When looking for Asian stocks, I look for good businesses run by competent management teams, available at a price that leaves a margin of safety. I focus on managing absolute risk and losing little money during market downturns, which should help compound returns at higher rates over the long term.

This discipline leads the portfolio away from popular thematic investments, start-ups, highly geared companies, cyclical businesses earning peak margins and stocks on high multiples to earnings.

As a result of this approach, the Fidelity Asian Values trust is primarily invested in mispriced small and medium-sized companies – the “winners of tomorrow”, before they become well known. Here are three examples.

Asian stocks to watch

Orion Corporation (Seoul: 271560) is a South Korean snacks and confectionery business that owns the well-known brand Choco Pie. It is a good-quality franchise with about a 25% market share in the domestic market as well as notable international revenues, supported by its production bases in China, India and Vietnam. Its international operations continue to grow and China makes a sizeable revenue contribution.

Choco Pie is its largest growing category, but Orion is using the recognisability of its brand to branch out into premium snacks as well as targeting a health-conscious demographic as a future driver of growth. Management has been focusing on enhancing shareholder value –it reported a 40% year-on-year rise in its dividend in 2025. The business is debt-free; the stock is valued at a 12-month forward price-earnings (p/e) ratio of nine times and offers a return on equity of more than 12%.

ManpowerGroup Greater China (Hong Kong: 2180) serves businesses that require workers for a limited time or a specific project, or those who wish to manage their own direct headcount. It also offers its clients headhunting and recruitment services, payroll outsourcing and training services. It is an asset-light business model and the company earns higher margins in its headhunting and recruitment division.

ManpowerGroup Greater China was spun off from ManpowerGroup, a world leader in its field, and therefore has the reliable operational processes of its erstwhile parent and retains a strong emphasis on risk management. Given the highly unorganised nature of the recruitment market in China, ManpowerGroup's scale and geographical spread is advantageous.

Our research on the ground indicates that the recruitment business in China is at its lowest ebb in the business cycle. The stock trades at a 2026 forward p/e of six times, offers a dividend yield of more than 7% and about 95% of its market capitalisation is in net cash on its balance sheet.

JW Life Science (Seoul: 234080) is the largest producer of intravenous (IV) fluids in South Korea, with a 45% market share. Demand for IV fluids is stable as the products are essential components in surgery, intensive care, hydration and patients' nutrition. The company faces competition from three to four players, but there are high barriers to entry given strict quality criteria, the need for strong brands and distribution capabilities, and for high levels of capital expenditure.

An ageing demographic in South Korea is supportive of revenue growth prospects for JW Life Science. The company has robust operating cash flows and a net cash balance sheet, a sustained mid-single-digit earnings growth profile, and offers a return on equity of an about 15%. It is valued at six times 2026 earnings.

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Cornwall is one of the poorest corners of northern Europe. Its output per head has sat at roughly two-thirds to three-quarters of the UK average for two decades. A typical full-time worker there earns around 84% of the national wage.

For 25 years the gap was cushioned by Europe. Cornwall and the Isles of Scilly took well over £1 billion in EU structural funds between 2000 and 2020, something like £100 million a year. That money has gone, its replacement is worth roughly half as much, and from April 2026 the successor to that replacement excludes Cornwall altogether.

But now something has changed the calculus entirely. That poor, peripheral region also happens to have hard-rock lithium and tin deposits, the largest tungsten resource in the West, Britain's first deep geothermal power station and a mineral-processing industry with two centuries of pedigree.

Forty miles away in Bridgwater, Somerset, Tata's Agratas is building a £4 billion, 40GWh factory that will be the largest in the country. Resources, low-carbon power, processing know-how and a battery end market, all in one economic-geographic area. Nowhere else in Britain has all four.

China accounts for about 80% of world tungsten mined production and an even larger share of the downstream conversion. From February 2025 it placed tungsten under export licensing on national security grounds and by late 2025 had restricted authorised exporters to around 15 firms for 2026 and 2027. Ammonium paratungstate, the key traded intermediate, went from roughly $300 to $940 per metric tonne unit in early 2025 to above $3,000 by this spring. That is why Devon's Hemerdon, the West's largest tungsten resource, and Cornwall's Redmoor, Europe's highest-grade undeveloped tungsten deposit, matter to people who have never heard of either.

The activity on the ground is real and, in places, world-leading. Cornish Lithium has sought regulatory permission to develop a former china clay pit at Trelavour and is pulling lithium from geothermal brine at Cross Lanes. Cornish Metals is developing South Crofty, closed since 1998, aiming at production in around 2028 and a company with an estimated net present value of nearly £500 million. Geothermal Engineering's plant at United Downs delivered the UK's first deep geothermal electricity in February this year, with lithium carbonate coming from the same well. Tungsten West at Hemerdon is hoping to start production by the end of this year.

This is not a thesis about the geology waiting to be proven – it has already been proved. What is missing is the next step, the chemistry that turns concentrate and brine into battery-grade or defence-grade material, and Britain is building most of that capacity at Teesside rather than in the region that actually holds the ore.

Cornwall's lithium project pipped at the post

Here is the part investors and ministers alike should pay attention to. In February this year, Imerys placed its St Austell lithium project on hold. It was not a bad project; it was simply not the project the company chose to go ahead with because the French state had just taken a €50 million stake in Imerys's rival venture in France, Emili. Capital did not leave because the geology failed. It left because a rival state turned up with a cheque and Britain did not. That single episode should worry anyone backing UK critical minerals more than any drilling result. Geology is necessary. It has never been sufficient.

Britain has the wherewithal. The National Wealth Fund has put £31 million into Cornish Lithium and £28million into Cornish Metals, real money into the right projects. But its remit now stretches from clean energy to defence to life sciences to the creative industries, and a fund asked to do everything risks losing focus.

France did something narrower and, I think, smarter: it took a direct stake in one named asset, through one named vehicle, and said plainly that this is the project the state has decided to back. The US has done similar. Britain's equivalent is, for now, an announcement of an up to £50 million fund and a set of sector programmes that may not add up to much.

The investment case follows from policy

None of this needs a white paper. It needs a decision. Back one properly scaled mid-stream processing hub in the South West rather than subsidising several plants that are too small to matter. Build a stockpile mechanism for defence-critical tungsten, given that Britain currently produces none and refines none. Speed up the permitting process that has seen

South Crofty take years to develop a mine before a tonne of tin comes out. And close the funding cliff-edge Cornwall now faces with an argument based on national security rather than regional deprivation, because the latter has manifestly not worked for 25 years and the former might.

The investment case follows from the policy case, not the other way round. Companies with permitted, de-risked, assets that have already been built, Cornish Metals and Tungsten West among them, are the ones best placed to benefit if Britain decides to act like it means what it says about supply-chain security.

The lesson from Imerys is that being right about the rock is not enough. Somebody, whether it's the government or private capital, has to be willing to be the anchor. Cornwall has spent 25 years waiting for a growth story. It's finally got one under its feet. The only question is whether Britain gets there before France, or Kazakhstan, or the next country willing to write the cheque.

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Andy Burnham has taken power with remarkably little scrutiny – no general election, no contest for the leadership of his party, and no form of questioning in Parliament. A few sound bites aside, we have very little idea of what his plans are. Instead, over his first week, he made a series of small announcements, all of them to be financed by some form of creative accounting or financial conjuring trick.

On his first day, for example, Andy Burnham announced a plan to end rough sleeping, at an estimated cost of £340 million over five years. Where is the money to come from? Apparently from some “uncommitted” funds in the housing department – in other words, they found some cash down the back of the sofa.

Then the new PM announced a plan to cut VAT on electricity at an estimated cost of £840 million. This time, the money was found by scrapping the digital ID scheme. The only trouble is that the ID plan was never funded in the first place. In effect, one form of imaginary money was being replaced with another.

Then came a £2 cap on bus fares, reversing the decision taken by his predecessor to raise them. The cost is £500 million and the money to be found by replacing “grants” for international climate projects with “loans”, which might shift it to another part of the balance sheet, but won't make any difference to the amount of money that has to be spent over the next few years.

There is a common thread here. Each of the policies involves some clever-clever financial tricks. With a deft sleight of hand, money is shifted around, redesignated and reallocated. That might seem clever to a politician, but if it were happening at a listed firm, the shares would have crashed and the board would have been charged with fraud.

Financial trickery is the reddest of red flags. It may not matter for now because the sums are tiny. Andy Burnham's policies mean a commitment of slightly more than £1.6 billion of extra spending. Given that the government spends £1.3 trillion a year, that is a drop in the ocean. But it is the thought that counts. Andy Burnham has made it clear that he is happy to play games with the public finances if he thinks he can get away with it.

Andy Burnham's policies are making bond markets suspicious

That matters. There are two big problems. First, Britain's debts are already precarious. The government is set to borrow more than £140 billion a year, and the interest due on all the money we already owe has climbed over £120 billion a year. Yields on ten-year gilts have spiked past 5% and are rising faster than for any other major developed country. The bond markets are already treating the UK with well-justified suspicion.

Next, the government is going to have to borrow vast sums, not just to finance ambitious plans for taking utilities into public ownership or building more council houses, but simply to cover day-to-day spending. With the welfare bill spiralling out of control and with defence spending set to rise, Andy Burnham's policies will need more and more money every year, while a stagnant economy means that tax revenues will flatline at best, and may soon start to fall.

Add the two together and Andy Burnham's government is going to have to borrow £300 billion or more over the rest of its term, as well as persuading the markets to roll over all the existing debt. It was always going to be a tough sell, even with plenty of goodwill from investors. Now the markets have, in effect, been warned not to trust the government's figures.

It could have been more straightforward – finding the £1.6 billion needed by making serious savings elsewhere, for example. The completely pointless National Wealth Fund would have been an easy place to start. Instead, Burnham simply tried to pretend he could magic the money out of nowhere. At some point over the next year, the government may well have to spend some serious money. It might be for the debts of the newly nationalised British Steel, the collapse of several of the water companies, a spike in energy prices, or something else that no one is thinking about right now. Whatever it is, the government will need to tap the bond markets. And yet it has already thrown away the support of the markets by treating investors like idiots. A crash now looks all but certain – and it will be very messy when it happens.

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• The Bank of England’s Monetary Policy Committee (MPC) voted to keep interest rates at 3.75% today.
• Though a majority of the nine-person committee voted to keep hold rates, a growing number are now voting for rates to rise.
• The latest decision is a continuation of the MPC’s ‘wait and see’ approach to setting rates, holding off on a hike or cut until we see concrete evidence of how the war is affecting the UK.
• Inflation is expected to peak at 3.2% in the final quarter of 2026, according to the Bank’s latest forecast.

When will interest rates fall further? | Is the UK heading for stagflation? | MPC meeting dates | UK inflation forecast |

Hello and welcome to MoneyWeek’s live coverage of tomorrow’s interest rates decision.

Follow our reporting on this page for the latest commentary, analysis and breaking news ahead of the Bank of England’s Monetary Policy Committee announcing their interest rates decision tomorrow afternoon.

What is the Monetary Policy Committee (MPC) and what happens at their meetings?

The Monetary Policy Committee (MPC) is a group of nine experts appointed by the Bank of England responsible for setting interest rates.

The committee is made up of five senior Bank of England staffers and four external experts who are directly appointed by the chancellor.

The MPC members from the Bank include governor Andrew Bailey, deputy governors Dave Ramsden, Clare Lombardelli, Sarah Breeden, and the Bank’s chief economist Huw Pill.

The external experts are selected to ensure the Bank benefits from outside expertise from academia and industry. They include Alan Taylor, Catherine L Mann, Megan Greene, and Swati Dhingra.

A representative from the Treasury is also present. They are allowed to speak about policy ideas, but are not allowed to vote.

The MPC meets every six weeks to vote on whether to cut, hold, or raise interest rates and each vote has equal weight. The governor of the Bank votes last and has the deciding vote in the case of a tie.

Interest rate decisions are usually announced on a Thursday, though the meeting itself typically takes place on the day before the announcement.

At their last meeting, the MPC voted to hold rates at 3.75%, with the motion passing by seven votes to two.

Where have interest rates gone recently?

In the last six years, interest rates have gone from being as low as 0.1% to as high as 5.25%. Much of this period is dominated by the covid-19 pandemic and its consequences.

When the pandemic first hit, the MPC decided to push rates down to 0.1% to help stimulate economic activity.

Then, when the economy opened back up and the cost of living crisis began to be felt, interest rates were repeatedly hiked to combat rising inflation.

More recently, the Bank of England started to cut interest rates. Between August 2024 and December 2025, the MPC voted to cut interest rates six times, each time by 0.25 percentage points.

This gradually brought the Bank rate down to 3.75% in the last MPC meeting of 2025.

At the end of 2025, most experts believed that interest rates would be brought down by another 0.5 percentage points by the end of 2026, settling at around 3.25%.

However, the Iran war made the MPC change course. Since the war began on 28 February, the MPC has kept rates on ice at 3.75%, adopting a “wait and see” approach to future rate movements.

What should you expect from tomorrow’s MPC meeting?

Most experts agree that the MPC is most likely to hold interest rates at 3.75% tomorrow as the impact of the Iran war on the UK economy is still uncertain.

The current economic data is inconclusive about the long-term impact of the Iran war on the UK. Although inflation figures have been lower than expected so far, inflation is still forecast to rise in the final quarter of the year.

This makes it very difficult to justify lowering interest rates, as a cut would likely mean fuel a rise in inflation, when it is already forecast to increase..

On the other hand, raising interest rates presents its own challenges. A rate hike would hamper economic activity as borrowing becomes more expensive.

With the lack of conclusive economic evidence about how the UK is being affected by the Iran war, the Bank of England believes a ‘wait and see’ approach is the best one. The MPC is awaiting concrete data with which they can confidently assess the impact of interest rate changes before they bring any in.

This is why most experts believe the MPC will hold interest rates at 3.75% tomorrow – there isn’t enough data to justify a rate hike or cut at the moment.

Where is inflation, and where will it go this year?

Inflation is one of the key economic metrics used by the MPC to help decide whether to move interest rates.

The Bank of England has a mandate to keep inflation at 2% in the medium term, so when inflation is too high, rates tend to be hiked. When inflation is too low, rates tend to be lowered.

Inflation in the UK has been mostly above the 2% target since July 2021, though at points it has briefly been at or below the target.

The most recent set of inflation data shows inflation dipped to 2.6% in the year to June, down 0.2 percentage points from the previous month.

Price growth has broadly been falling since September 2025, but the Iran war has meant most forecasters expect it to rise in the final quarter of this year.

Estimates by the Bank of England, published on 18 June, shows inflation is expected to stay just under 3% for most of 2026 before rising to a “little over” 3.25% in the final quarter of the year.

The Bank of England is set to release a new inflation forecast tomorrow.

What is the economic background of this month’s decision?

Alongside inflation, the MPC also looks at other economic metrics to help inform their decisions. One key measurement is the state of the labour market.

In the orthodox view of economics, a poorly-performing labour market pushes down inflation as higher unemployment and slow wage growth means people have less money to spend. With lower demand, prices fall.

The latest labour market data, published on 21 July, showed unemployment remained at 4.9% in the three months to May for the second month in a row, the highest level it has been for six years.

Meanwhile, regular wage growth also remained at a six-year low. Regular earnings held at 3.4% in the three months to May, rising to 4.3% when including bonuses.

The UK economy is also growing very slowly. GDP growth in the month to May was just 0.1%, reversing a 0.1% drop in GDP in the month prior.

Deutsche Bank: MPC expected to vote to hold rates by 7 to 2

Interest rates are set to stay at 3.75% at tomorrow’s interest rates announcement, according to predictions from Deutsche Bank.

The bank expects that, despite worries of second-round inflation effects from energy price hikes, the MPC will keep the Bank rate unchanged.

They expect the MPC to keep rates at 3.75%, with seven members voting to hold and two voting to raise rates.

The two dissenters are expected to be BoE chief economist Huw Pill and external member Megan Greene – the same two who voted to hike rates at the last MPC meeting.

Sanjay Raja, chief UK economist at Deutsche Bank, said: “We expect the Bank of England to remain on the sidelines for the rest of the year. But there are clear risks to our call.

“A second energy wave will likely amplify uncertainty around the inflation path and the risk of second-round effects. We see upside risks to the interest rate outlook in the near term, with much dependent on the duration of the unfolding energy shock.”

Hold tomorrow may be ‘calm before storm’ with potential rate hikes later this year

While most experts agree that rates are unlikely to change tomorrow, where they go next is less certain.

The market is currently pricing in rate hikes later this year as the Bank deals with the economic fallout from the Iran war.

Hikes would hurt borrowers as the cost of credit, like loans and mortgages, will become higher.

Harriet Guevara, chief savings officer at Nottingham Building Society, said: “The Bank is almost certainly going to hold at 3.75% on Thursday, but that should not lull anyone into thinking the hard decisions are behind us.

“Inflation remains above the Bank's 2% target, energy bills went up 13% at the start of July, and the conflict in the Middle East continues to push up oil and gas prices. Put all of that together, and markets are now pricing in one to two rate rises before the end of the year, meaning that a hold this month could be the calm before the storm.”

She added that while higher rates will mean mortgage rates are likely to rise, the silver lining is that savers will be able to enjoy higher interest rates on their savings – so long as they make sure they are getting the best rate.

Thank you for following our live report today.

Come back tomorrow morning for the latest news, analysis, and commentary on the MPC's interest rates decision.

Good morning and welcome back to our live coverage of today’s interest rates decision.

The Bank of England’s Monetary Policy Committee will announce whether they have voted to raise, lower, or hold interest rates at 12pm today.

Follow this page for the latest news, analysis and commentary.

RECAP: What are we expecting today?

The MPC will reveal their interest rates decision at midday today, and it is almost certainly going to be a hold.

Most experts believe keeping interest rates at 3.75% will buy time for the MPC to properly assess where rates should go in response to the economic shock of the Iran war.

Though inflation has slowed or stayed the same since March, the Bank of England estimates that price growth will accelerate in the final quarter of this year, meaning interest rate cuts are very unlikely.

When the decision is revealed, the Bank will publish the minutes from the MPC meeting and a monetary policy report which includes detailed models for where the UK economy is going next.

What would it take for the MPC to raise interest rates?

Although the MPC is widely expected to keep rates on ice today, analysts have warned that we may see rate hikes later this year, largely because of the UK’s inflationary outlook.

Inflation is likely to rise in the last quarter of 2026, with the Bank of England estimating in June that it could reach 3.25% by the end of the year. New forecasts will be published today.

In particular, experts have warned that energy inflation will be one of the most important metrics to look out for.

The UK is especially vulnerable to energy price shocks because it is a net importer of energy. This means that households are mostly at the mercy of the market – as can be seen in the past few months when fuel prices soared because of the war in Iran.

Although economists at Deutsche Bank expect the Bank rate will remain at 3.75% for the rest of this year, they do see a risk of a hike if the energy price shock is more persistent than currently forecast.

Sanjay Raja, chief UK economist at the bank, said: “A second energy wave will likely amplify uncertainty around the inflation path and the risk of second-round effects. We see upside risks to the interest rate outlook in the near term, with much dependent on the duration of the unfolding energy shock.”

The BoE’s three central inflation forecasts

At the MPC’s April meeting, the Bank of England outlined three central scenarios for where they think inflation could go next in the wake of the Iran war.

In scenario A, the Bank forecast inflation would peak at 3.6% this year. This scenario assumed oil and gas prices would rise, following the implied paths of the market in the 15 days to 22 April, and did not expect second-round inflationary effects.

The assumptions behind scenario B were not much different, only adjusting the length that energy prices will be elevated. Second-round effects were assumed to be modest, pushing up their prediction to 3.7%.

The worst-case scenario C set out in April was much more dramatic. It expected a sharp and prolonged rise in energy prices that would lead to much stronger second-round effects than the ones modelled in scenario B.

In this scenario, inflation would peak at 6.2% at the start of 2027 before starting to fall again.

Inflation has, so far, thankfully surprised to the downside, meaning that the risk of scenario C is low, but MPC member Dave Ramsden said in June that he still thinks scenarios A and B could materialise after the summer.

What do interest rates mean for your finances?

What the MPC decides will have an impact on your personal finances.

Falling interest rates could mean you have more money in your pocket each month, while rising rates could add more pressure to your household budget.

The Bank of England’s base rate (or Bank rate) is the core interest rate in the UK, and is the rate of interest the BoE pays to financial institutions that hold money with the central bank.

When interest rates are lowered, savings accounts offered to customers typically become less competitive, but loans become cheaper. And when rates are hiked, loans become more expensive, but savings accounts pay higher interest.

These movements do not necessarily all happen at once – lenders tend to change their interest rates in anticipation of the MPC’s next decision.

For example, since the start of the Iran war, average savings rates have increased despite no movements in the Bank rate. They are an average of 3.59% today, up from 3.32% a day before the war broke out.

Bank of England to announce rates decision in 10 minutes

The MPC’s latest interest rates decision will be announced at midday, in about 10 minutes.

Stay tuned on this page for the breaking news and key insights from the meeting’s minutes and Monetary Policy Report.

BREAKING: Interest rates held at 3.75%

Interest rates have been held at 3.75% after the Bank of England revealed the MPC’s latest decision.

It is the fifth consecutive meeting where rates were kept on ice.

MPC voted 6 to 3 in favour of holding rates

The Monetary Policy Committee held rates at 3.75% with six members voting to hold and three members voting to hike rates by 0.25 percentage points to 4%.

The three dissenting members of the committee were external members Megan Greene, Catherine L Mann, and the BoE’s chief economist Huw Pill.

Meanwhile, members who voted to keep rates at 3.75% were governor Andrew Bailey, deputy governors Sarah Breeden, Dave Ramsden, Clare Lombardelli, and external members Alan Taylor, and Swati Dhingra.

Bank of England MPC: Energy prices set to push inflation up this year

High energy prices due to the Iran war are set to push inflation up this year, according to the Bank of England’s latest forecast.

The Bank’s central projection now expects inflation to peak at around 3.2% in the final quarter of 2026, slightly lower than their previous estimates.

The minutes of the latest MPC meeting said: “CPI inflation has fallen to 2.6% since the previous meeting, although it is expected to rise later this year as the effects of higher energy prices continue to pass through.

“The risk of material second-round effects in price and wage-setting, against which policy needs to lean, is greater the longer higher energy prices persist. There is little evidence so far to suggest such effects, and there have continued to be clear signs of underlying disinflation in recent data."

Inflation outlook remains dominated by Iran war

Where inflation will go next remains contingent on the war in Iran, according to the minutes of the MPC’s latest meeting.

It said: “The conflict in the Middle East, and its impact on energy prices and the UK economy, remained the dominant source of uncertainty for the inflation outlook.”

The minutes added: “Policy would need to guard particularly against second-round effects that created inflation persistence, while considering any trade-off with weaker economic activity. The risk of material second-round effects would depend on the scale and duration of the energy shock, which remained uncertain.”

Andrew Bailey: Rates were held due to conflict in Middle East

Andrew Bailey, the governor of the Bank of England, has explained the key reasons why the MPC decided to hold rates today.

He said: “Today we’ve held [the] Bank Rate at 3.75%. Inflation has fallen faster than we’d expected, but the conflict in the Middle East continues to mean high and volatile energy prices. That will cause inflation to rise again later this year.

“However the conflict unfolds, our job is to make sure any increase in inflation is temporary and that it comes back to our 2% target.”

Other global factors also pose an inflation risk

Though the energy shock is one of the most important factors in the expected increase in global inflation, there are other headwinds.

The MPC meeting minutes said: “Global factors pointed to an economic environment that risked being more inflationary in future.”

These included the strong demand for AI-related components (like semiconductors and data centres) that have created sector-specific price pressures and the impact of the El Niño climate phenomenon on global food prices.

The minutes added: “While these risks might not materialise, or occur at the same time, the Committee noted that some could interact with one another and with commodity price developments in potentially inflationary ways.”

Future interest rates decisions could need to react before conclusive inflation data

The MPC indicated that their future interest rates decisions may need to be more preemptive if the inflation forecast worsens.

The minutes said: “Members noted that monetary policy could need to react before the risks around inflation persistence materialised conclusively.

“There were two dimensions in considering the appropriate policy stance: the level of current monetary policy restrictiveness, and the degree to which policy should guard pre-emptively against the possibility of worse outcomes. Both considerations involved balancing the costs of leaning too little against inflation persistence against costs to economic activity by leaning too much.”

Why three MPC members voted to hike rates

Today’s MPC decision was more split than any vote since the start of the Iran war. Three members voted to hike rates to 4% instead of holding them.

In the previous meeting, two members voted for a hike, and in the meeting before that only one voted to raise rates.

The growing split indicates that there is increasing pressure within the MPC to hike rates in order to deal with rising inflation.

Catherine L Mann, who voted for a hike for the first time since the war began today, justified her vote by saying: “The key change in the environment for my decision is the collapse of the US-Iran Memorandum of Understanding, the widening of the Middle East conflict, and the associated volatility in energy prices. This ‘sporadic continuance’ of the conflict that I hypothesised last month appears to be the state of play.”

Megan Greene justified her vote to raise rates by saying: “As in June, there is significant uncertainty about which projection or scenario is most likely and I believe a risk management strategy is appropriate

“Staff analysis illustrates that setting policy as if there are stronger second-round effects and course correcting if they prove to be smaller is less costly than vice versa. Furthermore, a proactive hike in Bank Rate may reduce the probability that second-round effects set in.”

Finally, Huw Pill said he voted to hike rates because: “While energy prices remain volatile, risks to achieving the inflation target lie firmly to the upside.”

He added that he was concerned about the possibility of second-round effects “driven by catch-up dynamics in wage and price setting.

“While these may be slower to emerge, they could prove more lasting and create greater intrinsic inflation persistence.”

He called for the MPC to raise rates in order to “offer a clear and unambiguous signal of our willingness and ability to address upside risks to inflation stemming from events in the Gulf. This would place us in the best position to manage risks to the inflation target as they emerge.”

Rates decision was “fully expected” but uncertainty among members is increasing

Ed Hutchings, head of rates at Aviva Investors, said that while today’s interest rates decision was fully expected, “going forward it remains apparent that a lot of uncertainty amongst MPC members exists.

“How this plays out is far from clear and although recent employment and inflation data has been of some comfort, investor attention and the Committee’s focus is likely to be on risks around the outlook ahead, and particularly so from an inflation standpoint.”

He added that he expects the MPC to remain in ‘wait-and-see’ mode to assess the impact of the Iran war, and noted that markets are now pricing in a 0.6 percentage point hike in interest rates.

“Yet, even if the BoE do hike, the question will be how much further this can go and with gilt yields around 5%, it’s arguable that over the medium-term value is being created.”

Rate hold slows cash ISA price war

News that interest rates have been held at 3.75% have cooled a price war among several fintechs who increased savings rates in expectation that rates would rise today.

Kate Steere, personal finance expert at Finder, said: “The expectation ahead of last week’s inflation figures was that the Bank of England could raise rates, prompting several fintech providers to battle it out in a cash ISA rate war.

“However, with inflation coming in lower than expected and today’s decision from the Bank to hold the base rate, those rates have settled and edged back down.”

She noted that while this may be disappointing for savers trying to get the best rates, they “shouldn’t miss the bigger picture: real returns are back.

“With inflation at 2.6%, market-leading cash ISAs are offering returns nearly 2% above inflation. That means cash value isn't just being protected from inflation - it's actively growing.

"With rates already dropping slightly, now is the time to take advantage before these strong offers slip away."

Recap: Where interest rates have been in the last 10 years

Today’s interest rates decision marked the fifth consecutive time the MPC voted to hold the Bank rate at 3.75%.

Though the base rate is high compared to where interest rates were between 2008 and 2022, a rate of 3.75% is actually the lowest since early 2023.

Rates started to rise once the economy opened up after the covid-19 pandemic when inflation started to rise during the cost of living crisis.

They stayed high, peaking at 5.25% before starting to fall in November 2024.

BoE: UK economy set to remain subdued this year, but accelerate in 2028

The energy shock is set to keep the UK economy “subdued” for the rest of 2026 and early 2027, the Bank of England has said.

New forecasts from the Bank’s quarterly Monetary Policy Report show annual UK GDP is set to rise by 1.1% in the third quarter of 2026 and 2027, and increase by 1.7% in the third quarter of 2028.

Santander: Tracker mortgages becoming more popular as customers hope for rate cuts

“Cautious optimism” is entering the mortgage market as an increasing number of borrowers are choosing tracker mortgages as they hope for future interest rate cuts, according to Santander.

Tracker mortgages track the Bank of England’s base rate (the rate is usually set a little above this benchmark) and can change during the mortgage term. They are different to fixed-rate mortgages where borrowers lock into a certain rate for a fixed period of time.

Frances Haque, chief economist at Santander UK, said: “Although both global and domestic challenges remain, there certainly seems to be signs of cautious optimism trickling into the mortgage market.

“More borrowers are choosing to play the waiting game, with growing interest in tracker mortgages as customers hope to benefit from any future reductions in borrowing costs.”

Mortgage rates not set to fall any time soon

Although interest rates have been held at today’s meeting, the market is still expecting rates to rise later this year, meaning mortgages are not set to become cheaper any time soon.

Adam French, head of consumer finance at Moneyfacts, said: “Mortgage costs were already on the up before today’s decision to hold the Base Rate at 3.75%, with more than 30 lenders increasing rates in recent weeks.

“While the initial market reaction has been fairly muted, it remains to be seen whether the slightly more hawkish tone struck by the MPC fires the starting gun on a fresh wave of mortgage rate hikes.”

French added: “Unless the economic backdrop improves significantly, borrowers should not expect mortgage rates to fall much anytime soon.

“Anyone planning to take out a mortgage within the next six months should consider securing a deal sooner rather than later to protect themselves against further increases. If rates do fall before their mortgage completes, they can usually switch to a cheaper deal.”

Deutsche Bank: Unexpectedly slow inflation is helping buy the MPC time

With inflation surprising to the downside for the last few months, the MPC has been given more time to assess whether or not hiking rates is the right decision, Deutsche Bank says.

Sanjay Raja, chief UK economist at Deutsche Bank, said: “It’s clear that recent inflation and wage outturns have given the broader MPC confidence that underlying disinflation has continued.

“Multiple members pointed to a loose labour market, target-consistent private-sector pay growth and the absence of evidence that inflation expectations, wage settlements or firms' pricing behaviour are generating meaningful second-round effects. This, in and of itself, buys the MPC more time.”

He added that pressure to hike rates has also been relieved as markets have already priced in higher shorter-term and longer-term interest rates, because of the subdued labour market.

Deutsche Bank’s prediction remains that the Bank rate will stay at 3.75% for the rest of the year, but their forecast is highly dependent on what happens in the Middle East.

Raja said: "The longer tensions in the Middle East continue, the higher the risk of a policy shift in the coming months. Indeed, should energy prices drift further, extending the duration of the price shock across energy futures, the balance of risks could quickly shift towards a tightening cycle as opposed to a protracted pause.”

Rate hold leaves property market in “limbo”

The poorly-performing UK property market is unlikely to be given a boost following today’s interest rates announcement as lower mortgage rates are off the table.

Ryan Etchells, chief commercial officer at property lender Together, said: “Another hold by the Bank of England – the fifth in a row – leaves the property market in limbo for now.

“For UK mortgage borrowers, the context of the hold is somewhat more negative than at the last. Reignited tensions in the Middle East have raised expectations of a rise in inflation, which could lead to at least one Bank of England rate hike this year.”

Etchells added that the possibility that rates may rise this year could incentivise buyers to lock in rates now before they become less attractive, but warned many will also decide to wait and see if the situation improves in the short term before going ahead with securing a home loan.

Oxford Economics: Rates to stay at 3.75% until at least the start of 2027

Interest rates are unlikely to change for at least the rest of this year, Oxford Economics has reiterated following today’s MPC meeting.

The economics advisory firm has stuck with its forecast that rates will remain on ice until at least early 2027, noting that there is no evidence yet of second-round effects from elevated energy prices.

Andrew Goodwin, chief UK economist at the firm, said: “Members pointed out that this isn’t guaranteed to remain the case, but provided forward-looking indicators are benign, the majority think policy is already sufficiently restrictive.

“The MPC downplayed the extent to which the rising path in market rates implies tightening is likely, arguing that it mainly reflects risk premia rather than expectations that Bank Rate will rise.”

This being said, Goodwin warned: “The conflict in the Middle East is still the wildcard that could trigger a change of view. Several members suggested a sustained period of higher energy prices would raise the chances that second-round effects would develop.”

Thank you for joining our live coverage of today’s interest rates decisions.

We will finish our coverage in this live report now, but make sure to subscribe to MoneyWeek’s newsletters to get a wealth of news, insights, and analysis straight to your inbox twice a day.

Asian small companies are often overlooked – but they shouldn’t be, Gabriel Sacks, manager of the Aberdeen Asia Focus fund says.

Speaking to Cris Sholto Heaton on the MoneyWeek Talks podcast which is now available on all podcast platforms and our YouTube channel, Sacks says Asia is the largest economic region in the world, and it acts as the engine of growth for the global economy.

“Asia is delivering over 50% of global growth. So a lot of people will look at Asia small caps as being niche but actually in my view it should be really core to people's portfolios because you get away from some of the mega caps and get access to really the engine of domestic and global growth.”

With the region being so large both geographically and economically, there are many opportunities for investors to find real returns.

Sacks says his fund is able to get broad access to Asian markets and look at the opportunities presented by all the different countries in the region and the thousands of listed firms.

That being said, there is a need to narrow it down to just the most exciting ones, but the low amount of research available presents a challenge. Sacks says that this is partially caused by the fact that the Asian small caps market changes very rapidly and the research struggles to keep up.

“One of the differences I think with Asia and emerging markets is that the universe is changing very quickly. It's a very dynamic region. If you look at places like Latin America or EMEA there's a narrower set of opportunities and you can buy these companies and they're great businesses.

“In Asia you need to refresh your views quite frequently.”

He adds that the quality of research available “has probably got worse throughout my career. Things like MiFID (Markets in Financial Instruments Directive) and a passive focus has meant the focus has been on large caps.”

Though Sacks says a passive focus also presents an opportunity for active fund managers to take initiative and make the most of the fast-changing market.

Artificial intelligence is part of the story, but not all of it

Although the broader Asian small caps market encompasses many diverse firms, the current focus of much of the market is, unsurprisingly, artificial intelligence (AI).

While historically the Asia focus fund has been most heavily weighted towards the domestic-oriented India market, the AI boom has shifted the focus to export-oriented Taiwan and Korean markets.

This is a function of good performance coming from firms in that sector, particularly in the semiconductor supply chain.

Sacks said the other factor to consider is that “the market has actually rewarded that part [Taiwan and Korean] of the market much more than other parts. So the index and our portfolio weights have drifted upwards.

“I think we've been taking profit from our AI winners for at least the last 6 months and the weight has still crept up. So we've had some fantastic stocks in that space.”

The performance of some of these firms, like TSMC, Samsung, and SK Hynix, has been boosted by the fact there are very high barriers to entry in the supply chain and the firms who already occupy the area are able to profit from the huge boom in AI.

