It took both Andy Burnham and Friedrich Merz three attempts to win the leadership of their parties and ultimately reach the top job. Neither was their party's natural favourite, but time, doggedness and perhaps the exhaustion of the alternatives eventually delivered the prize they had long coveted. Burnham should hope that is where the similarities end.

Fifteen months after becoming chancellor, Friedrich Merz is in trouble. His approval rating has collapsed, his coalition is fractious and his centre-right CDU/CSU is trailing the populist-right Alternative für Deutschland (AfD) by seven percentage points in the polls. Friedrich Merz has recorded the lowest approval rating for a chancellor since records began. CDU politicians recently told Politico of internal discussions about a Kanzlertausch, or “chancellor swap”. This is an extraordinary prospect in a traditionally stable political system.

The immediate danger comes in east Germany. The AfD is polling above 40% in Saxony-Anhalt, which votes on 6 September, putting it within reach of taking control of a German state for the first time. Two weeks later, Mecklenburg-Vorpommern votes, with the AfD ahead on 36%. An AfD breakthrough into government would be a political earthquake and heap further pressure on Friedrich Merz. Yet his problems contain a broader lesson for Britain's new prime minister.

Friedrich Merz stretched the mandate

Friedrich Merz fought the 2025 federal election promising fiscal conservatism. Within days of becoming chancellor, he performed an extraordinary U-turn. Working with the outgoing parliament, he pushed through constitutional changes exempting much defence spending from Germany's debt brake and created a €500 billion infrastructure fund. Germany needed to rearm, its crumbling infrastructure required investment and its restrictive fiscal rules had become an impediment. It was realpolitik in response to a global order reshaped by Donald Trump's return to the White House. But it was also a betrayal of the proposition Merz had put to voters. Political mandates are not infinitely elastic. Voters may accept that circumstances change, but repudiating a central election commitment risks losing the trust required to make subsequent difficult decisions. Merz has discovered that borrowing more money does not magically resolve the political constraints on governing.

Burnham starts with an even bigger problem: he has no personal electoral mandate at all. In 2024 the electorate voted for Keir Starmer, Rachel Reeves and their programme while Burnham was not even an MP. That programme promised “change”, but combined higher spending ambitions with a pledge not to raise the three big taxes on working people. Burnham is now trapped. He wants to spend more, his party has demonstrated that it will not readily let him spend less, and Labour's tax pledges have closed off the most straightforward way of raising the money.

The problems facing Burnham

The result is a government searching for increasingly inventive ways to square the circle before the Budget on 28 October. The danger is that Burnham follows Friedrich Merz in concluding that the only escape is to reinterpret the mandate he inherited – except Britain has far less room for manoeuvre. Germany entered its fiscal expansion with government debt of just 63.5% of GDP in 2025, rising to 68%. Britain's public-sector net debt is already 94% and the Office for Budget Responsibility expects it to peak above 96%.

The financing requirements make the contrast starker. Germany's abandonment of its cherished debt brake has been described as a historic fiscal splurge, yet it plans to issue roughly €335 billion of longer-term federal securities this year, against £252 billion of gilts from Britain – almost as much in the same currency despite the German economy being around 50% larger. Britain is already running the sort of debt programme that Germany regards as extraordinary. That leaves Britain far more dependent on keeping bond investors onside. Germany is borrowing from a much stronger starting position and directing much of the money towards infrastructure and defence. Burnham would be asking investors to tolerate yet more borrowing from a country already carrying a much heavier debt burden.

For investors, Britain's weaker fiscal starting point leaves gilts vulnerable to a greater risk premium than Bunds, particularly if Burnham tests the bond market's tolerance. The outlook is brighter for defence equities. Rheinmetall's order book has swollen to around €80 billion, while BAE Systems boasts an £84 billion backlog and its shares have performed well this year.

Britain has advantages elsewhere. Its deeper venture-capital markets and more flexible economy give it a better chance of producing European winners from AI and other emerging technologies. It also has a shock absorber unavailable to Germany: its currency. Sterling can fall when the economy needs to adjust, whereas Germany is locked into the euro. But depreciation is no free lunch: it raises import costs, risks higher inflation and can become a verdict on investors' confidence.

For Burnham, Friedrich Merz is therefore both a warning and a useful comparison. Merz responded to changing circumstances by abandoning one of his clearest election promises and has paid a heavy political price. Burnham has inherited promises that leave him wanting to spend more and constrained in raising taxes. Borrowing offers an apparent escape, as it did for Merz. But with our debt burden already far higher, the bond market may prove far less forgiving than the electorate.

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US Treasury secretary Scott Bessent has found himself caught in a standoff with currency traders more than a fortnight after the US and Japan jointly intervened to buy yen for the first time since 1998.

The move strengthened the yen at the start of August, but it has since given back roughly half of its post-intervention gain. Currency analysts warn the fundamental drivers of a weak yen, especially a yield gap between Japan (where rates are 1%) and the US (where rates are over 3.5%), have not gone away.

Scott Bessent knows a thing or two about currency trading, says The Guardian. He was part of the George Soros team in 1992 that made a billion dollars by forcing the pound off the European Exchange-Rate Mechanism. His intervention to stabilise the yen wasn't an act of charity. Japan is a “cash spigot”, with the cheap yen funding a global “carry trade” that helps prop up US technology shares.

If the yen's slide continues, then Japan might be forced to respond with “aggressive” interest-rate rises. That could quickly unwind the carry trade and trigger a Wall Street rout, as happened two years ago when a surprise Japanese rate rise sent global markets tumbling.

Don't worry, the risk of a “disorderly” unwind “seems low”, Masayuki Nakajima of Mizuho Bank tells Katie Martin in the Financial Times. The danger of higher Japanese rates is now “extremely well understood” by traders, who have made appropriate preparations. Rather than a snap yen rally, “all the ingredients are in place” for the carry trade to continue and yen selling pressure to persist. “It is increasingly clear that the market is in the mood for a fight” with the US Treasury.

What does Scott Bessent’s intervention mean for the global economy?

The “US currency intervention was not only ineffective, but counterproductive”, says George Saravelos of Deutsche Bank. Washington has been encouraging Tokyo to tap an emergency Federal Reserve dollar facility, inadvertently sending a signal that “it is not comfortable” with the “direct US Treasury sales” that Tokyo usually uses to prop up the yen.

If Scott Bessent's yen “ruse” was designed to keep US borrowing costs under control, then it has failed, agrees Simon Nixon on Substack. Washington's use of “unorthodox” tools, including selling euros rather than dollars to fund the yen intervention, has only “deepened the anxiety it was meant to soothe”. Bond traders sniff out hesitation like sharks detect blood in the water.

The spike in government debt isn't only affecting America. Japan's own ten-year yield hit a 30-year high on Monday, while France's has topped 4% for the first time since 2008, potentially pushing the country closer to the brink of a “debt crisis”.

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Tina Fordham is the former chief global political analyst at Citigroup and founder of Fordham Global Foresight. Tina has spent more than 25 years advising senior business, government and military leaders on navigating political and geopolitical risk; she has served as a senior adviser to the UK prime minister and advised military leaders. She also sits on advisory boards at Columbia University and the University of Cambridge. Her forthcoming book, Mad World: A Geostrategy Survival Guide for Leaders, is published by Whitefox in September 2026.

Matthew Partridge: Your new book, Mad World: A Geostrategy Survival Guide for Leaders, argues that in the current geopolitical climate, companies no longer have the luxury of ignoring politics?

Tina Fordham: Yes, ignoring geopolitics was something you could only afford to do in the era of globalisation, which happens to be the time that most of today's executives, myself included, grew up in.

