28/06/2025 by Tony Redondo
Keir Starmer’s government has made three major policy U-turns in 2025 (winter fuel payments, grooming gangs’ inquiry, and disability benefit cuts). Including significant reversals from his time as opposition leader, the number goes up to between 10-15 major U-turns since 2020.
Starmer, deputy PM Angela Rayner and the PM’s chief of staff Morgan McSweeney met with leading rebels on Friday to agree changes to the welfare reforms to avoid defeat in the Commons vote on Tuesday. An amendment signed by 108 Labour MPs states: “The Government’s own impact assessment estimates that 250,000 people will be pushed into poverty as a result of these provisions, including 50,000 children.” The PM has been warned by the former Work & Pensions Secretary Lord David Blunkett that he is facing a no confidence vote should he lose Tuesday’s vote.
The IFS (Institute for Fiscal Studies) said the move could add an extra £700m to overall spending in 2029/30. Analysts said the costs would mount to “significantly more once the policy is fully rolled out”. Eduin Latimer, senior research Economist at the IFS, said the scaling back of measures would “naturally” require the government “to raise taxes or find other savings elsewhere”. Potential tax increases in this autumn’s budget include extending the freeze on the income tax threshold from 2028 to 2030; cutting the 45% income tax threshold from £125,140 to £100,000; introduce a flat 25% rate of tax relief for all pension savers that would hit 40% and 45% taxpayers; Cutting the 25% pension tax-free lump sum limit from £268,275 to £100,000; closing pension salary sacrifice schemes; introduce CGT (Capital Gains Tax) on the sale of your main residence; Raising fuel duty for the first time since 2011; Cutting the annual ISA allowance from £20,000 or even revive the idea of a £100,000 lifetime ISA cap.
It’s been quite a week for Starmer and his Labour government. On Thursday, Starmer claimed during the BCC (British Chambers of Commerce) conference that he has “stabilised the economy”. Business leaders suggested Starmer has a ‘brass neck’ over his ‘nonsense’ claims. Even his trade deals with the US and India came in for criticism with Karl Mason, spokesman for the UK Spirits Alliance saying his trade deal claims is “nonsense narrative and “the punishing tax burden we face at home makes it virtually impossible to invest in export growth”.
https://www.birminghammail.co.uk/news/money/governments-new-industrial-strategy-too-31915652
The historian Sir Anthony Seldon has criticised Sir Keir Starmer as ‘Incompetent’ and for the ‘worst start by a Labour PM in 80 years.’ Seldon has written biographies of every PM’s time in No 10 since Sir John Major and has written several books about the office of prime minister.
Currency Exchange Rates Update
The Pound is nearly 2% down in the last month but gained just over 0.3% against the Euro last week. The markets are pricing in an 84% chance of the BoE cutting interest rates when they next meet on 7 August. This will be good for UK borrowers but not good for the Pound. In Europe, the ECB (European Central Bank) next meet on 24 July and the markets are pricing in a 25% chance of a rate cut.
https://www.thesun.co.uk/money/35462223/best-time-to-buy-euros
Against the Dollar, the Pound hit its highest level since October 2021 last week. Interest rate differentials and the Iran-Israel ceasefire have eased tensions and risk appetite has come roaring back into the financial markets, meaning less demand for the Dollar’s safe haven qualities, pushing the Dollar lower. The dollar index (DXY) sank last week to levels last seen in 2022. The markets are pricing in a 20% chance of a rate cut announcement when the Fed next meet on 30 July.
The Pound to Canadian Dollar exchange rate hit its highest-level last week since the Brexit referendum vote of June 2016. The Iran-Israel ceasefire has eased tensions and oil prices have shed over $10 a barrel, pushing the Loonie lower.
The Pound to Australian Dollar exchange rate hit its highest level since the 9th of April. The Australian monthly inflation survey surprised to the downside in May with the headline inflation figure dropping from 2.4% year-on-year to 2.1%, well below the consensus forecast of 2.3%. Services inflation recorded a decline from 4.1% to 3.3%, having been on an upward path in recent months. This may allow the RBA (Reserve Bank of Australia) to be more confident that it can afford to cut interest rates further and at a faster rate than previously priced in. The RBA next meet on 8 July.