“There's a lot of money being thrown at AI at the moment, driven by the US, and the Asia supply chains really earn this profit up front because they develop the chips [needed for AI]. They're the ones doing the cooling, they're the ones doing the testing and the services side.”

Sacks adds that the fund is also looking at the firms that are benefiting from the AI boom too.

“We increasingly find second or third order derivative plays on AI which are just emerging. Those businesses that are part of the AI-driven part of the [market] weren't there before. These are very leveraged plays on AI. So many of these names have actually done better than TSMC which again I think goes to show that you don't need to necessarily buy TSMC or large cap to get that AI and tech exposure.

“The nice thing in our space is that it can be more diversified than a single stock, and actually within our portfolio tech is not as high as it is in a large cap portfolio.”

For more on the opportunities in Asian small caps, the tech supply chain, and the consumer sector, you can listen to or watch the full episode of MoneyWeek Talks wherever you get your podcasts.

About the podcast

MoneyWeek Talks is a podcast that helps you unlock the secrets to financial success. Editors Kalpana Fitzpatrick and Andrew Van Sickle are joined by influential guests – from CEOs and entrepreneurs to economists and policymakers – to share their top tips on managing money, investing wisely and building wealth.

Subscribe to the MoneyWeek Talks podcast and get ready to make it, keep it and spend it with confidence.

Andy Burnham has appointed John Healey, the former defence secretary, as chancellor. It was certainly a surprise. Home secretary Shabana Mahmood had been seen as a certainty for the job at No. 11, but at the last moment The incoming prime minister, appointed Healey instead. The markets were relieved. Given that the potential alternatives were Ed Miliband or Angela Rayner, that is not saying very much.

Still, at defence, and as a former minister in Gordon Brown's Treasury, John Healey carved out a reputation as a tough and effective minister. For now investors will trust him to stick to the fiscal rules and at least make some efforts to control the huge rise in public spending. The choice is better than could have been hoped for a few weeks ago.

The trouble is, Rachel Reeves has left behind a dismal inheritance. After less than two years in office, growth has stagnated, real wages are stuck, investment has been crushed, retail, hospitality and manufacturing have been suffocated by higher taxes, and unemployment has begun to steadily rise. Meanwhile, borrowing is starting to run out of control, overshooting even the £70 billion increase planned in Reeves's first Budget, and the cost is rising all the time, with the country now spending £125 billion a year on debt interest alone.

If Healey is to have any hope of fixing that and saving the government from a financial crisis, he will have to make it clear he is making some decisive changes and is willing to make them right away. It won't be easy. But here are three places he could start.

1. Schedule an early Budget

To begin with, he should schedule a Budget for early September. Parliament can always be recalled for a few days if necessary. One of the worst mistakes Reeves made was to allow months of speculation about which taxes might go up. It will be even worse under Burnham, who is at his happiest when pandering to the free-spending wing of his party. A wealth tax? A steep rise in capital gains tax? A lower threshold for the mansion tax? A land value tax? Each time one or other option is floated in the media, assets are sold or reorganised to try and minimise the impact. It damages the economy, and you don't even raise any revenue. The best thing John Healey could do is to set out what his plans are as quickly as possible. At least that way, all the damaging speculation would be brought to an end.

2. Stop battering businesses

Next, John Healey should call off the war on wealth creators. He should make a big speech within the next few weeks praising entrepreneurs, start-ups and small businesses. Another big mistake Reeves made was to relentlessly batter businesses, and new small businesses in particular, with an endless series of levies, charges and new rules. She made them feel that their staying in business was not worth the effort, and increasingly that feeling was unfortunately justified. Apart from the increase in employers' national insurance, none of them raised very much money, and they all crushed the life out of companies. Instead, Healey should offer one major concession such as restoring the 10% rate of CGT for entrepreneurs or exempting family businesses from inheritance tax. It would hardly cost anything and would send out a signal that enterprise was back in favour.

3. Reform welfare spending

Finally, John Healey must start making serious cuts to welfare spending. We don't have any real idea what Burnham's plans are, but they will be expensive. A lot more money will have to be found from somewhere – not least for defence given Healey's previous stand on this issue – at a time when the government is already breaking through its borrowing limits. Welfare spending is already projected by the Office for Budget Responsibility to go above £400 billion by 2030, and given the rate at which it is rising, may well go much higher.

Unless that can be controlled, the country faces endless tax rises, with no improvement in services and with no money left to do anything else. Welfare will simply consume every spare penny. At defence, John Healey showed he is capable of tough decisions and doesn't mind confronting his party. He will have to do the same as chancellor – he had better make a start from the very first week.

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Could Andy Burnham’s leadership mark a shift in tone and pace for the UK’s beleaguered economy?

Business leaders hope so. Gregor Paterson, fund manager in the UK team at fund management group Amati Global Investors, highlights that the new prime minister ought to have the expertise on hand to do so.

“Burnham himself has a lot of experience, and has a pretty heavyweight team of advisers around him,” says Paterson. “He must be aware – as we all are – of how much Keir Starmer’s team struggled to get the economy moving, and you’d hope that he has a plan.”

The sense of urgency is critical. One key frustration with the previous government was the lack of clarity around policy direction, especially around the Budget.

“Businesses weren’t able to hire, expand or build because they didn’t know what was coming,” Paterson says, pointing out successive delays around fiscal events, whereas Burnham already looks to be moving at pace.

“It looks like he’s putting his team in place and keen to get things moving much more quickly than might have been the case if there had been a messy leadership battle.”

To the business community, speed and clarity are essential for planning – not merely political virtues. There is a deeply felt need for a credible and ambitious growth strategy.

Anna Leach, chief economist at business leaders’ professional body the Institute of Directors (IoD), says some elements of the previous government’s approach were well-intended but overshadowed by uncertainty.

“We need a better industrial strategy and it all needs to be done a bit more quickly and at a grander scale,” she says.

Infrastructure is a key area of focus

Leach would welcome a clearer long-term framework that gives companies the confidence to commit capital, hire staff and expand their operations.

Planning reform and infrastructure investment should form two central pillars of a growth strategy and she supports Burnham’s ambitions for a more balanced economy.

“A regional growth agenda and devolution are really good ideas. There’s strong economic evidence that – if well-designed – these can deliver strong growth and help draw in private sector investment,” she adds.

But execution will be key.

“It does come down to design because while Manchester looks like it has been successful, I don’t think one could look at Wales and Scotland and say that devolution has unleashed any animal spirits in those two regions.”

Job market dynamics are another area of concern. Cost pressures have intensified, the jobs market has cooled, hiring is declining and vacancies are falling. This all raises questions over how to meet conflicting priorities.

“We want to see how we shape the labour market in a way that balances everybody’s needs… because at the moment things are looking a little bit risky, particularly when you layer in artificial intelligence,” says Leach.

All eyes on Burnham’s tax policies

Given the £3 trillion debt burden, the key question is one of tax. For many in the business community, their immediate wish is not further reform but stability, with uncertainty particularly acute around the non-domicile regime.

“The constant speculation about what tax increases should fall on wealth creators, following big tax increases on businesses themselves, is all detrimental to private sector investment,” adds Leach.

She also highlights the cumulative effect as the business tax burden has been creeping up in successive budgets.

“In the near term… more certainty and a lack of vilification of business would be pretty pleasant to start with.”

Darius McDermott, managing director of investment platform Chelsea Financial Services agrees; he’s a clear believer that if you overtax the wealthy, they will leave the country, shrinking future potential tax revenues.

“If additional rate taxpayers face a 1% increase, I don’t expect you’d see a huge outcry. But if it goes up to 60% over a certain number, then I think you’d see a lot of unhappy wealthy people,” he says.

Markets rely on confidence as well as policy

From a market perspective, the challenge is not just policy design but sentiment.

According to Anna Macdonald, investment strategy director at Hargreaves Lansdown, the UK needs a “credible, investment-friendly plan for economic growth, alongside clarity and stability on tax”, otherwise investors will remain hesitant.

“Constant speculation, including around capital gains tax, risks making people more cautious about moving their money from cash into long-term investments, at precisely the moment when the UK needs more people to invest for their future.”

Critics of Starmer say that Labour was voted in on the promise of growth and change, but it soon emerged he didn’t have a clear plan to achieve it.

“What markets want to see is how we're going to start to grow the economy and grow productivity. We thought the answer to that previously was going to be in housebuilding but that didn’t really materialise,” adds Paterson.

“When you have such high levels of debt, you have to grow your economy. And I think neither people nor businesses feel confident enough to invest – hire people, build factories and expand.”

It’s early days, but if Burnham can shift the mindset, his impact could be significant.

“If he can inject some confidence back into the system, then people and businesses will hopefully start to react,” adds Paterson.

One move that would encourage investors towards UK companies is if the new administration were to lower the rate of stamp duty reserve tax on most UK-listed stocks and shares.

Currently investors directly purchasing more than £1,000 of UK-listed shares, unless they were newly listed or traded on the Alternative Investment Market (AIM) – even inside an ISA – would need to pay 0.5% stamp duty.

“If you were to buy Tesco shares to put in your ISA, you’ll pay half a percent tax when you buy those shares, but if you buy Walmart shares, you won't pay any tax,” Paterson says.

Scaled up, those amounts soon mount up. He says as well as eroding returns, the UK could be putting itself at a disadvantage compared to other markets.

“It’s something most markets don’t have. The French do, but it's only 0.3% and it’s only on the very largest companies. So we're a bit of an outlier in charging people to participate in our stock market.”

Which investments could benefit under Burnham’s government?

John Healey being named chancellor was the big announcement many of us were waiting for.

He stood down as defence secretary on 11 June in protest over insufficient funding of the country’s defence strategy; he’d been calling for a defence budget of 3% of GDP by 2030.

Healey’s appointment saw a bounce in some defence names. Babcock International Group (LON:BAB) jumped roughly 7% following the news and BAE Systems (LON:BA.) was also up around 3% the following day. Both share prices climbed further over the next few days.

While it remains to be seen which defence companies are the specific longer-term beneficiaries, the sector as a whole will be a clear structural winner, according to McDermott.

He says: “The increase in spend isn’t over one year; it’s a multi-year increase. We may see the investment into companies from other countries, the US or elsewhere, but I think European defence, of which we’re obviously a subsector, is likely to see a decent amount of growth over the next decade.”

As always, individual investors should try to avoid overreacting to political headlines or any market noise as the new government sets out its plans.

“Changing a long-term investment strategy in response to a change of chancellor can easily do more harm than good. Staying invested and focused on long-term goals remains the most sensible approach,” says Macdonald.

Andy Burnham, the UK’s new prime minister, is never going to be popular with everyone – but this may well be his hardest lesson.

It’s clear he wants to be a superhero prime minister – the hero of UK politics who speaks without a lectern (signifying no barriers) and someone who wants to give power to local authorities rather than just the Number 10 powerhouse. In his words, he “wants to bring back hope” as he attempts to fix the broken political system and the UK economy.

And as such, welfare appears to be at the core of what Burnham wants to achieve by putting an end to rough sleeping, introducing more council homes, and providing more help for young people to end the growing NEET (Not in Employment, Education or Training) crisis. In recognising the cost of living pressures, he pledged breathing space, which has included axing the 5% VAT from electricity bills from October and capping bus fares outside the capital at £2. He’s also announced a 20% cut in business rates for pubs, clubs and music venues from April, though not all hospitality venues are included.

But are his moves bold enough? Removing VAT on electricity bills is estimated to save families around £45 a year, but amounts to a 12p saving per day. The reality is most people will not feel the benefit, especially as average household energy bills are around £2,000 per year.

The bus fare cap is useful for regular bus users, saving around a third off single journeys for many. But households that rely on their own transport are still subject to high prices at the pumps – petrol prices have shot up from around 133p at the start of this year to 151p on average now, the RAC Foundation shows. In the meantime, there is uproar over the £26.2 billion in profits made by energy companies since the start of 2026, according to the End Fuel Poverty Coalition.

You’d be forgiven for calling these measures tokenism, and perhaps that’s all it really is as he figures out how to tackle the bigger problem of reducing government debt, improving the economy and making Britain a great place for investors once again.

But what can we expect to see, and can he, alongside his new chancellor John Healey, deliver on the big issues?

What can Burnham do to boost the UK economy?

Tackling labour productivity would be key. UK productivity has been at a low since 2008, but it is the foundation of economic growth and can improve living standards as it promotes stronger wage growth, too.

Hear more about the UK's growth problem as economist Julian Jessop talks to MoneyWeek’s Andrew Van Sickle about the UK's productivity problem in our latest podcast.

Related to productivity and growth is the burgeoning NEETs issue. We cannot afford to let the young generation become a lost generation. Financial advice and wealth management firm St James’s Place estimates that youth unemployment costs the government £125 billion. It is an area Burnham must absolutely focus on. Plus, let’s not forget, without young people in the work system, there is no one funding future state pension payments – today's workers pay for today's pensions.

Speaking of pensions, there are also heavy calls for Burnham to scrap the changes to salary sacrifice pension rules. As of next year, only the first £2,000 of salary sacrifice contributions per employee will be exempt from National Insurance contributions.

That, plus changes to inheritance tax (IHT) rules which will bring pensions into an estate for IHT purposes from April 6, 2027, do little to encourage pension saving.

Age UK claims 1.9 million pensions live in relative poverty and is estimated to cost the government around £10-£15 billion, according to Pensions UK. Simplifying pensions and encouraging savings will be vital, rather than adding barriers that undermine retirement savings.

Care should also be on his mind as an ageing population is also looming and quite possibly the next big crisis to face the UK.

Taxes

While Burnham has ruled against making any changes to the frozen tax allowance, which has stood at £12,570 since 2021, there are calls for the new chancellor to address this in the Autumn Budget.

A £500 increase in the personal allowance would cut income tax bills by £100 for basic rate taxpayers, and could cost the government £5 billion, AJ Bell estimates. Resoring it to £16,000, which is where it could be without the freeze, would cost the government around £35 billion, the investment platform says.

Could a cut to the National Insurance rate be a better alternative to take the pressure off household finances? Employees currently pay 8% in National Insurance on earnings between £12,570 and £50,270 (the rate is 6% for self-employed profits) and the rate is 2% above the upper earnings limit.

AJ Bell says that cutting each main rate by 1% would cost the government £5.8 billion, but would give workers more breathing space and it would certainly not be seen as just a token gesture; someone earning £35,000 a year could save around £225, compared with a £100 tax saving from a £500 increase in the personal allowance.

Backing British

Former chancellor Rachel Reeves was incredibly keen to get investors backing British companies, so much so, she reduced the cash ISA allowance to £12,000 for under 65s in a bid to shift savers into investing instead. This limit, taking effect in April 2027, will only apply to cash ISAs – and the overall £20,000 ISA allowance remains. Reeves even decided that cash holdings of any kind, such as money market funds, could not be part of a stocks and shares ISA. If any cash is parked in a stocks and shares ISA, interest earned will be taxed.

While in government in the past, the Conservatives proposed a British ISA, an idea that never truly came to fruition.

I don’t think either of these policies would encourage savers to suddenly invest more and in British companies specifically. So, what will Burnham do? Can he save the UK stock market?

I think policies that undermine saving, instead of encouraging it, are bound for failure.

Addressing speculation about hikes to capital gains tax is needed if he is to encourage investors, and if he can also restore political stability, there is a chance the UK stock market could thrive. But to do this, he will have to find a fine balance between public spending and fiscal policies.

Can he do it? It is early days as we wait to see his final 10 year plan. That and Healey’s Autumn Budget will be ones to watch closely as this could really be Labour’s final opportunity to show it can change fortunes, fix politics and bring back stability to the UK.

• The Office for National Statistics (ONS) has released the latest UK Consumer Prices Index (CPI) measure of inflation data today (22 July).
• CPI inflation rose by 2.6% in the 12 months to June 2026
• This is a drop from 2.8% in May and April
• Ratesetters at the Bank of England will be watching closely to help inform its decision on whether to lower interest rates from 3.75%.

| UK inflation forecast | What is inflation? | When will interest rates fall further? | CPI release dates | MPC meeting dates |

Good afternoon. Welcome to our live coverage ahead of the Office for National Statistics releasing its latest monthly Consumer Prices Index (CPI) inflation data tomorrow (22 July).

The war in Iran had stoked fears inflation would rise, but it has trended downwards in recent months and held below 3% in April and May. What can we expect from the June data?

Stay with us as we bring you rolling build up commentary, as well as reaction and analysis after it is published.

What is the current rate of inflation?

The most recently-published data from the Office for National Statistics revealed prices rose by 2.8% in the 12 months to May 2026.

This was the same increase as in the 12 months to April 2026 and a fall from 3.3% in the year to March 2026, when the onset of the Iran war pushed up prices.

What could the June inflation data be?

Economists at research firm Pantheon Macroeconomics predict Consumer Prices Index inflation will slide to 2.6% in June.

Meanwhile, Deutsche Bank expects the CPI measure to slow to 2.7%, before rising after.

When is UK inflation data announced?

UK inflation data for the 12 months to June 2026 will be announced at 7am.

We will bring you live analysis and reaction to the ONS data tomorrow morning following its release.

What is inflation?

You’ll see the term inflation bandied about a lot, but not everyone knows what it means.

A third of Brits can’t give a definition of the word, according to recent research carried out by investing platform XTB.

So, what is inflation? Put simply, it’s a measure of how much prices have risen over a given time period.

For example, if you bought something for £1 and it was worth £1.05 a year later, the rate of inflation will have been 5%.

While prices going up sounds bad – and above a certain level it is – economists generally agree that a small amount of inflation is healthy for an economy.

This is why the Bank of England, like most central banks, targets an inflation rate of 2%.

What do you think inflation will be?

It’s time to get your predictions in. What do you think the inflation data tomorrow will look like?

Where has inflation been?

The CPI measure of inflation has trended downwards from a high of 11.1% in October 2022.

Back then, soaring energy and fuel prices caused by Russia’s invasion of Ukraine and a surge in demand for consumer goods as economies across the globe emerged from the Covid-19 pandemic contributed to much higher inflation rates.

The CPI measure of inflation fell to 1.7% in September 2024, but has remained over 2% since.

What does the Consumer Prices Index track?

The Consumer Prices Index of inflation tracks price changes across a basket of roughly 760 goods and services.

This basket is updated once a year to keep up with consumer trends. In 2026, houmous and WiFi light bulbs were added while premium bottled lager and Euro Tunnel fares were ditched.

The basket of goods and services is designed to reflect what the average consumer buys and uses in day-to-day life.

CPI is just one measure of inflation. For example, the Office for National Statistics also has a Retail Price Index.

We’re going to end our coverage for today, but join us again first thing tomorrow when we’ll bring you live coverage of the ONS data release and, of course, reaction and analysis on what it means for you.

Good morning and welcome back to our live coverage of the latest Consumer Prices Index inflation data.

The Office for National Statistics will be releasing the data at 7am, so stay with us and we'll bring you everything as and when it happens.

BREAKING: UK inflation fell to 2.6% in June

Lower fuel prices drive fall in UK inflation

UK inflation fell to 2.6% in June, from 2.8% in May, with falling petrol prices one of the significant contributors.

“A fall in motor fuel prices, particularly diesel, helped ease inflation in June,” said the ONS chief economist Grant Fitzner.

“Food prices fell this month, driven by products including chocolate, margarine and beef,” he added. “Clothing prices also fell with the start of summer sales, with bigger discounts than last year.”

Core CPI remains unchanged at 2.6%

Core CPI, which strips out energy, food, alcohol and tobacco prices (which are often more volatile than other categories), remained at 2.6% in the 12 months to June.

Meanwhile, the CPI including owner occupiers’ housing (CPIH) rose by 2.8% in the 12 months to June, down from 3% in the 12 months to May.

CPI inflation at its lowest level since March 2025

The CPI measure of inflation slowing to 2.6% puts it at its lowest level since March 2025.

It has stayed around the 3% mark since then, but economists believe it will rise over the coming months due to rising energy prices.

Sanjay Raja, chief UK economist at Deutsche Bank, said: “Expect a bumpy path with energy prices back on the rise. While we're nowhere close to the peaks seen during the height of the Iran conflict, the energy disinflation path remains uncertain.”

A deeper dive into the June figures

One of the largest contributors to the CPI measure of inflation slowing to 2.6% in June was a fall in the price of fuel, particularly diesel.

The average price of unleaded petrol, including VAT, fell from 159.48p per litre on 29 May to 155.89p on 15 June, according to the RAC.

The average price of diesel, including VAT, fell from 191.54p on 15 April to 176.77p on 15 June.

Grant Fitzner, chief economist at the ONS, said the cost of raw materials dipped for the first time since January, mainly due to the lower price of Crude oil.

Food and non-alcoholic drink price growth slowed to 1.7% in the 12 months to June also, down from 2.2% in May. The annual rate in June was its lowest since August 2024.

New chancellor John Healey still facing ‘notable’ inflation headache

Today’s figures, on the face of it, are positive, with inflation closer to the Bank of England’s government-set 2% target.

Suren Thiru, chief economist at the Institute of Chartered Accountants in England and Wales (ICAEW), however, has warned the July data could be more negative, in part due to a rise in energy bills.

The Ofgem price cap rose by 13% on 1 July, covering the July to September period, with the average dual-fuel household on a standard tariff seeing their bills rise to £1,862 a year.

Thiru said: “June’s slowdown is a false dawn as it may have already been reversed this month with higher energy bills, following Ofgem’s energy price cap rise, likely to have lifted inflation above 3%.

“Though stubborn services and core inflation suggest that the UK remains exposed to the inflationary fallout from the Iran war, weaker wage growth and a sluggish economy will help blunt any second‑round effects."

Thiru added: "Elevated inflation will likely become a more notable economic headache for the new chancellor in the coming months by deepening the cost‑of‑living crunch, while also squeezing his fiscal headroom, raising borrowing costs, and increasing financial market volatility."

What does inflation mean for your money?

Inflation figures published by the Office for National Statistics are backward-looking and reflect what people across the economy spend on everyday goods and services.

If the rate of inflation is rising, it means these goods and services have become more expensive.

It also means the value of your money is gradually being eroded in real terms as the same amount of money is worth less and less.

Why it’s worth looking past the headline UK inflation figure

Because the Consumer Prices Index measure of inflation is based on price rises across a basket of 760 goods and services, it’s worth looking past the headline figure to find out how inflation is affecting you personally.

Your experience of inflation will be different to someone else who buys different goods and uses different services.

For example, this month’s figures show a large drop in the price of diesel – if you’re someone who drives a diesel car a lot, you’ll notice a bigger change in your cost of living than someone who doesn’t.

The June figures show inflation across the restaurant and hotels sector rose to 4.4%, from 4.2% in May – if you’re someone who eats out a lot or travels across the UK a lot for work, you will have noticed a bigger dent in your budget relative to the average consumer.

What does the latest UK inflation data mean for interest rates?

The Bank of England’s Monetary Policy Committee (MPC) will be watching today’s inflation figures closely ahead of announcing its latest base rate decision on 30 July.

A drop in the pace of inflation in June would suggest the MPC is more likely to lower interest rates next week, however with fears inflation could rise in July, the MPC may decide to take a more hawkish approach.

Jeremy Batstone-Carr, European strategist at Raymond James Wealth Management, said the recent re-escalation in hostilities between the US and Iran will also “likely be on the Bank of England’s mind”, with upward pressure expected on prices over the coming months.

However, he added that the MPC would be wary of stimulating growth in the UK economy, with the latest figures showing GDP rose by just 0.1% in May.

A quick recap

If you’re just joining us, the key takeaway from this morning is that the Consumer Prices Index measure of inflation slowed to 2.6% in the 12 months to June, from 2.8% in May.

One of the main downward pressures on prices was a drop in the price of fuel, particularly diesel.

However, the drop is expected to be short-lived, with economists and experts warning inflation could tick upwards in July, partly due to a 13% rise in the Ofgem price cap.

What savers need to do now

It’s worth checking if you’re getting the best rate on your savings account – anything below the 2.6% rate of inflation and you’re losing money in real terms.

There are currently 1,960 savings accounts that beat inflation, according to data firm Moneyfactscompare, including 284 easy-access accounts.

If you’ve got emergency savings sitting in an account paying less than 2.6%, you should move them into one paying a higher rate.

Adam French, head of consumer finance at Moneyfactscompare, said: “For many savers, what matters most isn't whether savings rates rise or fall in isolation, but whether they stay ahead of inflation, and as things stand, they are doing just that and allowing many households to preserve or grow their purchasing power.”

Mortgage rates ‘likely’ to rise further despite lower inflation

David Hollingworth, associate director at mortgage broker L&C Mortgages, said recent rises in mortgage rates aren’t likely to abate despite today’s positive inflation data.

Mortgage rates have started increasing, in part, due to renewed tensions between Iran and the US, pushing up lenders’ wholesale funding costs.

Hollingworth said the June inflation data would be welcome news for borrowers and the fall could take some pressure off the Bank of England to raise interest rates in the near-term, but it is “likely” mortgage rates will continue to rise.

He added: “Borrowers shouldn't feel they have to panic, but they also shouldn't delay reviewing their options. Mortgage rates can move quickly, as we have seen over the past week, so anyone approaching the end of their current deal or planning to buy a home should consider securing a competitive rate sooner rather than later.

“Most lenders will still allow borrowers to switch to a cheaper deal before completion if rates ease again, giving them certainty now and flexibility if the market moves in their favour later down the line."

Do you think CPI inflation will rise in July?

Why prices are still rising despite inflation slowing

Despite the June data showing inflation slowing to 2.6% from 2.8% in May, prices are still rising, just at a slower pace.

And while the rate of inflation has dropped from highs of 11.1% in 2022, households will likely still be feeling the impact of higher costs built up since then.

Take one look at how much the price of the weekly grocery shop has gone up, for example. According to the ONS, cumulatively, food prices rose by 38.6% between November 2020 and November 2025.

How does the UK’s CPI rate of inflation compare to other countries?

The UK CPI inflation rate in June was lower than the EU’s, but higher than Germany’s and France’s.

France’s June inflation data gave a reading of 2% while in Germany CPI inflation stood at 2.4%. Across the EU, inflation was 2.9% in June, down from 3.3% in May.

Inflation above 2% target ‘deeply concerning’ for families, says Mel Stride

The shadow chancellor, Mel Stride, has said inflation remaining above the Bank of England’s 2% target is “deeply concerning” for families.

He said: "Labour's tax hikes and reckless borrowing stoked inflation, and Andy Burnham has already made billions of pounds of spending commitments without any plan to pay for them.

“[The] Conservatives are the only party that have set out a credible plan to cut spending, cut taxes and get Britain working again.”

When will the next inflation data be published?

The ONS publishes inflation data each month for the preceding month – that’s why the data released today covers the month of June.

The ONS will release inflation data for July on 19 August.

You can find out when the ONS is set to release inflation, GDP and wages data on its website.

We're going to end our inflation coverage here for today. Thank you for following, and visit our homepage for all the latest personal finance and investing news.

• Andy Burnham is the UK's latest prime minister today, replacing Keir Starmer.
• Burnham promised a "new economic model" for Britain in a speech outside Downing Street.
• The ex-Mayor of Manchester announced John Healey will be his chancellor

| Will Andy Burnham 'wilt like a lettuce'? | Could Burnham lower ‘mansion tax’ threshold? | Is the triple lock safe under Burnham? | Who could be Burnham’s chancellor? |

Good morning and welcome to our live blog as Andy Burnham is set to become prime minister of the UK today.

He faces a number of daunting challenges, including a ballooning welfare bill, high levels of public debt and deepening cost of living crisis for millions of households.

The UK economy is also growing at a sluggish rate, with GDP rising just 0.1% in the month to May, so Burnham will have to find answers from somewhere rather than relying on growth.

Stay with us as we bring you live coverage, reaction and analysis, as well as predictions on what could be announced.

When is Andy Burnham expected to officially be prime minister?

The MP for Makerfield is expected to become prime minister around lunchtime today.

Burnham will first meet with the King at Buckingham Palace where he will be asked to form a government. This formal process is known as “kissing hands”.

He will then make his way to Downing Street where he is expected to make his first speech as PM before entering No.10 to select his cabinet.

Badenoch wishes Burnham ‘every success’, but criticises lack of ‘clear plan’

Kemi Badenoch has congratulated Burnham on his appointment as leader of the Labour Party and wishes him “every success” – but the niceties stop there.

In an open letter, the Conservative Party leader said the MP for Makerfield will enter office “without having set out a clear plan on any of the issues facing our country”.

“You have refused calls to come to Parliament for questions from MPs, and you have not submitted yourself to serious media scrutiny. This is not a promising start.”

Her letter goes on to say Burnham must “not repeat the mistakes of Keir Starmer’s premiership which failed because he refused to stand up to his left-wing Labour backbenchers and their endless demands for tax rises to pay for more welfare”.

She has pledged to work with the new prime minister to “bring down the benefits bill” while also calling on him to grant licenses to drill for oil and gas in the North Sea.

Who is Andy Burnham?

Andy Burnham returned to the House of Commons on 19 June, and today, just under a month later, is set to become Britain’s sixth prime minister in 10 years.

Burnham entered politics in 1994 as a researcher for Labour MP Tessa Jowell, before becoming a special adviser to Chris Smith, the secretary of state for culture, media, and sport.

He was elected to the House of Commons in 2001 and held junior government positions under New Labour from 2003, eventually joining the cabinet as culture secretary in 2008 and health secretary in 2009.

He unsuccessfully stood to lead the Labour party in 2010 and 2015, before leaving Westminster to become the inaugural Mayor of Greater Manchester.

With Keir Starmer’s Labour government unpopular and slow to deliver, allies of Burnham on the soft left of the party urged him to return to Westminster. He did so on 19 June when he became MP for Makerfield, and less than a month later – on 17 July – he was leader of the Labour party.

Starmer delivers farewell speech before Andy Burnham takes over as new prime minister

Keir Starmer is now on his way to meet the King to officially hand him his resignation as prime minister.

In a farewell speech outside the doors of 10 Downing Street, Starmer said: “I am confident that Britain is now stronger and fairer than it was two years ago. Our economy is stronger. Our public services are on the up, with the biggest fall in waiting times for 17 years.

“Children are being lifted out of poverty every single day. Immigration is down significantly, our defences and security are on a far stronger footing, and our international reputation is greatly enhanced.”

Starmer added that Burnham has his “full support” and thanked the British people for “the opportunity to serve”.

“I go with good grace. I go with a smile. And I’m proud of everything we have achieved. Thank you very much,” he concluded.

Did you want Andy Burnham to be the new prime minister?

BREAKING: Andy Burnham officially becomes prime minister

Andy Burnham is now the UK’s 59th prime minister following a meeting with King Charles III.

The King officially invited Burnham to form a government in a meeting at Buckingham Palace, just minutes after the King accepted Keir Starmer’s resignation.

As is tradition, Burnham “kissed the hands” of the King as he was appointed prime minister.

What has Andy Burnham said before becoming prime minister?

Andy Burnham has now left Buckingham Palace and is on his way to deliver his inaugural speech as prime minister at Downing Street. We’ll get the first official view on what his government will mean then – but what has he said already?

In a speech at the Trades Union Congress headquarters in London on Friday (17 July) Burnham pledged to build a Labour Party that is “distinctively and authentically” Labour.

He said: “We won’t try to out-Green the Greens or out-Reform Reform”, or repeat the mistake of “wearing too many Tory clothes”.

Hinting at reports he will decentralise and devolve power across the UK, Burnham said: “Britain took a series of wrong turns in the 1980s.

“Political power was centralised and economic power was privatised.

“The country surrendered control of the essentials – housing, water, energy, transport – and left people exposed to higher costs.”

He added: “If we want an economy and a country that works for all people and places – which to me should always be at the very core of Labourism – then it requires a new path to the one we’ve been on for the last 40 years.”

Burnham promises ‘a new economic model’ for UK

Andy Burnham has now finished his first speech as prime minister – outside the door of Number 10 Downing Street.

Burnham promised he would bring a “new economic model” to the UK.

“We will make this moment a circuit breaker for Britain, bringing forward the biggest changes in the last 40 years,” he said.

“In the 1980s, Britain took some wrong turns. Political power was centralised, economic power privatised. Large parts of the country deindustrialised, and they still haven't recovered.

“Many feel as though they're still in decline, and they don't have the ability to turn things around. And that's why we will change politics to make it more collaborative, more about problem solving than point scoring.”

Burnham railed against his generation of politicians which he said have disappointed Britain.

“I am acutely conscious that I am the sixth person in the last 10 years to walk up this street, the seventh prime minister since 2016, making this a moment for reflection and new resolution.”

Burnham to set out 10 year plan for UK ‘later this year’

Burnham is set to reveal a ‘10 year plan’ for the UK that will show how his government is set to bring about the new economic and political model he has promised.

He said: “Later this year, I will bring forward a new plan for Britain-a 10-year plan, laying out a path from where we are now to where I believe we all want Britain to be, wherever we're coming from, whatever party we support.”

Burnham: Cost of living support to be announced tomorrow

While a 10-year plan will be announced ‘later this year’, Burnham has promised that he will announce plans to bring forward cost of living support as soon as tomorrow.

In his first speech outside Number 10, Burnham said he wants to “give people some breathing space now. Some help with the cost of living. And I will set out some of those measures starting tomorrow, including how we pay for them.”

Burnham has not announced precisely what these measures will be, though we will likely find out tomorrow.

Burnham sets out his government's aims

Some of Burnham’s aims for his government were set out in his speech.

He said: “We will help more young people into work by changing the education system and giving them more support, more mental health support, and we will build more council homes.

“That is the fair and sustainable way to bring the welfare bill down to meet our fiscal rules and to honour our commitments on defence to our international partners.

“We will help people to live well, building a more preventative state, investing in people's success, rather than paying for failure, and that work starts now.”

Burnham pledges to stick to fiscal rules and defence commitments

Burnham’s speech reiterated his promise to maintain the previous government’s fiscal rules, which dictate how much the UK can borrow and spend.

This will be welcomed by many in the City as many worried that Burnham would throw these rules out after he said last year that the UK was “in hock to the bond markets”.

The UK has three main fiscal rules, but the most important is that the current budget should be on course to be in balance or surplus by 2029/30. This effectively limits how much the government can borrow.

In his speech, Burnham also confirmed that he will “honour our commitments on defence to our international partners.”

The Defence budget has been a point of controversy in recent months as former defence secretary John Healy resigned when Starmer failed to provide an extra £28 billion to fully fund the Defence Investment Plan.

Burnham: I will end rough sleeping in the UK

In his first major commitment as prime minister, Burnham has said he will end rough sleeping in the UK.

Concluding his speech, he said: “I will soon go through that door behind me and issue my first instruction to end rough sleeping in our country.

“It's about putting the right values and the right standards at the heart of government. I will put the care of people at the heart of everything I do.”

“I will give this my all, and I ask you all to pull with me. Let's build a new national sense of unity, of common purpose, and positivity. Let us make this the moment when Britain starts to believe again-the moment we bring back hope. Thank you very much, everyone.”