Matthew Partridge: You've talked about the emergence of a new geopolitical supercycle.

Tina Fordham: The data for that study examines the period between 2010 and 2025. So even before Donald Trump's second term, we detected a tripling of events posing geopolitical risk. People hope things will get better after Trump leaves office in January 2029, but the evidence suggests that the drivers of geopolitical risks are multiplying and have been for a long time. Moreover, the guardrails that temper the risks are either eroding or being actively dismantled. So the idea that we only have to survive another year and a half before things return to normal is misplaced.

Matthew Partridge: Which guardrails in particular are being eroded?

Tina Fordham: There's a diagram in the book of the supercycle framework, where we talk about some of the long-term drivers, like declining trust, climate change and income inequality. However, when there are risky events or shocks, good government, liquidity from central banks, institutions or even social cohesion can help you mitigate these problems. But when these guardrails are damaged, even relatively small risks can become quite disruptive. This is difficult for most executives to get their heads around, but it's how we try to apply a systematic conceptual framework to thinking about geopolitical risk.

Matthew Partridge: Your book is primarily aimed at business leaders and executives, but would it also apply to ordinary investors deciding how to structure their portfolios and which assets to choose?

Tina Fordham: There are certainly implications for everyday people who are having to think about how to manage their own lives, their families and their careers in a time of unprecedented global change.

Most people have yet to recognise that we are in a new age. They assume we are still in the period most of us became used to: one of continuously improving living standards. In fact, the period between the fall of the Berlin Wall [1989] and the collapse of Lehman Brothers [2008] was actually the most peaceful and prosperous period in all of human history – not the baseline for the future. You can mess it up.

Matthew Partridge: Turning to specific issues, I've noticed that in your recent talks you've been a lot more pessimistic about the prospects for a lasting resolution to the situation in the Strait of Hormuz. Why is that?

Tina Fordham: We were among the few to come out strongly and say that the conflict between Iran, Israel and the US would not be a short war, which was counter to the consensus at the time that it would all be over very quickly. Our reasoning was based on how Iran has always negotiated. It was never going to be enough simply to order them to meet the White House's maximalist demands.

I also felt that there is vanishingly little evidence in history of aerial bombardment causing regime change, one of the original aims of the conflict. Every US president since Jimmy Carter in the 1970s has wargamed and studied possible options for dislodging this regime and concluded that it was too hard to do without massive loss of life and huge disruption, so president Trump wasn't going to change that.

So now, we've got the situation where the US has seemingly depleted its stock of long-range munitions, while Iran can regenerate its drones faster than the US can replenish its stocks. While the markets have been reacting to the good news – in the short term – that there may be a resumption of oil supplies to the Strait of Hormuz, the actual long-term effect of this war has been to give Iran a source of leverage that it didn't have before, a power it is not going to relinquish. Meanwhile, Trump seems to have got bored with this conflict, except he's realised he can't just walk away.

Matthew Partridge: What is the most likely outcome?

Tina Fordham: Most market participants have assumed that America doesn't want to have high petrol prices before an election. However, while this might have applied over the last 25 years, I think this time we're going to end up in a situation that is between war and peace, where Trump will keep threatening because that's the only tool he has.

What's more, the Gulf states have prevailed upon the White House not to destroy Iran's energy infrastructure because of what that would do to the rest of the region. So, we are likely to be left in a situation where Iran is more powerful – if battered – after this war. What's more, the situation sends a message to the rest of the international community that if they don't like their present borders, or have some beef with their neighbour, the US has a much smaller capacity to stop them.

Matthew Partridge: On a more positive note, it looks as though Ukraine is fighting back against Russia and seems to be regaining some of the territory the invader stole. Will that continue?

Tina Fordham: The Ukraine conflict is being fought over feet and yards of territory. While this is a quagmire for Russia, with China prevailing on Putin not to go nuclear, neither is he going to come to the negotiating table in any meaningful way and agree to a ceasefire. Russia will not seek a deal that gets sanctions rolled back. That is simply not how Putin thinks.

Given that 40% of Russia's energy infrastructure has been destroyed, resulting in queues for petrol, Putin may want to make a grand gesture to demonstrate control. There is therefore a material risk of Russia attacking a Nato member. Most British people don't seem to have factored this risk in, even though we're being attacked by Russia all the time.

Matthew Partridge: Could Putin end up like the Serbian dictator Slobodan Miloševic – who was overthrown in 2000 – and succumb to internal dissent or a palace coup?

Tina Fordham: While there is no chance of Putin ending up in The Hague, a palace coup is more plausible than a popular revolution. But, the trouble with palace coups is you really need an alternative. And Putin has made sure that there are no plausible successors to him. So, while he and his policies are increasingly costing the Russian elites more than they're gaining, leaders like this can hang on for a long time.

Matthew Partridge: Do you think Ukraine's brave resistance and the fact it's actually been able to at least block Russia will give hope for other countries like Taiwan?

Tina Fordham: Ukraine has certainly given Beijing pause for thought. The fact that both the US and Russia have been dealt a serious blow by much weaker middle powers suggests that might doesn't necessarily win and can leave you stuck in a very awkward position for a long time.

Matthew Partridge: Trump will have to leave office in January 2029. The Republicans are now expected to lose at least one House of Congress seat in the midterms. Do you think that a bad result in the midterms will rein in Trump, or do you think that he might become even more unpredictable?

Tina Fordham: This is the question on the minds of many. The Iranian regime have said that they weren't going to negotiate any longer with the US but are going to wait until after Trump has left office.

While the US constitution means that Trump is limited to two terms, he is printing “Trump 2028” hats already. There's also the possibility that Trumpism may outlast Trump himself. In the most sinister scenario, the dubious behaviour by many in the administration means that even if they are voted out, the threat of possible investigations may complicate the usual peaceful transfer of power.

Matthew Partridge: In your book, you say that while the big losers from automation had been older, blue-collar workers, the worst affected by AI will be middle-class people in their 20s and 30s, who tend to be more politically aware. Will this fuel opposition to AI?

Tina Fordham: Absolutely. It will also increase demand for policy solutions. Covid has led to a rise in both benefits and expectations of government support. The historians who speak very grandly about previous waves of innovation and industrialisation forget that during the Industrial Revolution, working-class people didn't have the vote, which is not the case today.

In any case, revolutions are not fought by the poor, they are launched by the middle classes, and it's not only university students and recent graduates who are angry, but also those in the their 50s who are being told they need to work longer because the pension age is being delayed. All of this is going to add to pressure on governments at the same time that Europe needs to spend more on defence.

Matthew Partridge: What is the upshot of all this for investors?

Tina Fordham: We used to think about geopolitical risk in terms of what could go wrong and undermine a portfolio. But recent geopolitical developments and other themes such as AI have led to a situation of constant potential danger, as opposed to sporadic upsets. The threats won't dissipate within a year or two; this backdrop is set to last longer than a decade.

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Investors were feeling deeply bearish about European stocks earlier this year, with warnings that the closure of the Strait of Hormuz would unleash the continent's second energy crisis in a decade. That danger has not passed, but markets got carried away. Unusually strong second-quarter earnings have allayed fears of stagflation. The Stoxx Europe 600, a pan-European stock index that includes UK-listed shares, is up 13% since its low in March.

German earnings on the DAX index rose 11% year on year, the best showing “in at least ten quarters”, according to Deutsche Bank analysts. The country's carmakers remain in poor health, but that was more than offset by a superb showing from industrial and chemical firms. The wider Stoxx 600 did even better, recording year-on-year earnings growth of 23%.

