Speculation has ramped up about who will be the next UK prime minister after Sir Keir Starmer kicked off a Labour leadership election by resigning on Monday (23 June).

Nominations will open on 9 July and end by the summer recess on 16 July.

The next prime minister may have different priorities to the current government, which has been working on several tax shake-ups including the mansion tax, cash ISA reforms and changes to pensions and inheritance tax rules.

New Labour MP and former Greater Manchester mayor Andy Burnham is the only candidate to have put his name forward so far, as many expected following his by-election win last week.

Maike Currie, vice president of personal finance at PensionBee, said: “The Labour leadership contest will dominate the summer, with a new prime minister expected to take office when Parliament returns in September. Investors will be looking for a clear handover, a credible economic team and an early commitment to fiscal discipline.”

Who will replace Keir Starmer?

Burnham is the only name officially in the ring so far to become the next prime minister.

He has also been backed by former health secretary Wes Streeting, who was seen as a potential candidate.

No other Labour MPs have confirmed that they will run for the leadership role yet.

Burnham hasn’t confirmed what his policies will be, although he may have to stick to manifesto commitments to not raise income tax, VAT or national insurance.

He has previously backed reforming council tax and stamp duty.

Inheritance tax changes could also be a possibility. As health secretary in 2009, Burnham suggested a flat 10% charge applied to all estates, with the money being used to fund social care for all.

More recently, on BBC Question Time in June, he said he would look at raising the personal tax allowance and also said there was “definitely a case” for the return of a 50% top rate of tax for the wealthiest.

Matthew Ryan, head of market strategy at global financial services firm and FX specialists Ebury, said: "Burnham sits firmly to the left of the Labour Party, and his record as mayor points to a significant step-up in public spending, a higher tax burden and greater gilt issuance.

“This is an experiment that the UK can ill-afford. Debt is at its highest relative to GDP since the 1960s, growth is weak, debt-servicing costs are already vast and the limited fiscal headroom leaves almost no room to manoeuvre, risking a self-reinforcing borrowing and growth trap.”

Susannah Streeter, chief investment strategist for Wealth Club, added that Burnham has tried to reassure markets by signalling that he will largely stick to fiscal rules and take a more cautious approach to spending.

She said: “He appears willing to tackle the UK's large benefits bill, arguing that welfare reform should focus on helping more people into work. Investors will also be scrutinising how Burnham's interventionist instincts translate into national economic policy. He has argued that the government should play a more active role in shaping economic outcomes, particularly through greater investment in regions outside London and the South East.

“He is also expected to push for further devolution of economic powers and has indicated support for a stronger public role in key sectors and infrastructure. However, concerns are bubbling that greater state involvement could deter private investment if it creates additional costs or regulatory burdens.”

Local supporters suggest the regeneration he has brought to Greater Manchester could be replicated nationally.

Property developer Mike Ingall, chief executive of Allied London, who has worked with Burnham on developments in Manchester including the technology and media campus Campfield, said: “He understands investment and that is the only way to get growth rather than just tax and spend.”

There have been rumours in the past that former deputy prime minister Angela Rayner could stand.

Rayner also sits on the left of the party.

Who could be in the new cabinet?

The prime minister is just one role that is likely to be up for grabs in July.

Whoever becomes the next Labour leader and prime minister is likely to want to appoint their own ministers and there are rumours that chancellor Rachel Reeves could be replaced.

Rob Morgan, chief investment analyst at Charles Stanley Direct, said: “Until we know more about the composition of the cabinet and likely policy direction it is hard to draw any firm conclusions from the soundbites heard so far. However, bolder moves on taxation certainly appear to be a possibility, so it’s a time for anyone planning their finances to be on high alert for changes.

“Already the Budget in the autumn looms large as a potentially highly consequential event. Yet given we don't even know the identity of the chancellor at this stage we can make no conclusions.”

Currie said a chancellor with a reputation for fiscal discipline could reassure markets but warned: “A more interventionist appointment, or a candidate perceived to be less disciplined with spending could have the opposite effect.”

Morgan added that there is some comfort in the fact that marked changes to taxation or other policies affecting personal finances rarely happen overnight and usually come with a long lead in time.

He said: “So while vigilance is essential there is likely plenty of time to assess any consequences, good or bad, that fall out of a change of political leadership.”

This year marks the tenth anniversary of an event that has proved to be of huge consequence for the UK stock market. No, not the Brexit referendum – 2016 was the year in which Japanese company SoftBank, led by founder and chief executive Masayoshi Son, acquired the UK's leading technology company, Arm, for £24 billion. Unlike American investors, professional UK fund managers became permanently disillusioned with the technology sector as a result of the collapse of the technology, media and telecoms bubble in 2000-2002, and so were delighted to be shot of its flagship domestic representative at a 40% premium to the prevailing share price.

With the yield on ten-year gilts at historic lows below 1.5%, pension funds were desperate to ditch equities and buy even more gilts, even leveraging up in their chase of the “liability-driven investment” delusion, which was to cost them hundreds of billions six years later. New solvency rules introduced after the 2008 financial crisis required insurance companies to invest in “safer, more liquid” securities, that is, short-dated gilts. Wealth managers could crow to their clients about short-term performance.

Only one major investor vehemently disagreed; James Anderson, the then manager of Scottish Mortgage Trust, bitterly criticised the sell-out on behalf of Baillie Gifford, with a holding of more than 10%. “We found it deeply depressing that Arm's management, and particularly its chairman, were so influenced by short-term shareholders.” Anderson said it was a premature sale of the UK's leading technology and intellectual property champions, “Britain's sole serious shot at building a global tech giant”.

In September 2023, Arm again went public when SoftBank floated the company on the New York Stock Exchange at a valuation of £40 billion, while retaining 90% of the shares. Unsurprisingly, pleas to list the shares in London were shunned, though Arm remains a Cambridge-based company. Since then, the shares have multiplied more than sixfold, although they are now down 17% from their early June peak.

Had Arm listed in the UK, it would be by far the biggest company on the London Stock Exchange. London is now only the world's eighth-largest stock market, accounting for just 3.1% of the MSCI All Countries World index. It has been steadily slipping down the rankings owing to its low exposure to the technology sector, which accounts for just 1% of the FTSE 100. This compares with 8%-9% in Europe, 27% in the US (not including Alphabet and Amazon) and 37% in Asia.

Britain's technology firms are condemned to stagnation

Also easily forgotten is the 2014 sale of Britain's DeepMind, a pioneer in AI, to Google for just £400 million. In 2006, US-based Illumina bought Solexa, the UK-based inventor of gene sequencing, for £315 million. It became the key building block in Illumina's climb to a market value of more than £50 billion (although the shares have fallen by two-thirds in the last five years). These and other examples show that Britain has a good record of creating and building technology champions, but that unambitious management, combined with uninterested and short-sighted institutional investors, means that they sell out rather than scale up in the way that American giants have shown is possible.

Without the “ecosystem” that results from successful technology firms, Britain's pool of talent will go elsewhere, there will be no pool of capital looking for the next potential breakthrough, a diminishing appetite for risk and no list of success stories to inspire future entrepreneurs. The London Stock Exchange has become a value trap – a shrinking pool of reasonably managed solid businesses with mediocre prospects. Such a market can have an occasional catch-up year of outperformance, but without a cadre of proper growth firms, is condemned to an ever-shrinking share of global capitalisation. Arm's sale to SoftBank, now Japan's largest company, didn't start this process, but it marked the point at which it became irreversible.

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The Gulf states have been crucial to the global economy ever since the first oil shock in 1974 broke the post-war monetary system and ushered in an era of high inflation. With the world's biggest concentrations of oil and gas in Saudi Arabia, Iran, Iraq, Kuwait and Qatar, and with producers locked into the Opec oil-exporters cartel, which could switch supplies on and off at will, the region held the world's energy supplies in its hands. That gave its rulers immense power and the wealth to buy up a vast range of assets. Interest rates, equity prices and inflation all over the globe were often determined by events in that one small region of the world. It mattered.

That looks to have changed. As the US and Israel attacked Iran, there were plenty of dire warnings that the oil price would go to $150 a barrel, or perhaps even $200. Flights would have to be cancelled as we ran short of jet fuel; petrol would have to be rationed. The closure of shipping lanes would send chemical and fertiliser prices soaring, triggering food shortages and factory closures. The global economy would be plunged into recession. Central banks started to consider an emergency response.

In the event, none of that happened. The price of oil did go up sharply, rising from $60 a barrel to close to $120 shortly after the conflict started. But rather than spiralling out of control, it steadied and then started to fall again, dropping below $80 as Iran and the US agreed a 60-day ceasefire at the start of this week. There is little sign of food shortages, or any basic commodities running low, and there are still plenty of cheap flights available. Most of the European economies are sluggish, but that is for a whole host of reasons. They have not collapsed and the US is still doing well, with strong growth, plenty of new jobs and the stock market hitting record highs. Inflation has ticked up a little, but should come back down again as the price of oil falls.

In reality, the Gulf states just do not matter as much as they used to. There are three big reasons for that. To start with, there is a lot more oil in the world than there used to be. Despite all the catastrophic warnings during the 1980s and 1990s that the world would have run out of the stuff by now, there seems to be more of it than ever. The US has turned itself into both the largest producer and net exporter of oil in the world, largely because of fracking. Despite all the fear-mongering, more countries, such as Argentina and Mexico, are developing their own shale oil and gas reserves. After the US strikes on the country, Venezuela will start to restore its oil fields and it has the largest reserves in the world. Far from running out, there will soon be too much oil. The Gulf can't hold the world to ransom when the global market is awash with oil.

Why the Gulf states' money is no longer so important

Second, alternative energy is rising in importance all the time. We can all debate whether the drive to achieve net-zero is too rapid, but there is no turning back the clock to the fossil-fuel era now. China's huge electric-vehicle industry is not going to disappear, and most open car markets will be electric within a decade or so. Renewables account for 45% of electricity generation across the EU and already for 25% in the US, the world's largest economy (and that share is rising fast, with solar last month overtaking coal as a source of power). Oil is a shrinking market.

Finally, Gulf states' money is no longer so important. Dubai and Qatar will take time to recover from the bombing campaign launched by Iran. A lot of money invested around the world will have to be brought home to pay for reconstruction and cover losses. The region's wealth funds won't be splashing billions on trophy assets as have done for the last 20 years. In a world where Wall Street is minting space- and AI trillionaires, there is a lot of spare capital around. The Gulf states won't matter so much. Add it all up and one point is clear. The main lesson from the Iran war is that the Gulf states' influence has evaporated. They are part of a small region, which no longer matters very much except to the people who live there. Investors will still have plenty of things to worry about – but the Gulf states and their oil resources can be dropped from the list.

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What's happening at the World Cup?

It's not merely the geopolitics of this football World Cup – taking place in the US, Canada and Mexico – that are truly unprecedented. The main host nation, the US, is at war with a participant country, Iran, whose players must enter and leave US territory on the same day for their matches; one host country recently threatened to annexe another; a highly regarded referee was ejected from US territory for the crime of being Somali; and citizens of four competing nations are banned from the US. Meanwhile, the bellicose US president was recently awarded with a newly invented “peace prize” by football's governing body, FIFA.

The economics of this World Cup are the “craziest” ever, too, says Faisal Islam for the BBC. The three co-hosts are in the midst of an “epic trade war”. Between last week's kick-off at the Estadio Azteca, and the final on 19 July at New Jersey's MetLife Stadium, the three will be renegotiating their trilateral USMCA free-trade deal.

Why is this World Cup unusual?

On the footballing front, the fact that the breakout star of the tournament so far is Cape Verde's 40-year-old goalkeeper is pretty astonishing. So, too, is the fact that FIFA has allowed football's structure – this is the archetypal game of two halves – to be watered down by compulsory “hydration breaks”, regardless of the weather. Footballers can already access water as needed. But the unprecedented breaks, which allow broadcasters to sell another three minutes of advertising mid-game, have turned World Cup matches into games of four quarters, with coaches and teams now having three chances to regroup and reset. But perhaps most astonishing of all are the gob-smacking ticket prices.

How expensive is a World Cup ticket?

The official prices, not those charged by touts (or “scalpers”), are astronomical. For the final at the MetLife stadium in New Jersey on 19 July, official prices are around $2,030-$6,730, but later sales phases and “dynamic pricing” surges pushed some final tickets as high as $10,990 – with secondary markets offering tickets at multiples of that. Even quite ordinary seats have sold for between $3,000 and $7,000, and the least attractive seats for more than $2,000. For the more attractive group games (featuring the big European and South American teams, or host nations), a rough typical price is $1,000, and as high as $2,700. Even the “bargain” prices, for a non-prestige group-stage match, are typically several hundred dollars.

Why are World Cup tickets priced so high?

“The fans are being squeezed like never before because this is a very different tournament economic model to what has gone before,” says Faisal Islam. In previous World Cups, part of the economic rationale for hosting was to help catalyse spending on new infrastructure, including on transport links and stadiums. This time, most of the games are taking place in rented American football (NFL) stadiums and FIFA has essentially adopted NFL economics, meaning that “seat pricing is designed for yield management” – and “revenue maximisation is prized above the act of selling out the stadium”. Throughout the World Cup's history, organisers have tried to keep ticket prices at a level ordinary fans can afford and coped with the massive excess demand via lottery distribution. Broadcasting and sponsorship rights were a vastly more lucrative source of revenue.