Rough sleeping has been a pet issue for Burnham since his time as Mayor of Greater Manchester. On the campaign trail in 2017, he promised to end rough sleeping in the city by 2020.

Burnham did not meet that target, but did make headway, bringing rough sleeping down by 57% between 2017 and 2020. However, from 2021 to 2025 it crept back up, with rough sleeping down just 26% on 2017 levels in 2025.

Who will be Burnham’s chancellor?

Burnham is expected to announce his cabinet shortly. While there are no official statements from Burnham on who his chancellor will be, rumours are circulating that there are a few top candidates for the job.

The front-runner at the moment is Shabana Mahmood, the current home secretary. This news came as a shock considering she has not held any economic position in her career.

Mahmood’s relative inexperience in economic briefs may also indicate that Burnham wants to run economic policy from Number 10.

This being said, insiders claim that Mahmood is one of the current cabinet’s most effective ministers and say that she may bring this effectiveness to the Treasury. Markets have not been spooked by the prospect of Mahmood as chancellor either.

Another potential candidate is Ed Miliband, the current energy secretary and former leader of the Labour Party. While he had previously been widely expected to become chancellor, his stock has fallen as it emerged that Mahmood was the front-runner.

Should Burnham ditch the triple lock?

One major challenge Burnham faces is the soaring cost of funding the state pension through the triple lock.

Keir Starmer vowed to not touch the mechanism, which sees the state pension increase every April by either the rate of inflation, average earnings growth or 2.5% – whichever is highest.

But the Office for Budget Responsibility estimates it will cost around £15.5 billion by 2030, up from the £5.2 billion originally estimated when it was first introduced.

Supporters of the triple lock say pensioners have worked for it their whole lives and the increase protects them from rising living costs.

But opponents suggest the policy will make funding the state pension more and more unaffordable as the UK’s population ages.

Andy Burnham needs to spell out the details of his fiscal plan now, says wealth manager

Nigel Green, group chief executive officer of wealth manager deVere Group, said Burnham needs to offer clarity now on his fiscal plan for the UK.

It comes following speculation he could increase capital gains tax rates while leaving the door open on a wealth tax and exit charge on departing assets.

Green said: “Every day this drags on without clarity is a day wealthy families and business owners are forced to plan for the worst rather than plan with confidence.

“Reports that he favours a fiscally cautious figure for chancellor gave markets some comfort this week, but speculation about personnel is not a substitute for a clear position.

“He needs to confirm his top team and, critically, tell the country what he intends to do with wealth, capital gains and exit taxation, because every week of silence pushes more capital toward the door.”

BREAKING: Rachel Reeves out as chancellor

Rachel Reeves has been sacked as chancellor as Andy Burnham begins building his cabinet.

In a statement on X (formerly Twitter), she said: “It has been the privilege of my life to serve as the Chancellor of the Exchequer.

“The economy today is stronger, fairer and more resilient because of the choices we have taken as a Labour Government over the past two years.

“Stability restored, investment delivered and reform to our economy under way. I said when I was appointed Chancellor that I would judge my time in office if the lives of ordinary working class people have been improved. I’m proud to say that they have.

“And to every young woman and girl let my time in office show there should be no ceilings on your ambitions, your hopes or your dreams.

“I wish the very best of luck to my successor, Andy and his cabinet. You have my full support, and I will continue to play my part in helping this Labour government deliver the change the country needs.”

Who else has left the cabinet?

Other notable Starmer loyalists who have left government include justice secretary and deputy prime minister David Lammy, as well as housing secretary Steve Reed.

Business secretary Peter Kyle and Richard Hermer, attorney general, have also both left the cabinet.

Meanwhile, Liz Kendall, science, innovation and technology secretary, has also been sacked.

Will Burnham end fiscal drag?

In an interview with The Times published this morning, Andy Burnham rejected the idea that he is simply a “tax raiser” and implied he may look at possibly increasing the personal allowance.

He said that while he was campaigning in Makerfield “one thing I heard most on the doorsteps [...] was frustration about the personal allowance, frozen at £12,570”.

He added that the recurring complaint that the tax burden on ordinary, working people is too high has been “lodged in [his] mind” ever since.

In the interview, he said figures in Westminster are “just characterising me as a tax raiser. Well, again, it’s never that simplistic, is it?”

Tax thresholds have been frozen at 2022/23 levels under successive governments – a process called fiscal drag. What was first intended as a temporary measure has been extended multiple times, most recently by Rachel Reeves in the 2025 Autumn Budget.

Thresholds typically have increased in line with inflation, but as they have been frozen more people are finding themselves ‘dragged’ into higher tax bands when their earnings increase.

Burnham to use 'any flexibility' in the fiscal rules to fund spending

Andy Burnham has said he will use “any flexibility” that exists within the UK’s self-imposed fiscal rules to help fund investment in infrastructure.

In a press conference, he said: "I've said we'll stick to the fiscal rules and by that I mean the existing fiscal rules and use obviously any flexibility within them.

"But we will stick to the existing rules and I've made that very clear in Downing Street. So none of this is about taking risks with the economy. I've never done that in any role that I've had."

The UK’s fiscal rules stop the government from borrowing excessive amounts of money with the budget required to be balanced or in surplus by the end of this parliament in 2029/30. Former chancellor Rachel Reeves tweaked these rules to allow greater borrowing in order to fund infrastructure investment in 2024.

In the press conference, Burnham said his policies will be fully funded and this will be “clearly set out in our budget.”

Burnham confirms he will look at reforming tax thresholds

In that same press conference, Burnham also elaborated on his comments to The Times this morning that he is looking at frozen tax thresholds.

Tax thresholds have been frozen at 2022/23 levels, dragging more people into higher tax brackets. This includes the tax-free personal allowance of £12,570.

He said: “I think [tax thresholds have] been frozen now, hasn’t it for a number of years, so it has dragged more people in… and that particularly has become a growing issue. So all of this will be looked at though at the budget, and obviously it’s difficult given the financial circumstances in which we find ourselves.

“I have a visibility of the issue and the impact it’s had on the different groups that I’ve mentioned, but it’s difficult because changing the threshold is not without significant consequences. But I’m looking at it,” he said.

Burnham pledges council house building blitz

A major part of Andy Burnham’s plan for the country is to build more council houses.

In his first speech as leader of the Labour party on 17 July, he said he wants to oversee the “biggest council house building programme in the post-war era.

He reiterated this in his first speech as prime minister this morning, saying: “We will build more council homes”.

As local authorities are in charge of the building and maintenance of council homes, the pledge to build more will require more money diverted from central government to local councils.

BREAKING: John Healey appointed chancellor

Former defence secretary John Healey has been appointed chancellor of the exchequer by Andy Burnham.

Healey has experience working in the Treasury – he was economic secretary to the Treasury from 2002 to 2005 and financial secretary to the Treasury from 2005 to 2007 under Gordon Brown.

He was also secretary of state for local government from 2007 to 2009, which Burnham may see as a positive considering he plans to give more power and money to local authorities.

Healey notably resigned from the government last month after Keir Starmer refused to give the ministry of defence an extra £28 billion to fully fund the Defence Investment Plan.

The move comes as a surprise as home secretary Shabana Mahmood or former energy secretary Ed Miliband were heavily rumoured to take up the position.

That's all from the MoneyWeek team today. Look out for your emails as we will bring you more this week, with analysis on what Burnham means for your money. Have a pleasant evening.

Joe Studwell is a development economist at Africa Urban Lab, a research centre at the African School of Economics, Zanzibar. He is also a founder and director of the Asian research and advisory firm Gavekal Dragonomics. His books include The China Dream, Asian Godfathers and How Asia Works. How Africa Works: Success and Failure on the World's Last Developmental Frontier is published by Profile Books (£25).

Matthew Partridge: The thesis of your book How Africa Works is that Africa is finally starting to take off economically.

Joe Studwell: We've already seen an uptick in growth in the last 20-30 years, as well as a move to more consistent growth as Africa becomes less dependent on minerals. We don't know at what level continental growth will settle, but I suspect across the 55 countries, we can now expect to see growth averaging something over 4% per annum, with some countries expanding at the sort of rates we associate with East Asia: 9%-10%.

Matthew Partridge: There have been several occasions over the past few decades when it looked as though Africa had finally reached take-off speed, only for it to fall back. How is it different this time?

Joe Studwell: This time the demographic story is different. The central thesis of the book is that demographics have been the main constraint on the continent. African population density in 1960 was equal to Europe's in 1500, so it was unrealistic to expect sustained growth.

But by 2030 the population density of Africa will be equivalent to that of Asia in 1960, and of course Asian density then tripled during its period of fast growth. What's more, while most African countries still aren't well governed, a handful are – and even the poorly governed are still enjoying faster growth.

Matthew Partridge: So, is urbanisation going to drive growth?

Joe Studwell: Yes. Cities are the big drivers of growth in Africa, with the pace of urbanisation faster than anywhere else. You get a much more efficient division of labour within cities, as well as more affordable infrastructure, and then you get higher-yielding agriculture in the surrounding areas as the proximity to the market encourages people to put lots of fertiliser on the land.

Matthew Partridge: Returning to demographics, do you think Africa's younger population, compared with Asia's and Europe's ageing ones, is a positive?

Joe Studwell: It's a positive. But the sweet spot will be when Africa's population matures, so you get a lot of people aged 15-64, the most economically active age. That maybe a little way down the line. What's more, while you do get younger people pushing for political change, Africa is already more democratic than Asia was at the same level of economic development.

Part of the reason for that is the ethnic diversity in Africa. With the dominant ethnic groups accounting for less than 30% of the population in some cases, it makes autocracy much harder to maintain than in East Asia, where ethnic minorities comprise less than 5% of the population.

Matthew Partridge: Africa has received large amounts of investment from China and the Middle East. Do you think that's helping to drive growth?

Joe Studwell: Foreign direct investment is important. It's not just the hard currency that comes in, but also the knowledge. And Chinese firms often say they are interested in Africa because margins are better than they are in China, where manufacturing is phenomenally competitive. The Middle East is branching out into services such as ports and real estate. Hopefully this will be supplemented by more European and US investment down the road.

Matthew Partridge: Could Chinese investments be a Trojan horse? Does China secretly want to secure dominance of those areas?

Joe Studwell: I don't think there is any evidence of some grand strategy. I think that China today is like Korea and Japan before it. It has massive surplus manufacturing capacity and vast amounts of foreign exchange. It is keen to move into both foreign markets.

And just as the Koreans did in the Middle East in the 1970s and 1980s – and the Japanese in Southeast Asia in the 1960s and 1970s – China has decided that Africa is the most natural target for its manufacturing and foreign-exchange surplus. What's more, while there has been some investment by the Chinese state, most of it is spearheaded by China's private companies

Matthew Partridge: You talk about some of the biggest success stories: Botswana, Rwanda, Ethiopia, Mauritius. What do you think are the key lessons from their success?

Joe Studwell: The thing about Africa is that there is no special African recipe, just the approach that worked well in Asia and in Europe after World War II. This was the emphasis on smallholders' agriculture and raising the intensity of production and yields, combined with a focus on manufacturing as a major job creator.

What I found in Africa was that context is very different. All the successful countries have leaders who managed to forge cross-ethnic coalitions. While this wouldn't be necessary in a country such as China where 95% of the population is Han Chinese, it is necessary in Botswana or Ethiopia or Rwanda, as you've got to bridge these big ethnic gaps if you're going to get political traction and enduring policy.

Matthew Partridge: What went wrong in the African countries that haven't succeeded?

Joe Studwell: The application of developmental policy requires leaders who believe in the possibilities of development, and many of the countries that failed couldn't construct cross-ethnic national coalitions to that end.

Worse, you had some utterly dysfunctional countries, such as Sudan or Somalia today where there's so much political disagreement and violence that there's no chance to get anything moving to promote development. This is a tragedy. Sudan has agricultural and manufacturing resources that could easily translate into a 10% growth rate.

But between the failed states at one extreme and a country such as Ethiopia (which will grow at 10% this year) at the other, there's an awful lot in the middle. Nigeria had a horrific civil war in the 1960s and has had governments that have since struggled to bind the ethnically diverse population together. But there is nonetheless a private sector going from strength to strength, with Aliko Dangote, the richest man in Africa, building the first economically successful petroleum refinery in Lagos, something that the government has struggled to do. He is active in a host of other businesses as well.

I'd urge everybody to go to Lagos because it's such a wild and remarkable place, with more than a fifth of the Nigerian economy in just one city. It is often said that everybody in Lagos wakes up that morning not quite sure how they'll eat that day, yet everybody seems to. Kenya would be another example. It is a largely mismanaged state, but with a vibrant private sector and lots of growing firms doing very interesting things.

Matthew Partridge: You talk about the role of governments in promoting manufacturing and industrialisation, but hasn't the state been very bad at picking winners?

Joe Studwell: Nobody who ran a good industrial policy ever set out to pick winners. Instead, you provide a subsidy and support in the context of competition between firms that are receiving that subsidy, and then you let the market decide who wins. You also pressure them to export, as manufactured exports are the most competitive part of the world economy.

But it's true that where it goes wrong, it tends to go wrong because governments fail to understand the role of competition and they do indeed try to pick winners. We had a case of that in Ethiopia with the huge state conglomerate Metals and Engineering Corporation (Metec), which was working on all the sugar mills for the sugar plantations that were being built. But the government has learned there, and is now splitting Metec up into four divisions, which will compete with each other and against other firms.

Matthew Partridge: Which African countries look the most interesting now from an investor's point of view?

Joe Studwell: I'd be reluctant to say. What's more, as we saw in East Asia, the most successful developing countries will take quite a long time to produce a good return for portfolio investors because they retain capital controls and they manage their banking system to direct credit to manufacturing and smallholder agriculture – policies that focus on the long-term good of the country rather than simply maximising investors' returns.

So, you could put money into African banks in countries with liberalised financial systems and you'll probably do quite well. But generally, Africa requires a lot of hard work because top-quality information about African companies is in relatively short supply. I think financial-services firms should be opening small offices and just having a look around rather than trying to woo people to put their money into what remain broadly frontier markets.

Matthew Partridge: How can the rest of the world help Africa to keep growing?

Joe Studwell: I hope that multilateral and bilateral institutions talk to African governments about what they really need and what their ambitions are, rather than turning up with shopping lists of what they think governments should be doing, which has been the weakness of all those institutions around the world.

Moreover, there's not much appetite in multilateral and bilateral institutions for supporting smallholders' agriculture or industrial policy. The latest trend in aid seems to be to treat aid like private equity. Bilateral donors give money to private-equity firms today on the basis that this constitutes a useful contribution to economic development, and I'm not sure that it does. Still, it doesn't matter too much, as the good news about African economies is coming from within Africa.

Matthew Partridge: In 20 years or so, once growth has started to feed through, how do you think the rise of Africa is going to reshape global politics?

Joe Studwell: In 2050, Africa is likely to have 2.5 billion people, up from 1.5 billion today. When we reach 2100, there will be four billion people in Africa, four billion people in Asia, and only two billion in the rest of the world. So, Africans will be demanding to be heard.

But I think what we need to recognise is that Africa is also going to take Asia's crown as the most diverse region of the world in terms of development. There is a huge difference today between the situation in Myanmar and that of Japan, Taiwan or South Korea. That's what we should expect with Africa in the future. We won't talk about Africa as a single monolithic entity; we will discuss it in the same way we tend to talk about East Asia or Southeast Asia.

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When the US president appointed Kevin Warsh to run the Federal Reserve, critics assumed he would be little more than Donald Trump's stooge. But Warsh is a deeper and more serious thinker than that. He was appointed as a critic of the way the Fed has been run, as someone who believes central banks need to be dragged into the 21st century and who argues that they should be doing more to promote economic growth.

This week, he appointed a panel of experts to help him work out how to deliver those outcomes. Among those experts are the venture capitalist Marc Andreessen, Walmart's former CEO Doug McMillon and Mervyn King, the former governor of the Bank of England.

Warsh has talked of “regime change” at the Fed, criticising it for keeping interest rates unnecessarily high, for keeping too many assets on its balance sheet and for collecting the wrong kind of data, especially on inflation. They are all valid points. Very few people could look honestly at the way central banks have operated since the 2008 financial crash and conclude that they had made every decision correctly.

We'll have to wait to see what happens. But when King has finished advising Warsh, perhaps he could bring some of his expertise back over to this side of the Atlantic. After all, the Bank of England needs reforming far more than the Fed does.

It has been a very bad decade for the Bank. There have been four major problems. To start with, it clearly lost control of inflation in the wake of the Covid pandemic. Inflation in Britain went all the way up to 11%, far higher than in most comparable countries. Why the Bank started to print more money when the supply of goods and services was so restricted is a mystery to anyone who has ever encountered even a GCSE economics textbook. It was a policy mistake for which the economy paid a high price.

Second, the Bank has presided over the steady decline of the City as a financial centre. True, leaving the EU didn't help. But the Bank could have been a lot bolder, taking the lead in new products such as cryptocurrencies, where London could have carved out new markets. London has been allowed to drop out of the top 20 globally for initial public offerings (IPOs), when it should be leading the world. In 2024, it was even overtaken by countries such as Oman and Malaysia.

Third, the Bank was at least partly responsible for the debacle of Liz Truss's mini-Budget. To be sure, the former prime minister hardly helped herself with an energy support package that cost way too much. But by allowing the liability-driven investment (LDI) scandal to blow up at the same time, the Bank worsened the collapse of sterling and the spike in bond yields that led to the demise of her short premiership. If Truss had had more time to push through the pro-growth elements of her agenda, the economy might be in slightly better shape now.

Finally, the economy has stagnated for the last decade, with productivity flat and real wages stalled, while the tax burden keeps rising. We can only pin part of the blame for that on the Bank. The government, by allowing welfare to run out of control, obsessing over net zero and allowing the planning system to prevent anything being built, is largely responsible. But the point of an independent central bank is to allow the economy to grow more quickly and that clearly has not happened.

The Bank of England is stuck in a rut

Some of the blame for the Bank's record can be pinned on successive governors. Mark Carney proved ridiculously overhyped and spent far too much time virtue-signalling over climate change and campaigning to reverse Brexit instead of doing the job he was so generously paid for. His successor Andrew Bailey is a civil-service plodder; mediocre, at best, with few fresh ideas and no appetite for reform. But the Bank also has institutional failings it hasn't addressed.

It is a sign of how America's political culture is so much more vibrant than Britain's that its central bank, even with a far more successful record than ours, is already examining ways of fixing itself. It is willing to learn from past mistakes and adapt where necessary.

By contrast, the Bank of England is stuck in a complacent, bureaucratic rut, insisting that everything is working well, even though that is clearly not the case. When he is finished with the Fed, King should be drafted in to tackle the Bank next – it is long overdue a radical overhaul.

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Germany's fragile coalition government has announced a major package of economic reforms aimed at kick-starting the country's chronic low growth. The long-awaited measures, announced earlier this month by chancellor Friedrich Merz, include tax cuts, greater labour-market flexibility and a broad easing of bureaucratic red tape – and follow separate but related pension reforms, announced a week earlier.

Assuming the measures clear the Bundestag (very likely, but not certain), no one expects them dramatically to boost Germany's immediate fortunes. But they are definitely a positive first step that should “lift business sentiment”, says Simon Nixon on Substack. Moreover, they “could hardly have come at a more crucial moment, given the mounting evidence that the German economy is being eaten alive by Chinese competition”.

Why is China a threat to Germany's economy?

The news that Volkswagen is weighing plans to cut 100,000 jobs – more than double the number agreed with the unions – and close four factories in Germany is the latest blow to hit the country's vehicle sector, which has been ravaged by cheap Chinese competition and innovation in electric vehicles, as well as Donald Trump's tariffs.

Similarly grim dynamics are playing out in other export-oriented industries, such as chemicals and aircraft manufacturing. Meanwhile, “panic” is spreading through the Mittelstand, the vast network of midsized, family-owned companies that form the backbone of the German economy, says Tom Fairless in The Wall Street Journal. German industry is currently shedding more than 10,000 jobs a month and industrial output fell by roughly 10% between February 2022 and early 2026, with energy-intensive sectors plunging by more than 15%.

Is Germany's economy growing?

Barely, and at a far slower rate than that of peers. Adjusted for inflation, GDP is only fractionally higher (0.8%) than it was in 2019 – an unprecedented period of stagnation for the Federal Republic. In manufacturing, Germany's traditional engine, the situation is even worse: industrial production peaked in late 2017 and remains 9% lower than a decade ago.

This year, growth is expected to be between 0.5% and 0.8%. Europe as a whole has been stuck with low growth for years, but Germany – the continent's biggest economy – is far behind its neighbours. Germany's cumulative growth since late 2019 is a mere 0.8%; the rate in France is 6.3% and Italy 7.4%. In the eurozone overall, cumulative growth is 6.6%, and it's 6% for the UK.

Why is Germany struggling?

The rise of China is a factor: exports to China fell by a fifth between 2021 and 2025, while car exports halved. But it's broader than that, with causes including high energy costs, inflexible labour markets and lack of technological innovation. According to Ifo, a leading economic think tank, the economy is undergoing a “profound structural change that is shaped by decarbonisation, digitalisation, demographic changes and geopolitical disruptions”. Compared with other countries, Germany is adapting slowly.

What is in Germany's reform package?

There are 33 measures altogether, with three main areas sticking out. First, there's €10 billion-worth of income-tax cuts for lower-and middle-income earners paid for by tax rises for the wealthy. The current top rate of income tax, 45%, will kick in at €250,000 (£212,000, far higher than the UK's £125,000), but a new 47% rate will take effect at €280,000. Germany's overall corporate tax burden is set to drop to roughly 25% from 2028 (depending on the state), matching the UK's.

Second, there are labour-market reforms, including more flexible employment contracts, tighter rules around sick-leave certification, and measures designed to discourage early retirement.

And third, there's action to cut the bureaucratic burden on businesses, including reducing reporting requirements, simplifying permits, digitising compliance requirements and streamlining data-protection rules where they exceed EU standards. There are also ambitious changes to the pension system, including a new link between the retirement age (eventually set to reach 70) and life expectancy.

Is Germany fiscally stable?

Relative to its European peers, yes. Germany's famous “debt brake” places strict limits on how much the federal and state governments can borrow – it restricts the federal structural deficit to 0.35% of GDP while strictly prohibiting net debt for federal states. In all, the Merz government plans to borrow about €200 billion next year, 12.5% more than this year, and overall borrowing between 2027 and 2030 is projected at €838 billion.

Germany's debt-to-GDP ratio will rise to 69.5% next year, still lower than the eurozone average, with the public deficit widening to 4.3% of GDP. As the country's low borrowing costs testify (ten-year bond yields are a little over 3%, compared with just under 5% for the UK), none of this worries the markets.

Will Germany's reform package work?

Analysts overwhelmingly agree the package is necessary, but not sufficient. Holger Schmieding, chief economist at Berenberg, described it as “a lot of small steps” that, combined with planned reforms of the country's welfare system, could “add up to major progress”. On their own, the new reforms are “unlikely to zap life into a rapidly deindustrialising economy that has barely grown since 2019”, agrees The Economist.

But the fact that Merz's coalition has “shown itself capable of comprehensive action” is cause for celebration. This is a package that could create the framework for future growth, says Carsten Brzeski of ING. What's still missing is a “clear longer-term strategy for affordable energy for both households and companies, as well as some tax relief for companies”. Still, the package is an encouragingly clear sign that “Germany is at last moving” away from “moaning and analysing” – and “towards tangible action”.

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Taiwan Semiconductor Manufacturing Company (TSMC) (Taipei: 2330 and NYSE: TSM) may be the most important business most people have never heard of. Right now, you're probably carrying products that it has made. Most consumers recognise names such as Apple and Nvidia. Yet behind many of the products they sell sits a Taiwanese manufacturer responsible for turning their designs into reality.

Every day, billions of people rely on devices powered by chips produced by TSMC. The company's influence stretches far beyond smartphones. From artificial intelligence to consumer electronics, much of the modern digital economy ultimately depends on a business with headquarters on an island roughly 100 miles off the coast of China.

What makes TSMC remarkable is not simply its scale, but the way it achieved it. Unlike most technology giants, it did not become dominant by creating the best consumer products or developing a monopoly over software. Instead, it positioned itself as a neutral supplier to an industry filled with fierce competitors. In effect, TSMC became the Switzerland of the semiconductor world, doing business with everyone and doing so in secrecy.

How Morris Chang founded TSMC

That strategy was the brainchild of Morris Chang, a veteran semiconductor executive who spotted a flaw in the industry's business model and built an entire company around solving it. Nearly four decades after it was founded, his insight sits at the centre of the global technology industry.

Chang never set out to build one of the world's most important firms. For 25 years, he worked at Texas Instruments, rising high to run its global semiconductor business. During those years, Chang noticed a problem. Brilliant engineers regularly designed innovative chips, but turning those designs into products required vast sums of money.

In the 1970s and 1980s, semiconductor firms were expected to do everything themselves. Designing chips was only half the job. Companies also needed expensive factories, specialised equipment and the expertise to run them. The result was an industry dominated by a handful of large, vertically integrated firms.

Then Chang's own career took an unexpected turn. In 1983, aged 52, he was passed over for the top job at Texas Instruments and left the company. After a brief spell in a senior role at another American chip company, he received an unusual offer. The Taiwanese government wanted to build a domestic electronics industry and was looking for someone with Silicon Valley experience to lead the effort. Chang accepted.

He arrived in Taiwan with decades of semiconductor experience and a conviction that copying America would be a mistake. Taiwan lacked the design expertise, customer relationships and global brands needed to compete. But Chang had spent years watching another problem unfold. The industry was full of talented chip designers who could not afford to manufacture their ideas. What if somebody built the chips for them?

That simple question led to the creation of TSMC in 1987. At the time, the idea looked absurd. Bringing a chip to market required access to a fabrication plant, or “fab”. The industry believed serious companies should own these factories themselves. In practice, that meant chip designers relying on one of the industry giants.

That created another problem. The company manufacturing your chip was often also a competitor. Handing over your most valuable intellectual property required a leap of faith. Chang's solution was that TSMC would make chips for anyone willing to pay, but would never design products of its own.

In 1987, that sounded like madness. When Chang went looking for investors, many of the industry's biggest names rejected him. Texas Instruments and Intel both declined his offer. A factory without its own products looked like a recipe for bankruptcy. How could a manufacturer survive without guaranteed demand?

In the end, Chang persuaded the Dutch electronics group Philips and several wealthy Taiwanese families to back the venture. Even then, enthusiasm was limited. Philips largely viewed the investment as a way of supporting the Taiwanese government's ambitions rather than as a compelling commercial opportunity. It intended liquidating its investment early. Potential customers were hardly more enthusiastic. Many designers saw little reason to outsource manufacturing. A company that only made chips for other people seemed unnecessary.

By now, Chang was a 56-year-old executive pitching an untested business model in an industry convinced it could never work. Then, fortune presented an opportunity. In 1988, Intel found itself short of manufacturing capacity. Faced with the prospect of disappointing customers, it reluctantly turned to TSMC for help. Intel's engineers arrived in Taiwan expecting a low-cost, unsophisticated subcontractor. Instead, they found a world-class operation run by one of the industry's most experienced executives. Passing Intel's quality standards was not easy, but once TSMC secured the American giant's approval, attitudes across the industry changed quickly. If Intel trusted TSMC, others reasoned, perhaps they could too.

That endorsement transformed the trajectory of the company. Designers no longer needed to spend billions building factories before launching a new product. Instead, they could focus on what they did best – designing chips, and letting TSMC handle the rest. Without TSMC, it's unlikely that Nvidia could have existed, nor could a host of other chip companies.

A new generation of semiconductor firms emerged, freed from one of the industry's biggest barriers to entry. While rivals competed to design better chips, TSMC focused on becoming the best manufacturer in the world. By choosing not to compete with its customers, the company turned neutrality into a competitive advantage. That decision would prove far more powerful than anyone imagined. But the success of TSMC's model created an obvious question: if it was such a good idea, why didn't somebody copy it?

Many tried, but almost all failed. For years, Samsung looked like the most credible challenger. The South Korean giant had deep pockets and decades of manufacturing experience. The problem was that Samsung was also a competitor. Unlike TSMC, Samsung sold smartphones and consumer electronics under its own brand. That created a dilemma for customers. Why hand your most valuable chip designs to a firm that might one day compete against you? No customer wrestled with that question more than Apple.

During the early years of the iPhone, Samsung made many of Apple's processors. The arrangement worked, but it became increasingly awkward as the two companies emerged as fierce rivals in the smartphone market. By the early 2010s, they were fighting a series of patent disputes. Apple found itself in the strange position of relying on one of its biggest competitors to make some of its most important components.

TSMC offered an escape route. With the launch of the A8 processor in 2014, Apple shifted production to Taiwan. The move was risky, but Apple concluded that the benefits outweighed the costs. TSMC's neutrality had become one of the most valuable assets in the technology industry. Today, many of Silicon Valley's biggest rivals manufacture their chips at TSMC. Apple, Nvidia, AMD and Qualcomm all rely on the same company, despite competing aggressively in their own markets.

Samsung's problem was a conflict of interest; Intel's was something different: success. For decades, Intel dominated the semiconductor industry. Its factories were among the most advanced in the world. However, the company became increasingly focused on its own products. When Apple approached Intel in the mid-2000s about supplying chips for what would become the first iPhone, Intel declined.

Management believed the opportunity was too small to justify the investment. It was one of the most expensive misjudgements in the history of the technology industry. By the time Intel recognised its mistake, Apple had moved on and TSMC was becoming the manufacturing partner of choice for a new generation of chip designers. When Intel later attempted to open its factories to outside customers, its manufacturing systems had been built around Intel's products, not the needs of third-party designers.

Other competitors couldn't keep up with the investment needs. GlobalFoundries, an American rival, spent years trying to keep pace before effectively giving up on leading-edge manufacturing in 2018. The company concluded that each new generation of chip technology required so much investment that the returns no longer justified the risk.

China's national champion, SMIC, faces a different challenge. Western export controls have restricted access to advanced manufacturing equipment, making it difficult to compete at the industry's frontier.

TSMC's greatest advantage

TSMC's greatest advantage is not its technology, because that can be copied. Its real advantage is the business model Morris Chang created nearly four decades ago. The company sits at the centre of the semiconductor industry, serving customers that often compete with one another. That position generates enormous scale, which in turn funds the next generation of factories and equipment.

The most advanced chips require ultraviolet lithography machines built by the Dutch company ASML. Each cost more than £275 million. A state-of-the-art fab may contain dozens of these machines, helping to push the cost of a new facility beyond £15 billion before production even begins. That creates a problem for potential rivals.

Customers will not trust an unproven manufacturer with their most important products, especially if they don't have advanced fabs. Yet building a state-of-the-art factory requires billions of pounds before those customers appear. Having already achieved enormous scale, TSMC now largely escapes this trap. The company controls roughly 92% of advanced chip manufacturing and generates the cash needed to fund the next generation of technology.

In 2026 alone, TSMC expects to spend nearly £45 billion on new factories and equipment. Few companies in the world could contemplate spending that much. None can do so with the same confidence of earning a return. The result is a powerful feedback loop. Scale attracts customers. Customers generate cash. Cash funds new factories. New factories attract even more customers.

Every year that cycle turns, TSMC becomes harder to catch as the price of entry rises ever higher. That scale gives TSMC another advantage: it allows customers to help fund its expansion. Most manufacturers have to build factories first and hope demand follows. Today, TSMC often works the other way around. Some of its largest customers commit billions of pounds years before new facilities begin production, effectively helping to finance the next generation of capacity.

At the end of 2024, TSMC held more than £7.3 billion of customers' deposits. As production ramped up on newer technologies, some of that money was recognised as revenue, but the balance remained substantial. Technology companies are willing to tie up enormous sums because access to TSMC's manufacturing has become critical to their own growth plans. This arrangement shifts much of the risk away from TSMC.

When companies such as Nvidia sign long-term agreements worth billions of pounds, they provide “visibility” – confidence in management forecasts – that few industrial businesses can match. New factories can be built with a high degree of confidence that demand will be waiting when they open. That helps explain why TSMC can continue investing through industry cycles.

AI is a game-changer for the semiconductor industry

For years, Apple was the company's most important customer. The iPhone generated the predictable demand that allowed TSMC to refine successive generations of manufacturing technology and steadily expand its lead. Now a new force is reshaping the industry. AI has become the biggest driver of demand for advanced semiconductors. Training and running large AI models requires vast quantities of computing power, creating an arms race among technology companies desperate to secure enough chips.

The biggest beneficiary has been Nvidia. In 2025, Nvidia overtook Apple as TSMC's largest customer, generating more than £18 billion of revenue for TSMC and accounting for roughly a fifth of total sales. The shift says a great deal about how quickly AI has altered the economics of the technology industry, but the opportunity extends beyond chip design.

Producing cutting-edge AI processors is one of the most demanding manufacturing tasks in the world. The chips themselves are larger, more complex and more difficult to assemble than those used in smartphones. As demand has exploded, bottlenecks have emerged throughout the supply chain. For TSMC, that has translated into even greater pricing power.

The world's largest technology firms are competing for a limited supply of advanced manufacturing capacity. Many have little choice but to accept TSMC's terms because there are few credible alternatives. AI has reinforced the advantages of specialisation. Developing a leading-edge AI chip already costs hundreds of millions of pounds. Building the factory to make it would require billions more. As AI pushes the technological frontier forward, the advantages of specialisation are becoming even more pronounced.

But TSMC's dominance creates a problem. Most of the world's most advanced semiconductor manufacturing remains concentrated in Taiwan. That has become a concern for governments, particularly as tensions between China and Taiwan have intensified. A disruption to TSMC's operations would ripple through the global economy.

Smartphones, data centres, AI systems and countless other technologies depend on its chips. Under pressure from the US and other governments, it's begun expanding overseas. The largest investment is a vast complex in Phoenix, Arizona. Similar projects are underway in Japan and Europe.

Building advanced factories in the US is estimated to be roughly 50% more expensive than doing so in Taiwan. Labour costs are higher, experienced engineers are harder to find and supply chains are less developed. TSMC has reportedly had to transfer experienced staff from Taiwan and create thousands of new operating procedures to support its US operations. Yet even these higher costs have not weakened the company's position.

Customers are willing to pay a premium for chips manufactured on US soil. For many, securing a politically safer supply chain is worth the extra expense. In an ironic twist, efforts to reduce dependence on TSMC have largely demonstrated how dependent the world has become on its expertise.

The future looks bright for TSMC

Whether the company can maintain its current position forever is another question. The semiconductor industry has a long history of dominant firms losing their edge, while geopolitical tensions surrounding Taiwan remain an ever-present risk. Governments are spending heavily to build alternative sources of supply and rivals continue searching for ways to close the gap.

However, history suggests writing off TSMC would be unwise. For nearly 40 years, the company has repeatedly adapted to changes in technology, customers' demands and the structure of the industry. It has survived downturns, outlasted competitors and continued strengthening its position at the heart of the digital economy. The story of TSMC is ultimately the story of how a company became indispensable. In an industry defined by relentless change, that may be its most remarkable achievement.