European stocks have turned in their “best earnings season in nearly four years”, say Sagarika Jaisinghani and Alice Atkins on Bloomberg. Miners and industrials are booming. The continent's small technology sector is outperforming the US giants, led by Dutch chip specialist ASML, whose shares have risen 57% this year. Foreign investors are piling in, with European stocks attracting the second-strongest inflows in a decade so far this year. Given the challenging backdrop, the “resilience” of the continent's corporations is deeply reassuring.

European stock markets have long been overshadowed by Wall Street and some of the racier Asian markets, says Joseph Wilkins on CNBC. Goldman Sachs analysts argue that many of the things investors think they know about Europe are “myths”. Chinese competition, for example, isn't an existential challenge, because carmakers represent just 1% of the continent's market capitalisation. “Since 2022, European banks have considerably outperformed the Magnificent Seven.” And with anxiety growing about AI exposure, the old continent offers an obvious “hedge”.

Eurosclerosis continues for European stocks

US equity valuations are “on the nuttier side of bonkers”, but that doesn't necessarily make European stocks good value, says Stuart Kirk in the Financial Times. The Euro Stoxx 50 index of eurozone blue-chips has managed a fairly boring annualised return of 11.1% over the past decade. True, ASML is a “world-class firm”, but the performance of the continent's other industrials and banks is underwhelming when compared with US peers. “Europe's 25% price/earnings discount to US shares is not deep enough.”

European growth remains sclerotic, says James Carter for National Review. The EU's GDP per capita is just half that of the US, down from 76.5% in 2008. Contrary to popular belief, Europeans work just as much as Americans; indeed, employed Europeans average longer working weeks than their US counterparts. The real issue is sluggish productivity growth.

The danger of an energy shock has not gone away either. European natural gas prices have been trading above €60/MWh, levels not seen since the tail end of the 2022-2023 energy crisis. The continent's gas storage is the lowest it has been for this time of year since at least 2009.

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The Bank of England might be best known for setting interest rates and printing banknotes, but there’s much more going on at the central bank you might not be aware of.

Jack Leslie and Rupal Patel, Bank of England (BoE) economists and authors of the new book Money: The Inside Story, discussed how the central bank holds 400,000 bars of gold and ‘giant’ and ‘titan’ banknotes worth up to £100 million in its vaults.

Speaking on the MoneyWeek Talks podcast, they also explained how electronic payments in the UK, from coffees to house purchases, go through the Bank’s ‘black box’.

They recalled a “spooky” story of how a sewer worker in the 1800s accidentally discovered an old drain which led to the Bank’s gold vaults.

Plus, Leslie and Patel explained why the first colour banknotes were printed amid a German plot during World War Two to airdrop counterfeit notes over the UK and crash the economy.

The episode is also available to watch on our YouTube channel.

Bank of England facing ‘uncertain’ external environment

As well as some of the quirkier Bank of England-related facts, Leslie and Patel also addressed the biggest challenges facing the central bank – such as the rise in wholesale energy costs due to ongoing tensions in Ukraine and the Middle East.

Speaking to MoneyWeek’s digital editor-in-chief, Kalpana Fitzpatrick, Patel described increasing interest rates as a “blunt tool” to combat inflation, in that it can reduce demand, but that it is less effective at counteracting shocks on the supply side.

Patel also said interest rate decisions taken by the BoE’s Monetary Policy Committee can take “about 18 months to two years” to filter through to inflation.

She explained: “What the Bank of England is looking at is trying to think about inflation about two years ahead, and that’s quite difficult to do when the external environment is quite uncertain and you keep getting these new shocks.”

Leslie also addressed the issue of soaring government debt – recent analysis from The TaxPayers Alliance, a pressure group, estimates public sector debt has now tipped over the £3 trillion mark.

Asked whether printing more money could be the answer to pay off some of the debt, Leslie said: “When there’s more money in the system, you can actually buy fewer things because those things are more expensive.

“And so it’s really not a useful tool in helping out governments when they need more money.

“We can see the effects of that in other countries. A lot of people would’ve heard of Zimbabwe or Germany where money was printed and caused something called hyperinflation…and that’s just not useful.”

How you can get rid of old banknotes

They also explained what you can do if you come across an old banknote that’s no longer classed as legal tender.

You can exchange any Bank of England note that’s ever been issued back to 1694, for the same value modern note with the Bank of England, Leslie said.

He added: “You can physically come into the Bank of England because we have a counter for the public to exchange those notes.”

If you’ve got half or more of a note, you can exchange it for a new one.

“As long as you’ve got more than 50% [of the note], so just a fraction more than 50%, we’ll swap it for a new note,” he said.

About the podcast

MoneyWeek Talks is a podcast that helps you unlock the secrets to financial success. Editors Kalpana Fitzpatrick, Andrew Van Sickle and Cris Sholto Heaton 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. You can also watch the episodes on our YouTube channel.

Shrinkflation is rife. When did you last open a tube of Pringles and find the crisps reaching the foil seal? The gap at the top is no optical illusion – the makers of Pringles narrowed the canister and cut the contents from 200g to 165g while the price climbed towards £2.25. The result was a 118% increase in the price per gram.

Customers may see fewer crisps, but shrinkflation isn't just an irritation for consumers. Investors should see something more revealing: it can be an early signal that a company's ability to raise prices openly is beginning to weaken.

Economist Pippa Malmgren coined the term “shrinkflation” in 2009 to describe the practice of reducing a product's size while leaving the headline price unchanged, or even increasing it. Rather than risk the backlash of an overt price rise, manufacturers subtly trim the contents, relying on a simple behavioural quirk: shoppers notice the price on the shelf far more readily than the net weight printed on the packaging. It has become one of the defining responses to the inflationary era, helping consumer-goods companies to defend margins while avoiding the shock of higher prices.

When reducing pack sizes risks becoming too obvious, manufacturers often turn instead to “skimpflation”, replacing more expensive ingredients with cheaper alternatives. Tesco has reduced the pork content of its Finest sausages from 97% to 90%; Morrisons has lowered the beef content in its ready-meal lasagne. The prices barely changed, but the products became cheaper to make.

Why do companies rely on shrinkflation instead of raising prices?

For investors, the question is why companies rely on such tactics. Businesses with genuine pricing power can usually raise prices openly because customers value the product sufficiently to want to pay more. Companies serving more price-sensitive consumers have fewer options. Rather than test demand with a visible price rise, they shrink- or skimpflate. Executives describe this as “revenue growth management”, or “pack architecture optimisation”. Investors should recognise it as an attempt to protect margins when conventional pricing power is under pressure.

The reason the tactic works lies as much in psychology as in economics. Consumers are generally more sensitive to changes in the price printed on the shelf than to slight reductions in weight or volume. Behavioural economists describe this as asymmetric price perception. For a time, shrinkflation allows manufacturers to recover higher input costs without risking the sharp fall in demand that often follows an outright price increase. The strategy has limits. Used sparingly, it can help preserve margins during periods of unusually high inflation. Used repeatedly, it risks weakening the brand value that once gave a company its pricing power. Once consumers begin to question whether a trusted brand still represents good value, winning back that confidence can take years.

Shoppers who feel they are repeatedly paying more for less become more willing to switch to private-label alternatives offering similar quality at a lower price. Brands that repeatedly rely on hidden price increases risk training customers to look elsewhere.