Economics of the 2026 World Cup

This time, ticket sales and hospitality are projected to count for almost as much revenue. For the first time, FIFA has taken direct control of ticketing, rather than outsourcing to local organisers, and has attempted to incorporate and exploit the secondary market by – in effect – acting as its own tout. This time, ticket holders are free to sell their tickets on an officially sanctioned marketplace, but FIFA takes a 30% cut (15% each from seller and buyer; a nice model). They have also embraced so-called “dynamic pricing”, where ticket prices rise (and fall) in line with demand, and where many customers complain they don't know how much they are paying, and for precisely what, until the deal is confirmed.

Is all this legit?

Not everyone is convinced. “FIFA has turned buying a ticket to the World Cup into a gauntlet of confusion, fake scarcity and impossibly high prices – all at the expense of consumers,” says Jennifer Davenport, the attorney-general of New Jersey. Both New Jersey, where the final takes place, and neighbouring New York, have launched formal investigations into potential skulduggery. Yet the model is certainly lucrative. Richard Sheehan, economics professor and sports finance expert at the University of Notre Dame, writing in The Conversation, predicts the total ticket and hospitality revenue for this year's tournament could top $14 billion, more than double the amount from the Qatar World Cup in 2022, which hit $6.6 billion. There are more games this time (48 teams rather than 32), but Sheehan projects revenue per game will rise from $14.5 million to at least $30 million.

What are the economic benefits of the 2026 World Cup?

FIFA projects the US economy will be among the winners from the event with a $17 billion boost in US GDP and 185,000 jobs created. But most analysts reckon any macroeconomic impacts will be marginal. That $17 billion is a short-term 0.05% boost to US GDP and it's likely that the World Cup will crowd out other kinds of tourism, with ordinary visitors eager to avoid price hikes on everything from hotel rooms to transport. Even the benefits for host cities are far from clear-cut, says Marni Rose McFall in Newsweek. City authorities are on the hook for logistics, transport, sanitation, security and policing, and other costs involved in staging multiple games across several weeks – hence the giant price hikes on transport to and from stadiums. But research, including a new report from insurance company Atradius, shows that most World Cups cost host cities more than they bring in. “FIFA collects most of the revenue, host cities absorb much of the risk.” The beautiful game is more bountiful than ever.

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Historically, gold has been regarded as a safe store of value against the potential for fiat currency to depreciate in value – in other words, as a hedge against inflation.

But for much of 2026 so far, higher inflation has coincided with lower gold prices.

“Gold was still up 6% over the year to the end of May,” said Joseph Greif, investment director at wealth manager Evelyn Partners, “but its recent behaviour has been uncomfortable for investors who expected it to protect portfolios immediately.”

Inflation has run hotter since the Iran war broke out, especially in the US. The US is a critical market for gold; the metal is priced in dollars, so its usefulness as an inflation hedge is implicitly measured against US inflation.

But while the Iran conflict pushed inflation higher, the price of gold fell. Between 27 February – the day before the war broke out – and 10 June, the price of gold fell 23%. Annualised US CPI inflation rose from 2.7% in February to 4.2% in May.

Why the gold price fell during the Iran conflict

Inflation is not the only dynamic that gold prices interact with. One of the key ones is interest rates, particularly in the US.

Gold pays no interest. That matters less to investors when interest rates are low, because alternative assets like bonds aren’t offering much interest themselves.

But once interest rates increase – or when markets expect them to – then gold loses appeal relative to interest-paying investments.

This is the main reason gold prices fell, both before and during the conflict in Iran. The price of gold peaked on 29 January at $5,595, around a month before the war broke out. The catalyst for prices to start falling from then was Donald Trump’s nomination of Kevin Warsh as the new chairman of the Federal Reserve (Fed).

Until then, markets had assumed Trump would nominate a ‘dovish’ chair for the central bank and that this would result in relatively loose US monetary policy (i.e. lower interest rates) – a positive for gold.

By the time the Iran war broke out, markets had already spent weeks pricing in higher interest rate expectations. And the inflationary shock that the Strait of Hormuz’s closure prompted only amplified those expectations.

“The prolonged conflict sparked severe inflationary risks, pushing US inflation to 4.2% in May,” Benoît Harger, portfolio manager at private bank J. Safra Sarasin, told MoneyWeek. “This data forced markets to price in potential interest rate hikes instead of cuts. It boosted the appeal of yielding assets and triggered a 30% gold correction from its January high.”

This isn’t necessarily out of character with how gold has behaved in the past.

“What lots of people don’t realise about gold is it sells off in a crisis, often because of liquidity,” Cosmo Sturge, director of market strategy at metals fund manager Baker Steel, told MoneyWeek. “You had a lot of investors who had made a lot of money in the run-up to the [Iran] war, and suddenly that change in the outlook for inflation and the knock-on effect for interest rates [prompted them to] sell gold.”

Could gold still help hedge against inflation?

Despite the selloff, most experts agree that gold still has a role to play in portfolios, particularly as a hedge against inflation.

Central bankers are currently more constrained in how high they can push interest rates than they have been in the past.

The Fed hiked interest rates to as high as 19% in the early 1980s to combat rising inflation. This coincided with a steep decline in the gold price, from around $650 in January 1980 to around $320 in June 1982. But these high interest rates damaged the global economy and would be unworkable today.

“Rates clearly can rise, but could they rise to those levels again? Could the Fed really have the firepower to be able to fight true inflationary crises through monetary policy?” asks Sturge. “I'm not sure. Debt to GDP is four times higher than in 1980. You've had a huge increase in the money supply in the US, which has obviously been fueling inflation.”

If it reached a point where the Fed couldn’t control inflation through monetary policy, then financial repression – government policies that keep rates artificially low, at the expense of savers and private businesses – would result.

“That is a very positive environment for gold,” says Sturge.

Similarly, Harger believes that gold remains an effective inflation hedge because it protects against long-term structural fragility. He argues that interest rates will eventually have to fall: “The global economy cannot sustain permanently high financing costs without triggering a recession. Furthermore, under-pressure growth and massive public deficits… limit long-term rate hikes.”

Gold, he says, will likely be a beneficiary of this eventual reduction in interest rates. “A strategic allocation may provide protection against sovereign risk and currency devaluation as rising debts force loose monetary policies.”

“Over the long term, gold being an inflation protection, I think, has held very well, but it tends to be more in terms of protecting your purchasing power rather than necessarily shooting sky high every time there's inflationary scare,” said Sturge. “It's driven by persistent debt growth: the fiscal deficits of the world, long-term currency debasement – these are the reasons why people hold gold.”

• The Bank of England’s Monetary Policy Committee (MPC) voted to keep interest rates at 3.75% today.
• The decision was in line with expectations from most experts.
• The MPC seems to be adopting a ‘wait and see’ approach to setting rates, holding off on a hike or cut until we see concrete evidence of how the war is affecting the UK.
• The Bank estimates that inflation will be lower than their previous expectations in 2026.
• The latest inflation data showed prices rose by 2.8% in the year to May 2026, unchanged from April.
• Unemployment fell slightly to 4.9% in the three months to April.

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

Good afternoon and welcome to MoneyWeek’s live coverage of tomorrow’s (18 June) interest rates decision.

The Bank of England’s Monetary Policy Committee (MPC) will meet today to decide where to take interest rates, and the decision will be announced on Thursday.

Follow along for the latest commentary and analysis on the upcoming decision and the breaking news tomorrow afternoon.

What is the Monetary Policy Committee (MPC)?

The Monetary Policy Committee (MPC) is a group of nine experts who are responsible for setting interest rates.

The group is made up of five senior members of staff at the Bank of England, and four external experts who are there to make sure the MPC benefits from expertise outside the BoE. The committee is chaired by Andrew Bailey, the governor of the Bank.

They meet every six weeks and vote on whether to cut, hold, or raise interest rates. If there is a tie, then the Bank of England governor Andrew Bailey holds the deciding vote.

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

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

ONS: Inflation held steady at 2.8% in May

Inflation held at 2.8% in the 12 months to May, as the lowest food inflation in 17 months helped offset high transport prices, the latest figures from the Office for National Statistics (ONS) show.

The figure undershot expectations from many economists who expected inflation to rise.

Although inflation is lower than many had forecasted, it is still significantly above the Bank of England’s 2% target and many economists expect it to rise this year thanks to the economic disruption from the Iran war.

The largest upwards contributor to inflation in May was the transport sector, where inflation was 6.8% in the year to May. Price growth for airfares, vehicle taxes, and motor fuel costs pushed May’s overall inflation up by 0.29 percentage points.

Much of this was offset by surprisingly low food inflation, which was the lowest in May since December 2024. Food prices rose by 2.2% in the 12 months to May, pulling overall inflation down by 0.07 percentage points.

Other notable downwards contributions to the inflation rate came from the housing and household services, furniture, clothing, restaurant, and recreation sectors.

For more detail and analysis on today’s inflation figures, you can read our inflation live report from earlier today.

What’s the link between interest rates and inflation?

Inflation is one of the most important, though not the only, economic indicators used by the MPC to help them set interest rates.

This is because the Bank of England has a mandate to keep inflation at 2%, a level of price growth that economic consensus deems healthy for an economy.

Most Western central banks, like the European Central Bank (ECB) and the US’s Federal Reserve (Fed), have an inflation target of 2%.

The Bank of England can use monetary policy to help keep inflation at the target level. The most important of these levers is the moving of interest rates.

Broadly speaking, when inflation is too high, the MPC will raise interest rates, and when it is too low, it will lower them.

These are not the only two reasons why interest rates are moved. For example, rates might be lowered if economic growth is too slow in a bid to speed up the economy.

Where have interest rates gone in the last decade?

Interest rates are currently at 3.75%, the lowest they have been since February 2023.

Before 2022, rates had languished under 1% for the most part as low interest rates were used as a tool to help stimulate the economy following the 2008 financial crisis and during the covid-19 pandemic.

But high rates have been the norm since 2022, when energy prices exploded in the wake of the Russian invasion of Ukraine. This led to high inflation and the start of the cost of living crisis, which we are still feeling the effects of today.

In order to tame inflation, the Bank of England quickly and aggressively hiked rates, going from 0.5% in February 2022 to 5.25% in August 2023.

Rates have since been gradually lowered, with the bank rate going from 5.25% in July 2024 to 3.75% in December 2025, where they have stayed.

Before the Iran war, most economists expected the Bank to cut rates at least twice in 2026, but few now expect this to happen.

They now either expect rates to stay at 3.75% for the rest of the year, or potentially rise depending on how deep the inflationary shock from the war will be.

What should we expect from tomorrow’s interest rates announcement?

Most economists agree that an interest rate cut is incredibly unlikely tomorrow as global economic conditions make this a risky move. If rates are cut at a time when many expect inflation to rise, it could exacerbate the issue.

Instead, many experts are forecasting that the MPC will choose to hold interest rates at 3.75% for the fourth consecutive meeting.

Today’s inflation data bolsters the case for a hold, as it undershot the Bank’s projection by 0.4 percentage points, helping paint a rosier picture of price growth.

With inflation holding steady compared to the April 2026 figure, the possibility of a rate hike in tomorrow’s announcement also becomes more unlikely, though future hikes are not off the table yet.

Experts at Oxford Economics forecast a hold at tomorrow’s meeting, expecting the MPC to vote 7-2 in favour of a hold.

Edward Allenby, senior economist at Oxford Economics, said: “Although energy prices remain elevated, most MPC members don’t appear close to voting for tighter policy.

“Early warning signs of indirect and second-round effects remain benign, and most members have argued that the weakness in the economy means the risks around the medium-term inflation outlook are two-sided. But these members are still likely to signal that they remain open to rate rises if necessary.”

The economic backdrop to tomorrow's announcement

The economic backdrop to tomorrow’s MPC meeting is a mixed picture. While May’s inflation figures were much lower than most economists expected, the rest of the economic news is not quite so rosy.

The UK economy shrunk in April as the country started to feel the economic disruption from the Iran war, figures from the ONS showed last week.

The economy contracted by 0.1% in the month to April, the first time negative growth figures were seen since August 2025.

The contraction is a far cry from the more positive growth figures in the first quarter of 2026, which showed the economy grew by 0.6%, indicating that the Iran war disrupted the start of an economic recovery for the UK.

Negative growth is a big worry for policymakers as it means the country is getting poorer as a whole.

When periods of economic contraction are prolonged, the effect is worse as firms see revenues dwindle and start to lay off staff – if the economy shrinks for two consecutive quarters, it officially enters a recession.

We are not quite at that point yet, but depending on how the economy responds to the economic shocks coming, we could get closer.

The Bank of England also closely monitors the labour market to help inform their interest rates decision.

The latest figures show unemployment climbed to 5% in the three months to March, bringing joblessness to its highest level in almost six years.

Meanwhile, wage growth is slowing. In the three months to March, wages grew by just 3.4%, also the slowest rate in six years.

Although high unemployment and slow wage growth are bad for individuals, according to the orthodox view of economics, a soft labour market does act as a disinflationary pressure in the economy – if you are laid off, your income falls and so does your spending.

That means that a poor jobs market can help lower inflation, which can in turn help persuade the MPC to cut rates.

Why does conflict in the Middle East mean inflation in the UK?

The war in Iran has caused a significant global economic shock with trade being disrupted since 28 February as hostilities have made transporting goods through the region very risky.