This week, the key economic data releases include:
Monday UK GDP
China PMI Manufacturing
Germany CPI Inflation
Tuesday UK Nationwide House Prices & PMI Manufacturing
EU CPI Inflation & PMI Manufacturing
Wednesday EU Employment
Thursday US Non-Farm Payrolls (Employment), Trade Balance & PMI
Friday Germany Manufacturing & Industrial Orders
What’s in the news?
A YouGov poll showed that if a general election were held now, Labour’s majority would be wiped out with a loss of 233 seats and Reform UK would emerge as the largest party in a hung parliament.
The latest Ipsos opinion poll puts Reform on 34%, with Labour on 25% and the Conservatives on 15% putting Reform UK on course to win an outright majority at the next general election. It is the highest level of support for Reform shown by any poll to date and would almost certainly be sufficient to give Nigel Farage a comfortable overall majority in Parliament. The poll provides further evidence of the collapse in support for Labour, which is now at levels not seen since October 2019, when Boris Johnson was at the height of his popularity.
Sir Keir Starmer is shown to be the least popular prime minister at this stage of his term in office since Ipsos began compiling such records almost half a century ago with just 19% of respondents satisfied with the job he is doing, with 73% dissatisfied. Gideon Skinner, senior director of UK politics at Ipsos said “The last year has indeed been a long time in politics, with our first voting intention poll since the election showing just how much the political landscape has transformed since then. Reform UK has continued to build on its success, helped by high levels of enthusiasm among its own support and among working-class voters in particular, and taking votes from both Labour and especially the Conservatives, who show little sign of recovery. The disappointment with Labour is clear, even among those who voted for the party in 2024. We know from Ipsos research how difficult it has been to shift entrenched public pessimism over the cost of living, immigration, and the state of public services, and so far, Britons do not think Labour is delivering the tangible change they were hoping for in 2024. This is reflected in satisfaction ratings for the Government and Prime Minister that are well below the average we usually see coming up to a one-year anniversary. Indeed, they look remarkably similar to the poor ratings received by Gordon Brown in 2008 after the financial crash”.
UK
British workers now benefit from the second highest minimum wage in Europe. The National Living Wage increased by 6.7% to £12.21 an hour this April, making the UK second only to Luxembourg. However, business leaders warn that these increases, alongside rising national insurance contributions, could hinder hiring. Robert Colvile, director of the CPS (Centre for Policy Studies) said “The changes to employer’s National Insurance and the increases in the minimum wage make it disproportionately more expensive to employ those at the lower end of the wage scale.” Despite the benefits for low-paid workers, the Resolution Foundation predicts that working-age households may be £400 worse off this tax year due to rising costs and tax impacts.
Good news
Amazon are investing £40bn over the next three years in the UK, creating thousands of new jobs as well as four new fulfilment centres, new delivery stations and expansions to Amazon’s existing network of over 100 operations buildings nationwide. These include 2,000 jobs at the fulfilment centre in Hull and 2,000 jobs at another in Northampton, plus additional positions at new sites in the East Midlands and at delivery stations across the country. It will also redevelop the Berkshire’s Bray Film Studios.
Not so good news
Finance firm Premium Credit reported a 37% increase in businesses using its tax financing service in the first quarter of 2025 compared to the previous year. Jennie Hill, chief commercial officer at Premium Credit stated “Around £3bn to £5bn of tax and VAT liabilities are financed each year,” highlighting the growing reliance on loans. Additionally, a survey revealed that 20% of small firms are concerned about their ability to pay tax bills this year, with 28% fearing future difficulties.
The ONS (Office for National Statistics) warned that 17% of businesses have run out of money.