Fortunately for investors, listed companies rarely succeed in hiding the effects indefinitely. The evidence usually appears in the accounts. Looking beyond headline revenue growth to the split between pricing and volumes often provides a clearer picture of a brand's health than sales growth alone. Mondelez's financial results reinforce the point. It reported 4.3% organic net revenue growth in 2025, which appears respectable at first glance. A closer look shows pricing contributed 8.0 percentage points, while volume and mix reduced growth by 3.7 percentage points. Revenue was still rising, but customers were buying fewer products. Nestlé's reporting tells a similar story. Organic growth remained positive as higher prices offset rising costs, yet its measure of physical demand, “real internal growth”, remained negative.

This matters. Strong pricing supported by stable volumes often signals genuine pricing power. Strong pricing accompanied by persistent volume declines deserves much closer scrutiny. Companies can protect profits for a time through smaller packs and higher prices, but falling volumes may indicate that customers are beginning to question the value of the brand.

A changing environment around shrinkflation

The environment that allowed shrinkflation to flourish is also changing. Consumers are more aware of the practice, retailers are paying closer attention to perceptions of value and regulators are making price comparisons easier. In the UK, reforms to the Price Marking Order require unit prices to be displayed more clearly and consistently from April 2026. French supermarket Carrefour has gone further, placing prominent shrinkflation notices beneath affected products during pricing disputes, while UK supermarkets have continued expanding their own-label ranges. Together, these developments make it harder for manufacturers to rely on shrinking packs without attracting greater scrutiny.

For investors, the lesson is not that every company using shrinkflation should be avoided. Commodity inflation sometimes leaves management teams with difficult choices and modest reductions in pack size may be preferable to price rises that drive customers away. The important question is whether shrinkflation has become a temporary response or a permanent habit. Investors spend plenty of time analysing margins, cash flow and valuation. They should devote equal attention to whether revenue growth reflects customers' willingness to pay higher prices, or simply the effects of shrinking packs and higher prices. Shrinkflation can be a valuable clue to a company's underlying health.

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With a new prime minister and a blank sheet of paper, John Healey could have started his chancellorship with a burst of announcements. After all, Andy Burnham appears determined to try to do things differently and, even if most of the policies announced so far are very small-scale, at least he is trying. His chancellor, by contrast, has been very quiet. He popped up briefly to replay a few familiar complaints about price gouging by the supermarkets, even though the major grocery chains operate on some of the slimmest margins in the world, and there have been a few leaks about more borrowing. Apart from that, No. 11 has remained silent.

He may, of course, be storing up the major announcements for his first Budget, now scheduled for the end of October. But the really significant chancellors of the last 50 years all made major policy decisions within their first few weeks in office. Gordon Brown announced the independence of the Bank of England. Nigel Lawson slashed the top rate of tax from 60% to 40%. George Osborne created the Office for Budget Responsibility and set out plans for controlling the growth of public spending. You might agree or disagree with any of those decisions, but there is no question they were significant and had a major impact on the economy. Each of these chancellors seized the day to make big reforms, aware there would never be a better time for a change of direction.

It would not have been hard for John Healey to hit the ground running. He could immediately have licensed new fields in the North Sea, as well as reduced the windfall tax on new developments. That would have made it clear from day one that the new government was more interested in energy security than in virtue signalling on climate change. He could have suspended the rise in employers' national insurance for six months to give companies a chance to start hiring again. To help with the cost of living, he could have lifted a range of tariffs that are still left in place from when we were part of the EU. He could have suspended some of the green levies that, when added to the highest industrial energy prices in the developed world, have crushed manufacturing. He could have cancelled pointless taxes such as the packaging levy that have added to the costs of retailers.

He could have demonstrated a commitment to curbing Britain's out-of-control welfare spending, perhaps by replacing the “triple lock” for pensioners with a slightly more affordable “double lock”. The list goes on.

John Healey appears to have pressed the “repeat” button

Instead, he is sticking to the script written by Rachel Reeves. There are lots of attempts to shift the blame onto business for persistent inflation, ignoring the impact that the constant criticism is likely to have on confidence. There are repeated attempts to manipulate the figures to allow the government to get away with borrowing yet more. Most of all, there is a complacent assumption that the economy will recover so long as the government spends more, despite all the evidence to the contrary. Reeves took months to announce anything of significance and even then it was just a huge tax raid. John Healey appears simply to have pressed the “repeat” button.

Meanwhile, genuine reforms to the supply side of the economy, such as freeing up planning rules to make it easier to build things, scrapping pointless regulations such as the GDPR on data protection inherited from the EU, and creating incentives for entrepreneurs and firms to start investing again, have been sidelined. They might come in the Budget, but I don't think anyone is holding their breath. There might only be two years left before a general election, and if Labour doesn't manage to get the economy growing before then, accelerating wage growth and getting unemployment down, it will surely lose. It is becoming painfully clear that the centre left doesn't have any ideas apart from taxing and borrowing more to try and keep the public-spending juggernaut on the road for a few more years. John Healey seems content with a re-run of the Reeves years – the results will be just as bad.

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Is the UK too centralised and will devolution help?

Devolution has long created separate administrations for Scotland, Wales and Northern Ireland, rather creating the illusion that the British state must be a quasi-federal one. But the whole of England – 85% of the UK’s population – remains governed by Whitehall. Westminster decides everything, says The Economist, from the sums that local authorities can charge for planning applications to how long the tinkling of ice-cream vans may go on. Local and regional taxes account for less than 2% of GDP, much lower than in peer nations.

It wasn’t always this way. In the 19th century, the great cities were beacons of civic pride and municipal power. But the post-war centralisation of the state has turned us into a country where the phrase “postcode lottery” is used to describe the supposedly “horrifying prospect” of public services differing from place to place.

Voices from across the political spectrum have long argued that decentralising power would help build a more effective and responsive state, and spur growth. The basic argument is that regional leaders are better placed to understand their economies and public services – and can join up policies across transport, housing, skills and employment.

What is Labour doing?

The government under Keir Starmer had already made a start on devolution with the English Devolution and Community Empowerment Act, which came into force in April this year. The Act establishes a framework for shifting powers out of Whitehall by creating elected strategic authorities, expanding local mayoral powers and establishing a Community Right to Buy, giving localities a “true right of first refusal” for Assets of Community Value.

The Act also beefs up the Local Audit Office, in charge of monitoring the local council’s finances. The underlying presumption is that devolution will become a default constitutional arrangement, rather than something individual councils negotiate with ministers on a case-by-case basis.

What has Andy Burnham added?

The new prime minister has announced plans to go further. In March, the then chancellor, Rachel Reeves, announced that the Treasury would develop a fiscal devolution road map and consider giving regional leaders control over a share of national taxes. Burnham has now confirmed that this will happen, with mayors (and perhaps also other local authorities) being handed a slice of regional income-tax receipts from 2028, in place of central grants.

Details of the plan will be unveiled in the Budget on 28 October and a new devolution White Paper (draft legislation) will be published this autumn. This will build on a new blueprint called “The New Model of Government”, which takes the existing settlement further, and gives local leaders even “greater power to shape their places through control over local transport, housing, innovation, local energy and cultural investment”.

Is this good news?

Potentially, yes. Burnham’s diagnosis of “the link between centralisation and poor local performance is almost certainly right”, says The Economist, and local and regional governments must be given a better incentive to drive their own growth, rather than beg for bigger handouts. For that, more fiscal devolution is needed – devolution of spending powers, if not, at first, tax-raising powers – and income tax is the obvious choice.

The sums won’t be large at first: the Centre for Cities think tank estimates that around 2% of income tax raised locally is enough, on average, to replace the grants that existing mayors receive. But it’s an important move in the right direction and means that if a place can create more and better-paying jobs, it will directly reap the benefits via higher tax revenues. Burnham’s plans are a welcome first step, agrees Robert Colvile in The Times. Naturally, however, there are some big question marks and caveats.