The disruption has been particularly acute because the Strait of Hormuz, a narrow waterway between Iran and Oman through which around 20% of the world’s oil and gas is transported, has remained shut.

With such a large proportion of the world’s oil supply effectively stuck in the strait, oil prices have soared.

The average price of a barrel of Brent crude oil was around $70 before the start of the war, but once hostilities began prices became high and volatile. They peaked at around $114 a barrel in May, but hovered between $90 and $100 for the most part since February.

Following news that a peace deal had been reached between the US and Iran, prices plummeted as traders expect the Strait of Hormuz will reopen and allow the ships stuck there to continue on to their original destination.

But even if this peace deal is signed and comes into full effect, the economic consequences of the war will be felt for some time.

Though the oil supply is set to return to normal, the damage has already been done.

The price of oil impacts how much many everyday items cost. This includes more obvious things like petrol and diesel, but also goods you may not expect like crayons, plastic bags, and iPhones.

With prices being so high for four months, we can expect the hangover effects to last for the rest of the year and potentially spill into 2027. The hard work of restarting the whole process of oil production and distribution takes time.

An additional pain point for the UK from the war is energy prices. The closing of the Strait of Hormuz sent wholesale energy prices flying, and this will be reflected when the next price cap comes in on 1 July.

Millions of households in the UK will be shelling out around 13% more for their energy this summer, and prices are expected to remain broadly at this elevated level until at least 2027, according to most forecasts.

When will the interest rate decision be announced?

The Monetary Policy Committee’s (MPC) interest rates decision will be announced tomorrow (17 June) at 12pm.

Alongside the decision, the Bank will publish the minutes from the MPC meeting, where the committee’s thinking can be seen.

This document also has statements from each MPC member on why they voted the way they did.

Every other meeting, the Bank of England also publishes a Monetary Policy Report that sets out the economic analysis and inflation projections used by the MPC.

There will be no report published alongside the June meeting as one was published in April.

Thank you for following our live coverage of interest rates this afternoon. We will pause the blog for now, but will be back in the morning.

Make sure to come back to this page tomorrow to get the latest breaking news, analysis, and commentary on interest rates when the MPC announces their decision.

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

The Bank of England will announce whether rates are falling, rising, or staying where they are at 12pm.

While most economists think the bank rate will remain at 3.75%, there is still a small chance that rates will rise today.

Follow this page to get the news as soon as it's announced, as well as analysis and commentary.

ONS: Unemployment fell slightly to 4.9% in three months to April

Unemployment fell to 4.9% in the three months to April, down from a reading of 5% in the previous month, according to the latest figures from the Office for National Statistics (ONS).

Meanwhile, payrolls rose to 30.3 million in May, up slightly by around 2,000 compared to April.

The figures slightly undershot most expectations from economists, who largely anticipated joblessness to remain at 5%.

Liz McKeown, director of economic statistics at the ONS, said: “The labour market remained broadly stable in the latest quarter, with further softening evident in some numbers.”

The data indicates the jobs market may be strengthening. If this is the case, it would be good news for workers, but potentially mean the Bank of England will be more inclined to keep interest rates high to avoid the inflationary pressures that arise when the jobs market is strong.

The ONS also published provisional data for May, showing the number of vacancies in the UK was down by around 2.6% (19,000 jobs) in the period between March and May, the lowest level since April 2021.

McKeown said the fall in vacancies suggests “firms are becoming more cautious about taking on new staff”.

The provisional figures also showed payrolls rose to 30.3 million in May, up slightly by around 2,000 compared to April.

ONS: Wage growth remains at a near six year low

Public sector wages are growing far faster than those in the private sector, new data from the ONS shows, as overall earnings growth remains at its slowest level in almost six years.

Wages for the average worker in the UK grew by 3.4% in the year to April when excluding bonuses, remaining at the same level as the previous month. When including bonuses, this figure grows to 4.4%.

Liz McKeown, director of economic statistics at the ONS, said: “Regular wage growth in the private sector slowed to its lowest rate in five and a half years, though total earnings are growing faster because bonus payments in March and April are higher than a year ago, particularly in the financial sector.

“Public sector pay growth increased but is once again affected by the timing of pay awards varying this year.”

Public sector workers received the biggest pay bump in the period, with their average wages growing by a rapid 5.1%.

Private sector wages lagged far behind this figure, growing by just 2.9% overall in the same period. When excluding bonuses, earnings grew at their slowest rate since October 2020, during the height of the covid-19 pandemic.

Suren Thiru, chief economist at the Institute of Chartered Accountants in England and Wales, said the latest labour market figures “point to a jobs market struggling under the strain of soaring energy bills and employment costs, with more firms limiting hiring and holding down pay, especially for younger workers”.

He said: “Weak wage growth offers a silver lining for rate-setters by raising hopes that any inflationary spillover from the Iran war will be limited, especially as rising unemployment will help keep pay settlements heading downwards.”

He added that the figures “seal the deal” on an interest rate hold today as rate-setters will be reassured that a soft labour market can help mitigate the inflationary shock from the Iran war.

Recap: What you should expect at 12pm

The MPC’s interest rates decision will be announced at 12pm today. We will be covering the result of the decision in this live report.

Most economists think the MPC will keep rates where they are at 3.75% for the fourth consecutive meeting.

They are likely to do this because of the economic shock that is coming from the Iran war. Analysts expect the war to push up inflation in the UK this year, although we are yet to see data that shows how deep the shock is.

While fuel prices are already high because of the war, and energy prices are set to rise from July onwards, overall inflation has been lower than expected in March and April, holding steady at 2.8%.

However, when the new energy price cap comes in in July, we can expect inflation to rise more significantly.

As the Bank of England has a mandate to keep inflation at 2%, they are highly unlikely to cut interest rates at a time like this, as doing so might exacerbate the problem.

While a hold is the most likely result, the MPC may decide to raise interest rates to help stave off inflation. However, a rate hike is not expected today as the MPC will likely wait and see before taking more drastic action.

Before the war, most experts thought the MPC would cut interest rates twice more in 2026, but most now think they will remain where they are for at least the rest of this year.

BREAKING: Interest rates held at 3.75%

Interest rates are unchanged at 3.75%, the Bank of England has announced.

The hold was widely anticipated by economists, as the Bank’s Monetary Policy Committee (MPC) wait to see how the shock from the Iran war will be reflected in economic data.

Interest rate hold passed by 7 votes to 2

The Monetary Policy Committee voted to hold rates at 3.75%, with seven members supporting the motion, and two members opposing it.

The two members who opposed the hold instead wanted rates to rise by 0.25 percentage points to 4%.

The members voting to raise interest rates were Huw Pill and Megan Greene.

Energy prices were a major concern for the MPC

The minutes of the MPC’s meeting show that the elevated level of global energy prices were a key concern for the committee when deciding where to take interest rates.

They acknowledged that wholesale energy prices have fallen since their previous meeting in April but noted that they still remain higher and more volatile than they were before the Iran war.

They added that the impact of the energy shock on the economy is still uncertain, with concrete data only set to become available in the coming months.

The minutes said: “Monetary policy cannot influence energy prices but is being set to ensure that the economic adjustment to them occurs in a way that achieves the 2% inflation target sustainably.”

Future interest rate decisions set to depend on scale of Iran shock

Where interest rates go next is uncertain and highly dependent on how the economy reacts to the shock from the Iran war, the minutes to the MPC’s meeting showed.

The Bank’s mandate to keep inflation at 2% will require different amounts of intervention from the MPC depending on the rate of inflation later this year.

The minutes show that a potential future rate hike is still on the cards despite more positive developments in the Middle East as the inflationary impact of the war is still set to get worse.

They said: “The policy stance required to achieve this [the 2% target] will depend on the scale and duration of the shock, and how it propagates through the economy.”

Economists at the Bank still expect inflation to accelerate later this year when the effects of higher energy prices pass through to consumers in July through the increased price cap. They are also closely monitoring second-round inflationary effects, which are typically worse the longer higher energy prices persist.

One economic indicator that helps the Bank justify avoiding a rate hike is the softening labour market, which could help “contain inflationary pressures.”

The minutes read: “The Committee will continue to monitor closely the situation in the Middle East and how its impact propagates through the economy. The Committee stands ready to act as necessary to ensure that CPI inflation remains on track to meet the 2% target in the medium term.”

Bank of England lowers its inflation expectations for 2026

Inflation is expected to remain just below 3% for most of the year, but briefly rise to “a little over” 3.25% in the fourth quarter of 2026, new estimates from the Bank show.

The new estimates are well below the Bank’s April forecasts which expected inflation to peak at 3.6% in their best-case scenario and over 4% in their worst-case scenario.

The downgrade in the Bank’s inflation expectations came after energy prices have fallen since the previous estimates were made, with significant drops coming after it looked like the Iran war was coming to a close.

Lower non-energy prices also helped the Bank revise their inflation forecast down.

BoE: Strong economic growth in Q1 is unlikely to be repeated in 2026

The UK’s strong economic performance in the first quarter of 2026 is unlikely to continue in the rest of the year, the Bank of England has said.

The minutes of the MPC’s meeting showed that this figure overstated overlying economic momentum, which has remained subdued, according to business surveys analysed by the Bank.

April’s GDP figures, which showed the economy shrank by 0.1%, are consistent with this.

Bank staff estimate that underlying GDP growth in Q1 was around 0.2%, and that the economy would continue growing at this rate in Q2.

Base rate held for four consecutive meetings

Today’s announcement that interest rates would stay at 3.75% is the fourth consecutive time the MPC has voted to keep rates where they are.

Compared to interest rates in the last 20 years, 3.75% is relatively high, especially considering rates had been near 0% for years following the 2008 financial crisis.

However, as inflation has remained persistently high since the 2022 energy crisis and the accompanying cost of living crisis, the bank rate has been high for some time. That means that 3.75% is actually the lowest since February 2022.

Bailey: We must tolerate above-target inflation to get back to target

In the minutes of the MPC’s meeting, Andrew Bailey, governor of the Bank of England, justified his vote to hold interest rates.

He argued that the marked fall in energy prices in recent days was a positive sign, especially considering the progress on US-Iran peace talks, but warned “the situation remains unpredictable, and there is clearly a risk that energy prices remain elevated for an extended duration”.

Bailey noted the labour market is showing signs of further softening and said there are further signs of demand weakness in the economy.

He added: “Our remit recognises that attempting to bring inflation back to the target too quickly may cause undesirable volatility in output.

“Given the context at present of softness in the real economy and uncertainty around the scale and duration of the shock to energy prices, tolerating temporarily above-target inflation as part of a return to target is an appropriate way to approach the trade-off, providing inflation expectations remain contained.”

He said that inflation and interest rates risks are on the upside, meaning it is more likely for the bank rate to rise than fall in the foreseeable future.

“I would respond promptly to any signals that an extended period of elevated energy prices could be leading to stronger possible second-round effects,” he added.

Why two MPC members voted to raise interest rates to 4%

While the majority of MPC members voted to keep interest rates held at 3.75%, there were two dissenting voices that wanted to hike rates.

These were Huw Pill, the Bank of England’s chief economist, and Megan Greene, an academic economist and external member of the MPC.

Greene voted to hike rates as she saw the risk of second-round inflationary effects as higher and more uncertain than other members of the committee. To deal with this, she called for the MPC to “pursue a risk management strategy!.

She said the risk of holding rates where they are and second-round effects being more extreme than expected is worse than hiking rates and these effects being as forecast.

She said: “These risks are asymmetric, so we should insure against the possibility of larger second-round effects until we have evidence to determine they are not materialising. A proactive hike now in bank rate should help anchor inflation expectations.”

Pill’s justification was similar, arguing that, with the inflationary outlook so uncertain, raising interest rates to 4% “continues to be the most robust monetary policy response to the intensification of these risks”.

“Global energy prices remain volatile, and elevated compared with their pre-hostilities level, despite the announcement of a new ceasefire. Even with a looser labour market, the risk that second-round effects will create greater intrinsic persistence in UK inflation remains.”

He added that moving the bank rate to 4% now would put monetary policy in a good position to address the uncertainties in the economy.

Deutsche Bank: Interest rates expected to be on “long hold”

Deutsche Bank has said that interest rates are set to stay at 3.75% for a long time, with a lower chance of a rate hike as the economic and geopolitical backdrop has become more favourable and given rise to a wider consensus within the MPC.

Sanjay Raja, the bank’s chief UK economist, said: “For the MPC, recent data outturns combined with an Iran/US deal has meant that the risks around second-round effects have receded. Indeed, while the MPC still sees upside risks to inflation, lower wage and price inflation has given the MPC more confidence that price pressures remain more contained for now.

“Put simply, despite an inevitable inflation wave, the MPC may be willing to tolerate and look through a temporary bump in price momentum.”

Raja added that today’s decision has also helped the MPC keep their options open in the summer, when we will start to see more concrete data about how the Iran war has affected the UK.

“Despite better data and a dramatic fall in energy prices, the MPC avoided sounding too dovish. Instead, it maintained its hawkish bias – keeping flexibility should there be any meaningful signs of indirect and/or second-round effects.

“While financial conditions have tightened since the war began, the MPC's decision today reflects the importance of maintaining some policy restriction in market pricing – allowing it to stick to its 'active hold' strategy.”