None of this means TSMC is a bargain. Investors are well aware of the company's strengths and the shares have performed exceptionally well over the past decade. As a result, the stock trades on a valuation that reflects high expectations for future growth. Still, TSMC has qualities that are difficult to find elsewhere. It occupies a dominant position in one of the world's most important industries, enjoys deep relationships with many of the largest technology companies on the planet and continues to invest heavily to maintain its lead.

Most importantly, investors do not need to predict which company will ultimately win the AI race. Whether the future belongs to Nvidia, AMD or some future challenger, there is a good chance that their chips will still be manufactured by TSMC. That does not guarantee attractive returns from today's share price. But betting against the company has rarely been a profitable strategy. For investors seeking exposure to long-term growth in technology and AI, TSMC remains one of the highest-quality businesses in the market.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

Economic growth in the UK has been lacklustre for years. Between 2009 and 2024, the UK economy grew by just 1.5% a year, around half of the average growth between 1993 and 2007 of 3% a year.

Successive governments have tried and failed to turn the economy around and deliver the type of growth many got used to before the 2008 financial crisis. So what can be done about Britain's growth issue?

Independent economist Julian Jessop told the MoneyWeek Talks podcast that part of the answer is boosting productivity in the country.

But the best way to do this for Jessop is not necessarily pouring more money into public services. In fact, it may be the opposite.

He said: “The austerity period, interestingly, was a period of relatively rapid growth in the productivity of public services. So I think there’s a good argument for saying that sometimes you need to give the public service a little bit less money and encourage them to make more of what they’ve already got.”

“If you look at the overall amount of resources that were pumped into the public sector, they were used relatively well during that period.”

The consensus of austerity did not survive long though, and after the early 2010s, governments started spending more.

The current Labour government is no exception and is spending more on public services like the NHS – but the expected rewards from this are yet to be seen, Jessop said.

“We’ve had a surge in spending on the NHS during and after Covid. An enormous amount of additional resources are being pumped in, including more staff, but the amount of operations, GP appointments, and so on hasn’t actually increased at all. So it’s not just about money, it’s about how efficiently the services are organised.”

The trouble is also that the UK is unable to fund all its spending through taxation and other revenue-raising activities alone. To fill the gap, the government is borrowing extensively at a time when borrowing costs are at 28-year highs.

The brewing fiscal crisis will need to be addressed at some point soon to keep the wolf from the door.

On the positive side, whatever fiscal crisis may be expected, Jessop doesn’t think the UK will need to be bailed out by the IMF like it was in the 1970s.

However, he says that while the UK won’t need an IMF bailout, it may need “political cover” from the IMF to introduce a proper programme of control on public spending, “which is where the problem is.”

A counter-argument would be that the UK has control over its own money supply and so we should just print the money we need. That, though, leads to inflation as more money floating around will eventually chase up prices.

“So if we don’t fix the problems on the supply side of the economy, if we don’t make more of the resources we’ve already got and use them more productively, then that’s where the productivity drama happens.”

Listen to MoneyWeek Talks for our full interview with Julian Jessop, where he discussed the issues with the UK’s planning regime, poor infrastructure investment, energy supply, and much more.

You can watch the podcast on YouTube, or listen to it wherever you get your podcasts.

About the podcast

MoneyWeek Talks is a podcast that helps you unlock the secrets to financial success. Editors Kalpana Fitzpatrick and Andrew van Sickle are joined by influential guests – from CEOs and entrepreneurs to economists and policymakers – to share their top tips on managing money, investing wisely and building wealth.

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In May 2025, Dario Amodei, the CEO of AI company Anthropic, said that the technology his company is helping push forward could drive unemployment up to 10%-20% in the next one to five years and wipe out half of all entry-level white-collar jobs, as Josh Tyrangiel points out in The Atlantic.

Jim Farley, the CEO of Ford, has estimated that AI will eliminate half of all white-collar jobs in a decade. Sam Altman of OpenAI has opined that it is just a matter of time before we see a billion-dollar company staffed by just one person.

That the advent of a new technology has given rise to predictions of disastrous consequences is hardly new. But that the prophets of doom come not from the ranks of the usual suspects, but from the makers of the new technology and those most in a rush to adopt it, is.

So, are they right? AI is clearly already transforming work, says Tyrangiel. Companies including Meta, Amazon, Walmart, and JPMorganChase have recently announced lay-offs due to “automation”.

Three academics from the Stanford Digital Economy Lab have found that entry-level jobs that are exposed to disruption from AI have already seen a 13% decline since late 2022. So the transformation may already be under way, even if it's too early to be sure (other factors could explain the decline and the evidence is sparse and mixed).

If that transformation unfolds slowly and the economy adjusts quickly, then we may, as economists reassure us, be fine, or even better off in aggregate. But if AI instead triggers a rapid reorganisation of work, compressing years of change into months, affecting roughly 40% of jobs worldwide – as the IMF projects – then the consequences could be huge.

Is AI actually any good for us?

Which will it be? Let's remember that humanity has been automating work for 250 years, as technology analyst Benedict Evans has pointed out. History shows that every wave of automation has destroyed whole classes of jobs and created new ones. The process may be painful for some, but over time and in the aggregate the result has been greater prosperity.

Two concepts from economics give us confidence that this time is unlikely to be different. The first is the “lump of labour fallacy” – the misconception that there is a fixed amount of work to be done and that if some work is taken by a machine then there will be less work for people. But if it becomes cheaper to use a machine to make a pair of shoes, say, then the shoes are cheaper, more people can buy shoes, and they then have more money to spend on other things, and we discover new things we need or want, and new jobs get created.

The second concept is Jevons Paradox. In the 19th century, the Royal Navy ran on coal and people worried about what would happen when the coal ran out. Don't worry, said the optimists: steam engines are getting more efficient, so they'll use less and less coal. Not at all, said economist William Stanley Jevons: if we make steam engines more efficient, then they will be cheaper to run, and we will use more of them and use them for new and different things, so more efficient steam engines means we will use more coal.

That paradox has been at work in relation to white-collar work for a long time, says Evans. In the 1880s, typewriters and carbon-copy paper meant that clerks could produce more than ten times the output of the days when they copied out documents one at a time by hand. The result for clerical employment? Far more clerks were hired. If one clerk can do the work of ten, then perhaps you might want to do more of the work that clerks do – more analysis, or manage more inventory, say. You might build a different and more efficient business that is only possible because of the new technology.

It was the same story when, much later, digital spreadsheets were introduced that could do at the click of a button what might previously have taken a whole team of accountants all week. Employment for accountants went up.

The most recent study into what AI is doing to jobs seems to confirm that this is indeed what is happening this time, as Noah Smith reports on Substack. A study by Ara Kharazian, Lisa Simon and Ryan Stevens, researchers at US technology start-ups Ramp and Revelio Labs, examined private data to determine what happens when companies start using generative AI. The answer is that they hire more humans. The number of entry-level jobs rose, too. So it seems that AI is “still mostly a complement to human labour rather than a substitute” for it, says Smith. For now at least, AI is “behaving pretty much like a normal technology”.

AI is just software

That's the usual pattern, and if AI did indeed start to progress at the rates feared and with the consequences predicted, it would be “unprecedented in human history”, says The Economist. New technologies have never spread fast enough to make large numbers of people unemployed for long periods of time because the diffusion of the technology always proceeds slowly.

To see why that is unlikely to be different this time, remember that AI is just software, as Tyrangiel points out. And the thing about software is that “people hate it almost as much as they hate change”. Before AI can transform a company, it has to access data and be woven into existing systems. A “trade secret of most Fortune-500 companies is that they still run critical functions on lumbering, industrial-strength mainframe computers that almost never break down and therefore can never be replaced”. Integrating such legacy tech with AI would mean big changes involving lots of people with strong opinions about the “right” way to proceed. Meanwhile, months pass, then years – and “the CEO still can't understand why the miracle of AI isn't solving all of their problems”.

Indeed, the idea that “one magic piece of software” will change everything instantly and override all the complexity of real people, real companies and the real economy “sounds like classic tech solutionism, but turned from utopia to dystopia”, says Evans. The reality looks rather different, as Zeynep Tufekci shows in The New York Times. Firms that have experimented with fully automating functions such as customer service have been burned. The result has been scammers talking chatbots into handing over control of key functions, promising refunds or incredible deals, such as a new car for $1. The bot taking orders at McDonald's proved “wildly dysfunctional”.

The key thing to understand is that these incidents are not the result of errors, but of the technology functioning as it is designed to do. Currently existing AI technologies are “not reasoning machines” – they simply produce answers that are probable based on the data they've been trained upon. They have no common sense or intelligence. AI can “do many things with astounding efficiency”, especially if those things are formal and structured and can be tested and checked in real time. Most jobs are simply not like that and still require “good old-fashioned human intelligence”.

This doesn't mean the “job apocalypse” definitely won't happen, says The Economist. Maybe this time will be different. Perhaps the technology will transform in ways we cannot yet predict. If so, you may know the apocalypse by these signs: sharply rising productivity combined with weak real-wage growth in the US, the world's frontier economy. This would show up as an increase in GDP per person above the 2.5% upper limit that is the historical norm in frontier economies and a simultaneous jump in corporate profits, reflecting that the gains from higher output were flowing to capital, not labour. Another sign would be big job losses in lots of industries, showing up in a recession. Which jobs vanish in the next recession will “give a hint about the shape of the AI world to come”.

Is there actually any sign of any of this happening? Not really. The labour market “certainly is not cracking yet”, says The Economist. “The share of the OECD's working-age population with a job keeps breaking records, unemployment across the club of mostly rich countries is just 5%, and America employs more people than ever in ‘AI-exposed' industries, such as law.” American graduates have been struggling to find jobs since before the launch of ChatGPT fired the starting gun on the AI revolution in late 2022. Many economists foresee relatively little disruption ahead. Those at America's Bureau of Labour Statistics think the country will add 5.2 million jobs between 2024 and 2034, increasing total employment by 3%.

Robots can't do your job

There are broader reasons for scepticism. The heaviest users of AI have recently been scrambling to curtail its use as the cost of using it outweighs the gains. Surprisingly few people use the technology on a regular basis and the share of companies in the OECD that have adopted AI remains small (about 20% for the latter, although figures for both individual use and company uptake vary widely across different studies, depending on what is deemed to count.) The basic problem here is that most people just don't know what AI is supposed to do for them, as Evans has argued. There's a box you can type stuff into, and you get text in response. Often the text is roughly right, but precisely wrong. For how many people will that be life-changing? As Pablo Picasso perceptively saw in 1968, “Computers are useless. They can only give you answers.”

The likelihood is that AI will not so much replace jobs, as make certain tasks easier and quicker for some people. Generally, says Evans, jobs are a complex mesh of things that we might not even be able to explain explicitly. You may have a good idea of just why a chatbot is never going to be able to do your job, for example, but will be impressed if someone says that it can of course already do the job of a lawyer or a doctor. The blunt truth is we do not know just what is involved in jobs we are confidently predicting will be gone tomorrow, nor do we know how AI will change them, if at all.

What we should most fear is fear itself. A recent poll found that 70% of Americans believe that AI will reduce their employment opportunities, says Robert Shiller, also in The New York Times. That fear could in itself have economic consequences. When millions and millions of people make economic decisions based upon negative expectations, there is a risk that the fear can actually “help birth the reality”. The leaders of Silicon Valley should learn to do better than peddle alarmist narratives in the hope that the resulting media attention will highlight how powerful their latest AI model is. They will find it harder to sell their wares in future if the result is an economy paralysed by fear and recession.

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What is Manchesterism?

Manchesterism is the new political buzzword that Andy Burnham uses to describe his political philosophy – essentially meaning social democracy with an emphasis on close relations with business, regional devolution, strong municipal government and public control (though not ownership) of essential services. It is the word the soon-to-be PM himself prefers to sum up his outlook and record as metro-mayor of Greater Manchester since 2017.

In Burnham's words, the concept means “a modern and functional response to the high-inequality, low-growth trap that came from the 1980s drive to privatise economic power and overcentralise political power in the Treasury”.

To Burnham's critics, Manchesterism is nebulous flannel with no coherent set of policies attached; vibe-shift politics at its most virtue-signalling and vacuous. Meanwhile, to economic historians – free-market liberals in particular – his adoption of the concept is ironic and mildly annoying.

What's wrong with Manchesterism?

In the 19th century, “Manchesterism” was coined to describe the culture of laissez-faire capitalism that grew up in Manchester and its cotton-rich Lancashire hinterland. Burnham sees his new Manchesterism as the nemesis of “neoliberalism”.

By contrast, original Manchesterism meant the free-trade liberalism of Richard Cobden and John Bright, leaders of the Anti-Corn Law League, which campaigned successfully to scrap the protectionist tariffs that kept bread prices artificially high. The idea – as relevant today as ever – was that free markets and free trade will lead to a more equitable society by making goods available to all at reasonable prices.

What about modern Manchester?

Its recent history is also of expansion and getting richer: the city-region's economy has grown at more than 3% since 2015, double the overall UK rate, and the skyline is dotted with gleaming new towers. However, as Burnham acknowledges, the roots of that transformation long predate his tenure as city-region mayor.

In the late 1980s, the Labour mayor of Manchester City Council, Graham Stringer, began opening up the city to private-sector property investment. In the early 1990s, only a few hundred people lived in Manchester's city centre. Following the massive redevelopment and regeneration that followed the IRA bombing in 1996, that figure is now approaching 100,000.

In the 2010s, Labour council leader Richard Leese, together with the council's chief executive, the late Howard Bernstein, opened up the city to foreign investment in property and expanded the tram system. They also negotiated Greater Manchester's far-reaching devolution deal – creating the city-region and mayor position – with then-chancellor George Osborne in 2014.

What has Andy Burnham achieved as Greater Manchester mayor?

His signature achievement has been to bring Greater Manchester's buses, which were deregulated in the 1980s, back into one publicly controlled system known as the Bee Network. The municipal authority doesn't own the companies, rather it operates a franchise system under one (distinctive yellow) branding, with control over services, routes and fares (capped at £2 for a single trip).

It's been a success, with passenger numbers and customer satisfaction up. He's also attracted some £2 billion of public and private investment into the Greater Manchester Good Growth Fund, which aims to fund the building of 10,000 council and social homes by 2028, as well as a series of public-private industrial schemes.

Is Manchesterism socialism?

Burnham reckons Manchesterism is “business-friendly socialism”, says Tej Parikh in the Financial Times. But the long-term rise of Manchester was actually built on stable, pragmatic local government and its openness to private enterprise. “The emphasis on attracting investment, clustering and connectivity has supported creative destruction” – in particular the regeneration of old industrial zones into business spaces, drawing in higher value-added sectors including professional services, technology and media.

That's the real story of Manchesterism, not public control of colourful buses. Regional devolution has helped, but the city's rise is more “about the ‘neoliberal' forces the politically astute Burnham has recently criticised, and less the socialist principles he suggests”.

If the UK as a whole is to grow faster under its new PM, it will need to draw on the real “Manchesterism, not the version Burnham supporters think he represents”.

Can Manchesterism work at the national level?

“What Manchester does today, the rest of the world does tomorrow,” remarked prime minister Benjamin Disraeli on a visit to Britain's industrial powerhouse in the 1870s. Burnham, despite his eye-catching plans for a “Number 10 North”, will obviously not find it that simple.

If the UK does indeed follow Manchester's example, a new paper by two Burnham allies, Mathew Lawrence and Alex Williams (“The Productive State: A Framework for Manchesterism”), ought to be a promising guide to what we might expect. It calls for “public control of essentials” such as water and sewerage, energy networks and rail infrastructure, alongside social housing and social care.

But Greater Manchester doesn't actually have public control of these sectors. And in any event, the idea that what worked so well for Manchester will work for the UK is “the very definition of a fallacy of composition: the generalisation from a single example to the whole, from a city to a country”, says Wolfgang Munchau on UnHerd.

The crucial difference between a country and a large city is not size, it is macroeconomics and fiscal policy. Cities don't have currencies, don't have significant tax-raising powers and “they certainly don't have bond markets. Becoming acquainted with the latter will be a new experience” for the self-styled King of the North.

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This week, Donald Trump has been leading the celebrations of the 250th anniversary of American independence. And it is hard to escape the irony that the current head of state is every bit as autocratic as a Hanoverian king – and then some.

Seldom have Thomas Jefferson's words sounded so hollow than on the lips of an unashamed strongman, who has purposefully sought “to upend the very freedoms Americans are celebrating” while brazenly “treating the presidency as a personal ATM”, says Rolling Stone. “Let's say it plainly: there has never been a president as corrupt as Donald Trump.”

Trump's second term as US president has been punctuated by a steady stream of stories relating to his and his family's business interests – from the cynically marketed Trump Bibles, gilded merchandise and social-media ventures marking his inauguration to the Qatari Boeing 747, booming stock portfolio and multiple crypto ventures that have followed.

When the president talks about “liberty”, says The Wall Street Journal, the entity closest to his heart is World Liberty Financial, the self-described “next-generation financial platform” that accounted for a large chunk of the $2.2 billion gains that he has made since returning to the White House, according to a financial disclosure report released last week.

Americans have become so used to the drip, drip of financial “coincidences” and family deals that closely track state policy – a federal contract for a Trump son here; an investment in drone technology or Kazakhstani mineral rights there that they have almost become part of the wallpaper.

Nonetheless, his recent financial disclosure seems to have touched a nerve, says The Free Press. “It's not just the moneymaking that's unrivalled. It's also the flagrant appearance of corruption that those billions represent” – at a time when many Americans are struggling. “You do not need to think Trump is the end of American democracy, or that everything he does is evil, to see this for what it is”: a blatant “transfer of wealth from them – and perhaps foreigners – to the president”.

The way Trump sees it, these moneymaking ventures are payback time for his period in the financial and legal wilderness after the 6 January riots. The family's Wall Street debanking in particular was a source of humiliation. There's another factor at play here too, says The Guardian: the entanglement in Trump's mind between what is good for him and what is good for America. His defence of his crypto windfall, for instance, is that it's the dibs of a wider boom he has personally conferred on America. Trump has taken Louis XIV's dictum, “L'État, c'est moi”, to heart, with an extra twist. In his view, he is the stock market, too.

Trump compares himself to Hitler and Napoleon

In the general scheme of constitutional abuse and the weaponisation of government departments, Trump's hijacking of the Independence celebrations might seem small beer. Yet they are a case study in how things work under the 47th president, says The Telegraph: from the Colosseum-style cage fight on the White House lawn to the underhand tactics, not to say fraud, underpinning the funding switch from the politically neutral America250 organising committee to Trump's pet Freedom250 body.

In Regime Change: Inside the Imperial Presidency of Donald Trump – a hair-raisingly detailed survey of his second term so far – New York Times reporters Maggie Haberman and Jonathan Swan reveal how Trump proudly showed them a document “arguing he was more powerful than some of the most feared and treacherous leaders in history – including Attila the Hun, Genghis Khan, Napoleon, Stalin, Mao, and Hitler”, says CNN. That is now coming back to bite. To Trump's chagrin, the book topped the sales charts on Independence Day. There was symbolism in that.

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Going self-employed can bring plenty of freedom and flexibility but it also means giving up attractive workplace perks.

More than 4.5 million people run their own business. While they may benefit from managing their own schedule and more tax-efficient ways to withdraw cash, such has from a limited company, there are downsides.

Research by business insurance provider Protectivity warns the self-employed community are giving up an average of £6,428 worth of workplace benefits per year such as sick pay and holiday pay. In pension contributions alone, the lifetime shortfall could exceed £119,000.

Based on typical self-employed earning, the analysis suggests a freelancer would need to work an additional 16.5 days, more than three full working weeks, on top of their normal workload every year to break even with an employed worker to get the same benefits.

Chris Trotman, head of sales and underwriting at Protectivity, said: “Self-employed workers are an essential part of the UK economy, and it’s clear that the vast majority wouldn’t trade the flexibility or autonomy that working for themselves allows.

“It does, however, come with financial risks that employment automatically absorbs and a lot of people don’t fully grasp the scale of that gap until they’re up against it.”

Here are the workplace perks you give up when going self-employed.

Paid annual leave

Full time employees in the UK are entitled to 28 days of paid annual leave per year including bank holidays

For employee on the average median salary of £39,039, that equates to £4,704 of paid time off.

Sick pay

The average UK employee takes 4.4 sick days per year, according to the research, worth an estimated £740 at median earnings, which would usually be covered by their employer at full salary.

In contrast, 79% of self-employed people who took a period of sickness absence in the last year said they received no income whatsoever during that time, according to Protectivity.

The research found that self-employed workers take 35% fewer sick days than employees, not because they’re healthier, but because they ‘can’t afford’ to take time off.

Pension contributions

Under auto-enrolment rules, employers must contribute a minimum of 3% of qualifying earnings into an employee’s pension, which is worth approximately £984 a year at the median salary.

You don’t get this if you are self-employed; instead you need to set up your own pension.

Compounded over a full working career at a standard 5% annual growth rate, those missed employer contributions could amount to more than £119,000 in lost retirement savings, according to the research.

Mortgages

It can also be harder to get a mortgage if you are self-employed as your income may fluctuate and be hard to prove.

Stephen Perkins, managing director of Yellow Brick Mortgages, said: “Those early years can also involve lower profits as businesses invest and grow, which may reduce how much you can borrow.

“It shouldn't put anyone off starting a business, but if you're also planning to buy your first home or move within the next couple of years, it's well worth factoring into your decision.”

How to prepare for lost perks

Replicating an employed package including a pension, insurance cover and paid time off quietly swallows between a fifth and a third of gross income on top of tax, says Anita Wright, chartered financial planner at Ribble Wealth Management.

She adds: “Nobody prices it in, because benefits are invisible right up until you need them.”

However, she suggests that autonomy and tax flexibility are real compensation as long as you can reflect the other costs in the rate you charge clients.

Another way of looking at it is that you could design your own benefits package, although you need to pay for it.

Samuel Mather-Holgate, managing director at advisory firm Mather and Murray Finance, said: “Income protection, life cover, private medical insurance, pension contributions, training, holidays and parental leave all have to be priced into your fees and paid for deliberately.

“That can feel painful, because the cost is visible in a way employer benefits rarely are. But visibility is not the same as waste.

“Many of these costs may be tax-deductible where they are genuine business expenses, and pension contributions can be tax-efficient too. The real mistake is treating self-employment income as take-home pay. A self-employed person needs to build the employer into their own pricing, otherwise freedom can quickly become fragility.”

Keir Starmer vowed not to touch the triple lock, a system that promises to increase the state pension each April by either the rate of inflation, average earnings growth or 2.5% – whichever is highest.

The triple lock guarantee saw over 12 million pensions receive a state pension boost in April, as it increased by a very generous 4.8%. This added £575 to state pensioner income this year.

Most pensioners saw their income increase more than non-pensioners, who are effectively funding the state pension.

The Office for Budget Responsibility estimates the triple lock will cost around £15.5 billion by 2030, up from the £5.2 billion originally estimated when it came into play.

The triple lock was introduced by the Conservative-Liberal Democrat coalition in 2012. The Conservatives left it untouched and Labour, under the leadership of Keir Starmer, also promised to leave it alone.

The policy is hugely popular among state pensioners, making it a difficult policy for politicians to tinker with. But is a costly policy set up in 2012 still sustainable or fair today?

Will Andy Burnham, who looks likely to take the top spot in government later this month, finally axe the triple lock?

While Burnham’s focus is on devolution, he cannot escape the need to cut government debt. Pressure will inevitably mount for him to be the leader to finally stop placating pensioners.

What’s the problem with the triple lock?

Depending on who you ask, you may get a different answer. Steve Webb, who was the pensions minister when the triple lock was introduced, told me on the MoneyWeek Talks podcast that the triple lock was there to do a job to keep pensioners afloat.

“I became pensions minister in 2010. But in the previous 30 years, the state pension had been falling in value relative to what people earn, so it just went up with inflation most of the time.

“But the problem with that is if you earn and earn and then stop earning, then the thing you fall onto when you stop earning needs to be connected to some proportion of what you were earning. Otherwise, you just fall off a cliff and your standard of living crashes. So, the state pension needs to be pegged to a proportion of what people are earning and for 30 years, [prior to the triple lock] that had not happened.”

“So, the point of more generous indexation post 2010 was to undo 30 years of damage. I’m not embarrassed or ashamed; I am proud of the fact that the state pension has been over-indexed.”

But the working generation would argue the system is an unfair burden on taxpayers, especially as young workers doubt the state pension will even exist for them.

Pensioners will say they worked for it and the increase merely protects them from rising living costs.

Though, according to the think tank Resolution Foundation, the triple lock has done little to reduce pensioner poverty. In the 12 years following the introduction of the Triple Lock pensioner poverty rose by 2.3 percentage points.

Difficult choices for Burnham?

Former Labour leader Tony Blair and former Conservative chancellor Jeremy Hunt have both called for the ‘outdated’ and ‘unaffordable’ policy to go.

A report from the Tony Blair Institute earlier this year called for the triple lock to be cut by 2030 and to overhaul the UK state pensions system.

Though it is unlikely the new Labour leader will make any change during this parliament, he will need to make some difficult choices, eventually. Will Burnham be the man who finally takes the triple lock out?

Asset finance is seeing a huge surge in demand, according to new data from the Finance & Leasing Association, while bank lending to small and medium-sized enterprises (SMEs) remains more or less flat

Asset finance advances to SMEs grew 8% year-on-year in April, the FLA's figures reveal, with lending across the first four months of the year up 6% compared with the same period of 2025. Firms across the UK took on almost £11 billion worth of asset finance between January and April.

The figures suggest that SMEs may be more optimistic about their short- to medium-term prospects than recent surveys of business sentiment have suggested. Asset finance is typically used to fund the cost of investment in business assets – plant and machinery, IT equipment or transport, for example – often as firms seek to expand or diversify their activities. The business takes out a loan to fund the purchase, with the asset then used as collateral against the lending; repayments are made over the lifetime of the asset.

Certainly, this type of finance has notable advantages over other forms of credit. It enables businesses to make major asset purchases without having to find significant amounts of capital on their balance sheets or to fund the investment from trading. The firm can put the asset to work at once, but spread the cost of financing it – typically over terms ranging from one to seven years. The impact on cash flow should therefore be manageable and any pots of capital can be deployed elsewhere in the business.

Often, the finance company – which may be a subsidiary of the business selling the asset – will also take on responsibility for maintaining the asset. There may be a regular servicing contract or access to specialist support if a repair is required. The finance provider may even promise to provide a replacement if the asset develops a fault that can't be quickly fixed.

The downsides of asset finance

Another plus point is that businesses don't have to find additional collateral to set against the finance. The lender has recourse to the asset itself if the business defaults on repayments, but no other security is needed. For early-stage businesses and those with relatively few tangible assets, this can be particularly useful.

Secured credit of this type will also usually be cheaper than, say, taking out a business loan from the bank. Since the lender has a claim on a fixed asset, such loans represent less of a risk and can be priced accordingly.

One potential downside is that the business may not enjoy full ownership of the asset until the end of the term. There may even be usage restrictions – a mileage cap on a vehicle, for example. And firms will also need to be prepared to commit to a relatively long-term agreement, even though they may not have a good idea of what the trading environment will look like in a couple of years' time.

Overall, however, asset finance can work very well for SMEs – in asset-intensive industries, but in service sectors too, where firms need to invest in technology or logistics, say. That said, the terms and conditions of asset finance vary significantly and are often bespoke. Take professional advice from a finance broker with expertise in this area before committing your business to a particular finance agreement.

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In a major speech on Monday, Andy Burnham, our prime-minister-in-waiting, at last deigned to give us some clues about his plans for the country, including a massive transfer of power to the cities and regions. Apparently, the key to unlocking growth is to devolve power to city mayors and local councils and a proposed “No. 10 in the North”. Burnham promises a programme of council-house building, to bring the utilities under tighter public control and to restore the high street to its former glories.

There was a lot of waffle and not much in the way of concrete proposals, but he was at least trying to seriously address some of the structural flaws in the British economy.

And he is not just trying to chuck money at the issue, as most of his predecessors have done, even if the main reason is that the money has unfortunately run out. The problem, however, is that the country does not actually need more devolution. What it needs is more wealth creation.

Andy Burnham is repeating a failed experiment

There are three major problems with a focus on the regions. First, Britain has already had a 25-year experiment in devolution, with both Scotland and Wales having their own governments and assemblies and, in the case of Scotland, even limited powers over taxation. And the results? Unfortunately, dismal.

Scotland's growth has started to lag the rest of the UK, while spending has grown so fast that were it an independent country, its deficit would be running at an alarming 9% of GDP. As for devolved tax powers, it turns out they are only ever used to make taxes go up, not down.

As for Wales, it has been even worse, with close on 20% of the working-age population now living on benefits, traditional industries wiped out, and with living standards that are now among the lowest in Europe. If devolving power was so great for the local economy, there is not much sign of it so far.

Next, devolution will just create yet more government and more spending. Devolution in Scotland and Wales has mainly created just an extra layer of politicians, all of whom have to justify their existence by spending more money and passing yet more regulations. That is how Wales ended up with a 20mph speed limit in urban areas right across the principality, even if it slows down commerce by adding to the cost of every delivery. Or how Scotland ended up with rent controls even though they never work. It seems extraordinary that anyone could look at Britain in 2026 and decide that what it really needed was yet more government and higher levels of spending. Yet that is Andy Burnham’s only prescription.

Andy Burnham is micro-managing decline

What the British economy needs is not more power for the regions, but more power for businesses and consumers. With all his talk of “ending 40 years of neoliberalism”, it seems to have escaped Andy Burnham's notice that the government has never been more powerful than it is now. It accounts for 45% of GDP directly and micro-manages trade and business in a way that it never used to.

Take the living wage. According to a recent report from the Centre for Cities, in 42 of Britain's 63 largest cities the living wage is now above two-thirds of median earnings. In effect, what everyone earns is now decided by the government.

Or take energy prices. What you pay as a consumer is determined by the price cap from Ofgem, and the amount factories pay is decided by a complex series of green levies, and the wholesale price for wind and solar is set by a range of long-term, state-controlled agreements.

In Scotland, the government is planning price caps for basic foods and it probably won't be long before that is introduced nationwide (the chancellor has already publicly criticised the supermarkets for raising prices too quickly). The number of prices that are set in a free negotiation between the buyer and seller, which is the way it is meant to work, is getting smaller all the time.

It is hard to see how yet more state intervention is going to help anyone. If this is the best that Andy Burnham has to offer, it is going to be a long, hard slog until the next election.

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Why is air conditioning becoming a necessity?

Until recently, the UK scarcely needed to consider air conditioning; now it is a pressing economic and political issue. A sweaty, sleep-deprived country is wondering what has happened to the traditionally underwhelming British summer – the “three fine days and a thunderstorm” of blessed memory. For centuries, summer's lease hath, famously, had “all too short a date”.

This year, though, it's an all too long one – kicking off with a killer heatwave in May, and smashing temperature records before we even got to July. The Climate Change Committee warns that 92% of homes are at risk of overheating by 2050 because they are “built for a climate that no longer exists”. If you live in a sweltering flat in a city, or have a bedroom at the top of a loft-converted house, you'll already know that.

How has the heatwave affected Britain?

Tens of millions of people across southern England have been unable to sleep properly, or have had their working lives upended by the failures of public transport or the closure of overheating schools. Writ large, all that makes for a massive public-health and economic issue that we are only beginning to understand.

Extreme heat is especially hard to cope with for older adults and those already ill: the summer of 2022 caused 60,000 excess deaths across Europe (according to a 2023 paper in Nature), the vast majority among people aged over 65. The World Health Organisation puts the number even higher, at 175,000 a year. Extreme heat hits children even harder, says George Monbiot in The Guardian. They have higher metabolisms and lower sweating rates, and their thermal comfort levels are, on average, 1.9˚C-2.8˚C lower.

What a heatwave means for the UK economy

Researchers at insurance group Allianz have found that extreme heat is now a “structural economic risk” for Europe. Productivity losses intensify sharply above a critical 30˚C threshold – a three percentage point decrease in productivity for each degree of heat – and cooling costs rise sharply.

Under an entirely possible stress-test scenario – in which the five hottest years between 2014 and 2024 are repeated sequentially over the next five years – they project a hit to output of 5%-7% for the most exposed economies: $240 billion for France, $147 billion for Italy, $131 billion for Germany and $120 billion for Spain (the UK wasn't included in the study).

“The heatwave is not an exception, it is a direction,” said Katharina Utermohl, one of the co-authors. “Extreme heat costs all of us as workers, as businesses, as taxpayers, and there is a difference between countries that adapt and those that wait.”

Will air conditioning save us?

It will certainly be part of the response, along with other cooling measures. Air conditioning has emerged in recent weeks as the new hot topic in the online culture wars, with American blowhards bashing lily-livered Europeans for being too soft to fire up the air-con and cool themselves down.

The difference in take-up is indeed stark. In Europe, only around 19% of homes have air conditioning compared with 88% in the US. That's largely because Europe's housing stock is much older than in the US and its mitigations against heat – thick walls, small windows, shutters and so on – have developed over centuries.

Europe has also been cautious about widespread adoption of a technology, which, bluntly, can easily disfigure the built environment. But the reality is that the take-up of air-con in Europe is already rising due to the heating climate, with southern Europe being first to embrace it.

Is Europe warming up to air conditioning?

Penetration has doubled in Europe overall since 1990, but in hot countries it has risen much faster. More than half of Italian homes now have air conditioning, a doubling since 2013 – a trend that's true of the continent as a whole. In France, 28% of homes now have air-con, in Germany it's 6%, and in the UK 4%, a doubling in the past three years.

There's no reason to think that trend won't continue and accelerate, even without the promptings of US observers. Europe's climate is heating faster than any other continent (due to its proximity to the north pole). As that continues, it will seem ever more silly to argue that heating homes to a safe, liveable temperature is necessary, but that cooling them to the same level – saving lives and making life bearable – is somehow an extravagance that should be frowned upon.

Is air conditioning bad for the environment?

Environmentalists have long argued that it contributes to global heating by consuming energy and raising temperatures in urban areas. That is reflected in official policies. The government denies there's an “air-con ban”, but nor is it straightforward to install. Most homes don't need formal planning permission for air conditioning, which falls under “permitted development”. But that does not include flats – often more difficult to keep cool than houses – where planning permission is required, and is hard to get. The rules require developers to prioritise passive cooling and use air-con as a last resort.

What needs to change?

Policymakers need to catch up with changes to the climate and technology and let the market get on with meeting growing demand, says John Burn-Murdoch in the Financial Times.

The rising demand for air conditioning now aligns with the rapidly rising supply of solar energy, which will be most abundant when it is most needed to power cooling. Moreover, the potential for air-to-air heat pumps both to heat and cool buildings without burning gas means that the net impact on emissions could even be negative.