The challenges to devolution

Most crucially, devolving finance will mean nothing while councils’ budgets are dominated by “the frightful four” spending liabilities of adult social care, temporary accommodation, children’s services and school transport. “These are services that councils are legally obliged to provide, but haven’t been given the money to pay for, meaning they’ve squeezed out everything else.”

Second, there’s no point in devolving power if it’s only the power to do what Labour wants. Burnham’s first policy announcements on capping bus fares across England and offering more favourable tax arrangements to pubs and clubs at the expense of “what he deemed ‘anti-social business’”, such as vape shops, signal a very top-down kind of local politics.

What’s needed is devolution that lets places keep the fruits of their success and allows for competition between regions. Labour’s instincts will be to “enforce equality of outcomes via all the levers available to it”.

Is there any hope of genuine change with devolution?

There’s certainly a risk that devolution is “oversold as the answer to everything”, says Sam Freedman on Substack. In reality, it is likely to be a slow process and there will necessarily be trade-offs and problems along the way. Local authorities have been eviscerated since the 1980s, meaning that devolving too much power too quickly would be unwise; “much of the initial focus will need to be on capacity building”.

Currently, when powers are devolved to mayors, Whitehall retains responsibility for the approximately 50% of England (by population) that does not have one. So there’s much work to do in terms of strengthening local authorities and building new structures.

For devolution to work, many similar trade-offs will “need to be balanced right – between speed and sustainability; autonomy and national consistency; freedom and accountability; neatness and historical identity; equality and incentives to grow”. Devolution promises to be the defining issue of Burnham’s premiership, but there’s a long and hard road ahead.

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Andy Burnham is the UK’s newest prime minister, and the seventh since 2010. It makes him the 59th person to hold the office in Britain.

Each one has left their mark on UK history, but how much do you know about them?

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• Will taxes rise in the Burnham government's first Autumn Budget?
• Three tasks for new chancellor John Healey
• Can Andy Burnham’s Manchesterism work for Britain?

“Baby-faced” billionaire Yang Zhilin recently dealt the biggest shock to Western markets since DeepSeek, wiping hundreds of billions of dollars off the valuations of AI and chip stocks.

Kimi K3, developed by Yang’s Moonshot AI, is the most advanced “open-weight” large language model to emerge from China yet, topping many benchmarks with its capabilities “at a third of the cost”.

At a stroke, notions of Silicon Valley's technical dominance have been swept away, with its developer, Moonshot AI, challenging the likes of Anthropic and OpenAI at the frontier – prompting questions about their mega-valuations.

Moonshot's founder has a good story to tell too, says The Telegraph. Yang Zhilin is a prog-rock devotee who named his firm in honour of Pink Floyd's The Dark Side of the Moon, seemingly in tune with Western ideas and culture.

The 34-year-old has built a “mythology” that has “helped distinguish Moonshot from China's otherwise austere AI industry”, says the Financial Times. Employees describe an intense culture of long hours in Moonshot's headquarters in Beijing's Haidian district. “But Yang has also infused the company with his own... obsession with rock music... A white piano stands prominently in the office.”

Yang Zhilin heads to China's MIT

Yang Zhilin was born in 1992 and grew up in Shantou in the southern state of Guangdong – China's industrial heartland. Former classmates recall that he was always “unusually gifted”. Having started coding in high school, he won first prize in the National Olympiad in Informatics, earning him direct admission to Tsinghua University, often dubbed “China's MIT”.

Even in that specialised atmosphere, he was known as “Yang the genius” because of the way he managed to balance elite academic performance with his musical interests. He was a drummer in a campus band called Splay, organised music competitions and gained a reputation for being “romantic and idealistic”. Some reports suggest that he switched his undergraduate degree from thermal engineering to computer science, having been inspired by a Haruki Murakami novel.

In 2015, Yang Zhilin completed his PhD at Carnegie Mellon University, where he studied under AI gurus Ruslan Salakhutdinov and William Cohen, worked at Google Brain and Meta, and founded a retailer-focused start-up, Recurrent AI, before returning to China in 2019.

In 2023, he co-founded Moonshot AI with Tsinghua University classmates. “Recurrent AI taught him how to woo investors and scale a business,” says The Telegraph. “But he learned painful lessons too.” Moonshot's early years, when he attempted to build a “Chinese-first version of ChatGPT”, were marred by a lawsuit from investors in Recurrent AI that saw him hauled before the Hong Kong International Arbitration Centre before a settlement was reached.

Moonshot's chatbot Kimi was an instant hit, but also “plagued by outages and... overtaken by larger rivals”, says the FT. Rival DeepSeek's successful R1 model was another “existential test”. Yang Zhilin returned to the laboratory to focus on model training. He also made the pivotal decision to make Moonshot's AI models available to developers globally.

Moonshot's open approach has enabled China to “cast itself as a champion of low-cost, open-source AI”, says The New York Times. But that openness has raised concerns in Beijing about “the potential threats the technology might pose” to Communist Party rule. “[He] may be wise to moderate his views,” says The Telegraph. “Other tech billionaires in China have found... that the Party likes its economic champions on a short leash.”

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London hasn't been “left behind”, it hasn't suffered from “deindustrialisation”, and there is little sign that it was harmed by “40 years of neoliberalism”. So Britain's new prime minister, Andy Burnham, probably hasn't given much thought to London, except as a place to escape as he pursues his relentless focus on Manchester and the rest of the North. But he should. There are worrying signs that the economic decline of the capital is starting to accelerate – and that is turning into an emergency.

Last week, we learned the population is falling for the first time in three decades. More than 400,000 Londoners left the capital for other parts of the country in 2025, according to the Office for National Statistics. Sure, plenty of people still moved to London, but there was still a net outflow of 130,000. That might make it easier to get a seat on the tube, or to find a flat to rent, but it is hardly a sign of economic vibrancy.

What's more, the latest data from HM Revenue & Customs showed that figure includes 1,200 non-doms. Not everyone approves of allowing wealthy foreigners to pay less tax than the locals, but there is no question that the money they brought into the country fuelled a lot of London's finance and service industries, from lawyers to wealth managers to family offices.

Meanwhile, the property market is slumping. In Westminster, prices are down by 23% over the last year, and are still going down. It is almost as bad in other areas, with falls of 10% in Kensington and Chelsea, and 7% in Hammersmith and Fulham. Measured in real terms, prices are now down by 40% or more from their peak, as a slow-motion crash unfolds.

Even some of our best-known retailers are feeling the pain. Harvey Nichols was one of the most glamorous stores in the capital – a destination for celebrities and high-rolling tourists from around the world. Yet its long-time owner, the Hong Kong entrepreneur Dickson Poon, has tired of its constant losses and has put the business up for sale. Rewind 20 years and the world's luxury giants, or the wealth funds of the Gulf, would be battling for control of this trophy asset. Not now. The leading bidders are Next, Mike Ashley's Frasers, and even Gordon Brothers, the owner of Poundland and Laura Ashley. There is nothing wrong with any of those companies – Next is one of Britain's best-run businesses – but they are hardly the kind of owners associated with Knightsbridge. London’s high-end retailers are not worth as much any more.

London is the engine of the British economy

Add it all up, and one point is surely clear: London's economy is in deep trouble. That matters for the rest of Britain, since London is central to the wider economy. The capital accounts for over a fifth of the nation's output, even though it has only 13% of the population. The average worker is 28% more productive than workers in other parts of the country. London pays 27% of the income tax the Treasury collects every year, and 36% of the corporation tax. It is the engine of the British economy. It is impossible to imagine any other part of the country replacing it.