As for where interest rates will go next, Raja says the need to act swiftly has reduced as more favourable economic data than expected bought the MPC some extra time to assess the situation.

With that extra breathing space, Raja expects interest rates to stay at 3.75% for the rest of 2026 and adds that Deutsche Bank’s models still see the case for rate cuts in spring 2027.

What does today’s interest rates decision mean for your finances?

Decisions made at the Bank of England to cut, hike, or hold interest rates will affect your personal finances.

This is because the bank rate is the core interest rate in the UK, and is the rate of interest the BoE pays to commercial banks, building societies, and financial institutions that hold money with the central bank.

The bank rate is also the interest rate that the BoE charges on loans made to other financial institutions.

That means that when interest rates change at the BoE, the lending and savings rates offered by retail banks also tend to change.

This is why you may find that your mortgage rate is higher after the bank rate rises, or why you may find your savings are generating less interest when the bank rate falls.

According to data from Moneyfacts, its Average Savings Rate has risen to 3.57%, the highest point since May 2025. “Much of this change to fixed rates is down to speculation that interest rates will remain higher for longer,” said Rachel Springall, finance expert at Moneyfacts.

For more on how interest rates affect your finances, read our article.

MPC remains in ‘wait and see’ mode

Today’s decision to hold interest rates at 3.75% indicates that the MPC is continuing the ‘wait and see’ approach that they have used since the beginning of the Iran war, according to analysis from advisory firm Oxford Economics.

Multiple economic indicators have turned less inflationary in the last few days.

Oil and energy prices in particular are in a better place than any of the BoE’s potential scenarios outlined in their April Monetary Policy Report, with oil and gas futures trending down as the Iran war winds down.

Meanwhile, the labour market has continued to soften, which acts as a further disinflationary force in the economy.

Andrew Goodwin, chief UK economist at Oxford Economics, said that the majority of the MPC who voted to hold rates “appear to take the view that the most likely scenario is that a weak labour market and fragile demand will keep a lid on second-round effects via pay growth and margins. And leading indicators on the strength of those second-round effects will remain key to the MPC’s decision making”.

Like Deutsche Bank, Oxford Economics agree that we are probably going to see interest rates settle at 3.75% until at least next year before a potential cut in late 2027.

Goodwin said: “On balance, we can’t see any reason to change our call that Bank Rate will remain at 3.75% for the rest of this year. The majority of the committee appear content to sit back and see how events play out, and we don’t expect to see leading indicators showing evidence of growing second-round effects that might trigger a change of heart.”

Thank you for following our live coverage of today’s interest rates decision.

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• The Office for National Statistics (ONS) has released UK inflation data for May 2026.
• Consumer Prices Index (CPI) inflation stayed at 2.8% in the 12 months to May, the same as in the previous month’s release.
• Economists had previously predicted a rise in inflation compared to the month prior.
• Lower food prices were one of the main counters to higher transport costs in May.
• The Bank of England’s (BoE) Monetary Policy Committee (MPC) meets this week to decide on UK interest rates and will watch today’s inflation data closely when making its decision.

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

Good afternoon and welcome to live coverage of the upcoming UK inflation data release.

Tomorrow, we’ll find out how prices changed in the UK during May. Last month’s release showed a slowing of UK Consumer Prices Index (CPI) inflation in the 12 months to April, despite higher oil prices resulting from the conflict in Iran.

While oil prices have fallen this week following the announcement of a peace deal between Iran and the US, the expectation is still that the impact of the conflict will have pushed CPI inflation higher in the period the data covers. How great will the impact be – and what could it mean for your money?

When is UK inflation data released?

The Office for National Statistics (ONS) will release May’s UK inflation data at 7am tomorrow (17 June).

We’ll bring you live reporting and reaction following the release, as well as rolling coverage and expert views on what changes in inflation might mean for you.

What do experts predict for May’s UK CPI?

The headline CPI figure took a surprise dip in April, but few experts anticipate a repeat in the May UK inflation data.

Economists at advisory firm Pantheon Macroeconomics expect CPI inflation to have risen to 3.0% in May, due to the impact of recovering air fares and vehicle duty base effects.

“Most of the action comes in services,” said Pantheon Macroeconomics’ chief UK economist Robert Wood and senior UK economist Elliott Jordan-Doak in a report seen by MoneyWeek. “Non-core components should add 1 basis point to inflation in May compared to April, and core goods will shave off 6 basis points.”

Similarly, Sanjay Raja, chief UK economist at Deutsche Bank, expects CPI to rise to 3%, with most of the uplift driven by services inflation.

Both Deutsche Bank and Pantheon Macroeconomics forecast services inflation to rise from 3.2% to 3.7%.

Notably, both organisations forecast a lower rate of UK inflation for May than the MPC itself. In its latest report (published in April), the MPC forecasted CPI to rise by 3.3% in the year to May, driven largely by a 3.9% rise in services inflation.

UK inflation data to be followed by interest rates decision

UK inflation data is released once per month, and the Bank of England’s (BoE) Monetary Policy Committee (MPC) meets every six weeks to set UK interest rates.

This means every other MPC meeting and every third inflation data release coincide. Inflation data is released on Wednesdays and the MPC’s decision is posted on Thursdays, so when this happens the MPC announces its decision the day after inflation data is released.

That’s the case this week; the MPC’s interest rate decision will be announced on Thursday 18 June. The committee will factor tomorrow’s inflation data closely into its decision.

“Absent some huge surprises in this week’s inflation and labour-market figures, we think the MPC will say at Thursday’s policy meeting that they remain prepared to act but feel they can keep rates on hold for now,” said Robert Wood and Elliott Jordan Doak, chief UK economist and senior UK economist respectively at advisory firm Pantheon Macroeconomics, in a note seen by MoneyWeek.

Why small changes in inflation make big differences to your finances

Inflation measures the rate at which prices rise or, from another perspective, the rate at which money falls in value. One pound today buys less than it did ten years ago.

The MPC targets a 2% rate of inflation. This is generally viewed by economists as a healthy rate of inflation (too little inflation or, worse, deflation are signs of a weakening economy).

The difference between 2% inflation and 3% might sound trivial, but over the long term it has a surprisingly large effect on your money.

“People often assume there isn't much difference between low rates of inflation, but the rule of 72 shows how it can mount up,” says MoneyWeek’s editor Andrew VanSickle. “At 4%, your money takes only 18 years to halve in value. At 3%, 24 years. At 2% – the Bank of England's target – 36 years.”

UK inflation data history

The peak for UK inflation in recent history came in October 2022, when the headline CPI inflation measure hit 11.1%.

CPI inflation fell below the Bank of England’s 2% target in September 2024, before rising steadily over the next year.

Until the war in Iran broke out, inflation had been trending downwards. The war’s outbreak, though, pushed UK inflation to 3.3% in March this year – ahead of the dip in April.

Could the Iran ceasefire ease UK inflation in time to avert rate hikes?

The MPC will look closely at tomorrow’s UK inflation data when it meets this week. But this data is backward-looking – reflecting what happened to UK prices in May. The committee will also pay close attention to what is likely to happen to inflation going forward.

With that in mind, the ceasefire between the US and Iran, and the resulting re-opening of the Strait of Hormuz, could have come at the perfect time for rate-setters who had appeared set to decide between hiking rates, which risks stifling an already weakening economy, and cutting or holding them which could risk letting inflation get out of control.

“Falling oil prices have arrived at a convenient moment, giving both the [Federal Reserve] and the Bank of England something to work with ahead of their meetings this week,” said Chris Beauchamp, chief market analyst at investing and trading platform IG. “Cheaper energy takes pressure off inflation, and that should allow both central banks to strike a more measured tone than some of the more excitable commentary and market pricing seen since the US and Iran went to war.”

Your personal inflation rate

CPI inflation is just one way of measuring inflation. It is the headline rate measured by economists and policymakers largely because, of all the metrics, it is one of the easiest to compare internationally. For more information on different inflation measures, see our explainer on CPI vs RPI inflation.

All inflation measures have one thing in common: they distil an immensely complex combination of goods and prices across the whole economy into a single number. While that number in theory represents the economy as a whole, different people with different spending patterns will experience inflation differently from one another.

Everyone has their own personal inflation rate. You can calculate yours by answering a series of questions at the ONS’s personal inflation rate calculator.

“My personal inflation benchmark is the peppermint Aero,” says MoneyWeek’s editor Andrew VanSickle. “I paid 22p in 1988. Now it's 63p or so.”

Thank you for following today's live reporting ahead of tomorrow's UK inflation data release. We're pausing coverage here for this evening, but we'll be back live tomorrow morning to bring you the May inflation data as soon as it breaks at 7am.

Good morning, and welcome back to our live coverage of the upcoming UK inflation data release.

As a reminder, the Bank of England most recently forecasted a rise in Consumer Prices Index (CPI) inflation to 3.3%, though some economists believe that inflation will have been cooler at 3.0%.

We'll bring you the headline figure as it happens, as well as rolling reaction and analysis following the release.

UK inflation data release imminent

The May UK inflation data release is just minutes away. Will inflation have risen, and by how much if so?

BREAKING: UK inflation stays at 2.8% in May

UK inflation as measured by the Consumer Prices Index (CPI) stayed constant at 2.8% in the 12 months to May 2026.

Lower food prices lead to surprisingly flat UK inflation

UK CPI inflation, which was expected to have risen in the 12 months to May compared to the previous month, has instead stayed flat with lower food prices counteracting increased transport costs.

“After last month’s slowdown, inflation held steady in May as various price movements offset each other,” said Grant Fitzner, chief economist at the Office for National Statistics (ONS).

“The main upward movement came from transport with airfares, vehicle taxes and petrol prices all pushing up inflation,” Fitzner continued. “These were offset by lower food prices, with decreases in inflation seen across a range of meat, dairy and vegetable items compared to last month, as well as the cost of domestic heating oil, which fell back after climbing in recent month[s].”

UK inflation in detail

Let’s have a look at some of the other UK inflation figures beyond that headline 2.8% rate of annualised CPI inflation.

While annualised CPI inflation held steady in May, on a monthly basis the metric increased by 0.2% from April, the same rate as in May 2025.

The Consumer Prices Index including owner occupiers' housing costs (CPIH) rose by 3.0% in the 12 months to May 2026, unchanged from the 12 months to April.

CPIH also rose by 0.2% in May 2026 – the same monthly rate as in May 2025.

Core CPI (CPI excluding volatile goods like energy, food, alcohol and tobacco) rose by 2.6% in the 12 months to May 2026, up from 2.5% in the 12 months to April.

As had been predicted, CPI services inflation rose from an annual rate of 3.2% to 3.7% between April and May.

Could the Iran inflationary shock be short-lived?

When looked at in historical context, there is very little sign of a bump in inflation linked to the Iran war.

“UK inflation was flat during May, coming in below expectations despite higher energy prices continuing to weigh on UK households and businesses,” said Scott Gardner, investment strategist at J.P. Morgan Personal Investing. “This reading will provide some hope that any rebound in UK inflation could be short-lived after the announcement of a framework deal earlier in the week between the White House and Iran to stop fighting.”

Other experts are striking a more cautious tone, though.

“Despite energy prices having fallen recently, there is more inflationary pressure to come for the UK, when the Ofgem price cap moves higher next month,” said Luke Bartholomew, deputy chief economist at asset manager Aberdeen.

Rachel Reeves: Economic plan is controlling inflation

The chancellor of the exchequer Rachel Reeves has responded to today’s inflation figures.

“While the war in the Middle East pushes prices up globally, we have got the right economic plan and inflation has held steady,” said Reeves.

“We’re protecting families and businesses from rising costs, with cuts in energy bills and freezes in fuel duty and rail fares.”

Reeves’s statement drew attention to measures that the government has brought in including targeted support on heating oil, reduced tariffs and an extension of the fuel duty cut to December 2026.

Which categories had the biggest impact on UK inflation?

Different categories of goods and services had contrasting effects on UK inflation during May.

Transport had the largest upward impact on an annualised basis, rising 6.8% in the 12 months to May and contributing 0.29 percentage points to 12-month CPI inflation. On a monthly basis transport costs increased by 0.4% in May, having fallen 1.8% in April.

Conversely, the price of food and non-alcoholic beverages fell 0.1% during the month, which led to this category lowering annualised CPI inflation by 0.09 percentage points. While furniture and household goods prices increased 0.8% between April and May, they fell by 0.1% over the preceding 12 months, meaning this category reduced annualised CPI inflation by 0.04 percentage points.

Unchanged UK inflation suggests price pressures are ‘finely balanced’

The easing of food price pressures indicates that, beneath the headline impacts of higher energy prices, there is a longer-term disinflationary trend at play, according to Richard Flax, chief investment officer at wealth manager Moneyfarm.

“It was a modest positive surprise to see UK headline inflation hold at 2.8% in May, as consensus expectations had pointed to a move closer to 3%,” said Flax. “This suggests underlying price pressures remain more finely balanced than anticipated.”

Middle East disruption could still lead to higher UK inflation

Experts are warning UK consumers not to get carried away with the idea that the UK has escaped the inflationary risks resulting from the war in the Middle East, even following the peace deal negotiated between Iran and the US.

“Despite a peace deal being reached, disruption to global energy markets and related supply chains is yet to work its way through the system,” said Rob Morgan, chief investment analyst at wealth manager Charles Stanley. “Households still need to brace themselves for pricier shopping baskets and energy bills in the coming months.”