“Far from encouraging this, regulations in countries including the UK and France continue to disincentivise and even restrict these technologies.” That's not sustainable. There were once sound arguments against Europe adopting air-con en masse, but that's no longer the case.

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What exactly is an emerging market? You can debate all sorts of measures of economic development and levels of income as the cut-off point, but as far as the financial world is concerned, what matters most is whether the stock market is part of the MSCI Emerging Markets (EM) index or not.

The AI boom is starting to stretch this line of reasoning, as we have noted a few times in recent weeks. The performance of a handful of stocks that are integral to the semiconductor sector means the index is increasingly heavy in tech (now 43% of the total). It has almost 50% in two economies – Korea and Taiwan – that are clearly advanced, wealthy countries. Yet while AI has made this very obvious because of its impact on the index, the underlying point has been true for much longer. Korea and Taiwan are “emerging” under MSCI's market-access criteria, but they fully emerged in an economic sense a while ago.

Is China an emerging market?

You can go further. The third largest weight is China, at about 20%. China's GDP per capita in purchasing power parity (PPP) terms is still firmly in emerging market territory – it's about half of the UK's, for example – but this disguises enormous variation between the wealthier coastal provinces and those further inland. It is also by far the world's second-largest economy in nominal terms. To what extent can we view it as a traditional emerging market?

Note, too, that all these three countries – almost 70% of the index – are in East Asia. At this point, is the MSCI EM vastly different to the little-quoted MSCI AC Asia, which adds nearby Japan into the mix? The chart above suggests not.

A “true” emerging market ETF

The practical investor may be happy enough. After all, if returns are good, why split hairs about definitions? Yet it's important to understand where returns are coming from, how an end to the AI boom might change this, and what the options are if you want more traditional emerging market exposure.

I have previously mentioned Barings EMEA Opportunities (LSE: BEMO) and BlackRock Frontiers (LSE: BRFI). Both are interesting, but neither is broad (BEMO is Eastern Europe, Middle East and Africa, while BRFI excludes the eight largest emerging markets).

Instead, we could look at a relatively new exchange traded fund (ETF): WisdomTree True Emerging Markets (LSE: WEMP). This drops China, Korea and Taiwan, with India and Brazil as the largest positions. There is very little tech; you get a classic emerging-markets portfolio with more than 35% in financials.

To my mind, this goes too far for most investors as a standalone holding. It might be preferable to just cap exposure to the big three. Still, owning this alongside a conventional EM fund would be one way to get more balance in a portfolio.

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Andy Burnham's arrival at London Euston, on the authentically late-running 10:43am Avanti West Coast service, reminded some of Barack Obama's “Hope express” from Chicago to Washington in 2008 and others of the secret “sealed train” carrying Vladimir Lenin to St Petersburg in 1918.

As “Comrade Burnham” hurtled south, tracked by helicopters, he made a symbolic reunion with his Westminster past: changing out of his trademark black T-shirt into a suit. He escaped the press scrum at Euston via “a hidden VIP exit”, reports The New Statesman, making off in a black cab. A niggling question – which could be a clue to future policy – is whether he claimed his Delay Repay refund.

Andy Burnham, the son of a BT engineer and a GP receptionist, “is shaped by his lifelong faith”, says The Spectator. He's “a Catholic communitarian”, steeped in the teachings of Derek Worlock, which emphasised “solidarity with the disadvantaged and working-class dignity”. He made it to Cambridge University, where he was “as happy on the football pitch as he was dissecting Middlemarch”, and from there he made a pretty textbook professional progression to Westminster.

After a spell on trade magazines – including Tank World Management and Passenger World Management – Burnham got his big break in politics in 1994 as a researcher for Labour minister Tessa Jowell, notes the BBC. There followed a spell with the Transport and General Workers' Union and a post with the government's Football Task Force before his own election as MP for Leigh in 2001. He climbed the ladder of the Blair government, making his Cabinet debut in 2007 under Gordon Brown.

In the ensuing decade of party turmoil, Andy Burnham twice stood for the leadership. “I've never met anyone more ambitious in my life,” a senior Labour figure, who worked closely with him in Manchester, told the Financial Times. But back then he didn't stand out. Even a year ago, says The New Statesman, the inaugural mayor of Greater Manchester was “nobody's idea of a premier”. Detractors in the party (a dwindling number now) snipe that he dodged the tough battle to unseat Corbynism and swanned off to Manchester in 2016, where the hard yards of economic revival had already been laid. The city's “spiky” council leader, Richard Leese, took to calling him a “glorified bus conductor” in private – because the reward for having an unwelcome mayor foisted on the council was “the ability to take back control of their buses”.

What can we expect from Andy Burnham?

Andy Burnham has something of a reputation for flip-flopping when expedient, but supporters say there's nothing wrong with pragmatism if it's grounded in solid values: Burnham's are “genuine”. What seems to count for the public is his interpretation of “northern soul” – an offer of hope, playing on a certain nostalgia for the past, that might also find fertile ground in the south. Last year's sell-out Oasis/The Verve tour could be seen as a subliminal Andy Burnham warm-up act.

Critics have dismissed Burnham's speech on “rewiring” Britain as a repurposed version of Boris Johnson's “levelling up” agenda. But for the moment, the lack of policy detail – and his unknown choice of chancellor – confer an everyman advantage. The “northern insurrectionist” espoused by the left is now wooing the very bond market he once vowed not to be “in hock” to, and has appointed a blue-chip team of economists and his old Blairite chum, James Purnell, as chief of staff.

Which Andy Burnham will we get? Aside from “evangelical zeal”, Burnham's great strength over a decade in Manchester was his ability to hold the city's “byzantine system together”, says the Financial Times. In this, his greatest reinvention yet, that might count.

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This month saw the Bank of Japan (BoJ) raise its main interest rate from 0.75% to 1% – the highest rate since 1995, in response to surging global energy prices due to the Iran war.

While Japan’s inflation rate has sat below its 2% target all year – it was 1.5% in May – a BoJ policy statement suggested a risk of it accelerating above that target, forcing businesses to pass on higher costs. This could lead to “an increase in consumer prices across a wide range of items”.

Widely expected by the market, the rate hike – decided by a vote of seven to one board members – was seen as a landmark step on Japan’s continued path towards ‘normal’ monetary policy, breaking out of a three-decade-long deflationary period.

Just one dissenter, dovish new recruit Toichiro Asada, voted to hold rates.

Economists and policymakers are described as ‘hawks’ or ‘doves’ depending on their approach to achieving economic stability. Hawks favour price stability and curbing inflation through tighter policy (rate hikes), while doves prefer economic growth and maximising employment through looser policy (rate cuts).

A summary of opinions from the bank’s two-day Monetary Policy Meeting (MPM) on 15-16 June was published by the BoJ last Wednesday (24 June). It doesn’t attribute quotes but cited one member as saying: “Raising the policy interest rate could suppress aggregate demand by curbing firms' business fixed investment, potentially inducing simultaneous declines in inflation and in production and employment. The Bank should therefore hold the rate steady at this point.”

Most of the opinions warned of mounting price pressures as businesses passed on the rising costs resulting from the weak yen and Middle East conflict.

What does the BoJ’s rate hike mean for Japan’s economy?

As Japan is an importer of natural resources, a weak yen pushes up the cost of imports for its domestic consumers and businesses, in turn fuelling higher inflation.

The yen is currently its weakest against the US dollar since 1986. Macrotrends data shows it was trading around 161.70 on 27 June, with traders braced for the possibility of further government intervention to prop up the currency.

Normally, if the BoJ hikes rates, the yen should get stronger. But according to Alex Hart, investment specialist at fund manager Sumitomo Mitsui DS Asset Management, that’s not happening right now because of the influence of the US.

He explains how people expected the US economy and job market to slow down, which would have led the Federal Reserve to cut rates. But economic revisions have held up – employment data was positive and inflation remains sticky – so a US rate hike may be expected instead.

Hart says this is weighing on the yen in terms of the attractiveness of the ‘carry trade’ (when investors borrow yen cheaply to invest in higher-yielding assets elsewhere).

“At the moment it’s probably more the US and global economy that are the determinants of the yen [as well as] real money demand,” he adds. Higher inflation is also encouraging Japanese consumers to buy more equities – selling yen and buying global assets. That creates additional downward price pressure on the yen.

That said, he doesn’t expect further yen depreciation because the government will likely intervene, which even if it doesn’t work it sends a message to hedge funds that might be looking to short the yen, for example.

Currency intervention is when a country’s authorities – in this case, the BoJ and Ministry of Finance – tap their huge reserves to sell US dollars and buy their domestic currency (yen), strengthening the local currency to help stabilise rising prices.

Many investors are waiting to see how all this affects liquidity, says Scott Gardner, investment strategist at investment platform J.P. Morgan Personal Investing.

A more ‘liquid’ market means consumers and businesses can spend, borrow and invest more easily, fuelling economic activity.

Where are the bright spots for investors in Japan?

Although the BoJ is slowly reducing its quantitative easing (QE) and bond-buying programme, Japanese banks are increasing lending and, in turn, their balance sheets.

“The commercial banks have been producing loads of liquidity, even more yen that has got to find its way into the market,” Gardner adds.

His team at the platform has been overweight Japan since the start of the year in its Fully Managed range, which is constructed using exchange-traded funds (ETFs).

“We like the Japanese economy and see overall economic activity improving, you’ve got the [aforementioned] liquidity picture and also a very pro-growth agenda coming from the Takaichi government,” he says.

Elsewhere, Hart says energy infrastructure-related stocks have performed well, while banks, consumer names and defence look promising.

“Some defence-related names have sold off quite considerably amid global expectations the war is ending. Also heavy aerospace, ships and tanks are being replaced by cheaper drones,” he says.

“But defence spending in Japan has increased to 2% of GDP – potentially moving higher than that. We’re seeing increased spending in other countries as well, also some of those names are now moving into drone technology, so that’s an area I think remains quite a bright spot in terms of its potential.”

Two of Japan’s biggest listed defence contractors are Mitsubishi Heavy Industries (TSE:7011) and Kawasaki Heavy Industries (TSE:7012). Both are listed on the TSE and investing in drone and unmanned aerial vehicle (UAV) technology.

Why invest in Japan?

The other exciting shift in Japan’s investment case, is its move away from a “sleepy giant of mainly industrials and financials” to a technology leader that’s holding its own alongside the rest of Asia.

“Semiconductors are the big thing at the moment, which plays into the index concentration dynamic you also see in the US. Around 21% of the Nikkei 225’s top 10 holdings are in semiconductors,” Gardner adds.

“The AI trade is in full swing across Asia; be it Taiwan, Japan, Korea… that's one of the reasons why the Nikkei has held up quite well relative to global market conditions.”

While most of the big tech beneficiaries are US-based, he sees the AI trade broadening because those further back in the supply chain who are actually responsible – “the picks and shovels”, as he describes them – are predominantly in Asia.

Hart also points to the tech theme; he says earnings growth is coming largely from data centres, with high levels of capex in electronic components.

Auto giant Toyota (TSE:7203) was Japan’s most valuable listed company by market capitalisation (market cap) for 20 years, holding the top position on the Tokyo Stock Exchange (TSE) before it was displaced by communications company SoftBank (TSE:9984) at the beginning of June.

Now in pole position on the TSE is computer memory manufacturer Kioxia Holdings (TSE:285A).

There is currently a ‘bottleneck’ in NAND flash memory (the type used in memory cards, USB sticks and SSD drives) and Hart says Kioxia (which spun out of Toshiba in 2018) is a pure play on that market.

How should you invest in Japan?

Investing passively in Japan right now is a big play on technology. For investors in index funds understanding the construction of the underlying index is crucial, especially if you’re looking at Japan to add diversification – you might end up doubling down on technology exposure.

The iShares Nikkei 225 UCITS ETF (LON:CNKY), which tracks its namesake index, has an approximately 40% weighting towards tech as of 26 June.

“The Nikkei 225 is share price constructed, which is one of the reasons why Advantest and Tokyo Electron are dominating the Nikkei. In the MSCI, they each make up less than 3%, so it’s a huge discrepancy,” Gardner points out.

It’s possible to invest directly in Japanese shares on some platforms, but this typically comes with restrictions, such as higher minimum investment amounts (Saxo) or having to give instructions over the phone (AJ Bell).

For more diversified exposure to the broader Japanese equity market, actively managed funds can cast their net wider.

Japan has around 4,000 listed companies, while even the TOPIX only has 1,500 names.

“Most of the inefficiency in terms of market pricing – given poor sell-side analyst coverage and so on – is potentially more exploitable with smaller and less-known companies, which active management can find,” says Hart.

Baillie Gifford Japanese is a growth-focused fund that invests in large and medium-sized companies with high and sustainable growth potential, while Man Japan CoreAlpha is another popular choice.

If you prefer closed-ended funds, some specialist investment trusts include J.P. Morgan Japanese Investment Trust (LSE:JFJ), Schroder Japan Trust (LSE:SJG) or AVI Japan Opportunity Trust (LSE:AJOT).

For broad Japanese index exposure, any of the major index fund providers likely have a Japanese equity offering at relatively lower cost, such as iShares Japan Equity Index or Vanguard Japan Stock Index.

Japan makes up around 5-6% of the global stock market (the second-largest regional exposure after the US), so indirect access via any number of global model portfolios or tracker funds will provide some exposure to the region.

We will find out soon whether Andy Burnham will face a contest for the leadership of the Labour Party or take office unopposed. Either way, it makes little difference now. One way or another, he is likely to be our next prime minister before the end of the summer.

There are some ways in which Andy Burnham will be an improvement on the outgoing Keir Starmer. He is a better communicator and more personable. As mayor of Manchester, he is untainted by the failures of the last two years and can make a fresh start. Perhaps best of all, he can get rid of the hapless Rachel Reeves as chancellor and replace her with someone less obviously out of their depth and with at least some grasp on how businesses operate and the challenges they face. Temporarily at least, this may start to lift Labour's dismal poll ratings.

There's a problem, however. Prime minister Burnham will be heading straight into a financial crisis. Britain's economic outlook keeps on getting worse and worse. At the end of last week, we learned that government borrowing in May came in way above forecast, with a 30% year-on-year rise. For the month, government spending was up by 7% year on year, while tax receipts, even with record increases, were up by just 4% (it is hard to see much sign of the “neoliberalism” Burnham complains about in those figures). Growth stagnated last month, despite all the extra spending the government has thrown at the economy. Unemployment is rising relentlessly, especially for young people, and the welfare bills are running out of control, with the number of working-age people on benefits above four million. All the warning signs for a crash are already flashing red.

Andy Burnham is only going to make things worse. It is hard to detect much in the way of a serious economic programme in the collection of soft-left soundbites that make up his standard stump speech. But insofar as he has one, it involves yet more borrowing and spending. He has promised to bring the utilities under greater state control but said nothing about how that would be paid for. He has promised to cut business rates for small companies and launch a massive programme of council-house building, without attaching any kind of a budget. And if Burnham has ever said anything about controlling public spending, especially the soaring welfare bill, he has kept it very quiet. Even if he only keeps a fraction of his spending promises, and it will be very hard to break all of them, then the deficit will keep climbing higher and higher.

Can Andy Burnham succeed as prime minister?

Even as the deficit rises, Andy Burnham has said almost nothing about how he intends to boost growth to pay for it all, nor has he made any attempt to bring business on board. Celebrity chef Tom Kerridge has backed him, but only because of his promise to reduce the rate of VAT on hospitality businesses to 10% (yet another unfunded promise). Other than that, Britain's major corporate leaders have remained silent. There is not going to be any wave of investment to welcome the new regime, nor is there likely to be any dramatic measures to encourage investment into the UK. In the background, Britain's financial position is steadily deteriorating. Very quickly, the markets are going to test the new government. Is it willing to cut welfare, or will it raise taxes to keep paying the £125 billion a year in interest on the national debt the country now has to pay? Traders will want to find out, and find out very quickly, and if the answer is no, then gilts will be sold off.

The last PM to take over from one who had been elected with a big majority was Liz Truss in 2022. We all know how that worked out – her lifespan in office was famously shorter than that of a lettuce. Burnham won't face quite the same set of challenges, nor is he likely to attempt anything as risky as the mini-budget that led to her unravelling. Even so, the British economy is in far worse condition than it was then, our debts are far higher and the bond markets already view us with suspicion. Andy Burnham will soon face the heat – and may well wilt as quickly as a lettuce.

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Korea is still an emerging market, or so MSCI reckons. On Tuesday, the most important provider of global indices – the MSCI World and the MSCI Emerging Markets matter much more than the equivalents from FTSE Russell and S&P Dow Jones – once again declined to put it on the watch list for upgrade to developed status.

On one hand, this situation feels increasingly ridiculous. Korea is a very advanced, high-tech economy, home to key tech players such as Samsung Electronics and SK Hynix. GDP per capita measured at purchasing power parity is higher than the UK, France, Japan and many other heavyweights. How can this be an emerging economy in any meaningful sense?

Yet there are aspects to Korea that feel like an emerging market. The ones that MSCI cites are certain limitations that bother institutional investors (restrictions on trading the Korean won offshore is a key one) – although FTSE Russell has classed Korea as developed since 2009, so the importance of these is not cut and dried.

However, perhaps more significant for the long-term future of the Korean stock market is the dominance of large business conglomerates (chaebols), of which the Samsung group is the biggest. The founding families of these groups still control them – often using a series of shareholdings between different listed entities – and frequently make decisions for their own benefit to the disadvantage of minority shareholders.

Generational changes are happening in Korea

Corporate governance is a major reason for the “Korean discount” – the fact that Korean stocks trade at lower valuations than peers elsewhere – but there are signs that this is changing. Policymakers have been pushing reforms, inspired by what governance changes in Japan have done for that market, with some success.

Generational changes also mean a structural shift in attitudes is inevitable, suggested a Korea manager at a recent conference. The individuals who built up chaebols in the 1960s and 1970s put huge importance on passing on control to their heirs as cheaply as possible (Korea has very high inheritance tax). They are now largely dead, the handovers are being completed, and tax bills are being settled. Their heirs will have different priorities that may often be better served by unlocking the full value of their businesses.

So the bull case for Korea sounds easy to make. It does not depend on MSCI one day acceding to the obvious, although being added to the developed index would result in significant inflows from tracker funds. And on the face of it, Korean stocks look very cheap – the MSCI Korea stock market index is on a forecast price/earnings ratio (p/e)of eight.

Yet this reflects the huge weight in Samsung and SK Hynix (65% combined) and how fast they are expected to grow. The MSCI Korea Equal Weight is on a forward p/e of 15, which is not cheap. Most of all, note the market is up by 260% in won terms in a year. If the AI boom continues, it will go higher, but have no illusions. Right now, a Korea stock market tracker is not a valuation play or a reform play – it is entirely an AI play.

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Chancellor Rachel Reeves looks set to follow her boss Keir Starmer out of government when Andy Burnham becomes prime minister on Monday 20 June.

Though Reeves has been lobbying to keep her job, it seems highly unlikely that Burnham will keep her on – not least because of how unpopular she is.

As a figure so closely associated with the Starmer project, keeping Reeves in No 11 would send the wrong signals to a country that Burnham is promising to change. His platform is much closer to the Labour soft left, and that would not make a good fit for the centrist Reeves.

Choosing a replacement for Reeves will be one of the most important decisions Burnham makes as prime minister, as who he chooses to replace her will reflect the style of economic policy he intends to pursue.

Currently, no official statements have been made by the Burnham camp about who the next chancellor will be, but there are rumours.

Who could be the next UK chancellor?

With Reeves almost certainly leaving, there are several high-profile candidates that could replace her. Who are they?

Shabana Mahmood

The current front-runner is Shabana Mahmood, the home secretary, who is now heavily rumoured to replace Reeves as chancellor after Ed Miliband has fallen out of favour with the Burnham camp.

Mahmood was previously the justice secretary but has not held any economic positions within government.

The closest economic experience she has is when she served as the shadow financial secretary to the Treasury from 2013 to 2015 and shadow chief secretary to the Treasury in 2015 under then Labour leader Ed Miliband. When Corbyn became leader in 2015, she did not join his shadow cabinet.

Mahmood belongs to the right of the Labour party and has been instrumental in pushing through controversial, harsh immigration rules. However, we have little basis to predict what her economic policies may be.

Sarah Coles, head of personal finance at AJ Bell, said that Mahmood “has not spoken out on economic issues since her time in the shadow Treasury, so assessing a potential approach relies on extrapolating from her position as home secretary.

“She is considered to be measured, pragmatic and disciplined over budgets. If this is carried through into economic policy, it could mean steering clear of radical changes and opting for incremental improvements.

“The fiscal responsibility may go down well with markets, which had been worried about borrowing and spending under Burnham.”

Before going into politics, Mahmood was a barrister and specialised in indemnity law. She read law at Lincoln College, Oxford (she was in the year below former PM and chancellor Rishi Sunak), graduating with a 2:1.

Ed Miliband

Energy secretary Ed Miliband has also been tipped as the next chancellor. He was widely anticipated to replace Reeves in Burnham’s cabinet, but his stock has fallen in the past few days.

The reason Miliband was expected to replace Reeves is because he belongs to the soft left of the Labour party, just like Burnham, and has held a number of economic positions both in government and in opposition.

Miliband has by far the most economic expertise of any of Reeves’ potential successors. He worked as a special adviser to Gordon Brown in the Treasury between 1997 and 2002, taught economics at Harvard, then rejoined the Treasury team in 2004.

He also read philosophy, politics, and economics (PPE) at Corpus Christi College, Oxford and went on to get a postgraduate degree in economics from the London School of Economics.

“Miliband’s position on the soft left might raise the possibility of more spending and borrowing,” said Coles.

“However, his experience in senior roles, including as a special adviser to Gordon Brown, may lie behind reports that it was Miliband who helped persuade Burnham of the importance of sticking with the fiscal rules in order to calm the markets.”

Coles suggests that Miliband might turn to progressive taxes, or reviewing tax cuts that mostly benefit higher earners, in order to balance the government’s books.

“He has previously supported a mansion tax. He might also consider more environmental taxes,” said Coles.

Yvette Cooper

Foreign secretary Yvette Cooper could also be a contender for chancellor, and might be well-received by markets, according to AJ Bell’s head of financial analysis Danni Hewson.

“Yvette Cooper is likely to be considered a safe pair of hands, having deftly jumped from domestic to global affairs of state as part of Starmer’s cabinet,” said Hewson.

“She also spent time in the Treasury under Gordon Brown and is considered to be something of a centrist, which could reassure markets nervous about an Andy Burnham premiership that starts with pledges to turn on the spending taps."

Adding to the possible appeal of Cooper is the fact that, as a northern MP, she has a good working relationship with Burnham.

“Her breadth of experience means that she will understand the pressures on the public purse better than many and her seniority could help bring together different factions of the party under a new leader,” said Hewson.

Wes Streeting

Wes Streeting is another contender for the role. Prior to Starmer’s resignation, he launched a bid to replace Starmer as prime minister, but immediately stood down to make way for Burnham on 22 June after Starmer resigned.

“Of the potential candidates, we view Streeting as the most bullish outcome for the pound, given his centre-left pragmatism and apparent aversion to aggressive tax-and-spend policies,” said Matthew Ryan, head of market strategy at financial services firm Ebury.

Susannah Streeter, chief investment strategist at wealth manager Wealth Club, remarked that Streeting appears to be the front-runner for the position on the assumption that Reeves would be “ousted”.

“From any new chancellor, financial markets would initially be looking for stability and signs of action aimed at stimulating sustainable growth, and Streeting [would be] likely to initially try to project reassurance and a business as usual attitude aimed at reassuring investors and keeping a lid on high government borrowing costs,” said Streeter.

Streeting was previously secretary of state for health and social care, before resigning from the position in May.

Could Rachel Reeves play a role in the next government?

While it is unusual for senior ministers to accept demotions, the BBC has reported that sources close to Andy Burnham suggest she could do so, and take up a more junior ministerial role in a Burnham government.

Either way, Reeves is backing Burnham to be prime minister. She told the British Chambers of Commerce annual conference on 25 June that Burnham was committed to following the same fiscal rules that guided her term as chancellor.

“Andy has been really explicit - he backs those fiscal rules,” said Reeves.

“He is a great communicator, he's got a great track record of delivering in Greater Manchester, and I have no doubt he will bring that to the position of prime minister.”

Speculation has ramped up about who will be the next UK prime minister after Sir Keir Starmer kicked off a Labour leadership election by resigning on Monday (23 June).

Nominations will open on 9 July and end by the summer recess on 16 July.

The next prime minister may have different priorities to the current government, which has been working on several tax shake-ups including the mansion tax, cash ISA reforms and changes to pensions and inheritance tax rules.

New Labour MP and former Greater Manchester mayor Andy Burnham is the only candidate to have put his name forward so far, as many expected following his by-election win last week.

Maike Currie, vice president of personal finance at PensionBee, said: “The Labour leadership contest will dominate the summer, with a new prime minister expected to take office when Parliament returns in September. Investors will be looking for a clear handover, a credible economic team and an early commitment to fiscal discipline.”

Who will replace Keir Starmer?

Burnham is the only name officially in the ring so far to become the next prime minister.

He has also been backed by former health secretary Wes Streeting, who was seen as a potential candidate.

No other Labour MPs have confirmed that they will run for the leadership role yet.

Burnham hasn’t confirmed what his policies will be, although he may have to stick to manifesto commitments to not raise income tax, VAT or national insurance.

He has previously backed reforming council tax and stamp duty.

Inheritance tax changes could also be a possibility. As health secretary in 2009, Burnham suggested a flat 10% charge applied to all estates, with the money being used to fund social care for all.

More recently, on BBC Question Time in June, he said he would look at raising the personal tax allowance and also said there was “definitely a case” for the return of a 50% top rate of tax for the wealthiest.

Matthew Ryan, head of market strategy at global financial services firm and FX specialists Ebury, said: "Burnham sits firmly to the left of the Labour Party, and his record as mayor points to a significant step-up in public spending, a higher tax burden and greater gilt issuance.

“This is an experiment that the UK can ill-afford. Debt is at its highest relative to GDP since the 1960s, growth is weak, debt-servicing costs are already vast and the limited fiscal headroom leaves almost no room to manoeuvre, risking a self-reinforcing borrowing and growth trap.”

Susannah Streeter, chief investment strategist for Wealth Club, added that Burnham has tried to reassure markets by signalling that he will largely stick to fiscal rules and take a more cautious approach to spending.

She said: “He appears willing to tackle the UK's large benefits bill, arguing that welfare reform should focus on helping more people into work. Investors will also be scrutinising how Burnham's interventionist instincts translate into national economic policy. He has argued that the government should play a more active role in shaping economic outcomes, particularly through greater investment in regions outside London and the South East.

“He is also expected to push for further devolution of economic powers and has indicated support for a stronger public role in key sectors and infrastructure. However, concerns are bubbling that greater state involvement could deter private investment if it creates additional costs or regulatory burdens.”

Local supporters suggest the regeneration he has brought to Greater Manchester could be replicated nationally.

Property developer Mike Ingall, chief executive of Allied London, who has worked with Burnham on developments in Manchester including the technology and media campus Campfield, said: “He understands investment and that is the only way to get growth rather than just tax and spend.”

There have been rumours in the past that former deputy prime minister Angela Rayner could stand.

Rayner also sits on the left of the party.

Who could be in the new cabinet?

The prime minister is just one role that is likely to be up for grabs in July.

Whoever becomes the next Labour leader and prime minister is likely to want to appoint their own ministers and there are rumours that chancellor Rachel Reeves could be replaced.

Rob Morgan, chief investment analyst at Charles Stanley Direct, said: “Until we know more about the composition of the cabinet and likely policy direction it is hard to draw any firm conclusions from the soundbites heard so far. However, bolder moves on taxation certainly appear to be a possibility, so it’s a time for anyone planning their finances to be on high alert for changes.

“Already the Budget in the autumn looms large as a potentially highly consequential event. Yet given we don't even know the identity of the chancellor at this stage we can make no conclusions.”

Currie said a chancellor with a reputation for fiscal discipline could reassure markets but warned: “A more interventionist appointment, or a candidate perceived to be less disciplined with spending could have the opposite effect.”

Morgan added that there is some comfort in the fact that marked changes to taxation or other policies affecting personal finances rarely happen overnight and usually come with a long lead in time.

He said: “So while vigilance is essential there is likely plenty of time to assess any consequences, good or bad, that fall out of a change of political leadership.”

This year marks the tenth anniversary of an event that has proved to be of huge consequence for the UK stock market. No, not the Brexit referendum – 2016 was the year in which Japanese company SoftBank, led by founder and chief executive Masayoshi Son, acquired the UK's leading technology company, Arm, for £24 billion. Unlike American investors, professional UK fund managers became permanently disillusioned with the technology sector as a result of the collapse of the technology, media and telecoms bubble in 2000-2002, and so were delighted to be shot of its flagship domestic representative at a 40% premium to the prevailing share price.

With the yield on ten-year gilts at historic lows below 1.5%, pension funds were desperate to ditch equities and buy even more gilts, even leveraging up in their chase of the “liability-driven investment” delusion, which was to cost them hundreds of billions six years later. New solvency rules introduced after the 2008 financial crisis required insurance companies to invest in “safer, more liquid” securities, that is, short-dated gilts. Wealth managers could crow to their clients about short-term performance.

Only one major investor vehemently disagreed; James Anderson, the then manager of Scottish Mortgage Trust, bitterly criticised the sell-out on behalf of Baillie Gifford, with a holding of more than 10%. “We found it deeply depressing that Arm's management, and particularly its chairman, were so influenced by short-term shareholders.” Anderson said it was a premature sale of the UK's leading technology and intellectual property champions, “Britain's sole serious shot at building a global tech giant”.

In September 2023, Arm again went public when SoftBank floated the company on the New York Stock Exchange at a valuation of £40 billion, while retaining 90% of the shares. Unsurprisingly, pleas to list the shares in London were shunned, though Arm remains a Cambridge-based company. Since then, the shares have multiplied more than sixfold, although they are now down 17% from their early June peak.

Had Arm listed in the UK, it would be by far the biggest company on the London Stock Exchange. London is now only the world's eighth-largest stock market, accounting for just 3.1% of the MSCI All Countries World index. It has been steadily slipping down the rankings owing to its low exposure to the technology sector, which accounts for just 1% of the FTSE 100. This compares with 8%-9% in Europe, 27% in the US (not including Alphabet and Amazon) and 37% in Asia.

Britain's technology firms are condemned to stagnation

Also easily forgotten is the 2014 sale of Britain's DeepMind, a pioneer in AI, to Google for just £400 million. In 2006, US-based Illumina bought Solexa, the UK-based inventor of gene sequencing, for £315 million. It became the key building block in Illumina's climb to a market value of more than £50 billion (although the shares have fallen by two-thirds in the last five years). These and other examples show that Britain has a good record of creating and building technology champions, but that unambitious management, combined with uninterested and short-sighted institutional investors, means that they sell out rather than scale up in the way that American giants have shown is possible.

Without the “ecosystem” that results from successful technology firms, Britain's pool of talent will go elsewhere, there will be no pool of capital looking for the next potential breakthrough, a diminishing appetite for risk and no list of success stories to inspire future entrepreneurs. The London Stock Exchange has become a value trap – a shrinking pool of reasonably managed solid businesses with mediocre prospects. Such a market can have an occasional catch-up year of outperformance, but without a cadre of proper growth firms, is condemned to an ever-shrinking share of global capitalisation. Arm's sale to SoftBank, now Japan's largest company, didn't start this process, but it marked the point at which it became irreversible.

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The Gulf states have been crucial to the global economy ever since the first oil shock in 1974 broke the post-war monetary system and ushered in an era of high inflation. With the world's biggest concentrations of oil and gas in Saudi Arabia, Iran, Iraq, Kuwait and Qatar, and with producers locked into the Opec oil-exporters cartel, which could switch supplies on and off at will, the region held the world's energy supplies in its hands. That gave its rulers immense power and the wealth to buy up a vast range of assets. Interest rates, equity prices and inflation all over the globe were often determined by events in that one small region of the world. It mattered.

That looks to have changed. As the US and Israel attacked Iran, there were plenty of dire warnings that the oil price would go to $150 a barrel, or perhaps even $200. Flights would have to be cancelled as we ran short of jet fuel; petrol would have to be rationed. The closure of shipping lanes would send chemical and fertiliser prices soaring, triggering food shortages and factory closures. The global economy would be plunged into recession. Central banks started to consider an emergency response.

In the event, none of that happened. The price of oil did go up sharply, rising from $60 a barrel to close to $120 shortly after the conflict started. But rather than spiralling out of control, it steadied and then started to fall again, dropping below $80 as Iran and the US agreed a 60-day ceasefire at the start of this week. There is little sign of food shortages, or any basic commodities running low, and there are still plenty of cheap flights available. Most of the European economies are sluggish, but that is for a whole host of reasons. They have not collapsed and the US is still doing well, with strong growth, plenty of new jobs and the stock market hitting record highs. Inflation has ticked up a little, but should come back down again as the price of oil falls.

In reality, the Gulf states just do not matter as much as they used to. There are three big reasons for that. To start with, there is a lot more oil in the world than there used to be. Despite all the catastrophic warnings during the 1980s and 1990s that the world would have run out of the stuff by now, there seems to be more of it than ever. The US has turned itself into both the largest producer and net exporter of oil in the world, largely because of fracking. Despite all the fear-mongering, more countries, such as Argentina and Mexico, are developing their own shale oil and gas reserves. After the US strikes on the country, Venezuela will start to restore its oil fields and it has the largest reserves in the world. Far from running out, there will soon be too much oil. The Gulf can't hold the world to ransom when the global market is awash with oil.

Why the Gulf states' money is no longer so important

Second, alternative energy is rising in importance all the time. We can all debate whether the drive to achieve net-zero is too rapid, but there is no turning back the clock to the fossil-fuel era now. China's huge electric-vehicle industry is not going to disappear, and most open car markets will be electric within a decade or so. Renewables account for 45% of electricity generation across the EU and already for 25% in the US, the world's largest economy (and that share is rising fast, with solar last month overtaking coal as a source of power). Oil is a shrinking market.

Finally, Gulf states' money is no longer so important. Dubai and Qatar will take time to recover from the bombing campaign launched by Iran. A lot of money invested around the world will have to be brought home to pay for reconstruction and cover losses. The region's wealth funds won't be splashing billions on trophy assets as have done for the last 20 years. In a world where Wall Street is minting space- and AI trillionaires, there is a lot of spare capital around. The Gulf states won't matter so much. Add it all up and one point is clear. The main lesson from the Iran war is that the Gulf states' influence has evaporated. They are part of a small region, which no longer matters very much except to the people who live there. Investors will still have plenty of things to worry about – but the Gulf states and their oil resources can be dropped from the list.

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What's happening at the World Cup?

It's not merely the geopolitics of this football World Cup – taking place in the US, Canada and Mexico – that are truly unprecedented. The main host nation, the US, is at war with a participant country, Iran, whose players must enter and leave US territory on the same day for their matches; one host country recently threatened to annexe another; a highly regarded referee was ejected from US territory for the crime of being Somali; and citizens of four competing nations are banned from the US. Meanwhile, the bellicose US president was recently awarded with a newly invented “peace prize” by football's governing body, FIFA.