It is not hard to understand why London is in trouble. The decision to end non-dom status may have played well to voters and activists, but it was hugely destructive. After leaving the EU, we could have done a lot more to help the City find new business, but instead kept it wrapped up in regulation. The city's infrastructure is in steady decline, and housebuilding has collapsed. Shops have been hit by the decision to end VAT refunds for tourists. Successive governments seem to have been on a mission to damage it as much as possible.

So while the new government spends its time worrying about the regions, it urgently needs to get to grips with London's rapid decline. Once a city starts to contract, that can accelerate very quickly. The world's wealthy stay away because it does not have the services they require. Global businesses don't bother with it because it doesn't matter so much any more. Success is turbo-charged by a network effect, but so is failure. London, unfortunately, is starting to switch from one to the other.

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What is the UK's new social media ban?

The government said in June that it will bring in a social media ban for children. Modelled on a similar ban already in place in Australia, the necessary legislation is due to be put to Parliament in the autumn, and to take effect early next year. The restrictions will broadly define social media as sites that promote social interaction between users, allow them to post material or links to external sites, and use recommendation algorithms or “persuasive design”, such as infinite scrolling. The onus will be on the technology platforms to enforce the ban by introducing age checks on users; they will face fines if they don't.

What platforms will be in the social media ban?

The social media ban will mean YouTube, Facebook, TikTok, Instagram, Snapchat, Kick, Reddit, Threads, Twitch, X, and Bluesky will be off limits to under-16s. Some dating apps and live-streaming sites could also be covered. However, other platforms popular with young teens – including Discord, Roblox, Pinterest, YouTube Kids and WhatsApp – will not be banned. Educational services, e-commerce, libraries, museums and music streaming platforms are also expected to be exempt.

However, the UK is going further than Australia by also specifically banning all platforms – including Discord and Roblox, for example – from offering live-streaming for under-16s, and from allowing strangers to contact child users. Chatbots offering romantic companionship will also be banned for under-18s.

What's the rationale behind the social media ban?

Supporters argue that the evidence of harms caused by social media is now overwhelming. Numerous studies have found that teenagers who spend large amounts of time on it report higher rates of anxiety, depression, loneliness and poor self-esteem. Teens are especially vulnerable to the features designed to make platforms addictive (auto-play, infinite scroll, and so on), and recommendation algorithms tend to reinforce access to undesirable or toxic content. Social media is a breeding ground for cyberbullying, while late-night scrolling leads to poor sleep and exhaustion.

A ban is needed because the current system is not working. A survey by Ofcom found that among children aged 10-12, over half use Snapchat, more than 60% TikTok and more than 70% WhatsApp. All three apps have a national minimum age of 13. Also, even if no ban will be perfect, that's not a reason for not having one. Bans on sales of cigarettes and alcohol to teenagers are also not 100% effective, but few would dispute their usefulness. A ban is also enormously popular, with polls showing large majorities in favour.

What are the arguments against banning social media for children?

The tech firms naturally oppose any bans as an unjustified interference in their businesses. But it's not just Big Tech that's worried. Smaller UK enterprises that make apps aimed at teens are waiting anxiously to discover whether their in-app features will see them classed as social media.

There have always been moral panics about how children waste their time, says Christopher Snowdon in The Spectator. But what the government has planned is “more like banning the printing press than banning Grand Theft Auto”. It won't work, and no one really expects it to – so why bother?

Moreover, the science, in terms of the harms caused by social media, is far from settled, says the FT, with much research showing only weak associations between teenage usage and mental ill-health. And, strikingly, not all campaigners on this issue support an outright ban.

There are fears that bans will encourage children to move to riskier platforms and instil a counterproductive false sense of security in parents. Such campaigners say the government should force the companies to make their products safer, for example by banning addictive features such as infinite scroll.

Is the social media ban working in Australia?

No. The Australian government's eSafety Commission found last week that 81% of children aged ten-15 had accessed at least one of the banned platforms following the ban. Slightly more encouragingly, the proportion of that age group who actually held their own social-media account fell from 52% to 42%. The research is hardly definitive, based on surveys involving just 800 children and parents. But it's broadly in line with other surveys.

Why did Australia's social media ban have such a limited impact?

The biggest issue was “ineffective implementation of age-assurance measures by platforms”, the research found. More than half of children said they had not been asked to confirm their ages. Some 18% said platforms had incorrectly estimated their age to be above 18, and 37% said they had simply claimed to be 16 or above to maintain access.

The federal government in Canberra recently doubled the maximum penalty for companies that fail to comply with the ban to A$99 million (£52 million), arguing that tech giants were “not doing enough” to comply with the new rules. But even so, the early signs are that the road to compliance – even if possible – will be long and winding. “The impact of the law will not be measured in weeks or months, but over generations,” said Julie Inman Grant, the eSafety commissioner.

What are the alternatives to banning social media for under-16s?

Some campaigners favour more nuanced policy interventions. Rather than banning access altogether, governments could regulate the design of platforms – for example by prohibiting addictive features such as infinite scrolling or autoplay for younger users, limiting algorithmic recommendations, making accounts private by default and preventing children from being contacted by strangers.

All these interventions would still rely on effective age verification. But rather than raise age limits, regulators “should redouble efforts to make social sites more suitable for teens”, said The Economist. This would be preferable to an unproven and almost certainly unworkable outright ban. Governments should also “force web firms to cough up more data on how teenagers use their products–the better to help researchers measure harms, and come up with ways to prevent them”.

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Bond markets have a habit of reminding governments that they, not politicians, determine the price at which the state can borrow. Despite Andy Burnham’s message to the New Statesman last September that we've got to “get beyond this thing of being in hock to the bond market”, ten-year gilt yields remain around levels not seen since the aftermath of the Truss-Kwarteng mini-Budget.

There is no doubt that Andy Burnham's affable persona and savvy TikTok game are a refreshing contrast to his predecessor's stiffness. But while politicians trade in popularity, investors are interested in profits.

The rising stock of a prime minister is not necessarily reflected in the stock market. Indeed, external shocks have undone the plans of every occupant of Downing Street over the past decade. And each, whether Conservative or Labour, has reached for much the same economic playbook: more borrowing, higher spending, a larger state and, ultimately, higher taxes. With public debt already elevated and fiscal room increasingly scarce, Burnham may become the first prime minister forced to discover whether that playbook has finally reached its limits.

The public-sector finances data for June were marginally stronger than expected, with borrowing £300 million below the Office for Budget Responsibility's (OBR) forecast. The cost of inflation-linked debt interest fell as the ceasefire in the Iran conflict pushed down energy prices. It was a timely reminder that governments do not control the most important variables in their own fiscal forecasts. With hostilities resuming, inflation is unlikely to remain so well-behaved, leaving Burnham's fiscal headroom squeezed.

As one official reportedly told the new prime minister on arriving in Downing Street: you might not be interested in foreign policy, but it's interested in you. Events overseas can force an indebted government into making unpopular decisions. The National Institute of Economic and Social Research (NIESR) estimates that higher energy prices and weaker growth have eroded most of the government's fiscal headroom of £24 billion.

Higher inflation creates a double squeeze for the Treasury, raising debt-interest costs while reducing what departmental budgets can deliver. The director of the NIESR, David Aikman, says that “Commitments must be funded through taxation or savings elsewhere – not through more borrowing. That is the minimum needed just to hold the debt level where it is”.