Despite this the reopening of the Strait of Hormuz “is undoubtedly good news for consumers, business owners and central banks alike”, Morgan added. “It means that the price jolt won’t be as ferocious as it might have been, and it could give way to a calmer inflationary setting next year… it’s far from a ‘worst case’ inflationary scenario for UK households and businesses.”

UK inflation outlook looks softer, says Deutsche Bank chief economist

Investment bank Deutsche Bank’s chief UK economist, Sanjay Raja, has highlighted the benign outlook for UK inflation implied by today’s release.

“Outside of services CPI, headline, core, and food prices [inflation] all undershot our expectations,” said Raja.

“Driving some of the downside in price momentum was a combination of weaker core goods prices and food prices. Indeed, despite rising energy costs, retailers remain hesitant to price in any cost pass-through.”

The easing of pricing pressures on these goods coincides with the apparent resolution to the conflict in the Middle East, which has already seen oil prices fall to around 10% below last month’s market assumptions.

“This will slowly flow through the inflation data over the summer and winter,” said Raja. “And, in even better news, the fall in oil prices has coincided with a fall in gas prices. It’s looking increasingly likely that the Ofgem Price Cap could be lower as opposed to higher come October 2026, bringing some much-needed relief for UK households and businesses.

“Altogether, the sting from the Iran conflict looks less than markets initially assumed,” Raja added. “The peak in CPI could end up well below what we saw last year.”

UK inflation recap

Here’s a recap of the main talking points from this morning’s UK inflation data release:

• CPI inflation was 2.8% in the 12 months to May, unchanged from the previous month.
• While transport costs rose, food prices fell month-to-month which contributed to the lower-than-expected figure.
• CPI services inflation rose to 3.7%, maintaining upward pressure on UK inflation more broadly.
• CPI rose by 0.2% on a monthly basis.

What does inflation mean for your money?

You’ll have already felt the impact of the May inflation figures the ONS has announced today when you bought travel tickets, food and drink or petrol last month. Inflation figures are backward-looking and reflect what people across the economy spend on everyday goods and services.

But beyond straining your monthly budget there are indirect consequences for your money when inflation runs above the 2% level that the Bank of England (BoE) targets.

First and foremost among these is the impact on interest rates. The BoE’s Monetary Policy Committee is meeting this week to decide on interest rates. Higher inflation incentivises central bankers to raise interest rates, which would increase the interest you pay on any debt (including your mortgage) but would also increase the amount of interest you could accrue on savings and cash.

Higher inflation also puts up any utility bills you have that are inflation-linked. Many contracts have a clause allowing them to increase by the rate of annual inflation (often this is based on the Retail Prices Index (RPI) rather than CPI).

State pensioners also potentially stand to benefit, as the triple lock means that state pension payments increase by whichever is highest out of CPI inflation, average wage growth or 2.5%.

Inflation reality checks

UK inflation undercut expectations in May and that’s a cause for optimism in many respects. Before we get carried away though, various experts have cautioned that the trouble may not be over yet.

“On the face of it, a flat 2.8% reading on headline UK inflation, against a 3% expectation, and almost all of which attributed to transport costs, is good news,” said George Lagarias, chief economist at financial consultancy Forvis Mazars. But despite this and the anticipated impact of a peace deal between the US and Iran, Lagarias warned that “businesses should not casually overlook the jump in services inflation from 3.2% a month ago to 3.7%.”

Sarah Coles, head of personal finance at investment platform AJ Bell, also highlighted that some categories such as motor fuel and pet ownership have seen significant inflation, while cumulative impacts of inflation can mount up over time.

While the US-Iran peace deal could mitigate inflation in future, “there are no guarantees that the deal will hold, and even if peace endures, price rises are already baked in through higher input costs”, said Coles.

Those on lower incomes are also disproportionately impacted by things like higher energy costs, as a greater proportion of their household income goes on energy-sensitive spending.

“The ONS Family Spending figures out last week showed that the 20% of households with the lowest disposable income spent 15.2% of their budget on food and drink – compared to 7.9% among the highest 20%. They also spent 7.8% on gas and electricity, compared to 3.9% among the richest fifth, and 2.5% on petrol, diesel and motor oils, compared to 2.1%,” said Coles.

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

The biggest question from here is what impact today’s inflation data might have on UK interest rates.

The Bank of England’s Monetary Policy Committee (MPC) is meeting this week, and tomorrow it will announce its latest interest rates decision.

We’re ending live inflation coverage here – but don’t worry, we’ve got a separate live report covering the MPC’s decision. Keep a close eye on that today and tomorrow as we bring you rolling news, insight and analysis of the announcement.

The emerging market (EM) universe is very diverse in terms of what drives individual economies. What does China have in common with India (other than being populous and in Asia) or either of them with Brazil? Yet they are treated as a block, and recent trends are stretching these contradictions further than ever.

A top-down investing strategy often involves assigning things to groups, then buying the most compelling groups or choosing the most attractive within a group. These groups can seem arbitrary – the difference between members can be as big as the similarities. Yet in the investment business, classifications that seem easy to understand can stick around well past the point where they make sense.

Standard rules of thumb for emerging markets would tell you that the last few months have been difficult. Many emerging markets are energy importers, so will suffer from higher oil prices. Markets also tend to be affected by inflows and outflows from foreign investors. If global investors get more nervous, they would be expected to cut emerging-market exposure first and take their money home. Yet the MSCI Emerging Markets index is up by 20% in sterling so far this year. How?

AI stocks are over-represented in emerging markets indices

The explanation hinges on two points. The first is that two of the biggest markets in the index are emerging markets only in one very specific sense. South Korea and Taiwan retain certain restrictions, mostly around their currencies, that MSCI deems incompatible with being in the developed markets group. Yet in many respects, they are both wealthier and more advanced than many developed economies.

The second is that a few huge companies – Taiwan Semiconductor (TSMC), Samsung Electronics, SK Hynix – are huge beneficiaries of the AI boom and are driving their markets even more than the Magnificent Seven drives the US market. Those three stocks account for almost 30% of the MSCI Emerging Markets index. Taiwan and Korea together make up 50% of the index. In turn, TSMC is 55% of the MSCI Taiwan, while Samsung Electronics and SK Hynix account for 60% of the MSCI Korea.

These are eyebrow-raising numbers. They have worked out very well for any broad emerging-market investor. Still, we must remember that if the AI boom ends and the US market slumps, the emerging market index will do the same – it's been a play on the same theme.

If you want diversification, you will only find it in funds whose mandate does not bring in these stocks – BlackRock Frontiers (LSE: BRFI) or Barings Emerging EMEA Opportunities (LSE: BEMO), for example. Of course, these funds have lagged in recent months, held back by the lack of tech exposure or battered by the Middle East crisis. I would not say it is yet time to rotate out of broader emerging market funds. But it is something to keep in mind if the crisis passes and the AI boom falters.

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A new $250 bill has been proposed to celebrate America's upcoming semi-quincentennial, and Donald Trump has a plan to put his face on it. This might be easy to dismiss as yet another example of his overblown ego. But that would be a mistake. If Trump goes ahead, it could undermine faith in what remains the world's reserve currency at the worst possible time.

Trump's allies in Congress have already introduced a law that allows for an exception to the existing rules that no living president can appear on American banknotes. Designs have apparently already been commissioned from the Bureau of Engraving and Printing, which designs dollar bills. There are still plenty of obstacles in the way. The legislation still has to be passed for one, which is never easy, even with a Republican majority in Congress. But even if it doesn't happen, or is delayed beyond the main celebrations, Trump has already decided to become the first living president to add his signature to the notes. What used to be American money is steadily being turned into Trump money.

Trump's $250 bill could undermine the dollar's credibility

That may seem harmless enough. Trump loves the limelight, and what's a few pictures on the banknotes? In Britain, we have always been happy to have the monarch on notes and coins, and the same is true in many other countries. It is not as if we use cash as much anymore, and it is hard to imagine many people will be using the $250 note regularly. But in reality, this is a symptom of something far more serious – a warning sign about the underlying strength of the dollar.

There is a reason central banks have always put weighty historical motifs on their notes. The British have the likes of Winston Churchill and the Duke of Wellington. The European Central Bank has never managed to agree on any real people or buildings – since one member or another would end up taking offence – but has done the best it can with synthesised images of historic building styles. The Bank of Japan has a selection of famous scientists from the country's history. All over the world, central banks choose an image everyone can feel proud of.

There is a logic to that. Paper money is basically a conjuring trick. It is only worth something because we all accept it is worth something, and we are willing to exchange it for goods and services. Reaching into a nation's past is one way of establishing its credibility. It gives paper money an air of tradition and solidity. Without that, there is a real risk people might start thinking it is just a few brightly coloured pieces of paper.

King Dollar is under attack

This is the worst possible time to start taking risks with the US currency. The challenges to the dollar have been growing stronger all the time. The US budget deficits are out of control, running at 6% of GDP even when the economy is doing well, and eventually the rest of the world will get tired of financing those. Central banks globally now hold more of their reserves in gold than they do in dollars, and while that is partly because the price of the precious metal has risen so much over the last year, it is also an illustration of how they are diversifying away from the dollar. China has already launched a digital yuan and is starting to promote it as a serious alternative for settling payments for cross-border trade. The cryptocurrencies led by Bitcoin have had a rough year, but there is little sign they are going away and with every year that passes, they become more established within the financial system, and were always designed as an alternative to the dollar.

The list goes on. On their own, none of those factors might be enough to knock the dollar from its throne as the world's most important currency. But when they all come together at the same time, the greenback is clearly at risk. Like a Latin American strongman, Trump is intent on personalising the government of the US and boosting his own reputation. But if he goes ahead, this may well turn into the moment when the world decides the dollar was not the rock-solid reserve currency any longer and decides to switch to something new. If that happens, the results won't be pretty for the US economy, and Trump may well come to regret his vanity project.

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The latest government data on business rate appeals contains good news and bad news. On the downside, there has been a surge in the number of businesses launching cases: almost 130,000 business owners began the process during the first three months of the year, five times more than in the fourth quarter of 2025; that will probably lead to delays in processing claims. More positively, the data also shows that 57% of firms challenging their business rates bills eventually secured a reduction; in other words, your chances of winning are pretty good.

The statistics, published by the Valuation Office Agency (VOA) at the end of May, underline the importance of checking your business rates assessment quickly. New assessments of the rateable value of more than two million business properties in England and Wales came into force on 1 April; this rateable value, based on the VOA's estimate of the commercial rent potentially chargeable on each property, is what determines your business rates bill.

It's now too late to appeal business rates set following the previous VOA revaluation, which took place in 2023; the deadline was 31 March, which is part of the reason for the spike in claims in the first quarter. But you can challenge the rateable value that came into force in April. If you can show the VOA is overestimating how much rent your business property could secure – either what you are paying to rent it, or if you own the property how much you could rent it out for – you could get a reduction.

Check, challenge and appeal your business rates

Such cases involve three stages. Step one is known as a “Check”. Effectively, you're just asking the VOA to confirm the factual details it holds about your property, so you can check you're not being overcharged because of inaccurate data. Relatively few Checks result in a reduction, so most businesses then move on to stage two, known as “Challenge”.

Following a Check, you have four months to submit a Challenge. This is your opportunity to present evidence suggesting your rateable value has been wrongly estimated. That could include, for example, details of the open-market rent agreed on the property, or details of other leases on similar properties nearby. Alternatively, there may have been a material change to your property – you're using it for a different purpose, say, or there have been developments in the area that could affect its value.

Cases that don't succeed at the Challenge stage can be appealed at the independent Valuation Tribunal Service. There's a fee of up to £300 to launch an Appeal – stage three of the process – and you must file your claim within four months of receiving the Challenge decision. You'll get your fee back if you win.

In theory, you can handle each stage of a business rates case yourself, but many businesses appoint a professional agent to manage the process on your behalf – particularly if they proceed to Appeal. Agents can give you advice on whether it's worth bringing your case and handle the work for you, using their experience to maximise your chances of success.

Make sure you appoint a reputable agent. The Royal Institution of Chartered Surveyors can provide details of firms that abide by their professional standards and code of best practice.

Finally, it's important to note these processes can result in your business rates bill rising rather than falling. This is relatively unusual, but certainly not unheard of. Make sure you're not presenting evidence that gives the VOA reason to think it has underestimated your rateable value.

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Few remember the pre-privatisation state of the water industry in 1989, after decades of underinvestment. The 1976 drought and consequent water restrictions exposed a shortage of water supply as reservoirs and rivers ran dry. The government's response was to build a reservoir – in the one part of Britain that did not have a shortage.

But, if a bad idea is repeated often enough, it can lead people to mistake repetition for accuracy. They subconsciously adjust their own beliefs to avoid the mental stress of questioning or disagreeing with the proposal. Creating the illusion of truth is a prime objective of modern politics. This explains the growing clamour for the renationalisation of the water companies.

The leakage of water was, unsurprisingly, a problem; much of the pipework had been laid in Victorian times and was poorly maintained. The treatment of sewage was variable; inland, with outflows into rivers, it was reasonable, although swimming in rivers was unthinkable owing to regular storm overflows. On the coast, much of the sewage was untreated; it was merely screened and then flowed into the sea through short pipelines. This meant that beaches failed to meet the quality threshold of the EU or of anyone else. This remained the practice in Scotland long after privatisation in England and Wales.