The BOE Governor Andrew Bailey warned that businesses across the UK are cutting jobs and salaries as a result of the Chancellor’s employers national insurance hike. The BoE also reported that Rachel Reeves’ tax and wage policies are significantly impacting Britain’s middle classes by driving up business costs and leading to reduced pay rises. “The most common response is to reduce pay awards for those above the National Living Wage by 1–2 percentage points,” the report states. This has resulted in over 250,000 redundancies reported since the Budget. David Owen, chief economist at Saltmarsh Economics, noted that the report contradicts the belief that minimum wage increases would positively affect income distribution.
The DBT (Department for Business and Trade) reported that foreign investment in UK fell by 11% to a record low in 2024.
The SMMT (Society of Motor Manufacturers and Traders) said that UK car production fell for the fifth consecutive month in May and is down by a third compared to last year.
The ONS reported that government borrowing surged to £17.7bn in May, the second highest figure for the month on record, only surpassed during the pandemic. The £700m increase comes despite a boost from the increased employer’s national insurance contributions in April. Thomas Pugh of RSM UK predicts potential tax increases between £10bn and £20bn may be necessary to address the rising borrowing and spending commitments. Public sector net debt reached £2.87trn, approximately 96.4% of GDP, reflecting levels not seen since the early 1960s.
R3 reported that insolvencies in the UK have reached concerning levels, with an 8% increase between April and May and an increase of 15% from the previous year. The Insolvency Service reported that the rate of insolvency is now one in 189 companies, reflecting the economic pressures businesses face.
A Chartered Governance Institute UK & Ireland Pessimism survey revealed that around 70% anticipate worsening global economic conditions in the coming year.
The ONS reported that the UK High Street has experienced a significant downturn in retail sales, with a 2.7% drop in May, marking the largest decline since December 2023.
A survey by the CBI (Confederation of British Industry) revealed a 23% decline in manufacturing production over the past three months.
Kantar reported that British grocery price inflation has surged to 4.7% for the four weeks ending 15 June, the highest level since March 2024.
James Reed, chairman and CEO of Reed James Reed said that after 35 consecutive months of decline, the UK jobs market is unlike anything in the past few decades.
USA
Federal Reserve Chair Jerome Powell said he expects policymakers to stay on hold until they have a better handle on the impact tariffs will have on prices.
The US and China have signed their trade agreement with the suggestion that ten other country deals are imminent. The US will cancel a range of existing restrictive measures imposed against Beijing and China will review and approve export applications for items subject to export control rules.
President Trump ended all US trade talks with Canada over their 3% digital services tax on US tech firms.
The EU
Spain’s Socialist PM Pedro Sánchez swept to power seven years ago, vowing to clean up Spanish politics but his socialist party (PSOE) is engulfed in a corruption scandal involving prostitutes, public contracts, kickbacks, secret recordings, a former nightclub bouncer and a porn star while his wife faces a separate investigation into allegations of influence-peddling, and there are claims that party officials created a job especially for his musician brother David with a police investigation into at least one other minister.
Others
NATO (North Atlantic Treaty Organisation), an intergovernmental transnational military alliance of 30 European and 2 North American states established in the aftermath of World War II is ‘very worried’ amid a ‘massive military buildup’ of an ‘imminent’ Chinese invasion of Taiwan.
Argentina’s annual GDP growth now stands at 5.8%, the highest in the Western world, and higher than China’s.
Stranger than fiction
Scientists in Edinburgh hacked E. coli by slipping in two extra genes to make missing enzymes, which then use a little phosphate ‘kick-starter’ to pull off a chemical flip, called a Lossen rearrangement that converts plastic leftovers into paracetamol in 24 hours. The biochemistry mashup creates the potential for “trash-to-tablet” factories that both slash emissions and hoover up litter.
The UK has reduced its carbon emissions by over 50% since 1990. The decarbonization of the electricity system has been the primarily driver with renewables replacing coal and gas.
Quote
Margaret Thatcher, “’You turn if you want to. The lady’s not for turning. I say that not only to you but to our friends overseas and also to those who are not our friends.” In a speech to the Conservative Party Conference on 10 October 1980.