The economics of this World Cup are the “craziest” ever, too, says Faisal Islam for the BBC. The three co-hosts are in the midst of an “epic trade war”. Between last week's kick-off at the Estadio Azteca, and the final on 19 July at New Jersey's MetLife Stadium, the three will be renegotiating their trilateral USMCA free-trade deal.

Why is this World Cup unusual?

On the footballing front, the fact that the breakout star of the tournament so far is Cape Verde's 40-year-old goalkeeper is pretty astonishing. So, too, is the fact that FIFA has allowed football's structure – this is the archetypal game of two halves – to be watered down by compulsory “hydration breaks”, regardless of the weather. Footballers can already access water as needed. But the unprecedented breaks, which allow broadcasters to sell another three minutes of advertising mid-game, have turned World Cup matches into games of four quarters, with coaches and teams now having three chances to regroup and reset. But perhaps most astonishing of all are the gob-smacking ticket prices.

How expensive is a World Cup ticket?

The official prices, not those charged by touts (or “scalpers”), are astronomical. For the final at the MetLife stadium in New Jersey on 19 July, official prices are around $2,030-$6,730, but later sales phases and “dynamic pricing” surges pushed some final tickets as high as $10,990 – with secondary markets offering tickets at multiples of that. Even quite ordinary seats have sold for between $3,000 and $7,000, and the least attractive seats for more than $2,000. For the more attractive group games (featuring the big European and South American teams, or host nations), a rough typical price is $1,000, and as high as $2,700. Even the “bargain” prices, for a non-prestige group-stage match, are typically several hundred dollars.

Why are World Cup tickets priced so high?

“The fans are being squeezed like never before because this is a very different tournament economic model to what has gone before,” says Faisal Islam. In previous World Cups, part of the economic rationale for hosting was to help catalyse spending on new infrastructure, including on transport links and stadiums. This time, most of the games are taking place in rented American football (NFL) stadiums and FIFA has essentially adopted NFL economics, meaning that “seat pricing is designed for yield management” – and “revenue maximisation is prized above the act of selling out the stadium”. Throughout the World Cup's history, organisers have tried to keep ticket prices at a level ordinary fans can afford and coped with the massive excess demand via lottery distribution. Broadcasting and sponsorship rights were a vastly more lucrative source of revenue.

Economics of the 2026 World Cup

This time, ticket sales and hospitality are projected to count for almost as much revenue. For the first time, FIFA has taken direct control of ticketing, rather than outsourcing to local organisers, and has attempted to incorporate and exploit the secondary market by – in effect – acting as its own tout. This time, ticket holders are free to sell their tickets on an officially sanctioned marketplace, but FIFA takes a 30% cut (15% each from seller and buyer; a nice model). They have also embraced so-called “dynamic pricing”, where ticket prices rise (and fall) in line with demand, and where many customers complain they don't know how much they are paying, and for precisely what, until the deal is confirmed.

Is all this legit?

Not everyone is convinced. “FIFA has turned buying a ticket to the World Cup into a gauntlet of confusion, fake scarcity and impossibly high prices – all at the expense of consumers,” says Jennifer Davenport, the attorney-general of New Jersey. Both New Jersey, where the final takes place, and neighbouring New York, have launched formal investigations into potential skulduggery. Yet the model is certainly lucrative. Richard Sheehan, economics professor and sports finance expert at the University of Notre Dame, writing in The Conversation, predicts the total ticket and hospitality revenue for this year's tournament could top $14 billion, more than double the amount from the Qatar World Cup in 2022, which hit $6.6 billion. There are more games this time (48 teams rather than 32), but Sheehan projects revenue per game will rise from $14.5 million to at least $30 million.

What are the economic benefits of the 2026 World Cup?

FIFA projects the US economy will be among the winners from the event with a $17 billion boost in US GDP and 185,000 jobs created. But most analysts reckon any macroeconomic impacts will be marginal. That $17 billion is a short-term 0.05% boost to US GDP and it's likely that the World Cup will crowd out other kinds of tourism, with ordinary visitors eager to avoid price hikes on everything from hotel rooms to transport. Even the benefits for host cities are far from clear-cut, says Marni Rose McFall in Newsweek. City authorities are on the hook for logistics, transport, sanitation, security and policing, and other costs involved in staging multiple games across several weeks – hence the giant price hikes on transport to and from stadiums. But research, including a new report from insurance company Atradius, shows that most World Cups cost host cities more than they bring in. “FIFA collects most of the revenue, host cities absorb much of the risk.” The beautiful game is more bountiful than ever.

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Historically, gold has been regarded as a safe store of value against the potential for fiat currency to depreciate in value – in other words, as a hedge against inflation.

But for much of 2026 so far, higher inflation has coincided with lower gold prices.

“Gold was still up 6% over the year to the end of May,” said Joseph Greif, investment director at wealth manager Evelyn Partners, “but its recent behaviour has been uncomfortable for investors who expected it to protect portfolios immediately.”

Inflation has run hotter since the Iran war broke out, especially in the US. The US is a critical market for gold; the metal is priced in dollars, so its usefulness as an inflation hedge is implicitly measured against US inflation.

But while the Iran conflict pushed inflation higher, the price of gold fell. Between 27 February – the day before the war broke out – and 10 June, the price of gold fell 23%. Annualised US CPI inflation rose from 2.7% in February to 4.2% in May.

Why the gold price fell during the Iran conflict

Inflation is not the only dynamic that gold prices interact with. One of the key ones is interest rates, particularly in the US.

Gold pays no interest. That matters less to investors when interest rates are low, because alternative assets like bonds aren’t offering much interest themselves.

But once interest rates increase – or when markets expect them to – then gold loses appeal relative to interest-paying investments.

This is the main reason gold prices fell, both before and during the conflict in Iran. The price of gold peaked on 29 January at $5,595, around a month before the war broke out. The catalyst for prices to start falling from then was Donald Trump’s nomination of Kevin Warsh as the new chairman of the Federal Reserve (Fed).

Until then, markets had assumed Trump would nominate a ‘dovish’ chair for the central bank and that this would result in relatively loose US monetary policy (i.e. lower interest rates) – a positive for gold.

By the time the Iran war broke out, markets had already spent weeks pricing in higher interest rate expectations. And the inflationary shock that the Strait of Hormuz’s closure prompted only amplified those expectations.

“The prolonged conflict sparked severe inflationary risks, pushing US inflation to 4.2% in May,” Benoît Harger, portfolio manager at private bank J. Safra Sarasin, told MoneyWeek. “This data forced markets to price in potential interest rate hikes instead of cuts. It boosted the appeal of yielding assets and triggered a 30% gold correction from its January high.”

This isn’t necessarily out of character with how gold has behaved in the past.

“What lots of people don’t realise about gold is it sells off in a crisis, often because of liquidity,” Cosmo Sturge, director of market strategy at metals fund manager Baker Steel, told MoneyWeek. “You had a lot of investors who had made a lot of money in the run-up to the [Iran] war, and suddenly that change in the outlook for inflation and the knock-on effect for interest rates [prompted them to] sell gold.”

Could gold still help hedge against inflation?

Despite the selloff, most experts agree that gold still has a role to play in portfolios, particularly as a hedge against inflation.

Central bankers are currently more constrained in how high they can push interest rates than they have been in the past.

The Fed hiked interest rates to as high as 19% in the early 1980s to combat rising inflation. This coincided with a steep decline in the gold price, from around $650 in January 1980 to around $320 in June 1982. But these high interest rates damaged the global economy and would be unworkable today.

“Rates clearly can rise, but could they rise to those levels again? Could the Fed really have the firepower to be able to fight true inflationary crises through monetary policy?” asks Sturge. “I'm not sure. Debt to GDP is four times higher than in 1980. You've had a huge increase in the money supply in the US, which has obviously been fueling inflation.”

If it reached a point where the Fed couldn’t control inflation through monetary policy, then financial repression – government policies that keep rates artificially low, at the expense of savers and private businesses – would result.

“That is a very positive environment for gold,” says Sturge.

Similarly, Harger believes that gold remains an effective inflation hedge because it protects against long-term structural fragility. He argues that interest rates will eventually have to fall: “The global economy cannot sustain permanently high financing costs without triggering a recession. Furthermore, under-pressure growth and massive public deficits… limit long-term rate hikes.”

Gold, he says, will likely be a beneficiary of this eventual reduction in interest rates. “A strategic allocation may provide protection against sovereign risk and currency devaluation as rising debts force loose monetary policies.”

“Over the long term, gold being an inflation protection, I think, has held very well, but it tends to be more in terms of protecting your purchasing power rather than necessarily shooting sky high every time there's inflationary scare,” said Sturge. “It's driven by persistent debt growth: the fiscal deficits of the world, long-term currency debasement – these are the reasons why people hold gold.”

• The Bank of England’s Monetary Policy Committee (MPC) voted to keep interest rates at 3.75% today.
• The decision was in line with expectations from most experts.
• The MPC seems to be adopting a ‘wait and see’ approach to setting rates, holding off on a hike or cut until we see concrete evidence of how the war is affecting the UK.
• The Bank estimates that inflation will be lower than their previous expectations in 2026.
• The latest inflation data showed prices rose by 2.8% in the year to May 2026, unchanged from April.
• Unemployment fell slightly to 4.9% in the three months to April.

When will interest rates fall further? | Is the UK heading for stagflation? | MPC meeting dates | UK inflation forecast |

Good afternoon and welcome to MoneyWeek’s live coverage of tomorrow’s (18 June) interest rates decision.

The Bank of England’s Monetary Policy Committee (MPC) will meet today to decide where to take interest rates, and the decision will be announced on Thursday.

Follow along for the latest commentary and analysis on the upcoming decision and the breaking news tomorrow afternoon.

What is the Monetary Policy Committee (MPC)?

The Monetary Policy Committee (MPC) is a group of nine experts who are responsible for setting interest rates.

The group is made up of five senior members of staff at the Bank of England, and four external experts who are there to make sure the MPC benefits from expertise outside the BoE. The committee is chaired by Andrew Bailey, the governor of the Bank.

They meet every six weeks and vote on whether to cut, hold, or raise interest rates. If there is a tie, then the Bank of England governor Andrew Bailey holds the deciding vote.

Interest rate decisions are usually announced on a Thursday, though the meeting itself typically takes place on the day before the announcement.

At their last meeting, the MPC voted to hold rates at 3.75%, with the motion passing by eight votes to one.

ONS: Inflation held steady at 2.8% in May

Inflation held at 2.8% in the 12 months to May, as the lowest food inflation in 17 months helped offset high transport prices, the latest figures from the Office for National Statistics (ONS) show.

The figure undershot expectations from many economists who expected inflation to rise.

Although inflation is lower than many had forecasted, it is still significantly above the Bank of England’s 2% target and many economists expect it to rise this year thanks to the economic disruption from the Iran war.

The largest upwards contributor to inflation in May was the transport sector, where inflation was 6.8% in the year to May. Price growth for airfares, vehicle taxes, and motor fuel costs pushed May’s overall inflation up by 0.29 percentage points.

Much of this was offset by surprisingly low food inflation, which was the lowest in May since December 2024. Food prices rose by 2.2% in the 12 months to May, pulling overall inflation down by 0.07 percentage points.

Other notable downwards contributions to the inflation rate came from the housing and household services, furniture, clothing, restaurant, and recreation sectors.

For more detail and analysis on today’s inflation figures, you can read our inflation live report from earlier today.

What’s the link between interest rates and inflation?

Inflation is one of the most important, though not the only, economic indicators used by the MPC to help them set interest rates.

This is because the Bank of England has a mandate to keep inflation at 2%, a level of price growth that economic consensus deems healthy for an economy.

Most Western central banks, like the European Central Bank (ECB) and the US’s Federal Reserve (Fed), have an inflation target of 2%.

The Bank of England can use monetary policy to help keep inflation at the target level. The most important of these levers is the moving of interest rates.

Broadly speaking, when inflation is too high, the MPC will raise interest rates, and when it is too low, it will lower them.

These are not the only two reasons why interest rates are moved. For example, rates might be lowered if economic growth is too slow in a bid to speed up the economy.

Where have interest rates gone in the last decade?

Interest rates are currently at 3.75%, the lowest they have been since February 2023.

Before 2022, rates had languished under 1% for the most part as low interest rates were used as a tool to help stimulate the economy following the 2008 financial crisis and during the covid-19 pandemic.

But high rates have been the norm since 2022, when energy prices exploded in the wake of the Russian invasion of Ukraine. This led to high inflation and the start of the cost of living crisis, which we are still feeling the effects of today.

In order to tame inflation, the Bank of England quickly and aggressively hiked rates, going from 0.5% in February 2022 to 5.25% in August 2023.

Rates have since been gradually lowered, with the bank rate going from 5.25% in July 2024 to 3.75% in December 2025, where they have stayed.

Before the Iran war, most economists expected the Bank to cut rates at least twice in 2026, but few now expect this to happen.

They now either expect rates to stay at 3.75% for the rest of the year, or potentially rise depending on how deep the inflationary shock from the war will be.

What should we expect from tomorrow’s interest rates announcement?

Most economists agree that an interest rate cut is incredibly unlikely tomorrow as global economic conditions make this a risky move. If rates are cut at a time when many expect inflation to rise, it could exacerbate the issue.

Instead, many experts are forecasting that the MPC will choose to hold interest rates at 3.75% for the fourth consecutive meeting.

Today’s inflation data bolsters the case for a hold, as it undershot the Bank’s projection by 0.4 percentage points, helping paint a rosier picture of price growth.

With inflation holding steady compared to the April 2026 figure, the possibility of a rate hike in tomorrow’s announcement also becomes more unlikely, though future hikes are not off the table yet.

Experts at Oxford Economics forecast a hold at tomorrow’s meeting, expecting the MPC to vote 7-2 in favour of a hold.

Edward Allenby, senior economist at Oxford Economics, said: “Although energy prices remain elevated, most MPC members don’t appear close to voting for tighter policy.

“Early warning signs of indirect and second-round effects remain benign, and most members have argued that the weakness in the economy means the risks around the medium-term inflation outlook are two-sided. But these members are still likely to signal that they remain open to rate rises if necessary.”

The economic backdrop to tomorrow's announcement

The economic backdrop to tomorrow’s MPC meeting is a mixed picture. While May’s inflation figures were much lower than most economists expected, the rest of the economic news is not quite so rosy.

The UK economy shrunk in April as the country started to feel the economic disruption from the Iran war, figures from the ONS showed last week.

The economy contracted by 0.1% in the month to April, the first time negative growth figures were seen since August 2025.

The contraction is a far cry from the more positive growth figures in the first quarter of 2026, which showed the economy grew by 0.6%, indicating that the Iran war disrupted the start of an economic recovery for the UK.

Negative growth is a big worry for policymakers as it means the country is getting poorer as a whole.

When periods of economic contraction are prolonged, the effect is worse as firms see revenues dwindle and start to lay off staff – if the economy shrinks for two consecutive quarters, it officially enters a recession.

We are not quite at that point yet, but depending on how the economy responds to the economic shocks coming, we could get closer.

The Bank of England also closely monitors the labour market to help inform their interest rates decision.

The latest figures show unemployment climbed to 5% in the three months to March, bringing joblessness to its highest level in almost six years.

Meanwhile, wage growth is slowing. In the three months to March, wages grew by just 3.4%, also the slowest rate in six years.

Although high unemployment and slow wage growth are bad for individuals, according to the orthodox view of economics, a soft labour market does act as a disinflationary pressure in the economy – if you are laid off, your income falls and so does your spending.

That means that a poor jobs market can help lower inflation, which can in turn help persuade the MPC to cut rates.

Why does conflict in the Middle East mean inflation in the UK?

The war in Iran has caused a significant global economic shock with trade being disrupted since 28 February as hostilities have made transporting goods through the region very risky.

The disruption has been particularly acute because the Strait of Hormuz, a narrow waterway between Iran and Oman through which around 20% of the world’s oil and gas is transported, has remained shut.

With such a large proportion of the world’s oil supply effectively stuck in the strait, oil prices have soared.

The average price of a barrel of Brent crude oil was around $70 before the start of the war, but once hostilities began prices became high and volatile. They peaked at around $114 a barrel in May, but hovered between $90 and $100 for the most part since February.

Following news that a peace deal had been reached between the US and Iran, prices plummeted as traders expect the Strait of Hormuz will reopen and allow the ships stuck there to continue on to their original destination.

But even if this peace deal is signed and comes into full effect, the economic consequences of the war will be felt for some time.

Though the oil supply is set to return to normal, the damage has already been done.

The price of oil impacts how much many everyday items cost. This includes more obvious things like petrol and diesel, but also goods you may not expect like crayons, plastic bags, and iPhones.

With prices being so high for four months, we can expect the hangover effects to last for the rest of the year and potentially spill into 2027. The hard work of restarting the whole process of oil production and distribution takes time.

An additional pain point for the UK from the war is energy prices. The closing of the Strait of Hormuz sent wholesale energy prices flying, and this will be reflected when the next price cap comes in on 1 July.

Millions of households in the UK will be shelling out around 13% more for their energy this summer, and prices are expected to remain broadly at this elevated level until at least 2027, according to most forecasts.

When will the interest rate decision be announced?

The Monetary Policy Committee’s (MPC) interest rates decision will be announced tomorrow (17 June) at 12pm.

Alongside the decision, the Bank will publish the minutes from the MPC meeting, where the committee’s thinking can be seen.

This document also has statements from each MPC member on why they voted the way they did.

Every other meeting, the Bank of England also publishes a Monetary Policy Report that sets out the economic analysis and inflation projections used by the MPC.

There will be no report published alongside the June meeting as one was published in April.

Thank you for following our live coverage of interest rates this afternoon. We will pause the blog for now, but will be back in the morning.

Make sure to come back to this page tomorrow to get the latest breaking news, analysis, and commentary on interest rates when the MPC announces their decision.

Good morning. Welcome back to our live coverage of today’s interest rates decision.

The Bank of England will announce whether rates are falling, rising, or staying where they are at 12pm.

While most economists think the bank rate will remain at 3.75%, there is still a small chance that rates will rise today.

Follow this page to get the news as soon as it's announced, as well as analysis and commentary.

ONS: Unemployment fell slightly to 4.9% in three months to April

Unemployment fell to 4.9% in the three months to April, down from a reading of 5% in the previous month, according to the latest figures from the Office for National Statistics (ONS).

Meanwhile, payrolls rose to 30.3 million in May, up slightly by around 2,000 compared to April.

The figures slightly undershot most expectations from economists, who largely anticipated joblessness to remain at 5%.

Liz McKeown, director of economic statistics at the ONS, said: “The labour market remained broadly stable in the latest quarter, with further softening evident in some numbers.”

The data indicates the jobs market may be strengthening. If this is the case, it would be good news for workers, but potentially mean the Bank of England will be more inclined to keep interest rates high to avoid the inflationary pressures that arise when the jobs market is strong.

The ONS also published provisional data for May, showing the number of vacancies in the UK was down by around 2.6% (19,000 jobs) in the period between March and May, the lowest level since April 2021.

McKeown said the fall in vacancies suggests “firms are becoming more cautious about taking on new staff”.

The provisional figures also showed payrolls rose to 30.3 million in May, up slightly by around 2,000 compared to April.

ONS: Wage growth remains at a near six year low

Public sector wages are growing far faster than those in the private sector, new data from the ONS shows, as overall earnings growth remains at its slowest level in almost six years.

Wages for the average worker in the UK grew by 3.4% in the year to April when excluding bonuses, remaining at the same level as the previous month. When including bonuses, this figure grows to 4.4%.

Liz McKeown, director of economic statistics at the ONS, said: “Regular wage growth in the private sector slowed to its lowest rate in five and a half years, though total earnings are growing faster because bonus payments in March and April are higher than a year ago, particularly in the financial sector.

“Public sector pay growth increased but is once again affected by the timing of pay awards varying this year.”

Public sector workers received the biggest pay bump in the period, with their average wages growing by a rapid 5.1%.

Private sector wages lagged far behind this figure, growing by just 2.9% overall in the same period. When excluding bonuses, earnings grew at their slowest rate since October 2020, during the height of the covid-19 pandemic.

Suren Thiru, chief economist at the Institute of Chartered Accountants in England and Wales, said the latest labour market figures “point to a jobs market struggling under the strain of soaring energy bills and employment costs, with more firms limiting hiring and holding down pay, especially for younger workers”.

He said: “Weak wage growth offers a silver lining for rate-setters by raising hopes that any inflationary spillover from the Iran war will be limited, especially as rising unemployment will help keep pay settlements heading downwards.”

He added that the figures “seal the deal” on an interest rate hold today as rate-setters will be reassured that a soft labour market can help mitigate the inflationary shock from the Iran war.

Recap: What you should expect at 12pm

The MPC’s interest rates decision will be announced at 12pm today. We will be covering the result of the decision in this live report.

Most economists think the MPC will keep rates where they are at 3.75% for the fourth consecutive meeting.

They are likely to do this because of the economic shock that is coming from the Iran war. Analysts expect the war to push up inflation in the UK this year, although we are yet to see data that shows how deep the shock is.

While fuel prices are already high because of the war, and energy prices are set to rise from July onwards, overall inflation has been lower than expected in March and April, holding steady at 2.8%.

However, when the new energy price cap comes in in July, we can expect inflation to rise more significantly.

As the Bank of England has a mandate to keep inflation at 2%, they are highly unlikely to cut interest rates at a time like this, as doing so might exacerbate the problem.

While a hold is the most likely result, the MPC may decide to raise interest rates to help stave off inflation. However, a rate hike is not expected today as the MPC will likely wait and see before taking more drastic action.

Before the war, most experts thought the MPC would cut interest rates twice more in 2026, but most now think they will remain where they are for at least the rest of this year.

BREAKING: Interest rates held at 3.75%

Interest rates are unchanged at 3.75%, the Bank of England has announced.

The hold was widely anticipated by economists, as the Bank’s Monetary Policy Committee (MPC) wait to see how the shock from the Iran war will be reflected in economic data.

Interest rate hold passed by 7 votes to 2

The Monetary Policy Committee voted to hold rates at 3.75%, with seven members supporting the motion, and two members opposing it.

The two members who opposed the hold instead wanted rates to rise by 0.25 percentage points to 4%.

The members voting to raise interest rates were Huw Pill and Megan Greene.

Energy prices were a major concern for the MPC

The minutes of the MPC’s meeting show that the elevated level of global energy prices were a key concern for the committee when deciding where to take interest rates.

They acknowledged that wholesale energy prices have fallen since their previous meeting in April but noted that they still remain higher and more volatile than they were before the Iran war.

They added that the impact of the energy shock on the economy is still uncertain, with concrete data only set to become available in the coming months.

The minutes said: “Monetary policy cannot influence energy prices but is being set to ensure that the economic adjustment to them occurs in a way that achieves the 2% inflation target sustainably.”

Future interest rate decisions set to depend on scale of Iran shock

Where interest rates go next is uncertain and highly dependent on how the economy reacts to the shock from the Iran war, the minutes to the MPC’s meeting showed.

The Bank’s mandate to keep inflation at 2% will require different amounts of intervention from the MPC depending on the rate of inflation later this year.

The minutes show that a potential future rate hike is still on the cards despite more positive developments in the Middle East as the inflationary impact of the war is still set to get worse.

They said: “The policy stance required to achieve this [the 2% target] will depend on the scale and duration of the shock, and how it propagates through the economy.”

Economists at the Bank still expect inflation to accelerate later this year when the effects of higher energy prices pass through to consumers in July through the increased price cap. They are also closely monitoring second-round inflationary effects, which are typically worse the longer higher energy prices persist.

One economic indicator that helps the Bank justify avoiding a rate hike is the softening labour market, which could help “contain inflationary pressures.”

The minutes read: “The Committee will continue to monitor closely the situation in the Middle East and how its impact propagates through the economy. The Committee stands ready to act as necessary to ensure that CPI inflation remains on track to meet the 2% target in the medium term.”

Bank of England lowers its inflation expectations for 2026

Inflation is expected to remain just below 3% for most of the year, but briefly rise to “a little over” 3.25% in the fourth quarter of 2026, new estimates from the Bank show.

The new estimates are well below the Bank’s April forecasts which expected inflation to peak at 3.6% in their best-case scenario and over 4% in their worst-case scenario.

The downgrade in the Bank’s inflation expectations came after energy prices have fallen since the previous estimates were made, with significant drops coming after it looked like the Iran war was coming to a close.

Lower non-energy prices also helped the Bank revise their inflation forecast down.

BoE: Strong economic growth in Q1 is unlikely to be repeated in 2026

The UK’s strong economic performance in the first quarter of 2026 is unlikely to continue in the rest of the year, the Bank of England has said.

The minutes of the MPC’s meeting showed that this figure overstated overlying economic momentum, which has remained subdued, according to business surveys analysed by the Bank.

April’s GDP figures, which showed the economy shrank by 0.1%, are consistent with this.

Bank staff estimate that underlying GDP growth in Q1 was around 0.2%, and that the economy would continue growing at this rate in Q2.

Base rate held for four consecutive meetings

Today’s announcement that interest rates would stay at 3.75% is the fourth consecutive time the MPC has voted to keep rates where they are.

Compared to interest rates in the last 20 years, 3.75% is relatively high, especially considering rates had been near 0% for years following the 2008 financial crisis.

However, as inflation has remained persistently high since the 2022 energy crisis and the accompanying cost of living crisis, the bank rate has been high for some time. That means that 3.75% is actually the lowest since February 2022.

Bailey: We must tolerate above-target inflation to get back to target

In the minutes of the MPC’s meeting, Andrew Bailey, governor of the Bank of England, justified his vote to hold interest rates.

He argued that the marked fall in energy prices in recent days was a positive sign, especially considering the progress on US-Iran peace talks, but warned “the situation remains unpredictable, and there is clearly a risk that energy prices remain elevated for an extended duration”.

Bailey noted the labour market is showing signs of further softening and said there are further signs of demand weakness in the economy.

He added: “Our remit recognises that attempting to bring inflation back to the target too quickly may cause undesirable volatility in output.

“Given the context at present of softness in the real economy and uncertainty around the scale and duration of the shock to energy prices, tolerating temporarily above-target inflation as part of a return to target is an appropriate way to approach the trade-off, providing inflation expectations remain contained.”

He said that inflation and interest rates risks are on the upside, meaning it is more likely for the bank rate to rise than fall in the foreseeable future.

“I would respond promptly to any signals that an extended period of elevated energy prices could be leading to stronger possible second-round effects,” he added.

Why two MPC members voted to raise interest rates to 4%

While the majority of MPC members voted to keep interest rates held at 3.75%, there were two dissenting voices that wanted to hike rates.

These were Huw Pill, the Bank of England’s chief economist, and Megan Greene, an academic economist and external member of the MPC.

Greene voted to hike rates as she saw the risk of second-round inflationary effects as higher and more uncertain than other members of the committee. To deal with this, she called for the MPC to “pursue a risk management strategy!.

She said the risk of holding rates where they are and second-round effects being more extreme than expected is worse than hiking rates and these effects being as forecast.

She said: “These risks are asymmetric, so we should insure against the possibility of larger second-round effects until we have evidence to determine they are not materialising. A proactive hike now in bank rate should help anchor inflation expectations.”

Pill’s justification was similar, arguing that, with the inflationary outlook so uncertain, raising interest rates to 4% “continues to be the most robust monetary policy response to the intensification of these risks”.

“Global energy prices remain volatile, and elevated compared with their pre-hostilities level, despite the announcement of a new ceasefire. Even with a looser labour market, the risk that second-round effects will create greater intrinsic persistence in UK inflation remains.”

He added that moving the bank rate to 4% now would put monetary policy in a good position to address the uncertainties in the economy.

Deutsche Bank: Interest rates expected to be on “long hold”

Deutsche Bank has said that interest rates are set to stay at 3.75% for a long time, with a lower chance of a rate hike as the economic and geopolitical backdrop has become more favourable and given rise to a wider consensus within the MPC.

Sanjay Raja, the bank’s chief UK economist, said: “For the MPC, recent data outturns combined with an Iran/US deal has meant that the risks around second-round effects have receded. Indeed, while the MPC still sees upside risks to inflation, lower wage and price inflation has given the MPC more confidence that price pressures remain more contained for now.

“Put simply, despite an inevitable inflation wave, the MPC may be willing to tolerate and look through a temporary bump in price momentum.”

Raja added that today’s decision has also helped the MPC keep their options open in the summer, when we will start to see more concrete data about how the Iran war has affected the UK.

“Despite better data and a dramatic fall in energy prices, the MPC avoided sounding too dovish. Instead, it maintained its hawkish bias – keeping flexibility should there be any meaningful signs of indirect and/or second-round effects.

“While financial conditions have tightened since the war began, the MPC's decision today reflects the importance of maintaining some policy restriction in market pricing – allowing it to stick to its 'active hold' strategy.”

As for where interest rates will go next, Raja says the need to act swiftly has reduced as more favourable economic data than expected bought the MPC some extra time to assess the situation.

With that extra breathing space, Raja expects interest rates to stay at 3.75% for the rest of 2026 and adds that Deutsche Bank’s models still see the case for rate cuts in spring 2027.

What does today’s interest rates decision mean for your finances?

Decisions made at the Bank of England to cut, hike, or hold interest rates will affect your personal finances.

This is because the bank rate is the core interest rate in the UK, and is the rate of interest the BoE pays to commercial banks, building societies, and financial institutions that hold money with the central bank.

The bank rate is also the interest rate that the BoE charges on loans made to other financial institutions.

That means that when interest rates change at the BoE, the lending and savings rates offered by retail banks also tend to change.

This is why you may find that your mortgage rate is higher after the bank rate rises, or why you may find your savings are generating less interest when the bank rate falls.

According to data from Moneyfacts, its Average Savings Rate has risen to 3.57%, the highest point since May 2025. “Much of this change to fixed rates is down to speculation that interest rates will remain higher for longer,” said Rachel Springall, finance expert at Moneyfacts.

For more on how interest rates affect your finances, read our article.

MPC remains in ‘wait and see’ mode

Today’s decision to hold interest rates at 3.75% indicates that the MPC is continuing the ‘wait and see’ approach that they have used since the beginning of the Iran war, according to analysis from advisory firm Oxford Economics.

Multiple economic indicators have turned less inflationary in the last few days.

Oil and energy prices in particular are in a better place than any of the BoE’s potential scenarios outlined in their April Monetary Policy Report, with oil and gas futures trending down as the Iran war winds down.

Meanwhile, the labour market has continued to soften, which acts as a further disinflationary force in the economy.

Andrew Goodwin, chief UK economist at Oxford Economics, said that the majority of the MPC who voted to hold rates “appear to take the view that the most likely scenario is that a weak labour market and fragile demand will keep a lid on second-round effects via pay growth and margins. And leading indicators on the strength of those second-round effects will remain key to the MPC’s decision making”.

Like Deutsche Bank, Oxford Economics agree that we are probably going to see interest rates settle at 3.75% until at least next year before a potential cut in late 2027.

Goodwin said: “On balance, we can’t see any reason to change our call that Bank Rate will remain at 3.75% for the rest of this year. The majority of the committee appear content to sit back and see how events play out, and we don’t expect to see leading indicators showing evidence of growing second-round effects that might trigger a change of heart.”

Thank you for following our live coverage of today’s interest rates decision.

We will close our live report now, but make sure to subscribe to MoneyWeek’s newsletters to get a wealth of news, features, and analysis straight to your inbox.

• The Office for National Statistics (ONS) has released UK inflation data for May 2026.
• Consumer Prices Index (CPI) inflation stayed at 2.8% in the 12 months to May, the same as in the previous month’s release.
• Economists had previously predicted a rise in inflation compared to the month prior.
• Lower food prices were one of the main counters to higher transport costs in May.
• The Bank of England’s (BoE) Monetary Policy Committee (MPC) meets this week to decide on UK interest rates and will watch today’s inflation data closely when making its decision.

| UK inflation forecast | What is inflation? | When will interest rates fall further? | CPI release dates | MPC meeting dates |

Good afternoon and welcome to live coverage of the upcoming UK inflation data release.

Tomorrow, we’ll find out how prices changed in the UK during May. Last month’s release showed a slowing of UK Consumer Prices Index (CPI) inflation in the 12 months to April, despite higher oil prices resulting from the conflict in Iran.

While oil prices have fallen this week following the announcement of a peace deal between Iran and the US, the expectation is still that the impact of the conflict will have pushed CPI inflation higher in the period the data covers. How great will the impact be – and what could it mean for your money?

When is UK inflation data released?

The Office for National Statistics (ONS) will release May’s UK inflation data at 7am tomorrow (17 June).

We’ll bring you live reporting and reaction following the release, as well as rolling coverage and expert views on what changes in inflation might mean for you.

What do experts predict for May’s UK CPI?

The headline CPI figure took a surprise dip in April, but few experts anticipate a repeat in the May UK inflation data.

Economists at advisory firm Pantheon Macroeconomics expect CPI inflation to have risen to 3.0% in May, due to the impact of recovering air fares and vehicle duty base effects.

“Most of the action comes in services,” said Pantheon Macroeconomics’ chief UK economist Robert Wood and senior UK economist Elliott Jordan-Doak in a report seen by MoneyWeek. “Non-core components should add 1 basis point to inflation in May compared to April, and core goods will shave off 6 basis points.”

Similarly, Sanjay Raja, chief UK economist at Deutsche Bank, expects CPI to rise to 3%, with most of the uplift driven by services inflation.

Both Deutsche Bank and Pantheon Macroeconomics forecast services inflation to rise from 3.2% to 3.7%.

Notably, both organisations forecast a lower rate of UK inflation for May than the MPC itself. In its latest report (published in April), the MPC forecasted CPI to rise by 3.3% in the year to May, driven largely by a 3.9% rise in services inflation.

UK inflation data to be followed by interest rates decision

UK inflation data is released once per month, and the Bank of England’s (BoE) Monetary Policy Committee (MPC) meets every six weeks to set UK interest rates.

This means every other MPC meeting and every third inflation data release coincide. Inflation data is released on Wednesdays and the MPC’s decision is posted on Thursdays, so when this happens the MPC announces its decision the day after inflation data is released.

That’s the case this week; the MPC’s interest rate decision will be announced on Thursday 18 June. The committee will factor tomorrow’s inflation data closely into its decision.

“Absent some huge surprises in this week’s inflation and labour-market figures, we think the MPC will say at Thursday’s policy meeting that they remain prepared to act but feel they can keep rates on hold for now,” said Robert Wood and Elliott Jordan Doak, chief UK economist and senior UK economist respectively at advisory firm Pantheon Macroeconomics, in a note seen by MoneyWeek.

Why small changes in inflation make big differences to your finances

Inflation measures the rate at which prices rise or, from another perspective, the rate at which money falls in value. One pound today buys less than it did ten years ago.

The MPC targets a 2% rate of inflation. This is generally viewed by economists as a healthy rate of inflation (too little inflation or, worse, deflation are signs of a weakening economy).