The industry badly needed investment, but couldn't compete with the demands for capital spending elsewhere in more visible areas such as schools, roads and hospitals. Privatisation would ring-fence the sector from all the other demands on government and delegate the supervision of it to an independent regulator, Ofwat, introducing the accountability the sector had previously lacked. Investment would be debt-financed, serviced from cash flows. Charges would increase at the rate of 1% over inflation each year while additional cash flow would be provided through efficiency gains.

The post-privatisation investment boom

For about ten years, it all went according to plan. Investment, which had already risen 20% in the run-up to privatisation, quickly rose from £3 billion a year to more than £5 billion. Leakage rates fell 40%, river quality improved, short sea outflows were stopped and beaches became cleaner. Then progress slowed or stopped. Ofwat decided that keeping water bills down was the top priority. This meant restricting the capital expenditure they allowed; contrary to popular misconception, companies want to invest because that entitles them to a return on capital, achieved through higher bills. Ofwat also strong-armed the companies to reduce their cost of capital as that would lower the return on capital companies would need.

The mechanism for this was the substitution of debt for equity, achieved largely through leveraged buy-outs by private equity, taken to an extreme in the case of Thames Water. Such financially dangerous restructuring was encouraged by Ofwat and seemed justified while interest rates were low. When rates rose and the refinancing of the fixed-rate borrowing of the past came into view, the leveraged companies such as Thames Water came under extreme pressure.

The improvement in productivity continued – by an estimated 64% between privatisation and 2017 compared with zero in the public sector – but price rises in real terms stopped. According to Water UK, prices fell sharply in 2000 and remained broadly the same until 2024. Unsurprisingly, investment in nominal terms stagnated, at between £4 billion and £5 billion a year. The lack of additional investment meant a failure to deal with the continuing problem of storm overflows whereby untreated sewage was discharged into the river and sea when heavy rainfall overwhelmed the treatment works. Planning authorities refused permission for new reservoirs and sewage treatment plants and local authorities wouldn't give companies access to the roads they needed to repair leaking pipes properly.

Still, publicity given to bad news shouldn't result in good news being ignored. Leakage has continued to fall and pollution performance is below or close to target in most areas; in 2020, Southern Water and South West Water were major outliers, resulting in heavy fines. Nine companies are at, or near, their government-set targets. Severn Trent' Water's 2025-2026 results show a continued fall in leakage (to 17.6%, down from 23% in five years), water quality is above the regulatory target and significant investment has been made in waste water. For all its financial problems, Thames Water also reports a steady reduction in leakage and incidences of pollution.

It is possible, although there is no evidence for it, that Ofwat's disastrous change of direction in 2000 was due to pressure from the Blair government. They certainly castigated the managements of all privatised utility companies, encouraging them to sell out to private equity. Veteran City editor Neil Collins argues, rightly, that the government should have retained a golden share in each to prevent takeovers and maintain public accountability.

Ofwat has now been abolished, water bills are to be raised sharply in real terms for the next five years and the restructuring of Thames Water's debts is awaiting government approval. Investment is being accelerated and progress is already clearly visible. The River Thames in London has just got its first designated bathing spot. The problem now is the clamour that has built up from the “progressives” for the hugely expensive folly of renationalisation.

The objective of this is neither financial nor operational, but ideological; a drive to reverse every aspect of “Thatcherism”. If the advocates succeed, the proponents have every intention of working their way down a very long list of businesses and services once in the public sector, hoping it will take a long time for the water sector to return to its pre-1989 state.

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US corporate raider Castlelake thinks it can snap up a bargain in easyJet. The soaring cost of fuel has hammered the budget airline's shares over the last few months, which have fallen from 520p at the start of the year to less than 340p a fortnight ago, before news of a potential bid emerged. But if the oil price comes back down again, as it almost certainly will when the war in Iran comes to a close, easyJet will bounce back.

We will see what happens over the next few weeks. But the bigger story is that a pattern is starting to emerge. A whole series of British companies are being targeted by corporate raiders. It is only a few weeks since it emerged that activist investor Corvex is demanding that the Premier Inn owner Whitbread find a buyer or break itself up. The car sales platform Autotrader is under attack from its investors, as is the rather larger trading platform, the London Stock Exchange. Investment company Hargreaves Lansdown has agreed to be taken over by a private equity consortium led by CV Capital. The list goes on and on. Hardly a week goes by without a well-known British company being either sold off or coming under pressure to break itself up.

Companies change hands all the time, of course. There is nothing wrong with bids and deals. It is one of the ways that companies are forced to keep delivering for shareholders and a way for assets to be reshuffled. Without them, management would become very complacent. But in the British market it is getting out of hand.

These targets not terrible companies. EasyJet may have had a difficult few months, but as anyone who has flown with the airline will know, it offers a pretty good service at fair prices. It is hard to see anything that needs to be radically fixed. Likewise, staying at a Premier Inn is hardly a deluxe experience, but it doesn't pretend otherwise. It is a reliably good-value hotel chain for anyone who happens to be travelling around the UK. Much the same could be said for Hargreaves or Autotrader. They are all reasonably well-run businesses.

Why corporate raiders may struggle

The real problem is that it has become incredibly difficult for even the best-run companies to make any money in Britain. There are three big issues. To start with, growth has stagnated. Far from turning Britain into one of the fastest-growing economies in the world, as she promised, chancellor Rachel Reeves has presided over stagnant growth, rising unemployment, a collapse in start-ups and business investment, and soaring real interest rates as the country's debt grows relentlessly less and less affordable.

Second, taxes have risen to the highest peacetime levels since World War II, with most of the burden falling on businesses. There has been a huge rise in the national insurance that companies have to pay on any staff; big rises in business rates; rising air travel duty (which has especially hit easyJet), and a rise in green levies such as the “packaging tax”. All of those have to be paid out of flat sales, regardless of whether the company is actually profitable or not. Companies have to get more and more efficient every year just to pay all the extra taxes they owe.

Finally, the government has crushed confidence. On coming into office, Reeves talked down the economy by constantly droning on about a “black hole” in the public finances that did not really exist. Ever since, there has been constant speculation about which taxes will have to go up next. And now there is a slow-motion leadership contest, fuelling yet more uncertainty about who will be in charge in a few months, and what policies might change. It is a mess. Against that backdrop, it is hard for companies to expand. Most are just hunkering down and trying to survive.

In zero-growth, high-tax Britain, it is very hard to make any money. The result? Raiders, typically based in the far richer, more dynamic US, look at the figures from a major British company and conclude that they should be doing far better. Perhaps in a country that was more pro-business, and pro-enterprise, they would do. But in Britain that has become very hard. There is very little growth, consumers don't have much spare cash to spend and rising taxes are squeezing profit margins. A whole series of companies are coming under attack and may well be broken up or sold off. But the real problem is the state of the economy. The US corporate raiders and buy-out funds will very quickly find there is not very much they can do to fix that.

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Why is minimum wage in the news?

Many people are raising fears the UK's minimum wage may now be too high. Worsening youth unemployment and Alan Milburn's landmark report on “Neets” (young people who are not in employment, education or training) have sharpened concerns that the UK's relatively generous minimum wage and the gradual levelling up of lower youth rates to match the prevailing adult rates, are damaging overall employment – particularly among young workers.

Tony Blair – whose government established the minimum wage – has argued that recent rises have created headwinds for businesses. And within Labour, according to The Guardian, a split has opened up between those who want to slow the pace and those eager to press ahead with rises and age-convergence.

How much is the minimum wage?

In April the minimum wage for all workers aged 21 and over rose 4.1% to £12.71 an hour. This rate is known as the “national living wage”. It only applies to that adult age group and its level tracks two-thirds of median earnings. The rate for 18- to 20-year-olds is lower, but jumped 8.5% to £10.85. And the rate for 16- to 17-year-olds, or for apprentices, rose 6% to £8.00. These bigger increases for younger workers are due to the government's aim of gradually levelling up the youth rates to a single adult tier – a continuation of Conservative policies. In 2016, the Tories created the new premium national living wage tier for those aged 25 and over at the rate of £7.20 per hour. Subsequent governments then cut the age requirement for that top tier, to 23 years in 2021 and then down to the current age of 21 in 2024 – all the while increasing the headline rate.

About 1.7 million people get the national living wage, or about 6% of the workforce aged 21 and over – about twice as many as when the national minimum was introduced in 1999. Among workers under 21, the proportion is far higher – at about a fifth. Since its creation under the first New Labour government, the UK's minimum wage has got dramatically higher in real (inflation-adjusted) as well as cash terms.

Isn't that a good thing?

MoneyWeek has long been in favour on the grounds that taxpayers should not subsidise corporate profits in the form of tax credits for the working poor. The higher the wages, the fewer the benefits that have to be paid out. The other main arguments in favour are ones of social justice. Income distribution has become more skewed towards the rich in recent years, increasing inequality and potentially undermining the social solidarity that makes capitalism sustainable in the long run. Proponents argue that a minimum wage can help to arrest this trend. Some economists also argue that minimum wages boost productivity, especially in the service sector, though the evidence is contested.

Does a minimum wage destroy jobs?

Above a certain point, for sure. The question is where that point lies. Orthodox economic wisdom suggests that compulsory high pay levels will destroy jobs by disincentivising firms to take on workers. But the history of minimum wages since the 1990s has been far more encouraging than that. Landmark US research on fast-food pay rates (by economists David Card and Alan Krueger in 1994) shifted the dial in terms of the academic debate: it found that a minimum wage did little to dampen employment. A raft of further studies came to similar conclusions, and by the early 2000s the literature indicated that a 1% increase in wages due to a higher minimum wage would lead to a 0.5% decline in employment. “By the late 2010s the effect had fallen to around zero,” says The Economist. The politics changed, too. As the UK's national minimum was gradually increased without causing unemployment to grow, the Conservatives dropped their initial opposition and backed the policy.

What's the issue with minimum wage now?

The core issue is that the rate has now jumped so high. The UK has leapt from being relatively cautious – in terms of the minimum-wage level as a proportion of median wage – to being the most generous of all the big economies (from 45% in 1999 to 67% now). Most of the UK's historical experience and evidence relates to a period of low interest rates, low inflation and low unemployment – and involved a minimum wage at around 45%–55% of median earnings, not 67%, the target introduced by the Tories in 2019. That jump, and today's worsening macroeconomic picture, makes it far harder to be sanguine about the wage's effect on job creation in future. At the same time, there's been a counter-revolution among economists. Several influential US studies from 2022 onwards found that higher minimum wages – a phenomenon seen across many developed economies over the past 25 years – have indeed hit job levels, and damage the employment, income and overall welfare of precisely the low-income workers they are meant to help.

What can be done?

A sensible start would be to freeze the rates for the rest of this parliament and take back control of setting the rates from the Low Pay Commission quango, says Rishi Sunak in The Times. In addition, future rises should be linked to gains in productivity – the national living wage is up by almost a third in real terms over the past decade, while productivity has only increased by 6%. That's obviously unsustainable and the latest unemployment numbers show the effect – the fall in both vacancies and payroll numbers is concentrated in retail and hospitality, which is where a third of all minimum-wage jobs are, and which account for almost half of all jobs held by the under-25s. “Shamefully, and in a reversal of the historical norm, we now have higher youth unemployment than the EU average.” And at least in part, that's because we are knowingly pricing young workers out of the labour market. Let's stop.

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In Asia, it is the best of times, it is the worst of times. The crisis in the Strait of Hormuz is hammering energy importers hard, even as parts of the region emerge as the principal winners of the mania surrounding AI. That pushed the MSCI Emerging Markets Asia index up 15% in the first five months of the year.

Yet on currency markets things are grim. Talk is turning to the 1997 Asian financial crisis, when large trade deficits caused investor confidence to “evaporate within months”, triggering “deep recessions” and political tumult, say Swati Pandey and Claire Jiao on Bloomberg. Indonesia, the Philippines and India look especially vulnerable to capital outflows. Respectively, their currencies have shed 8.5%, 9.5% and 10.5% against the US dollar over the past 12 months.

The once-promising Philippines has been hit especially hard, says Daniel Moss, also on Bloomberg. The country was a Southeast Asian growth star in the 2010s. Now inflation is running at 7% and heading for double digits, a huge surge from 2% in January. The local PSEi share index is down 5.6% over the past three months. The Philippines' difficulties could be a taste of things to come elsewhere.

But nowhere are Asia's contradictions as stark as in South Korea. The won is trading at its lowest level against the dollar since the 2008 financial crisis, say William Sandlund and Daniel Tudor in the Financial Times. Yet puzzlingly, Korea is enjoying a record trade surplus because of insatiable demand for its computer chips. An export boom should be strengthening the won, not weakening it.

Paradoxically, one explanation may be the blistering pace of an Asian stock market boom. The Kospi index has doubled since the start of the year, driven by large runs at chip specialists Samsung and SK Hynix. That has forced fund managers to sell to avoid overexposure, with foreign investors offloading a record net $79 billion of local equities this year.

Taiwan's Taiex index has gained 58% this year, seeing it surpass India to become the world's fifth-largest stock market. Almost all of the world's high-end chips are made by Taiwan's TSMC. The island, which is only slightly larger than Belgium, now accounts for almost a quarter of the entire MSCI Emerging Markets index.

