25 million barrels per day in May, a sign that steps to revitalize the country’s battered oil sector are working. Venezuela is on pace to push exports to 1.37 million barrels per day by the end of the year, which would mark a 22% increase from 2025 and the highest level since the first US sanctions were imposed in 2019.
Stranger than fiction
The James Webb Space Telescope was able to observe weather on a planet 690 light-years away. Exoplanets are usually detected when they pass in front of their star, dimming it. The light passing through their atmosphere gives information about its chemistry. The atmosphere of the exoplanet, WASP-94 A b, showed different spectra at the start and end of that transit, implying that on its night side, clouds form continuously; on the day side, the star’s heat evaporates them. The first exoplanet was discovered in 1992. Now 6,291 exoplanets have been confirmed in 4,709 solar systems. WASP-94 A b’s clouds are likely droplets of molten minerals, as the dayside temperature is around 1,315°C or 2,400°F, too hot for liquid water.
A three-foot-long scorpion once stalked what is now Britain. Praearcturus gigas would likely have been the apex terrestrial predator of the Early Devonian Period, 415 million years ago, when life had relatively recently begun to move out of the oceans, and there were only a few animals on land. Its fossil was first discovered in 1871 but was identified as a woodlouse-like creature. Enormous arthropods were a feature of the prehistoric world including nine-foot millipedes and hawk-sized dragonflies.
Quote
Thomas Sowell, “You will never understand bureaucracies until you understand that for bureaucrats, procedure is everything and outcomes are nothing.”