Burnham vs the bond market

Burnham might want to get beyond bond markets, but unless he can unwind the relentlessly vicious circle of higher debt, higher deficits and stagnant growth, he will be doomed to repeat it. In her first act as chancellor, Rachel Reeves tried to pay for higher public-sector pay by removing the winter fuel allowance, sowing the seeds of her own demise. Taxing jobs through higher national insurance while raising the minimum wage made employment more costly, bearing down on growth. She then assembled a smorgasbord of wealth taxes owing to Labour's manifesto commitment not to raise the three main taxes. Although Reeves reduced gilt issuance, it remains historically high. The Debt Management Office plans to issue around 50% more gilts this year than in 2022-2023. Burnham inherits the same fiscal constraints, but with Labour polling around ten points below the level that delivered its 2024 landslide, reducing his political as well as economic room for manoeuvre.

There is a more fundamental problem if he attempts revolutionary change. He was not even part of Labour's 2024 election victory and, like all unelected prime ministers before him, will face complaints that he lacks a mandate to make difficult decisions. He has repeatedly stressed that Britain is a parliamentary democracy where parties choose their leaders. It is not unusual: 12 of the 19 people to serve as prime minister since 1945 first entered Downing Street between general elections. But that has never made governing easy. Only four went on to win a majority at the subsequent election.

With a fragmented electorate split at least four ways, Burnham may need little more than 25% plus one vote for a majority. Yet volatile voters are unpredictable. His strategy will be to unite the left by invoking his favourite bogeyman, the “Thatcher tribute act” Nigel Farage. Failing that, his programme itself has a distinctly left-wing flavour: capping household bills, re-industrialisation, stronger public control of utilities and a National Care Service. Politically, it is an attempt to rebuild Labour's coalition. Economically, however, it assumes global events remain reasonably benign.

But the more he talks left, the more the bond markets will push him to the right. His priorities are expensive, and his options for paying for them are shrinking. The Laffer Curve is already alive and well in the disappointing revenues generated by a tax burden that has reached its highest level in decades.

Gilt issuance remains elevated, inflation an ever-present threat and he cannot afford to lose credibility by breaching the fiscal rules. “Events, dear boy, events,” as Harold Macmillan put it, still have a habit of overwhelming even the best-laid plans. Burnham's greatest opponents may not reside in the House of Commons, but in the bond market.

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Over the past five years, the Japanese yen has lost 30% of its value against the US dollar and nearly as much against the pound. The currency recently hit a 40-year low against the greenback. Now, powerful figures in global finance are drawing a line in the sand.

Over the weekend, Japan's Ministry of Finance and the US Treasury confirmed they had jointly intervened in currency markets to support the yen. Japan is thought to have sold $59 billion to buy yen, with Washington staging a smaller intervention – its first in Japan since 2011 – in support.

The move sent the Japanese yen up 3.5% against the US dollar, a significant rise in foreign-exchange terms that reversed months of depreciation. Japan's own interventions had become increasingly ineffective. America brings much more potential firepower to the table.

Why is the US buying Japanese yen?

US Treasury secretary Scott Bessent has shown markets there is “a new sheriff in town”, says Katie Martin in the Financial Times. The real mystery is why Washington is getting involved at all. One explanation is simply that Donald Trump likes Japan, telling reporters “Japan's been very good to us, with the exception, of course, of Pearl Harbor”.

Self-interest, too, may be motivating Bessent. Japan's “massive sales” of dollar assets (mainly US Treasuries) are raising US borrowing costs at a time when government yields are already under pressure. His solution? “Stand behind Japan like a scary big brother” to “scare off the yen sellers.” The Japanese yen stabilised at around 157 to the dollar this week, stronger than the 163 level prior to the intervention.

The operation is likely to halt, at least temporarily, a “disruptive further depreciation” of the yen, says Brad Setser of the Council on Foreign Relations. A weak yen tends to pressure other Asian currencies lower. By making the region's exports cheaper, weak Asian currencies cut against the White House's desire for US re-industrialisation. The administration of a short, sharp shock to speculators betting against the Japanese yen might cause them to re-evaluate the trade.

Recent market “negativity” towards Japan has been overdone. The country has several important strengths, including a big current account surplus and ownership of huge tranches of overseas assets.

The one missing piece is higher interest rates. At 1%, Japanese rates are far below those in America, which causes steady selling pressure as local investors seek better yields overseas. Therein lies the rub, says Robin Brooks on Substack. Japan cannot afford to raise interest rates because of its mammoth government debt, which is equivalent to 248% of GDP. But without the support of rate hikes, this currency intervention will ultimately “fail like all previous ones”. Despite its slide, the Japanese yen is probably still overvalued. Its rout is “a symptom of a debt crisis that's getting papered over”.

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Marcel Stötzel, lead manager of the Fidelity European Trust (LSE: FEV), isn’t deterred by claims that Europe’s economic record and outlook are just as dismal as the UK’s.

“Europe is plagued by poor demographics, low productivity and high government debt, none of which are getting any better,” he agrees. Economic output per capita is half the level of the US. But European stocks are not proxies for their economies, as they derive only a third of their turnover from Europe. “We are more bullish than ever.”

Meanwhile, on the macro front, he sees five reasons to be positive. “Germany's fiscal brake has been lifted, Mario Draghi's report on EU competitiveness promises to cut red tape, there is a large savings rate to be mobilised, Europe is spending more on defence and European integration is tightening.” As a result, “the GDP growth gap will not continue to widen” and “we are overweight domestic Europe for the first time.”

A disappointing year for Fidelity European Trust

Following its merger with Henderson European Trust nearly a year ago, Fidelity European Trust has become a £2.2 billion investment trust. It trades at a modest 5% discount to net asset value (NAV) and yields 2.3%. However, while performance has been excellent since its 1991 launch (13.2% per year against 9.5% for the FTSE Europe ex-UK index), it has lagged the index by 10% over one year, 13% over three, and 12% over five. This puts it 11%, 31% and 33% respectively behind JP Morgan European Growth & Income (LSE: JEGI).

In the latest annual report, Sam Morse, fellow portfolio manager, attributed last year's disappointing performance to “limited exposure to defence stocks, holdings in Novo Nordisk, chemical producer Symrise and software company SAP”. Novo Nordisk soared on the back of its weight-loss drug Wegovy, but then crashed 75% from its mid 2024 high before a slight recent recovery. SAP has suffered from concerns that AI will disrupt the businesses of established software companies. JP Morgan European Growth & Income had been more nimble, selling SAP early last year and Novo Nordisk the year before.

Still, every manager has a bad year, and Stötzel will surely get performance back on the rails again, maintaining the long-term record. He focuses on “companies with the ability to grow dividends sustainably for three-five years.” Examples include Inditex, owner of the Zara chain, which kept manufacturing at home and in North America instead of outsourcing it to China. This has enabled better quality control, less wastage, faster delivery and more flexibility.

Other top holdings include ASML, with a virtual global monopoly in the supply of machines for manufacturing semi-conductor chips, pharmaceutical company Roche, cosmetics giant L'Oréal and oil and gas producer TotalEnergies.

Should you invest in Fidelity European Trust?

Stötzel says the portfolio has a higher return on capital and better dividend growth than the market, while trading at no more than the historic valuation of 18 times earnings. Overall, European equities are no better than fair value, but if Stötzel is right and economic growth picks up, earnings growth should accelerate and investment returns continue to be strong. There would be a further boost if the historic aversion of Europeans to investing in equities abates.

Stötzel's thesis about the improving economic outlook for Europe relative to the US may prove optimistic, but it is more plausible than any thesis for the UK, to whose market investors continue to be patriotically attached. Europe is a much larger and broader market than the UK with many more growth stocks, offering managers a better choice for long-term investment. Fidelity European Trust may have tripped up last year, but it has a great long-term record, while investors in JP Morgan European Growth & Income must hope that pride doesn't come before a fall.