Investors in Asia should ‘buy the shovels’

When there's a gold rush, it's good if 30% of your economy is “based on shovel manufacturing”, says Joseph on Substack. Taiwanese GDP rose at an annualised pace of 23.6% in the final quarter of 2025. GDP has risen by almost a quarter since ChatGPT was launched in late 2022. Not everyone is benefiting from the boom – exporters are doing well while everybody else struggles. But there is no arguing with this modern growth “miracle”.

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New Fed chair Kevin Warsh takes the reins of the world's most powerful central bank at a difficult time, says Roger Ferguson for the Council on Foreign Relations think tank. Donald Trump wants easier money, saying, on swearing Warsh in, that “we want to stop inflation, but we don't want to stop greatness”. Trump openly criticised Jerome Powell, Kevin Warsh's predecessor, for failing to cut interest rates. But US inflation is running at 3.8% and has been above the Fed's 2% target for five years in a row. Cumulatively, the price level is nearly 25% higher now than it was in 2020.

Pricier petrol, the fallout of Trump's adventure in Iran, threatens to trigger a new inflation wave. Kevin Warsh may be “compelled to raise interest rates”, which is “precisely the opposite of what Trump had in mind”. Fireworks could lie ahead.

Kevin Warsh will have more elbow room when it comes to cutting the size of the Fed's balance sheet, says Colby Smith in The New York Times. He sees the institution's holdings of $6 trillion in government bonds and other securities as “emblematic of everything that has gone wrong” in central banking since the 2008 crisis. But drawing down the portfolio must be handled with great care. In 2019, a similar attempt to reduce the balance sheet too quickly gave markets a “near heart attack”.

Kevin Warsh must deal with ‘hot’ US inflation

Investors began the year expecting “at least one or two rate cuts”, says The Economist. Now, rate hikes are in the picture. US inflation is “hot”, and the cause is not just oil. Even the core measure, which excludes energy and food, rose at an annualised 3.2% during the three months to April. Central bankers are taught to “look through” energy shocks, which usually prove temporary, but broad-based signs of inflation are harder to ignore. Service prices are rising “uncomfortably fast”. And durable goods – for decades a source of disinflation – rose at an annualised 7.7% in the first quarter of the year. That reflects the effect of both tariffs and soaring prices for computer kit amid the AI boom.

The oil crisis has led to inevitable comparisons with the 1970s, says James Smith for ING Think. In some respects, the similarities are “striking”. Now as then, we face an energy shock emanating from Iran. Now as then, US government spending is unsustainably high. But in other ways we live in a quite different world. Per-capita oil consumption in the UK is 55% lower today than it was 50 years ago. In real terms, energy prices are well below the levels of the late 1970s, when they hit nearly $200 in today's money. Unionisation rates have collapsed since the 1970s and strike action is far rarer than it used to be, reducing the risks of a sustained inflationary surge.

Not that everything is rosy. In some respects, advanced economies face new sources of inflationary pressure that didn't exist in the 1970s. Populations are ageing and net migration is beginning to fall sharply because of stricter border policies. That threatens “shortages” of workers on a scale “with little precedent in the West”.

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The world is in the midst of an oil crisis. The war in Iran has thrown the markets into turmoil, with the price of oil soaring to around $100 a barrel.

The oil shock has repercussions that are far wider than just the price of petrol. In this episode of MoneyWeek Talks, editors Kalpana Fitzpatrick, Andrew Van Sickle, and Cris Sholto Heaton make sense of what is happening now, explain where the crisis could go next, and what you should do to protect your portfolio. Tune in now on YouTube or on most podcast platforms.

About the podcast

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

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

Donald Trump has sworn in Kevin Warsh as the new chair of the US Federal Reserve, replacing Jerome Powell, in what was supposed to be the big monetary policy event of the year. Kevin Warsh, like all of Trump's preferred candidates for the Fed's board of governors, has sounded very keen to cut interest rates. Assuming that he was not simply paying lip service to the president's wishes in order to win the nomination, that would mean huge pressure in the Fed for aggressive easing. Yet it is no longer so clear that the change of chair will matter much.

The Middle East crisis has changed the calculation. Markets are now pricing in interest-rate rises rather than cuts, while longer-term bond yields are rising again. Of course, a central bank that is determined to slash short-term interest rates could ignore fears about inflation and cut regardless. It could also try to control long-term yields by buying up longer-dated bonds. But in this environment, it is far less likely that Trump's appointees will be able to shift consensus among other board members towards much looser policy. Nor is it obvious from his own record that Kevin Warsh will be quite so dovish for now, notwithstanding his frequently expressed view that AI will usher in productivity gains that justify structurally lower rates.

Interest rates are not Kevin Warsh's biggest problem

All else being equal, easier policy would have been even more bullish for already-exuberant stock markets, especially in the US. Yet investors have not been behaving as if policy was too restrictive anyway.

Note how strongly markets have risen with interest rates where they are. Short-term rates at around 4% and longer-term rates at around 5% only look high by the abnormal standards of the 2010s.

So the real risk to markets is not that interest-rate cuts don't come. Instead, it is the hard reality of where fears about inflation are coming from: the disruption to energy supplies. Every week, markets trade as if the crisis will be resolved; every week, we see no solid progress. If this finally starts to catch up with the real economy – which could happen in early June, some analysts reckon – the Fed's decision to tinker or not to tinker will quickly become irrelevant.

A date for your diary

The first of the twice-yearly Mello conferences for private investors takes place next month, on Tuesday 2 and Wednesday 3 June in West London. This event always features an interesting line-up of several dozen companies and funds presenting to existing and prospective investors: one of the highlights in last November's event was Seraphim Space, which has been the star of the investment-trust sector this year. Mello is offering MoneyWeek's readers a 25% discount on tickets – go to melloevents.com/mello2026 and use the code M26MW25 to book.

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• The consumer prices index (CPI) rose by 2.8% in the 12 months to April 2026
• The latest Office for National Statistics (ONS) data shows that inflation dipped in the year to April, down from 3.3% in March
• Despite this, the Iran war is still expected to push up prices for Brits as global supply lines continue to operate under strain
• The Bank of England is unlikely to be moved to cut rates despite a lower inflation rate today

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

ONS set to publish April’s inflation reading at 7am tomorrow (20 May)

Good afternoon, and welcome to MoneyWeek’s live coverage of April’s inflation figures.

The data is expected to show that inflation dipped in the year to April, but only because of negative base effects as April 2025’s reading was unusually high.

As we approach the release, we will cover the latest forecasts, analysis, and break the news when the figures drop tomorrow morning.

What was inflation in the year to March?

The ONS publishes inflation data monthly, with the March Consumer Price Index (CPI) data released on 22 April.

The data showed inflation rose by 3.3% in the 12 months to March, up from 3% in the year to February. The rising price of motor fuel was the main driver of the increase in the CPI rate, the ONS said.

In February, the Bank of England’s Monetary Policy Committee said inflation would slow to 2.1% by April, but these expectations have been quashed due to the conflict in the Middle East, which has pushed inflation up.

How high could inflation go in 2026 and 2027?

In its latest Monetary Policy Summary, the Monetary Policy Committee said inflation could hit a peak of 6.2% by early 2027, under a worst case scenario.

The report described three situations that could occur due to rising prices caused by the conflict in the Middle East.

In Scenario A, inflation would rise to 3.6% at the end of 2026, while under Scenario B, it would hit 3.7% by the end of this year.

However, under Scenario C, inflation could reach as high as 6.2% by the first quarter of 2027, based on energy prices remaining elevated for a prolonged period.

Could inflation fall in April?

The conflict in the Middle East is expected to put a damper on the UK economy, hitting GDP growth, interest rates and inflation.

March’s inflation data, which saw a 0.3 percentage point rise on the month, pointed to this.

However, economists at Deutsche Bank say they don’t anticipate inflation to rise again in April’s data – rather, they expect a fall.

This prediction is not because they think the UK economy will be more resilient. It is because of negative base effects on the data.

These are expected to arise as April 2025’s inflation data was unusually high because of a tranche of bill increases.

As CPI inflation is measured as the change in prices over a 12 month period, that means April 2026’s data will be compared with April 2025’s data.

This is expected to result in a brief fall in inflation in April, which is then expected to be reversed in May.

Sanjay Raja, chief UK economist at Deutsche Bank, said he thinks April’s data will show inflation “drop from March as negative base effects drag on the annual price calculation.”

He added: “Put simply, annual price resets won't be as large this year as they were last year – especially in the services basket.

“The bad news? Prices will remain well above the Bank of England's 2% target. Indeed, only three months ago, forecasters, including us, were expecting CPI to drop to around 2% y-o-y in April.”

Deutsche Bank expects inflation to slow to 2.98% in April and then bounce back up in the following months.

Raja added: “Looking ahead, we expect price momentum to pick back up as the Iran shock catches up with the inflation data. Indeed, dual fuel bills won't rise until the summer. Rising food and core goods inflation, we expect, will also push momentum a tad higher.”

Thank you for following our preview coverage of tomorrow's UK inflation figures this afternoon.

We are pausing our live report for now, but join us at 7am tomorrow when we will report the latest inflation news, analyse the figures, and bring you expert commentary.

In the meantime, we want to hear your thoughts on where you think inflation will go in April. Voice your opinion in the poll below.

Good morning and welcome back to MoneyWeek's live report for the April inflation reading. The Office for National Statistics (ONS) will release the figures shortly, at 7am.

Where is inflation expected to go?

Inflation, as measured by the Consumer Prices Index (CPI), came in at 3.3% in March 2026, up from 3% in February.

UK inflation is expected to accelerate in 2026 as the economy is impacted by the conflict in the Middle East.

That said, economists expect April’s figure, which will be published shortly, to ease slightly, as inflation in April 2025 was unusually high.

This would not mean prices are falling, but rather, prices are rising year-on-year at a slower rate than they were the month before.

UK inflation slows to 2.8%

The consumer prices index (CPI) rose by 2.8% in the 12 months to April 2026, down from 3.3% in the 12 months to March, the ONS said.

On a monthly basis, CPI rose by 0.7% in April 2026, compared to a rise of 1.2% in April 2025.

The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 3% in the 12 months to April 2026, down from 3.4% in March.

CPIH rose by 0.8% in April 2026, on a monthly basis, compared to an increase of 1.2% in April the year before.

Chancellor Rachel Reeves to set out plans to support UK households

Chancellor Rachel Reeves has insisted the government has "the right economic plan" and will announce further ways to support UK households tomorrow.

She said: “The war in Iran is not our war but one we will need to respond to, and the decisions I took in the Budget last year have kept inflation down as we deal with global instability. We have the right economic plan, and to change course now would risk our economic stability and leave working people worse off.

“We have already taken £117 off energy bills, frozen rail fares, and lifted the two-child limit, and over today and tomorrow I’ll set out the next phase of how we will support UK households.”

Prior to the conflict in the Middle East, which began at the end of February, inflation was forecast to fall to around the 2% target this month.

Shadow chancellor Mel Stride: "Prices still rising too fast"

Shadow chancellor Mel Stride has welcomed the fall in inflation to 2.8%, but said prices are still rising too quickly.

Writing on X, he said: "Any fall in inflation is welcome, but prices are still rising far too fast and Labour have left our economy weak and exposed to the impacts of the Iran war.

"The recent spike in borrowing costs shows markets are increasingly worried about Labour’s leadership chaos and economic mismanagement, leaving families to pick up the bill for a £300 Burnham Penalty.

"Only the Conservatives have a leader with the backbone and strong team needed to restore confidence and bring debt down through our Golden Economic Rule."

What drove the UK inflation rate in April 2026?

Housing and household services largely drove the easing of inflation, for both CPI and CPIH inflation.

The big rise in motor fuel prices increased the rate of inflation, but this was offset by a fall in prices from other categories in the transport division.

Energy prices drive easing of inflation in April

The 12-month rate for housing and household services was 3% in April 2026, down from 4.3% in the month before. The easing reflected electricity prices falling – dropping by 8.4% in April 2026 compared with a rise of 2.9% a year ago.

Ofgem’s energy price cap fell by 7% on 1 April. The average price cap household paying by direct debit for dual fuel will pay £1,641 per year this quarter, £117 per year less than the quarter before.

The price cap fell partly because global wholesale energy prices dropped in the 12-week assessment period Ofgem used to calculate the April price cap – this was before the outbreak of the conflict in the Middle East.

It also dropped as the UK government removed a number of green levies from household bills, instead funding them through general taxation.

Clothing and footwear inflation rate rebounds

Clothing and footwear prices increased by 0.7% in the annual figure, compared to a fall of 0.8% in the 12 months to March.

Motor fuels inflation rate highest since September 2022

Prices in the transport division rose overall by 4.5% in the April ONS data, down from 4.7% in March. The increase was predominantly driven by motor fuels but partially offset by falling air fares and a downward effect from vehicle excise duty (VED).

The average price of a litre of petrol increased by 16.6 pence between March and April 2026, reaching 156.8p – the highest price since November 2022.

The price of a litre of petrol fell by 3.0 pence in the same period the year before.

Diesel prices increased by 31.3 pence per litre in April 2026, to 190.0 pence per litre – the highest price since July 2022. Diesel prices fell by 3.1p per litre in April 2025.

These changes meant overall motor fuel prices rose by 23% in the 12 months to April 2026, compared to a rise of 4.9% in March. The motor fuels inflation rate was its highest annual increase since September 2022.