The difference between 2% inflation and 3% might sound trivial, but over the long term it has a surprisingly large effect on your money.

“People often assume there isn't much difference between low rates of inflation, but the rule of 72 shows how it can mount up,” says MoneyWeek’s editor Andrew VanSickle. “At 4%, your money takes only 18 years to halve in value. At 3%, 24 years. At 2% – the Bank of England's target – 36 years.”

UK inflation data history

The peak for UK inflation in recent history came in October 2022, when the headline CPI inflation measure hit 11.1%.

CPI inflation fell below the Bank of England’s 2% target in September 2024, before rising steadily over the next year.

Until the war in Iran broke out, inflation had been trending downwards. The war’s outbreak, though, pushed UK inflation to 3.3% in March this year – ahead of the dip in April.

Could the Iran ceasefire ease UK inflation in time to avert rate hikes?

The MPC will look closely at tomorrow’s UK inflation data when it meets this week. But this data is backward-looking – reflecting what happened to UK prices in May. The committee will also pay close attention to what is likely to happen to inflation going forward.

With that in mind, the ceasefire between the US and Iran, and the resulting re-opening of the Strait of Hormuz, could have come at the perfect time for rate-setters who had appeared set to decide between hiking rates, which risks stifling an already weakening economy, and cutting or holding them which could risk letting inflation get out of control.

“Falling oil prices have arrived at a convenient moment, giving both the [Federal Reserve] and the Bank of England something to work with ahead of their meetings this week,” said Chris Beauchamp, chief market analyst at investing and trading platform IG. “Cheaper energy takes pressure off inflation, and that should allow both central banks to strike a more measured tone than some of the more excitable commentary and market pricing seen since the US and Iran went to war.”

Your personal inflation rate

CPI inflation is just one way of measuring inflation. It is the headline rate measured by economists and policymakers largely because, of all the metrics, it is one of the easiest to compare internationally. For more information on different inflation measures, see our explainer on CPI vs RPI inflation.

All inflation measures have one thing in common: they distil an immensely complex combination of goods and prices across the whole economy into a single number. While that number in theory represents the economy as a whole, different people with different spending patterns will experience inflation differently from one another.

Everyone has their own personal inflation rate. You can calculate yours by answering a series of questions at the ONS’s personal inflation rate calculator.

“My personal inflation benchmark is the peppermint Aero,” says MoneyWeek’s editor Andrew VanSickle. “I paid 22p in 1988. Now it's 63p or so.”

Thank you for following today's live reporting ahead of tomorrow's UK inflation data release. We're pausing coverage here for this evening, but we'll be back live tomorrow morning to bring you the May inflation data as soon as it breaks at 7am.

Good morning, and welcome back to our live coverage of the upcoming UK inflation data release.

As a reminder, the Bank of England most recently forecasted a rise in Consumer Prices Index (CPI) inflation to 3.3%, though some economists believe that inflation will have been cooler at 3.0%.

We'll bring you the headline figure as it happens, as well as rolling reaction and analysis following the release.

UK inflation data release imminent

The May UK inflation data release is just minutes away. Will inflation have risen, and by how much if so?

BREAKING: UK inflation stays at 2.8% in May

UK inflation as measured by the Consumer Prices Index (CPI) stayed constant at 2.8% in the 12 months to May 2026.

Lower food prices lead to surprisingly flat UK inflation

UK CPI inflation, which was expected to have risen in the 12 months to May compared to the previous month, has instead stayed flat with lower food prices counteracting increased transport costs.

“After last month’s slowdown, inflation held steady in May as various price movements offset each other,” said Grant Fitzner, chief economist at the Office for National Statistics (ONS).

“The main upward movement came from transport with airfares, vehicle taxes and petrol prices all pushing up inflation,” Fitzner continued. “These were offset by lower food prices, with decreases in inflation seen across a range of meat, dairy and vegetable items compared to last month, as well as the cost of domestic heating oil, which fell back after climbing in recent month[s].”

UK inflation in detail

Let’s have a look at some of the other UK inflation figures beyond that headline 2.8% rate of annualised CPI inflation.

While annualised CPI inflation held steady in May, on a monthly basis the metric increased by 0.2% from April, the same rate as in May 2025.

The Consumer Prices Index including owner occupiers' housing costs (CPIH) rose by 3.0% in the 12 months to May 2026, unchanged from the 12 months to April.

CPIH also rose by 0.2% in May 2026 – the same monthly rate as in May 2025.

Core CPI (CPI excluding volatile goods like energy, food, alcohol and tobacco) rose by 2.6% in the 12 months to May 2026, up from 2.5% in the 12 months to April.

As had been predicted, CPI services inflation rose from an annual rate of 3.2% to 3.7% between April and May.

Could the Iran inflationary shock be short-lived?

When looked at in historical context, there is very little sign of a bump in inflation linked to the Iran war.

“UK inflation was flat during May, coming in below expectations despite higher energy prices continuing to weigh on UK households and businesses,” said Scott Gardner, investment strategist at J.P. Morgan Personal Investing. “This reading will provide some hope that any rebound in UK inflation could be short-lived after the announcement of a framework deal earlier in the week between the White House and Iran to stop fighting.”

Other experts are striking a more cautious tone, though.

“Despite energy prices having fallen recently, there is more inflationary pressure to come for the UK, when the Ofgem price cap moves higher next month,” said Luke Bartholomew, deputy chief economist at asset manager Aberdeen.

Rachel Reeves: Economic plan is controlling inflation

The chancellor of the exchequer Rachel Reeves has responded to today’s inflation figures.

“While the war in the Middle East pushes prices up globally, we have got the right economic plan and inflation has held steady,” said Reeves.

“We’re protecting families and businesses from rising costs, with cuts in energy bills and freezes in fuel duty and rail fares.”

Reeves’s statement drew attention to measures that the government has brought in including targeted support on heating oil, reduced tariffs and an extension of the fuel duty cut to December 2026.

Which categories had the biggest impact on UK inflation?

Different categories of goods and services had contrasting effects on UK inflation during May.

Transport had the largest upward impact on an annualised basis, rising 6.8% in the 12 months to May and contributing 0.29 percentage points to 12-month CPI inflation. On a monthly basis transport costs increased by 0.4% in May, having fallen 1.8% in April.

Conversely, the price of food and non-alcoholic beverages fell 0.1% during the month, which led to this category lowering annualised CPI inflation by 0.09 percentage points. While furniture and household goods prices increased 0.8% between April and May, they fell by 0.1% over the preceding 12 months, meaning this category reduced annualised CPI inflation by 0.04 percentage points.

Unchanged UK inflation suggests price pressures are ‘finely balanced’

The easing of food price pressures indicates that, beneath the headline impacts of higher energy prices, there is a longer-term disinflationary trend at play, according to Richard Flax, chief investment officer at wealth manager Moneyfarm.

“It was a modest positive surprise to see UK headline inflation hold at 2.8% in May, as consensus expectations had pointed to a move closer to 3%,” said Flax. “This suggests underlying price pressures remain more finely balanced than anticipated.”

Middle East disruption could still lead to higher UK inflation

Experts are warning UK consumers not to get carried away with the idea that the UK has escaped the inflationary risks resulting from the war in the Middle East, even following the peace deal negotiated between Iran and the US.

“Despite a peace deal being reached, disruption to global energy markets and related supply chains is yet to work its way through the system,” said Rob Morgan, chief investment analyst at wealth manager Charles Stanley. “Households still need to brace themselves for pricier shopping baskets and energy bills in the coming months.”

Despite this the reopening of the Strait of Hormuz “is undoubtedly good news for consumers, business owners and central banks alike”, Morgan added. “It means that the price jolt won’t be as ferocious as it might have been, and it could give way to a calmer inflationary setting next year… it’s far from a ‘worst case’ inflationary scenario for UK households and businesses.”

UK inflation outlook looks softer, says Deutsche Bank chief economist

Investment bank Deutsche Bank’s chief UK economist, Sanjay Raja, has highlighted the benign outlook for UK inflation implied by today’s release.

“Outside of services CPI, headline, core, and food prices [inflation] all undershot our expectations,” said Raja.

“Driving some of the downside in price momentum was a combination of weaker core goods prices and food prices. Indeed, despite rising energy costs, retailers remain hesitant to price in any cost pass-through.”

The easing of pricing pressures on these goods coincides with the apparent resolution to the conflict in the Middle East, which has already seen oil prices fall to around 10% below last month’s market assumptions.

“This will slowly flow through the inflation data over the summer and winter,” said Raja. “And, in even better news, the fall in oil prices has coincided with a fall in gas prices. It’s looking increasingly likely that the Ofgem Price Cap could be lower as opposed to higher come October 2026, bringing some much-needed relief for UK households and businesses.

“Altogether, the sting from the Iran conflict looks less than markets initially assumed,” Raja added. “The peak in CPI could end up well below what we saw last year.”

UK inflation recap

Here’s a recap of the main talking points from this morning’s UK inflation data release:

• CPI inflation was 2.8% in the 12 months to May, unchanged from the previous month.
• While transport costs rose, food prices fell month-to-month which contributed to the lower-than-expected figure.
• CPI services inflation rose to 3.7%, maintaining upward pressure on UK inflation more broadly.
• CPI rose by 0.2% on a monthly basis.

What does inflation mean for your money?

You’ll have already felt the impact of the May inflation figures the ONS has announced today when you bought travel tickets, food and drink or petrol last month. Inflation figures are backward-looking and reflect what people across the economy spend on everyday goods and services.

But beyond straining your monthly budget there are indirect consequences for your money when inflation runs above the 2% level that the Bank of England (BoE) targets.

First and foremost among these is the impact on interest rates. The BoE’s Monetary Policy Committee is meeting this week to decide on interest rates. Higher inflation incentivises central bankers to raise interest rates, which would increase the interest you pay on any debt (including your mortgage) but would also increase the amount of interest you could accrue on savings and cash.

Higher inflation also puts up any utility bills you have that are inflation-linked. Many contracts have a clause allowing them to increase by the rate of annual inflation (often this is based on the Retail Prices Index (RPI) rather than CPI).

State pensioners also potentially stand to benefit, as the triple lock means that state pension payments increase by whichever is highest out of CPI inflation, average wage growth or 2.5%.

Inflation reality checks

UK inflation undercut expectations in May and that’s a cause for optimism in many respects. Before we get carried away though, various experts have cautioned that the trouble may not be over yet.

“On the face of it, a flat 2.8% reading on headline UK inflation, against a 3% expectation, and almost all of which attributed to transport costs, is good news,” said George Lagarias, chief economist at financial consultancy Forvis Mazars. But despite this and the anticipated impact of a peace deal between the US and Iran, Lagarias warned that “businesses should not casually overlook the jump in services inflation from 3.2% a month ago to 3.7%.”

Sarah Coles, head of personal finance at investment platform AJ Bell, also highlighted that some categories such as motor fuel and pet ownership have seen significant inflation, while cumulative impacts of inflation can mount up over time.

While the US-Iran peace deal could mitigate inflation in future, “there are no guarantees that the deal will hold, and even if peace endures, price rises are already baked in through higher input costs”, said Coles.

Those on lower incomes are also disproportionately impacted by things like higher energy costs, as a greater proportion of their household income goes on energy-sensitive spending.

“The ONS Family Spending figures out last week showed that the 20% of households with the lowest disposable income spent 15.2% of their budget on food and drink – compared to 7.9% among the highest 20%. They also spent 7.8% on gas and electricity, compared to 3.9% among the richest fifth, and 2.5% on petrol, diesel and motor oils, compared to 2.1%,” said Coles.

What does the latest UK inflation data mean for interest rates?

The biggest question from here is what impact today’s inflation data might have on UK interest rates.

The Bank of England’s Monetary Policy Committee (MPC) is meeting this week, and tomorrow it will announce its latest interest rates decision.

We’re ending live inflation coverage here – but don’t worry, we’ve got a separate live report covering the MPC’s decision. Keep a close eye on that today and tomorrow as we bring you rolling news, insight and analysis of the announcement.

The emerging market (EM) universe is very diverse in terms of what drives individual economies. What does China have in common with India (other than being populous and in Asia) or either of them with Brazil? Yet they are treated as a block, and recent trends are stretching these contradictions further than ever.

A top-down investing strategy often involves assigning things to groups, then buying the most compelling groups or choosing the most attractive within a group. These groups can seem arbitrary – the difference between members can be as big as the similarities. Yet in the investment business, classifications that seem easy to understand can stick around well past the point where they make sense.

Standard rules of thumb for emerging markets would tell you that the last few months have been difficult. Many emerging markets are energy importers, so will suffer from higher oil prices. Markets also tend to be affected by inflows and outflows from foreign investors. If global investors get more nervous, they would be expected to cut emerging-market exposure first and take their money home. Yet the MSCI Emerging Markets index is up by 20% in sterling so far this year. How?

AI stocks are over-represented in emerging markets indices

The explanation hinges on two points. The first is that two of the biggest markets in the index are emerging markets only in one very specific sense. South Korea and Taiwan retain certain restrictions, mostly around their currencies, that MSCI deems incompatible with being in the developed markets group. Yet in many respects, they are both wealthier and more advanced than many developed economies.

The second is that a few huge companies – Taiwan Semiconductor (TSMC), Samsung Electronics, SK Hynix – are huge beneficiaries of the AI boom and are driving their markets even more than the Magnificent Seven drives the US market. Those three stocks account for almost 30% of the MSCI Emerging Markets index. Taiwan and Korea together make up 50% of the index. In turn, TSMC is 55% of the MSCI Taiwan, while Samsung Electronics and SK Hynix account for 60% of the MSCI Korea.

These are eyebrow-raising numbers. They have worked out very well for any broad emerging-market investor. Still, we must remember that if the AI boom ends and the US market slumps, the emerging market index will do the same – it's been a play on the same theme.

If you want diversification, you will only find it in funds whose mandate does not bring in these stocks – BlackRock Frontiers (LSE: BRFI) or Barings Emerging EMEA Opportunities (LSE: BEMO), for example. Of course, these funds have lagged in recent months, held back by the lack of tech exposure or battered by the Middle East crisis. I would not say it is yet time to rotate out of broader emerging market funds. But it is something to keep in mind if the crisis passes and the AI boom falters.

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A new $250 bill has been proposed to celebrate America's upcoming semi-quincentennial, and Donald Trump has a plan to put his face on it. This might be easy to dismiss as yet another example of his overblown ego. But that would be a mistake. If Trump goes ahead, it could undermine faith in what remains the world's reserve currency at the worst possible time.

Trump's allies in Congress have already introduced a law that allows for an exception to the existing rules that no living president can appear on American banknotes. Designs have apparently already been commissioned from the Bureau of Engraving and Printing, which designs dollar bills. There are still plenty of obstacles in the way. The legislation still has to be passed for one, which is never easy, even with a Republican majority in Congress. But even if it doesn't happen, or is delayed beyond the main celebrations, Trump has already decided to become the first living president to add his signature to the notes. What used to be American money is steadily being turned into Trump money.

Trump's $250 bill could undermine the dollar's credibility

That may seem harmless enough. Trump loves the limelight, and what's a few pictures on the banknotes? In Britain, we have always been happy to have the monarch on notes and coins, and the same is true in many other countries. It is not as if we use cash as much anymore, and it is hard to imagine many people will be using the $250 note regularly. But in reality, this is a symptom of something far more serious – a warning sign about the underlying strength of the dollar.

There is a reason central banks have always put weighty historical motifs on their notes. The British have the likes of Winston Churchill and the Duke of Wellington. The European Central Bank has never managed to agree on any real people or buildings – since one member or another would end up taking offence – but has done the best it can with synthesised images of historic building styles. The Bank of Japan has a selection of famous scientists from the country's history. All over the world, central banks choose an image everyone can feel proud of.

There is a logic to that. Paper money is basically a conjuring trick. It is only worth something because we all accept it is worth something, and we are willing to exchange it for goods and services. Reaching into a nation's past is one way of establishing its credibility. It gives paper money an air of tradition and solidity. Without that, there is a real risk people might start thinking it is just a few brightly coloured pieces of paper.

King Dollar is under attack

This is the worst possible time to start taking risks with the US currency. The challenges to the dollar have been growing stronger all the time. The US budget deficits are out of control, running at 6% of GDP even when the economy is doing well, and eventually the rest of the world will get tired of financing those. Central banks globally now hold more of their reserves in gold than they do in dollars, and while that is partly because the price of the precious metal has risen so much over the last year, it is also an illustration of how they are diversifying away from the dollar. China has already launched a digital yuan and is starting to promote it as a serious alternative for settling payments for cross-border trade. The cryptocurrencies led by Bitcoin have had a rough year, but there is little sign they are going away and with every year that passes, they become more established within the financial system, and were always designed as an alternative to the dollar.

The list goes on. On their own, none of those factors might be enough to knock the dollar from its throne as the world's most important currency. But when they all come together at the same time, the greenback is clearly at risk. Like a Latin American strongman, Trump is intent on personalising the government of the US and boosting his own reputation. But if he goes ahead, this may well turn into the moment when the world decides the dollar was not the rock-solid reserve currency any longer and decides to switch to something new. If that happens, the results won't be pretty for the US economy, and Trump may well come to regret his vanity project.

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The latest government data on business rate appeals contains good news and bad news. On the downside, there has been a surge in the number of businesses launching cases: almost 130,000 business owners began the process during the first three months of the year, five times more than in the fourth quarter of 2025; that will probably lead to delays in processing claims. More positively, the data also shows that 57% of firms challenging their business rates bills eventually secured a reduction; in other words, your chances of winning are pretty good.

The statistics, published by the Valuation Office Agency (VOA) at the end of May, underline the importance of checking your business rates assessment quickly. New assessments of the rateable value of more than two million business properties in England and Wales came into force on 1 April; this rateable value, based on the VOA's estimate of the commercial rent potentially chargeable on each property, is what determines your business rates bill.

It's now too late to appeal business rates set following the previous VOA revaluation, which took place in 2023; the deadline was 31 March, which is part of the reason for the spike in claims in the first quarter. But you can challenge the rateable value that came into force in April. If you can show the VOA is overestimating how much rent your business property could secure – either what you are paying to rent it, or if you own the property how much you could rent it out for – you could get a reduction.

Check, challenge and appeal your business rates

Such cases involve three stages. Step one is known as a “Check”. Effectively, you're just asking the VOA to confirm the factual details it holds about your property, so you can check you're not being overcharged because of inaccurate data. Relatively few Checks result in a reduction, so most businesses then move on to stage two, known as “Challenge”.

Following a Check, you have four months to submit a Challenge. This is your opportunity to present evidence suggesting your rateable value has been wrongly estimated. That could include, for example, details of the open-market rent agreed on the property, or details of other leases on similar properties nearby. Alternatively, there may have been a material change to your property – you're using it for a different purpose, say, or there have been developments in the area that could affect its value.

Cases that don't succeed at the Challenge stage can be appealed at the independent Valuation Tribunal Service. There's a fee of up to £300 to launch an Appeal – stage three of the process – and you must file your claim within four months of receiving the Challenge decision. You'll get your fee back if you win.

In theory, you can handle each stage of a business rates case yourself, but many businesses appoint a professional agent to manage the process on your behalf – particularly if they proceed to Appeal. Agents can give you advice on whether it's worth bringing your case and handle the work for you, using their experience to maximise your chances of success.

Make sure you appoint a reputable agent. The Royal Institution of Chartered Surveyors can provide details of firms that abide by their professional standards and code of best practice.

Finally, it's important to note these processes can result in your business rates bill rising rather than falling. This is relatively unusual, but certainly not unheard of. Make sure you're not presenting evidence that gives the VOA reason to think it has underestimated your rateable value.

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Few remember the pre-privatisation state of the water industry in 1989, after decades of underinvestment. The 1976 drought and consequent water restrictions exposed a shortage of water supply as reservoirs and rivers ran dry. The government's response was to build a reservoir – in the one part of Britain that did not have a shortage.

But, if a bad idea is repeated often enough, it can lead people to mistake repetition for accuracy. They subconsciously adjust their own beliefs to avoid the mental stress of questioning or disagreeing with the proposal. Creating the illusion of truth is a prime objective of modern politics. This explains the growing clamour for the renationalisation of the water companies.

The leakage of water was, unsurprisingly, a problem; much of the pipework had been laid in Victorian times and was poorly maintained. The treatment of sewage was variable; inland, with outflows into rivers, it was reasonable, although swimming in rivers was unthinkable owing to regular storm overflows. On the coast, much of the sewage was untreated; it was merely screened and then flowed into the sea through short pipelines. This meant that beaches failed to meet the quality threshold of the EU or of anyone else. This remained the practice in Scotland long after privatisation in England and Wales.

The industry badly needed investment, but couldn't compete with the demands for capital spending elsewhere in more visible areas such as schools, roads and hospitals. Privatisation would ring-fence the sector from all the other demands on government and delegate the supervision of it to an independent regulator, Ofwat, introducing the accountability the sector had previously lacked. Investment would be debt-financed, serviced from cash flows. Charges would increase at the rate of 1% over inflation each year while additional cash flow would be provided through efficiency gains.

The post-privatisation investment boom

For about ten years, it all went according to plan. Investment, which had already risen 20% in the run-up to privatisation, quickly rose from £3 billion a year to more than £5 billion. Leakage rates fell 40%, river quality improved, short sea outflows were stopped and beaches became cleaner. Then progress slowed or stopped. Ofwat decided that keeping water bills down was the top priority. This meant restricting the capital expenditure they allowed; contrary to popular misconception, companies want to invest because that entitles them to a return on capital, achieved through higher bills. Ofwat also strong-armed the companies to reduce their cost of capital as that would lower the return on capital companies would need.

The mechanism for this was the substitution of debt for equity, achieved largely through leveraged buy-outs by private equity, taken to an extreme in the case of Thames Water. Such financially dangerous restructuring was encouraged by Ofwat and seemed justified while interest rates were low. When rates rose and the refinancing of the fixed-rate borrowing of the past came into view, the leveraged companies such as Thames Water came under extreme pressure.

The improvement in productivity continued – by an estimated 64% between privatisation and 2017 compared with zero in the public sector – but price rises in real terms stopped. According to Water UK, prices fell sharply in 2000 and remained broadly the same until 2024. Unsurprisingly, investment in nominal terms stagnated, at between £4 billion and £5 billion a year. The lack of additional investment meant a failure to deal with the continuing problem of storm overflows whereby untreated sewage was discharged into the river and sea when heavy rainfall overwhelmed the treatment works. Planning authorities refused permission for new reservoirs and sewage treatment plants and local authorities wouldn't give companies access to the roads they needed to repair leaking pipes properly.

Still, publicity given to bad news shouldn't result in good news being ignored. Leakage has continued to fall and pollution performance is below or close to target in most areas; in 2020, Southern Water and South West Water were major outliers, resulting in heavy fines. Nine companies are at, or near, their government-set targets. Severn Trent' Water's 2025-2026 results show a continued fall in leakage (to 17.6%, down from 23% in five years), water quality is above the regulatory target and significant investment has been made in waste water. For all its financial problems, Thames Water also reports a steady reduction in leakage and incidences of pollution.

It is possible, although there is no evidence for it, that Ofwat's disastrous change of direction in 2000 was due to pressure from the Blair government. They certainly castigated the managements of all privatised utility companies, encouraging them to sell out to private equity. Veteran City editor Neil Collins argues, rightly, that the government should have retained a golden share in each to prevent takeovers and maintain public accountability.

Ofwat has now been abolished, water bills are to be raised sharply in real terms for the next five years and the restructuring of Thames Water's debts is awaiting government approval. Investment is being accelerated and progress is already clearly visible. The River Thames in London has just got its first designated bathing spot. The problem now is the clamour that has built up from the “progressives” for the hugely expensive folly of renationalisation.

The objective of this is neither financial nor operational, but ideological; a drive to reverse every aspect of “Thatcherism”. If the advocates succeed, the proponents have every intention of working their way down a very long list of businesses and services once in the public sector, hoping it will take a long time for the water sector to return to its pre-1989 state.

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US corporate raider Castlelake thinks it can snap up a bargain in easyJet. The soaring cost of fuel has hammered the budget airline's shares over the last few months, which have fallen from 520p at the start of the year to less than 340p a fortnight ago, before news of a potential bid emerged. But if the oil price comes back down again, as it almost certainly will when the war in Iran comes to a close, easyJet will bounce back.

We will see what happens over the next few weeks. But the bigger story is that a pattern is starting to emerge. A whole series of British companies are being targeted by corporate raiders. It is only a few weeks since it emerged that activist investor Corvex is demanding that the Premier Inn owner Whitbread find a buyer or break itself up. The car sales platform Autotrader is under attack from its investors, as is the rather larger trading platform, the London Stock Exchange. Investment company Hargreaves Lansdown has agreed to be taken over by a private equity consortium led by CV Capital. The list goes on and on. Hardly a week goes by without a well-known British company being either sold off or coming under pressure to break itself up.

Companies change hands all the time, of course. There is nothing wrong with bids and deals. It is one of the ways that companies are forced to keep delivering for shareholders and a way for assets to be reshuffled. Without them, management would become very complacent. But in the British market it is getting out of hand.

These targets not terrible companies. EasyJet may have had a difficult few months, but as anyone who has flown with the airline will know, it offers a pretty good service at fair prices. It is hard to see anything that needs to be radically fixed. Likewise, staying at a Premier Inn is hardly a deluxe experience, but it doesn't pretend otherwise. It is a reliably good-value hotel chain for anyone who happens to be travelling around the UK. Much the same could be said for Hargreaves or Autotrader. They are all reasonably well-run businesses.

Why corporate raiders may struggle

The real problem is that it has become incredibly difficult for even the best-run companies to make any money in Britain. There are three big issues. To start with, growth has stagnated. Far from turning Britain into one of the fastest-growing economies in the world, as she promised, chancellor Rachel Reeves has presided over stagnant growth, rising unemployment, a collapse in start-ups and business investment, and soaring real interest rates as the country's debt grows relentlessly less and less affordable.

Second, taxes have risen to the highest peacetime levels since World War II, with most of the burden falling on businesses. There has been a huge rise in the national insurance that companies have to pay on any staff; big rises in business rates; rising air travel duty (which has especially hit easyJet), and a rise in green levies such as the “packaging tax”. All of those have to be paid out of flat sales, regardless of whether the company is actually profitable or not. Companies have to get more and more efficient every year just to pay all the extra taxes they owe.

Finally, the government has crushed confidence. On coming into office, Reeves talked down the economy by constantly droning on about a “black hole” in the public finances that did not really exist. Ever since, there has been constant speculation about which taxes will have to go up next. And now there is a slow-motion leadership contest, fuelling yet more uncertainty about who will be in charge in a few months, and what policies might change. It is a mess. Against that backdrop, it is hard for companies to expand. Most are just hunkering down and trying to survive.

In zero-growth, high-tax Britain, it is very hard to make any money. The result? Raiders, typically based in the far richer, more dynamic US, look at the figures from a major British company and conclude that they should be doing far better. Perhaps in a country that was more pro-business, and pro-enterprise, they would do. But in Britain that has become very hard. There is very little growth, consumers don't have much spare cash to spend and rising taxes are squeezing profit margins. A whole series of companies are coming under attack and may well be broken up or sold off. But the real problem is the state of the economy. The US corporate raiders and buy-out funds will very quickly find there is not very much they can do to fix that.

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Why is minimum wage in the news?

Many people are raising fears the UK's minimum wage may now be too high. Worsening youth unemployment and Alan Milburn's landmark report on “Neets” (young people who are not in employment, education or training) have sharpened concerns that the UK's relatively generous minimum wage and the gradual levelling up of lower youth rates to match the prevailing adult rates, are damaging overall employment – particularly among young workers.

Tony Blair – whose government established the minimum wage – has argued that recent rises have created headwinds for businesses. And within Labour, according to The Guardian, a split has opened up between those who want to slow the pace and those eager to press ahead with rises and age-convergence.

How much is the minimum wage?

In April the minimum wage for all workers aged 21 and over rose 4.1% to £12.71 an hour. This rate is known as the “national living wage”. It only applies to that adult age group and its level tracks two-thirds of median earnings. The rate for 18- to 20-year-olds is lower, but jumped 8.5% to £10.85. And the rate for 16- to 17-year-olds, or for apprentices, rose 6% to £8.00. These bigger increases for younger workers are due to the government's aim of gradually levelling up the youth rates to a single adult tier – a continuation of Conservative policies. In 2016, the Tories created the new premium national living wage tier for those aged 25 and over at the rate of £7.20 per hour. Subsequent governments then cut the age requirement for that top tier, to 23 years in 2021 and then down to the current age of 21 in 2024 – all the while increasing the headline rate.

About 1.7 million people get the national living wage, or about 6% of the workforce aged 21 and over – about twice as many as when the national minimum was introduced in 1999. Among workers under 21, the proportion is far higher – at about a fifth. Since its creation under the first New Labour government, the UK's minimum wage has got dramatically higher in real (inflation-adjusted) as well as cash terms.

Isn't that a good thing?

MoneyWeek has long been in favour on the grounds that taxpayers should not subsidise corporate profits in the form of tax credits for the working poor. The higher the wages, the fewer the benefits that have to be paid out. The other main arguments in favour are ones of social justice. Income distribution has become more skewed towards the rich in recent years, increasing inequality and potentially undermining the social solidarity that makes capitalism sustainable in the long run. Proponents argue that a minimum wage can help to arrest this trend. Some economists also argue that minimum wages boost productivity, especially in the service sector, though the evidence is contested.

Does a minimum wage destroy jobs?

Above a certain point, for sure. The question is where that point lies. Orthodox economic wisdom suggests that compulsory high pay levels will destroy jobs by disincentivising firms to take on workers. But the history of minimum wages since the 1990s has been far more encouraging than that. Landmark US research on fast-food pay rates (by economists David Card and Alan Krueger in 1994) shifted the dial in terms of the academic debate: it found that a minimum wage did little to dampen employment. A raft of further studies came to similar conclusions, and by the early 2000s the literature indicated that a 1% increase in wages due to a higher minimum wage would lead to a 0.5% decline in employment. “By the late 2010s the effect had fallen to around zero,” says The Economist. The politics changed, too. As the UK's national minimum was gradually increased without causing unemployment to grow, the Conservatives dropped their initial opposition and backed the policy.

What's the issue with minimum wage now?

The core issue is that the rate has now jumped so high. The UK has leapt from being relatively cautious – in terms of the minimum-wage level as a proportion of median wage – to being the most generous of all the big economies (from 45% in 1999 to 67% now). Most of the UK's historical experience and evidence relates to a period of low interest rates, low inflation and low unemployment – and involved a minimum wage at around 45%–55% of median earnings, not 67%, the target introduced by the Tories in 2019. That jump, and today's worsening macroeconomic picture, makes it far harder to be sanguine about the wage's effect on job creation in future. At the same time, there's been a counter-revolution among economists. Several influential US studies from 2022 onwards found that higher minimum wages – a phenomenon seen across many developed economies over the past 25 years – have indeed hit job levels, and damage the employment, income and overall welfare of precisely the low-income workers they are meant to help.

What can be done?

A sensible start would be to freeze the rates for the rest of this parliament and take back control of setting the rates from the Low Pay Commission quango, says Rishi Sunak in The Times. In addition, future rises should be linked to gains in productivity – the national living wage is up by almost a third in real terms over the past decade, while productivity has only increased by 6%. That's obviously unsustainable and the latest unemployment numbers show the effect – the fall in both vacancies and payroll numbers is concentrated in retail and hospitality, which is where a third of all minimum-wage jobs are, and which account for almost half of all jobs held by the under-25s. “Shamefully, and in a reversal of the historical norm, we now have higher youth unemployment than the EU average.” And at least in part, that's because we are knowingly pricing young workers out of the labour market. Let's stop.

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In Asia, it is the best of times, it is the worst of times. The crisis in the Strait of Hormuz is hammering energy importers hard, even as parts of the region emerge as the principal winners of the mania surrounding AI. That pushed the MSCI Emerging Markets Asia index up 15% in the first five months of the year.

Yet on currency markets things are grim. Talk is turning to the 1997 Asian financial crisis, when large trade deficits caused investor confidence to “evaporate within months”, triggering “deep recessions” and political tumult, say Swati Pandey and Claire Jiao on Bloomberg. Indonesia, the Philippines and India look especially vulnerable to capital outflows. Respectively, their currencies have shed 8.5%, 9.5% and 10.5% against the US dollar over the past 12 months.

The once-promising Philippines has been hit especially hard, says Daniel Moss, also on Bloomberg. The country was a Southeast Asian growth star in the 2010s. Now inflation is running at 7% and heading for double digits, a huge surge from 2% in January. The local PSEi share index is down 5.6% over the past three months. The Philippines' difficulties could be a taste of things to come elsewhere.

But nowhere are Asia's contradictions as stark as in South Korea. The won is trading at its lowest level against the dollar since the 2008 financial crisis, say William Sandlund and Daniel Tudor in the Financial Times. Yet puzzlingly, Korea is enjoying a record trade surplus because of insatiable demand for its computer chips. An export boom should be strengthening the won, not weakening it.

Paradoxically, one explanation may be the blistering pace of an Asian stock market boom. The Kospi index has doubled since the start of the year, driven by large runs at chip specialists Samsung and SK Hynix. That has forced fund managers to sell to avoid overexposure, with foreign investors offloading a record net $79 billion of local equities this year.

Taiwan's Taiex index has gained 58% this year, seeing it surpass India to become the world's fifth-largest stock market. Almost all of the world's high-end chips are made by Taiwan's TSMC. The island, which is only slightly larger than Belgium, now accounts for almost a quarter of the entire MSCI Emerging Markets index.

Investors in Asia should ‘buy the shovels’

When there's a gold rush, it's good if 30% of your economy is “based on shovel manufacturing”, says Joseph on Substack. Taiwanese GDP rose at an annualised pace of 23.6% in the final quarter of 2025. GDP has risen by almost a quarter since ChatGPT was launched in late 2022. Not everyone is benefiting from the boom – exporters are doing well while everybody else struggles. But there is no arguing with this modern growth “miracle”.

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New Fed chair Kevin Warsh takes the reins of the world's most powerful central bank at a difficult time, says Roger Ferguson for the Council on Foreign Relations think tank. Donald Trump wants easier money, saying, on swearing Warsh in, that “we want to stop inflation, but we don't want to stop greatness”. Trump openly criticised Jerome Powell, Kevin Warsh's predecessor, for failing to cut interest rates. But US inflation is running at 3.8% and has been above the Fed's 2% target for five years in a row. Cumulatively, the price level is nearly 25% higher now than it was in 2020.

Pricier petrol, the fallout of Trump's adventure in Iran, threatens to trigger a new inflation wave. Kevin Warsh may be “compelled to raise interest rates”, which is “precisely the opposite of what Trump had in mind”. Fireworks could lie ahead.