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There’s a huge growth story going on in Vietnam that investors would be well-advised to pay heed to.

Its economy grew by 8% last year, making it the 13th-fastest growing in the world according to World Bank.

While much of the rest of Southeast Asia’s stock markets are heavily dominated by artificial intelligence (AI) hardware makers, Vietnam’s has a much more broad-based composition, including a relatively high weighting towards more ‘traditional’ industries, meaning it can offer genuine diversification.

“The combination of economic growth, reform and attractive valuations creates a compelling long-term environment for active investors,” said Tung Dang, chief economist at Dragon Capital – an asset manager that specialises in investing in Vietnam.

It isn’t yet an emerging market – but its reclassification has been confirmed, and is only weeks away. The redesignation will immediately add substantial amounts of passive fund flows into the country’s stock market, and over the following years this could be followed by billions of additional capital from active managers, adding to the many reasons why, of all the regions to invest in, Vietnam is well worth consideration at the present time.

Government reforms are driving growth

Strong growth is one of the most compelling reasons to invest in Vietnam, and government policies are underpinning the story.

Craig Martin, co-chairman of Dynam Capital, says that Vietnam is one of the few markets in the world that offers investors the combination of structural economic growth, political stability and attractive valuations.

“Over the past three decades, Vietnam has transformed itself into one of Asia's most dynamic manufacturing and export economies,” he said. “Today it is moving into a new phase of development, driven not only by exports but increasingly by domestic consumption, rising household wealth, financial deepening and technology adoption. This is being driven by government reforms.”

These reforms are explicitly focused on empowering Vietnam’s private sector, for example by boosting R&D spending and foreign investment. Entrepreneurship is also at the core, with Resolution 68 describing entrepreneurs as “new warriors on the economic front”.

“The government has now set an ambitious target of 10% annual growth over the next decade and has rolled out a new wave of domestic reforms – dubbed Doi Moi 2.0 – to help get there,” said Khanh Vu, lead portfolio manager of Vinacapital Vietnam Opportunity Fund.

“The original Doi Moi reforms in the late 1980s lifted Vietnam from poverty to middle-income status,” Vu added. “This second wave aims for a similar step-change to a high-income economy, similar in the path to what we have seen in other developed Asian economies.”

As with many emerging markets, there is also a strong demographic trend underpinning this – including a young, expanding and consumption-driven middle class, alongside rapid urbanisation and rising productivity.

Vietnam’s stock market

The Vietnamese market, as characterised by the MSCI Vietnam Index, is dominated by the real estate and financials sectors, which account for 44.4% and 24.6% of the market respectively (as of 30 June).

This is slightly skewed because two real estate stocks – Vingroup and its former subsidiary Vinhomes – account for more than 38% of the index between them.

But this dominance of real estate and finance is to be expected in an emerging economy, says Vu.

“Banks remain the primary source of funding and the backbone of economic growth, while real estate developers play a key role in driving urbanisation — a rate that stands at only ~40% in Vietnam, compared to 67% in China, 63% in Thailand, and 75% in Malaysia,” he said.

Vu also highlighted the importance of hard asset-linked sectors (industrials, construction materials, energy and utilities) within the Vietnam market and picked out Hoa Phat, the country’s largest steel producer, as a key beneficiary of urbanisation and infrastructure spending.

“Consumer businesses are another important theme, benefiting from rising incomes, urbanisation and an expanding middle class,” said Martin. “Retailers, food producers and consumer services continue to enjoy long-term structural growth.”

Vietnam is also conspicuous among emerging markets for the relative lack of state-owned enterprises in its largest stocks. “Many of the leading companies were started by entrepreneurs,” Martin points out. There is some state investment in the financial sector, but this tends to happen alongside specialist foreign investors.

Vietnam’s emerging market status confirmed

In April 2026, FTSE Russell confirmed that it will reclassify Vietnam from a frontier market to an emerging market, a process that will begin on 21 September and be implemented in four tranches over the following 12 months.

This could potentially mark a step-change from recent years during which, as Vu points out, foreign investors have been net sellers of Vietnamese stocks.

“The higher interest rate environment in the US and the AI-related frenzy [have been] pulling capital elsewhere,” he said.

Emerging market classification could reverse this trend, because the market will be accessible to a wider pool of institutional investors and passive funds whose mandates currently prevent them from investing in Vietnam.

“The most immediate effect will be passive investment from funds that track emerging-market indices,” said Dragon Capital’s Dang.

But the impact is unlikely to happen overnight – especially as most of the anticipated new capital is likely to come from active investors.

“While passive inflows receive most of the attention, I think the bigger story is that an upgrade raises Vietnam's visibility among global investors,” said Martin. “Once institutions begin researching the market, many active managers also become interested, creating more durable sources of capital.”

Dang quantifies the potential passive tracker inflows at around $1.5-2 billion once inclusion completes (expected to be September 2027). Active allocations following after this are expected to raise total foreign inflows to $5-10 billion.

Finding value in Vietnam

For one reason or another, Vietnam’s market – despite impressive growth rates – is often overlooked, and this means that it offers remarkable value.

“Currently, the market trades at around 13x forward P/E — and if we exclude some anomalies, closer to below 10x,” said Vinacapital’s Vu. “That's a valuation typically associated with a period of economic stress, not an economy growing at one of the fastest rates in Asia.”

Dang argues that valuations for Vietnamese stocks remain attractive compared to historical levels despite rising earnings and the country’s strong economic growth.

“We expect profit growth across the larger companies to remain robust, yet the market continues to trade at a discount to many regional peers and below its own historical valuation ranges,” he said. “Earnings expectations have also held up well despite geopolitical uncertainty, higher oil prices and tighter global financial conditions.”

Vietnam can also offer diversification for the typical portfolio, which is frequently dominated by a handful of large-cap US technology companies.

“Investing in Vietnam means investing in the ‘traditional’ sectors but experiencing tremendous growth potentials, following the same pattern as developed markets experienced 20-30 years ago,” said Vu.

How to invest in Vietnam

Given its small size, lack of investment coverage and the outsize weighting of the index’s two largest stocks, passive investment isn’t generally seen as the best way to invest in Vietnam.

“Vietnam is not simply an index story,” said Martin. “There are very significant differences in quality, governance and capital allocation between companies. Stock selection remains critical.”

There aren’t many passive funds available to UK-based investors tracking Vietnam’s market either. It is also difficult to buy the country’s stocks directly, but fortunately there are a handful of investment trusts focusing on the country.

The largest of these by market capitalisation is Vietnam Enterprise Investments (LON:VEIL), managed by Dragon Capital. This targets Vietnamese companies with attractive growth and value potential, good corporate governance and an alignment with the country’s underlying economic growth drivers. Vingroup is the top holding as of 30 June (though VEIL is significantly underweight compared to the index), followed by state-owned bank BIDV and consumer retail chain Mobile World.

Vinacapital Vietnam Opportunity Fund (LON:VOF) invests in privately-held Vietnamese companies as well as publicly-listed ones, and is sector-agnostic. As well as Vinhomes and Mobile World, top holdings (as of 30 June) include real estate development firm Khang Dien House, commercial bank (and Vietnamese Ministry of National Defence subsidiary) MB Bank, and port operation and logistics firm Gemadept.

Finally, Vietnam Holding Ltd (LON:VNH), managed by Dynam Capital, focuses on high-growth companies in Vietnam particularly in domestic consumption, industrialisation and urbanisation.

For more information on each of these Vietnam-focused investment trusts, see our article on The best funds to buy as Vietnam evolves.

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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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.

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.

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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.

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

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.

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.

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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