Kevin Warsh will have more elbow room when it comes to cutting the size of the Fed's balance sheet, says Colby Smith in The New York Times. He sees the institution's holdings of $6 trillion in government bonds and other securities as “emblematic of everything that has gone wrong” in central banking since the 2008 crisis. But drawing down the portfolio must be handled with great care. In 2019, a similar attempt to reduce the balance sheet too quickly gave markets a “near heart attack”.

Kevin Warsh must deal with ‘hot’ US inflation

Investors began the year expecting “at least one or two rate cuts”, says The Economist. Now, rate hikes are in the picture. US inflation is “hot”, and the cause is not just oil. Even the core measure, which excludes energy and food, rose at an annualised 3.2% during the three months to April. Central bankers are taught to “look through” energy shocks, which usually prove temporary, but broad-based signs of inflation are harder to ignore. Service prices are rising “uncomfortably fast”. And durable goods – for decades a source of disinflation – rose at an annualised 7.7% in the first quarter of the year. That reflects the effect of both tariffs and soaring prices for computer kit amid the AI boom.

The oil crisis has led to inevitable comparisons with the 1970s, says James Smith for ING Think. In some respects, the similarities are “striking”. Now as then, we face an energy shock emanating from Iran. Now as then, US government spending is unsustainably high. But in other ways we live in a quite different world. Per-capita oil consumption in the UK is 55% lower today than it was 50 years ago. In real terms, energy prices are well below the levels of the late 1970s, when they hit nearly $200 in today's money. Unionisation rates have collapsed since the 1970s and strike action is far rarer than it used to be, reducing the risks of a sustained inflationary surge.

Not that everything is rosy. In some respects, advanced economies face new sources of inflationary pressure that didn't exist in the 1970s. Populations are ageing and net migration is beginning to fall sharply because of stricter border policies. That threatens “shortages” of workers on a scale “with little precedent in the West”.

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The world is in the midst of an oil crisis. The war in Iran has thrown the markets into turmoil, with the price of oil soaring to around $100 a barrel.

The oil shock has repercussions that are far wider than just the price of petrol. In this episode of MoneyWeek Talks, editors Kalpana Fitzpatrick, Andrew Van Sickle, and Cris Sholto Heaton make sense of what is happening now, explain where the crisis could go next, and what you should do to protect your portfolio. Tune in now on YouTube or on most podcast platforms.

About the podcast

MoneyWeek Talks is a podcast that helps you unlock the secrets to financial success. Editors Kalpana Fitzpatrick and Andrew van Sickle are joined by influential guests – from CEOs and entrepreneurs to economists and policymakers – to share their top tips on managing money, investing wisely and building wealth.

Subscribe to the MoneyWeek Talks podcast and get ready to make it, keep it and spend it with confidence.

Donald Trump has sworn in Kevin Warsh as the new chair of the US Federal Reserve, replacing Jerome Powell, in what was supposed to be the big monetary policy event of the year. Kevin Warsh, like all of Trump's preferred candidates for the Fed's board of governors, has sounded very keen to cut interest rates. Assuming that he was not simply paying lip service to the president's wishes in order to win the nomination, that would mean huge pressure in the Fed for aggressive easing. Yet it is no longer so clear that the change of chair will matter much.

The Middle East crisis has changed the calculation. Markets are now pricing in interest-rate rises rather than cuts, while longer-term bond yields are rising again. Of course, a central bank that is determined to slash short-term interest rates could ignore fears about inflation and cut regardless. It could also try to control long-term yields by buying up longer-dated bonds. But in this environment, it is far less likely that Trump's appointees will be able to shift consensus among other board members towards much looser policy. Nor is it obvious from his own record that Kevin Warsh will be quite so dovish for now, notwithstanding his frequently expressed view that AI will usher in productivity gains that justify structurally lower rates.

Interest rates are not Kevin Warsh's biggest problem

All else being equal, easier policy would have been even more bullish for already-exuberant stock markets, especially in the US. Yet investors have not been behaving as if policy was too restrictive anyway.

Note how strongly markets have risen with interest rates where they are. Short-term rates at around 4% and longer-term rates at around 5% only look high by the abnormal standards of the 2010s.

So the real risk to markets is not that interest-rate cuts don't come. Instead, it is the hard reality of where fears about inflation are coming from: the disruption to energy supplies. Every week, markets trade as if the crisis will be resolved; every week, we see no solid progress. If this finally starts to catch up with the real economy – which could happen in early June, some analysts reckon – the Fed's decision to tinker or not to tinker will quickly become irrelevant.

A date for your diary

The first of the twice-yearly Mello conferences for private investors takes place next month, on Tuesday 2 and Wednesday 3 June in West London. This event always features an interesting line-up of several dozen companies and funds presenting to existing and prospective investors: one of the highlights in last November's event was Seraphim Space, which has been the star of the investment-trust sector this year. Mello is offering MoneyWeek's readers a 25% discount on tickets – go to melloevents.com/mello2026 and use the code M26MW25 to book.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

• The consumer prices index (CPI) rose by 2.8% in the 12 months to April 2026
• The latest Office for National Statistics (ONS) data shows that inflation dipped in the year to April, down from 3.3% in March
• Despite this, the Iran war is still expected to push up prices for Brits as global supply lines continue to operate under strain
• The Bank of England is unlikely to be moved to cut rates despite a lower inflation rate today

| What is inflation? | CPI vs RPI inflation | When will interest rates fall further? | CPI release dates | MPC meeting dates |

ONS set to publish April’s inflation reading at 7am tomorrow (20 May)

Good afternoon, and welcome to MoneyWeek’s live coverage of April’s inflation figures.

The data is expected to show that inflation dipped in the year to April, but only because of negative base effects as April 2025’s reading was unusually high.

As we approach the release, we will cover the latest forecasts, analysis, and break the news when the figures drop tomorrow morning.

What was inflation in the year to March?

The ONS publishes inflation data monthly, with the March Consumer Price Index (CPI) data released on 22 April.

The data showed inflation rose by 3.3% in the 12 months to March, up from 3% in the year to February. The rising price of motor fuel was the main driver of the increase in the CPI rate, the ONS said.

In February, the Bank of England’s Monetary Policy Committee said inflation would slow to 2.1% by April, but these expectations have been quashed due to the conflict in the Middle East, which has pushed inflation up.

How high could inflation go in 2026 and 2027?

In its latest Monetary Policy Summary, the Monetary Policy Committee said inflation could hit a peak of 6.2% by early 2027, under a worst case scenario.

The report described three situations that could occur due to rising prices caused by the conflict in the Middle East.

In Scenario A, inflation would rise to 3.6% at the end of 2026, while under Scenario B, it would hit 3.7% by the end of this year.

However, under Scenario C, inflation could reach as high as 6.2% by the first quarter of 2027, based on energy prices remaining elevated for a prolonged period.

Could inflation fall in April?

The conflict in the Middle East is expected to put a damper on the UK economy, hitting GDP growth, interest rates and inflation.

March’s inflation data, which saw a 0.3 percentage point rise on the month, pointed to this.

However, economists at Deutsche Bank say they don’t anticipate inflation to rise again in April’s data – rather, they expect a fall.

This prediction is not because they think the UK economy will be more resilient. It is because of negative base effects on the data.

These are expected to arise as April 2025’s inflation data was unusually high because of a tranche of bill increases.

As CPI inflation is measured as the change in prices over a 12 month period, that means April 2026’s data will be compared with April 2025’s data.

This is expected to result in a brief fall in inflation in April, which is then expected to be reversed in May.

Sanjay Raja, chief UK economist at Deutsche Bank, said he thinks April’s data will show inflation “drop from March as negative base effects drag on the annual price calculation.”

He added: “Put simply, annual price resets won't be as large this year as they were last year – especially in the services basket.

“The bad news? Prices will remain well above the Bank of England's 2% target. Indeed, only three months ago, forecasters, including us, were expecting CPI to drop to around 2% y-o-y in April.”

Deutsche Bank expects inflation to slow to 2.98% in April and then bounce back up in the following months.

Raja added: “Looking ahead, we expect price momentum to pick back up as the Iran shock catches up with the inflation data. Indeed, dual fuel bills won't rise until the summer. Rising food and core goods inflation, we expect, will also push momentum a tad higher.”

Thank you for following our preview coverage of tomorrow's UK inflation figures this afternoon.

We are pausing our live report for now, but join us at 7am tomorrow when we will report the latest inflation news, analyse the figures, and bring you expert commentary.

In the meantime, we want to hear your thoughts on where you think inflation will go in April. Voice your opinion in the poll below.

Good morning and welcome back to MoneyWeek's live report for the April inflation reading. The Office for National Statistics (ONS) will release the figures shortly, at 7am.

Where is inflation expected to go?

Inflation, as measured by the Consumer Prices Index (CPI), came in at 3.3% in March 2026, up from 3% in February.

UK inflation is expected to accelerate in 2026 as the economy is impacted by the conflict in the Middle East.

That said, economists expect April’s figure, which will be published shortly, to ease slightly, as inflation in April 2025 was unusually high.

This would not mean prices are falling, but rather, prices are rising year-on-year at a slower rate than they were the month before.

UK inflation slows to 2.8%

The consumer prices index (CPI) rose by 2.8% in the 12 months to April 2026, down from 3.3% in the 12 months to March, the ONS said.

On a monthly basis, CPI rose by 0.7% in April 2026, compared to a rise of 1.2% in April 2025.

The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 3% in the 12 months to April 2026, down from 3.4% in March.

CPIH rose by 0.8% in April 2026, on a monthly basis, compared to an increase of 1.2% in April the year before.

Chancellor Rachel Reeves to set out plans to support UK households

Chancellor Rachel Reeves has insisted the government has "the right economic plan" and will announce further ways to support UK households tomorrow.

She said: “The war in Iran is not our war but one we will need to respond to, and the decisions I took in the Budget last year have kept inflation down as we deal with global instability. We have the right economic plan, and to change course now would risk our economic stability and leave working people worse off.

“We have already taken £117 off energy bills, frozen rail fares, and lifted the two-child limit, and over today and tomorrow I’ll set out the next phase of how we will support UK households.”

Prior to the conflict in the Middle East, which began at the end of February, inflation was forecast to fall to around the 2% target this month.

Shadow chancellor Mel Stride: "Prices still rising too fast"

Shadow chancellor Mel Stride has welcomed the fall in inflation to 2.8%, but said prices are still rising too quickly.

Writing on X, he said: "Any fall in inflation is welcome, but prices are still rising far too fast and Labour have left our economy weak and exposed to the impacts of the Iran war.

"The recent spike in borrowing costs shows markets are increasingly worried about Labour’s leadership chaos and economic mismanagement, leaving families to pick up the bill for a £300 Burnham Penalty.

"Only the Conservatives have a leader with the backbone and strong team needed to restore confidence and bring debt down through our Golden Economic Rule."

What drove the UK inflation rate in April 2026?

Housing and household services largely drove the easing of inflation, for both CPI and CPIH inflation.

The big rise in motor fuel prices increased the rate of inflation, but this was offset by a fall in prices from other categories in the transport division.

Energy prices drive easing of inflation in April

The 12-month rate for housing and household services was 3% in April 2026, down from 4.3% in the month before. The easing reflected electricity prices falling – dropping by 8.4% in April 2026 compared with a rise of 2.9% a year ago.

Ofgem’s energy price cap fell by 7% on 1 April. The average price cap household paying by direct debit for dual fuel will pay £1,641 per year this quarter, £117 per year less than the quarter before.

The price cap fell partly because global wholesale energy prices dropped in the 12-week assessment period Ofgem used to calculate the April price cap – this was before the outbreak of the conflict in the Middle East.

It also dropped as the UK government removed a number of green levies from household bills, instead funding them through general taxation.

Clothing and footwear inflation rate rebounds

Clothing and footwear prices increased by 0.7% in the annual figure, compared to a fall of 0.8% in the 12 months to March.

Motor fuels inflation rate highest since September 2022

Prices in the transport division rose overall by 4.5% in the April ONS data, down from 4.7% in March. The increase was predominantly driven by motor fuels but partially offset by falling air fares and a downward effect from vehicle excise duty (VED).

The average price of a litre of petrol increased by 16.6 pence between March and April 2026, reaching 156.8p – the highest price since November 2022.

The price of a litre of petrol fell by 3.0 pence in the same period the year before.

Diesel prices increased by 31.3 pence per litre in April 2026, to 190.0 pence per litre – the highest price since July 2022. Diesel prices fell by 3.1p per litre in April 2025.

These changes meant overall motor fuel prices rose by 23% in the 12 months to April 2026, compared to a rise of 4.9% in March. The motor fuels inflation rate was its highest annual increase since September 2022.

What does inflation mean for you?

While April’s data shows inflation has fallen to 2.8%, this easing is only forecast to be temporary, given the backdrop of the war in the Middle East.

Furthermore, slowing inflation doesn’t mean prices are falling. Rather, prices are still rising year-on-year, but just at a slower pace in April.

“Many households facing sustained financial pressure are unlikely to feel much relief, “Harriet Guevara, Chief Savings Officer at Nottingham Building Society, said.

"Beneath the headline figure, rising fuel and food prices alongside continued volatility in global energy markets mean that the path back to the Bank of England’s 2% target is unlikely to be straightforward.”

Impact of inflation on your savings

Inflation may have eased from previous highs, but it’s still pushing up costs, and money held in low-interest rate accounts could lose spending power over time.

Households should review whether they’re getting a competitive interest rate on their savings, make the most of tax-free allowances and consider creating an emergency fund, which covers three to six months’ of essential spending.

“With continued uncertainty around inflation and interest rates, building financial resilience should remain a priority,” Guevara said.

“Whether it’s creating an emergency fund, saving towards a home or planning for the future, taking proactive steps now can help households feel more secure in the months ahead.”

The average savings rate is currently 3.55%, according to money comparison website Moneyfacts.

There are currently 1,806 savings accounts that beat inflation – made up of 202 easy access, 178 notice accounts, 180 variable rate ISAs, 410 fixed rate ISAs and 836 fixed rate bonds.

In May last year, there were just 1,326 savings accounts which beat inflation, which was then at 3.5% (April 2025 CPI).

To avoid inflation-battered returns, “savers need to take a more proactive approach by reviewing deals frequently, making use of their tax-free cash ISA wrappers and avoiding apathy with long standing accounts that pay below average returns,” Caitlyn Eastell, personal finance analyst at Moneyfactscompare.co.uk, said.

We list the best savings accounts for top interest rates in a separate piece.

How some key household staples increased in April

While inflation fell in April, many households will have noticed increased pressure on their budgets lately. Petrol prices, for instance, shot up by 16.6% on average between March and April.

"While energy prices have dragged down the overall headline figure, lurking in the data are a myriad of painful price rises," Sarah Coles, head of personal finance at AJ Bell, said.

We look at some of the other household essentials which jumped in April.

Water

Water bills helped to bring down the overall inflation figure, although they still increased by 9% in a year, while sewerage costs increased by 5.8%. However, the price rises were a lot lower than the water bill hikes in April 2025 – when water bills rose by 26.4% and sewerage was up 25.9%.

Heating oil

While energy bills fell for millions of households on the energy price cap in April, those relying on heating oil saw prices soar. The war in Iran meant prices rose 8.5% in April, compared to a fall of 7.7% a year ago.

Food and non-alcoholic drinks

Food and non-alcoholic beverage price inflation eased in April – prices rose by 3% in the 12 months to April 2026, down from 3.7% in the 12 months to March.

The slowing of food and drinks inflation was due to five of the 11 food and non-alcoholic beverage classes:

• Meat – down 0.03 percentage points
• Sugar, jam, honey, syrups, chocolate and confectionery – down 0.03 percentage points
• Oils and fats – down 0.01 percentage points
• Coffee, tea and cocoa – down 0.01 percentage points
• Mineral waters, soft drinks and juices – down 0.01 percentage points

However, this was partially offset by an increase in the following classes:

• Vegetables – up 0.01 percentage points
• Milk, cheese and eggs – up 0.01 percentage points.

McKinsey: Years of high food inflation have changed consumer behaviour

One of the clearest ways consumers feel the impact of high inflation is in their food shop. In the year to April, food inflation rose by 3%, while it rose by 3.7% in the year to March.

Food inflation has been so high for so long that the average price of your food shop has risen by a staggering 30% in just the last six years, research by management consultants at McKinsey has found.

For example, if you spent £100 on your weekly food shop in 2020, you would be paying around £130 for the exact same items on average today.

These soaring prices are affecting how we approach our food shop.

Pieter Reynders, partner at McKinsey & Company, said: “These years of elevated food costs are leaving a lasting imprint on consumer behaviour. Even as some inflationary pressures begin to ease, households still feel they need to continually weigh up what represents good value in everyday spending. That means reassessing brands, formats, and price points with a sharper level of scrutiny.”

Where will inflation go next?

With inflation coming in significantly lower than the previous month, and even lower than many economists’ forecasts, it is tempting to hope that price growth will continue to slow. However, that would be misguided.

This slump in inflation is likely to "prove fleeting”, according to Sanjay Raja, chief UK economist at Deutsche Bank, as external price pressures will continue to push up price growth.

He said: “Given the prolonged closure of the Strait of Hormuz, energy prices remain elevated. Oil prices will likely rise a little further in the coming months. And gas/electricity prices will catch up to market pricing as soon as July, when the next Ofgem price cap kicks in.”

These are upwards pressures on inflation, and each of them come as a result of the war in Iran, which the UK has little control over.

As virtually all sectors are exposed to changes to oil and energy prices, we can expect more price increases to trickle down as increased production costs are passed on to consumers.

Raja added: “What’s more is that we are seeing continued signs of rising indirect price pressures. Higher commodity prices will likely see food prices rise further. And core goods prices will also – at some stage – be less insulated from ongoing price rises.

“To be sure, despite today’s encouraging CPI print, there’s still a lot of upward pressure yet to come across to headline inflation – as evidenced by today’s bumper producer price prints.”

BREAKING: Fuel duty freeze extended as petrol and diesel prices soar, PM says

The freeze on the rate of fuel duty has been extended again, prime minister Keir Starmer has announced, as prices at forecourts have risen across the country.

Chancellor Rachel Reeves will extend the 5p cut in the rate of fuel duty until the end of the year, helping keep costs at the pump down as price pressures due to the Iran war are pushing up the price of petrol and diesel.

The freeze had been due to start unwinding from September.

The government says that with the freeze extended until the end of the year, it is expected to have saved the average UK driver around £120 since 2025.

Starmer said: “I know many are feeling the pressure of energy and fuel costs, and are worried about how the conflict in Iran will affect their finances. Because when global events drive up prices, it’s working people who feel it first.

"That’s why this government is stepping in to keep fuel costs down for millions of drivers and putting money back in the pockets of working people.”

The 5p cut to fuel duty was intended as a temporary measure following Russia’s invasion of Ukraine in 2022, but it has remained as fuel prices remained higher for longer.

In her 2025 Autumn Budget, the chancellor said the government would gradually get rid of this 5p cut, tapering it away by 1p in September, 2p in December. It would be scrapped entirely by March 2027.

However, as the Iran war has caused petrol and diesel prices to hit a three-year high, the government has extended the 5p cut.

Fuel duty freeze extension comes as fuel prices are at highest level since December 2022

The fuel duty freeze extension comes at a time when fuel prices are under extreme pressure as global oil supply lines are heavily disrupted.

As oil is used in the production of both petrol and diesel, any increase in the price of oil is reflected in the price you pay at the pump.

Since 28 February, when the Iran war began, the average price of a litre of petrol has gone up to 158.73p as of 20 May. That is 25.9p more than it was before the conflict and is expected to keep rising.

It has brought the price of petrol in the UK to its highest level since December 2022, in the wake of Russia’s invasion of Ukraine.

The problem is even worse for those who drive diesel vehicles. The average price of the fuel has grown to 185.73p a litre, a rise of 43.4p in the same time period, though is trending downwards.

At its worst, the price of a litre of diesel was 49.2p a litre higher than before the conflict on 15 April.

Freeze will ‘provide respite’ to motorists but further action may be needed

The government’s decision to extend the freeze on fuel duty has been welcomed by many in the motoring industry as the subsidy will help ease the burden on drivers.

John Cassidy, managing director at Close Brothers Motor Finance, welcomed the policy, saying the decision “will provide some respite to motorists.”

However, he added that despite this, events in the Middle East means that drivers will continue to feel the pinch.

He said: “With 42% of motorists stating that they have been worried about further petrol price rises, the announcement should go some way to alleviating financial stress. However, many will see this as papering over the cracks of much wider concerns, and will expect the Government to implement further measures to ensure drivers can afford the cost of driving - something that is essential to the daily lives of millions.”

Thank you for following our coverage of today’s UK inflation data release and the surprise extension to the fuel duty freeze.

We’re ending today’s live coverage here, but keep an eye on the MoneyWeek website and subscribe for email updates as we bring you more inflation and fuel duty news and reaction.

Matthew Partridge: Your latest book on the UK economy, Challenging Inequalities: How We Got Stuck and Where We Go Next, is part of a wider project by the Institute for Fiscal Studies (IFS). How did it come about?

Paul Johnson: It was a very long-term project that started in 2018, and part of a detailed study of inequality. We published over 100 papers, overseen by a committee chaired by Nobel Laureate Angus Deaton. Each of the papers took a detailed look at one aspect of the theme – ethnic inequalities, for instance, or wealth inequality. The idea was to highlight key issues in something approaching a narrative. The book itself I co-authored with three or four other people.

Matthew Partridge: I noticed that you say if you look at some measures, such as the Gini coefficient, income inequality hasn't changed much since the 1990s. However, other measures, such as the income controlled by the 1% and 0.1%, have increased. Is this a fair summary?

Paul Johnson: Overall income inequality rose enormously in the 1980s, only to plateau from 1990 onwards at a population-wide level. However, while inequality across most of the population didn't change, the top 1% continued to move ahead of everyone else in terms of both income and wealth until about 2008. Since then, income inequality has fallen slightly, although it remains at a very high level by historic and international standards. What's more, while raw income inequality may have peaked, other types of inequality have become more significant, including gaps between regions and generations.

Matthew Partridge: Do you think these high level of inequality have played a big part in the move away from mainstream parties to populism?

Paul Johnson: The main cause of the move away from the centre is probably the lack of growth over the last 20 years. However, the two factors interact very strongly. So, not only are people fed up because they haven't seen their living standards rise for quite a long time, but they are also angry because some people are a lot richer than they are. Certainly, the concerns around inequality wouldn't be so pressing if everyone's incomes were still rising. You can see that with the younger generation who are no longer doing better than their parents, at a time when house prices have been increasing faster than earnings.

Matthew Partridge: One of the big themes of the book is that just trying to solve inequality through more redistribution isn't going to work. Instead, you suggest something you call “pre-distribution”. Can you elaborate on that?

Paul Johnson: We made a conscious decision that the book wasn't going to go down the traditional route of suggesting how you could tweak taxes and benefits to reduce inequality, partly because the IFS has already done a huge amount of work on that. There are ways of making tax and welfare more redistributive, but they come at the cost of weakening incentives.

Most importantly, we discovered that people place more value on money they've earned themselves and having a good job than on being given handouts. So, we need to find a way that creates the sort of economy that works better for everybody. While that's easy to say and hard to do, it leaves less to tidy up afterwards.

That's why the book focuses on things that could boost productivity growth, such as early years education, family life and housebuilding, but also the regulation of big companies. However, we also talk about things such as globalisation, free trade and immigration, which generally boost economic growth, but if you take them too far they can undermine their positive impact by increasing inequality.

Matthew Partridge: Do you think that one of the problems with immigration is that, despite the promise of points-based immigration, we've failed adequately to change our system to focus on highly skilled workers?

Paul Johnson: Immigration policy has been all over the place, and even though this government has tried to tighten the rules, there are still a lot of people coming in as family members without having to demonstrate any particular skills. While I don't like calling care workers low-skilled, a lot of people took advantage of care-worker visas. Of course, if we do restrict this type of immigration, then we're going to be paying more for these types of services. Note, too, that due to the extraordinary fall in our fertility rate from 1.8 to 1.4 over the last five years, without net migration our population would start to fall.

Matthew Partridge: One of the big topics around both productivity and inequality is AI. The worry is that AI could be a double-edged sword for the UK economy in that it will boost productivity, but all the gains won't necessarily go to everyone equally; there will be many losers. Is that a fair comment?

Paul Johnson: I think there's clearly a risk of that and we are definitely seeing that in the US, where there have already been some big winners from the technology revolution. Even before AI, there was a concentration of economic rents in a small number of incredibly profitable companies, which, through a combination of very high pay and share options and so on, massively rewarded a very small number of people.

Matthew Partridge: Why has the UK economy grown significantly less than other countries over the last 15-20 years?

Paul Johnson: There are several reasons. We were more dependent on financial services than most countries when the financial crash happened. Brexit has clearly not helped; indeed, it has probably slowed things down further since 2016 and since 2021. We have invested less over a long period of time than most other countries, in both private and public terms. Our regulation and planning policies are more extreme and make it much harder to build things.

You can't pin it on any one problem, but all these factors, in addition to the general political chaos – with goodness knows how many prime ministers and uncertainty caused by various changes in direction – will have played a part.

Matthew Partridge: It seems a key danger is that the more the UK economy stagnates, the more disillusionment and political chaos ensue, causing more uncertainty and stagnation.

Paul Johnson: Yes, exactly. You can definitely get locked into a terrible vicious cycle of this kind.

Matthew Partridge: There has been much debate recently about the quality of the government's economic forecasts, which are attacked for being inaccurate or even supposedly manipulated. Reform's Nigel Farage has said he's given serious thought to scrapping the Office for Budget Responsibility (OBR). Do you think this would be a good idea, or is there a role for institutions like the OBR?

Paul Johnson: The whole point of the OBR was to get the government out of the forecasting business – because it was pretty clear that the Treasury's forecasts were politically manipulated – and hand it to an independent body. So, I'm now confident that the forecasts are honest and not manipulated. Ironically, while the OBR has been berated for being too pessimistic, on average over the last 15 years we've found that it's been slightly too optimistic. While it's strange that there are two independent forecasters, the Bank of England and the OBR, we at the IFS thinks that the UK's main forecasting institutions are in the right place, especially as the OBR mainly produces mostly fiscal forecasts and the Bank of England focuses on monetary policy.

Matthew Partridge: What do you see as the biggest fiscal challenges for the UK economy over the next ten to 20 years?

Paul Johnson: Well, I think the big fiscal challenge is that in the past ten years we've seen an unprecedented 5%-6% increase in the share of national income accounted for by taxation. Before that, taxes were for a very long time fairly flat as a fraction of national income.

I think that what people will remember when they look back at this decade isn't going to be Covid or the energy crisis, let alone the mini-Budget, but rather that the British state grew to an extent that is totally unprecedented.

What's more, all the pressures that are pushing spending upwards are going to keep growing, with the commitment to spend another 1% of national income on defence leading to another £30 billion in expenditure. Spending on health is rising relentlessly due to the aging population, with the triple lock ensuring that the same thing will happen to pensions.

Given that we've already got a very big debt pile, it's going to be quite hard to meet these commitments with additional borrowing, especially with previous borrowing coming back to bite us in the form of debt-interest payments.

Perhaps the only silver lining is that while the UK's fiscal situation is much worse than the average OECD country, our debt-to-GDP ratio isn't above the G7 average. Indeed, it is odd that we pay more on our debt than France does, even though it has a higher debt burden. However, this interest-rate disparity is at least partially explained by the fact that we've had higher inflation here for a long period of time, and markets are less confident about our ability to turn things around.

Paul Johnson was director of the Institute for Fiscal Studies between 2011 and 2025, and is currently the provost of Queen's College, Oxford. His latest book, “Challenging Inequalities: How We Got Stuck and Where We Go Next”, with James Banks, Tim Besley, Richard Blundell, Angus Deaton, Robert Joyce and Debra Satz, (Princeton University Press, £25) is out now.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

It is hard to see how Keir Starmer could have had a worse local election campaign. The Labour Party lost hundreds of local councillors, many of them in its core heartlands in the north of England and Wales, and it was pushed down to third place in the total votes cast. One way or another, it is likely to get wiped out at the next general election.

It remains to be seen what happens to prime minister Keir Starmer and his embattled chancellor Rachel Reeves. Their fate will be decided over the next few days or weeks. Either they will just about stagger on, leading a demoralised party that can't decide who should replace them, or they will be ousted in favour of someone else – presumably Andy Burnham, who will have no mandate to govern. We will find out soon enough. But one point is clear: after the issue is decided, the UK will be stuck with a lame-duck government.

That will lead to three big problems. First, the endless speculation about a change of leader and all the political uncertainty around that will drive bond yields relentlessly upwards. The yield on ten-year gilts, the benchmark for the cost of government debt, has already punched its way through the 5% mark, and with each crisis nudges a little higher. The 30-year yield has risen to its highest level in almost three decades and above countries such as France and Italy, even though their long-term fiscal outlook is even worse. That matters. The country has an outstanding national debt of £2.9 trillion, and it is climbing by more than £100 billion every year.

The annual interest payments on all that have climbed to £110 billion and as older debt issued when rates were close to zero has to be replaced, they will keep on climbing. If they go much higher, the government will find itself forced to raise taxes, not to spend more on public services, or invest in infrastructure, but just to service its debts. It is hard to see how that will be popular with voters or the party's backbenchers.

Keir Starmer's government will drift from crisis to crisis

Second, tough decisions will be endlessly delayed. Sooner or later, a British government is going to have to make some harsh choices on public spending. The triple lock on pensions will have to be abandoned; the welfare bill will have to be reduced by reducing entitlements and making it harder to claim for mental-health conditions, and the dire productivity of the public sector will have to be improved. Those decisions can be postponed, but they can't be avoided forever. Starmer and Reeves, however, will not have the political support to make any significant reforms, even if they wanted to. Instead, the government will drift from crisis to crisis, hoping to survive until the end of the week.

Finally, Keir Starmer will have to keep on making concessions to the left. The backbenchers, trade unions and party activists who will decide his fate, or who will choose a new leader if there is a contest, want even higher state spending, more taxes on companies and the “rich”, more rights for workers, along with fewer for landlords and shareholders, and a lot more state intervention in the economy. All of that will damage businesses' confidence.

But even if there is a change of PM, it won't make much difference. As we learned with the constant changes of leader during the last Conservative government, anyone who comes into power without a clear mandate from the voters is inevitably very weak; they don't have any real authority. Gilt yields will still go up sharply, tough decisions will be postponed, and the left of the party and the trade unions will still have to be kept quiet with higher spending. Anyone expecting a fresh start under a different prime minister, presumably with a fresh chancellor alongside them, will quickly be disappointed. There will be no changes of any substance.

Add it all up, and one point is clear. The British economy is now condemned to at least another two or three years of stagnation. At best, the economy will limp along, with 1% or less growth, depending on what happens in the rest of the world. We can give up on any hopes of a sustained recovery – that will now have to wait until after the next election.

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Last week's local election results proved disastrous for the big two parties, and a triumph for populist upstarts on the right and left as the fracturing of politics in the UK accelerated markedly. But do local elections actually matter? Sadly, not much, argues Dan Taylor in The New Statesman.

Whatever stripe of councillor you elect in the local election will “act in the same sad way as their predecessors”, under the same miserable fiscal constraints that make “local government an impotent arm of the centralised British state”.

A century ago, local councils built houses, ran trams and buses, owned utilities, employed thousands and raised most of their own revenue. Herbert Morrison's London County Council, for example, ran more than 70 hospitals and built housing on a scale unimaginable today. Now, local councils “administer social care and collect bins. Local democracy has been replaced with skint service delivery” – and it shames the nation.

Do local elections change much?

Local councils have very limited control over how they raise money, but their list of statutory duties is significant. Councils' core responsibilities include adult social care, children's services including (non-academy) schools, SEND (special educational needs and disabilities) support, local road maintenance, waste collection, housing and homelessness prevention, planning, environmental health, public health, libraries and parks.

Much of this spending is non-optional and not affected by voters' preferences at local elections. A council can choose to scale back flowerbeds and festivals; it can't decide to stop protecting children at risk or refuse to provide emergency accommodation for homeless families.

Are local councils struggling?

Indeed. Councils have spent much of the past few years lurching from financial crisis to financial crisis; more authorities are issuing so-called “bankruptcy” notices; libraries and leisure centres are closing. Everyone is familiar with the impact of the austerity years of the then-coalition and subsequent Conservative governments.

Overall, there was a 21% real-terms cut in funding between 2010 and 2019, putting massive strain on services. What's less well known is that in recent years, there have been decent real-term increases in overall funding, albeit with an increasing range of regional variation. Money for councils grew by around 12% in real terms between 2019-2020 and 2024-2025, and a further 8% since then, taking the overall pie almost back to 2010 in real terms.

Why are local council finances tight?

England's population has jumped by 11% since then and costs have surged in the areas for which councils have responsibility. According to the Institute for Fiscal Studies (IFS), funding per person is about 15% lower in real terms this year than in 2010-2011.

Meanwhile, big increases in the minimum wage have ramped up spending on social care. Other key areas where spending has shot up include temporary accommodation for vulnerable households, specialist and secure children's homes, and a surging bill for specialist home-to-school transport for SEND pupils.

Where do local councils get their money from?

Financing has changed dramatically in recent years. Council tax used to account for about a third of funding (36% in 2010), but now it accounts for the majority (about 56%). That's because central grants from Whitehall have been cut sharply since 2010 – by 55% in real terms up to 2019-2020. As a result, council tax has been rising quickly – the average band D home's annual bill has jumped 16% to nearly £2,400 in three years, an increase of about £330. This year's rise averaged £111, or 4.9%.

The rest is made up of retained business rates, and income from things such as parking fines, as well as central funding. Last year, central government made £69.4 billion of core spending available to English authorities, £4.4 billion more than the year before.

What do councils spend money on?

On average, councils spend about a third of the total budgets on (non-academy) schools and almost another third on social care. The next biggest chunks were the police, and fire and rescue services, followed by road maintenance and transport. Refuse collection accounts for only about 3% to 5% of spending.

However, these headline figures “mask the extent to which social care is squeezing some authorities' finances, because most district councils are not responsible for these services”, says Andrew Ellison in The Times. Local authorities that have responsibility for social care – county councils and unitary authorities such as metropolitan boroughs – typically spend two-thirds of their budgets on them, according to the County Council Network.

Increasingly, says Ellison, councils appear “less like all-purpose civic institutions and more like emergency care administrators with bins attached” – and without the necessary funding.

What are the pressure points?

According to a recent Local Government Association (LGA) survey of senior council leaders, the biggest budgetary worry is Send support, together with social care, home-to-school transport and homelessness. The government has extended temporary accounting rules – letting councils keep spiralling SEND deficits off their balance sheets – until 2028. But that's merely hiding and postponing a fiscal reckoning.

The LGA calculates that eight in ten councils could face insolvency once the sleight of hand is removed. There's a long and ignoble history of local councils turning to financial speculation and optimistic property deals to fill the gaps; many have come a cropper and may continue to do so.

But without radical reform of local government, councillors of all political colours face a thankless and impossible job. “New people may be in charge in many places,” said David Phillips of the IFS. “But they face the same challenges and constraints as the old guard.”

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