What does inflation mean for you?

While April’s data shows inflation has fallen to 2.8%, this easing is only forecast to be temporary, given the backdrop of the war in the Middle East.

Furthermore, slowing inflation doesn’t mean prices are falling. Rather, prices are still rising year-on-year, but just at a slower pace in April.

“Many households facing sustained financial pressure are unlikely to feel much relief, “Harriet Guevara, Chief Savings Officer at Nottingham Building Society, said.

"Beneath the headline figure, rising fuel and food prices alongside continued volatility in global energy markets mean that the path back to the Bank of England’s 2% target is unlikely to be straightforward.”

Impact of inflation on your savings

Inflation may have eased from previous highs, but it’s still pushing up costs, and money held in low-interest rate accounts could lose spending power over time.

Households should review whether they’re getting a competitive interest rate on their savings, make the most of tax-free allowances and consider creating an emergency fund, which covers three to six months’ of essential spending.

“With continued uncertainty around inflation and interest rates, building financial resilience should remain a priority,” Guevara said.

“Whether it’s creating an emergency fund, saving towards a home or planning for the future, taking proactive steps now can help households feel more secure in the months ahead.”

The average savings rate is currently 3.55%, according to money comparison website Moneyfacts.

There are currently 1,806 savings accounts that beat inflation – made up of 202 easy access, 178 notice accounts, 180 variable rate ISAs, 410 fixed rate ISAs and 836 fixed rate bonds.

In May last year, there were just 1,326 savings accounts which beat inflation, which was then at 3.5% (April 2025 CPI).

To avoid inflation-battered returns, “savers need to take a more proactive approach by reviewing deals frequently, making use of their tax-free cash ISA wrappers and avoiding apathy with long standing accounts that pay below average returns,” Caitlyn Eastell, personal finance analyst at Moneyfactscompare.co.uk, said.

We list the best savings accounts for top interest rates in a separate piece.

How some key household staples increased in April

While inflation fell in April, many households will have noticed increased pressure on their budgets lately. Petrol prices, for instance, shot up by 16.6% on average between March and April.

"While energy prices have dragged down the overall headline figure, lurking in the data are a myriad of painful price rises," Sarah Coles, head of personal finance at AJ Bell, said.

We look at some of the other household essentials which jumped in April.

Water

Water bills helped to bring down the overall inflation figure, although they still increased by 9% in a year, while sewerage costs increased by 5.8%. However, the price rises were a lot lower than the water bill hikes in April 2025 – when water bills rose by 26.4% and sewerage was up 25.9%.

Heating oil

While energy bills fell for millions of households on the energy price cap in April, those relying on heating oil saw prices soar. The war in Iran meant prices rose 8.5% in April, compared to a fall of 7.7% a year ago.

Food and non-alcoholic drinks

Food and non-alcoholic beverage price inflation eased in April – prices rose by 3% in the 12 months to April 2026, down from 3.7% in the 12 months to March.

The slowing of food and drinks inflation was due to five of the 11 food and non-alcoholic beverage classes:

• Meat – down 0.03 percentage points
• Sugar, jam, honey, syrups, chocolate and confectionery – down 0.03 percentage points
• Oils and fats – down 0.01 percentage points
• Coffee, tea and cocoa – down 0.01 percentage points
• Mineral waters, soft drinks and juices – down 0.01 percentage points

However, this was partially offset by an increase in the following classes:

• Vegetables – up 0.01 percentage points
• Milk, cheese and eggs – up 0.01 percentage points.

McKinsey: Years of high food inflation have changed consumer behaviour

One of the clearest ways consumers feel the impact of high inflation is in their food shop. In the year to April, food inflation rose by 3%, while it rose by 3.7% in the year to March.

Food inflation has been so high for so long that the average price of your food shop has risen by a staggering 30% in just the last six years, research by management consultants at McKinsey has found.

For example, if you spent £100 on your weekly food shop in 2020, you would be paying around £130 for the exact same items on average today.

These soaring prices are affecting how we approach our food shop.

Pieter Reynders, partner at McKinsey & Company, said: “These years of elevated food costs are leaving a lasting imprint on consumer behaviour. Even as some inflationary pressures begin to ease, households still feel they need to continually weigh up what represents good value in everyday spending. That means reassessing brands, formats, and price points with a sharper level of scrutiny.”

Where will inflation go next?

With inflation coming in significantly lower than the previous month, and even lower than many economists’ forecasts, it is tempting to hope that price growth will continue to slow. However, that would be misguided.

This slump in inflation is likely to "prove fleeting”, according to Sanjay Raja, chief UK economist at Deutsche Bank, as external price pressures will continue to push up price growth.

He said: “Given the prolonged closure of the Strait of Hormuz, energy prices remain elevated. Oil prices will likely rise a little further in the coming months. And gas/electricity prices will catch up to market pricing as soon as July, when the next Ofgem price cap kicks in.”

These are upwards pressures on inflation, and each of them come as a result of the war in Iran, which the UK has little control over.

As virtually all sectors are exposed to changes to oil and energy prices, we can expect more price increases to trickle down as increased production costs are passed on to consumers.

Raja added: “What’s more is that we are seeing continued signs of rising indirect price pressures. Higher commodity prices will likely see food prices rise further. And core goods prices will also – at some stage – be less insulated from ongoing price rises.

“To be sure, despite today’s encouraging CPI print, there’s still a lot of upward pressure yet to come across to headline inflation – as evidenced by today’s bumper producer price prints.”

BREAKING: Fuel duty freeze extended as petrol and diesel prices soar, PM says

The freeze on the rate of fuel duty has been extended again, prime minister Keir Starmer has announced, as prices at forecourts have risen across the country.

Chancellor Rachel Reeves will extend the 5p cut in the rate of fuel duty until the end of the year, helping keep costs at the pump down as price pressures due to the Iran war are pushing up the price of petrol and diesel.

The freeze had been due to start unwinding from September.

The government says that with the freeze extended until the end of the year, it is expected to have saved the average UK driver around £120 since 2025.

Starmer said: “I know many are feeling the pressure of energy and fuel costs, and are worried about how the conflict in Iran will affect their finances. Because when global events drive up prices, it’s working people who feel it first.

"That’s why this government is stepping in to keep fuel costs down for millions of drivers and putting money back in the pockets of working people.”

The 5p cut to fuel duty was intended as a temporary measure following Russia’s invasion of Ukraine in 2022, but it has remained as fuel prices remained higher for longer.

In her 2025 Autumn Budget, the chancellor said the government would gradually get rid of this 5p cut, tapering it away by 1p in September, 2p in December. It would be scrapped entirely by March 2027.

However, as the Iran war has caused petrol and diesel prices to hit a three-year high, the government has extended the 5p cut.

Fuel duty freeze extension comes as fuel prices are at highest level since December 2022

The fuel duty freeze extension comes at a time when fuel prices are under extreme pressure as global oil supply lines are heavily disrupted.

As oil is used in the production of both petrol and diesel, any increase in the price of oil is reflected in the price you pay at the pump.

Since 28 February, when the Iran war began, the average price of a litre of petrol has gone up to 158.73p as of 20 May. That is 25.9p more than it was before the conflict and is expected to keep rising.

It has brought the price of petrol in the UK to its highest level since December 2022, in the wake of Russia’s invasion of Ukraine.

The problem is even worse for those who drive diesel vehicles. The average price of the fuel has grown to 185.73p a litre, a rise of 43.4p in the same time period, though is trending downwards.

At its worst, the price of a litre of diesel was 49.2p a litre higher than before the conflict on 15 April.

Freeze will ‘provide respite’ to motorists but further action may be needed

The government’s decision to extend the freeze on fuel duty has been welcomed by many in the motoring industry as the subsidy will help ease the burden on drivers.

John Cassidy, managing director at Close Brothers Motor Finance, welcomed the policy, saying the decision “will provide some respite to motorists.”

However, he added that despite this, events in the Middle East means that drivers will continue to feel the pinch.

He said: “With 42% of motorists stating that they have been worried about further petrol price rises, the announcement should go some way to alleviating financial stress. However, many will see this as papering over the cracks of much wider concerns, and will expect the Government to implement further measures to ensure drivers can afford the cost of driving - something that is essential to the daily lives of millions.”

Thank you for following our coverage of today’s UK inflation data release and the surprise extension to the fuel duty freeze.

We’re ending today’s live coverage here, but keep an eye on the MoneyWeek website and subscribe for email updates as we bring you more inflation and fuel duty news and reaction.

Matthew Partridge: Your latest book on the UK economy, Challenging Inequalities: How We Got Stuck and Where We Go Next, is part of a wider project by the Institute for Fiscal Studies (IFS). How did it come about?

Paul Johnson: It was a very long-term project that started in 2018, and part of a detailed study of inequality. We published over 100 papers, overseen by a committee chaired by Nobel Laureate Angus Deaton. Each of the papers took a detailed look at one aspect of the theme – ethnic inequalities, for instance, or wealth inequality. The idea was to highlight key issues in something approaching a narrative. The book itself I co-authored with three or four other people.

Matthew Partridge: I noticed that you say if you look at some measures, such as the Gini coefficient, income inequality hasn't changed much since the 1990s. However, other measures, such as the income controlled by the 1% and 0.1%, have increased. Is this a fair summary?

Paul Johnson: Overall income inequality rose enormously in the 1980s, only to plateau from 1990 onwards at a population-wide level. However, while inequality across most of the population didn't change, the top 1% continued to move ahead of everyone else in terms of both income and wealth until about 2008. Since then, income inequality has fallen slightly, although it remains at a very high level by historic and international standards. What's more, while raw income inequality may have peaked, other types of inequality have become more significant, including gaps between regions and generations.

Matthew Partridge: Do you think these high level of inequality have played a big part in the move away from mainstream parties to populism?

Paul Johnson: The main cause of the move away from the centre is probably the lack of growth over the last 20 years. However, the two factors interact very strongly. So, not only are people fed up because they haven't seen their living standards rise for quite a long time, but they are also angry because some people are a lot richer than they are. Certainly, the concerns around inequality wouldn't be so pressing if everyone's incomes were still rising. You can see that with the younger generation who are no longer doing better than their parents, at a time when house prices have been increasing faster than earnings.

Matthew Partridge: One of the big themes of the book is that just trying to solve inequality through more redistribution isn't going to work. Instead, you suggest something you call “pre-distribution”. Can you elaborate on that?

Paul Johnson: We made a conscious decision that the book wasn't going to go down the traditional route of suggesting how you could tweak taxes and benefits to reduce inequality, partly because the IFS has already done a huge amount of work on that. There are ways of making tax and welfare more redistributive, but they come at the cost of weakening incentives.

Most importantly, we discovered that people place more value on money they've earned themselves and having a good job than on being given handouts. So, we need to find a way that creates the sort of economy that works better for everybody. While that's easy to say and hard to do, it leaves less to tidy up afterwards.

That's why the book focuses on things that could boost productivity growth, such as early years education, family life and housebuilding, but also the regulation of big companies. However, we also talk about things such as globalisation, free trade and immigration, which generally boost economic growth, but if you take them too far they can undermine their positive impact by increasing inequality.

Matthew Partridge: Do you think that one of the problems with immigration is that, despite the promise of points-based immigration, we've failed adequately to change our system to focus on highly skilled workers?

Paul Johnson: Immigration policy has been all over the place, and even though this government has tried to tighten the rules, there are still a lot of people coming in as family members without having to demonstrate any particular skills. While I don't like calling care workers low-skilled, a lot of people took advantage of care-worker visas. Of course, if we do restrict this type of immigration, then we're going to be paying more for these types of services. Note, too, that due to the extraordinary fall in our fertility rate from 1.8 to 1.4 over the last five years, without net migration our population would start to fall.

Matthew Partridge: One of the big topics around both productivity and inequality is AI. The worry is that AI could be a double-edged sword for the UK economy in that it will boost productivity, but all the gains won't necessarily go to everyone equally; there will be many losers. Is that a fair comment?

Paul Johnson: I think there's clearly a risk of that and we are definitely seeing that in the US, where there have already been some big winners from the technology revolution. Even before AI, there was a concentration of economic rents in a small number of incredibly profitable companies, which, through a combination of very high pay and share options and so on, massively rewarded a very small number of people.

Matthew Partridge: Why has the UK economy grown significantly less than other countries over the last 15-20 years?

Paul Johnson: There are several reasons. We were more dependent on financial services than most countries when the financial crash happened. Brexit has clearly not helped; indeed, it has probably slowed things down further since 2016 and since 2021. We have invested less over a long period of time than most other countries, in both private and public terms. Our regulation and planning policies are more extreme and make it much harder to build things.

You can't pin it on any one problem, but all these factors, in addition to the general political chaos – with goodness knows how many prime ministers and uncertainty caused by various changes in direction – will have played a part.

Matthew Partridge: It seems a key danger is that the more the UK economy stagnates, the more disillusionment and political chaos ensue, causing more uncertainty and stagnation.

Paul Johnson: Yes, exactly. You can definitely get locked into a terrible vicious cycle of this kind.

Matthew Partridge: There has been much debate recently about the quality of the government's economic forecasts, which are attacked for being inaccurate or even supposedly manipulated. Reform's Nigel Farage has said he's given serious thought to scrapping the Office for Budget Responsibility (OBR). Do you think this would be a good idea, or is there a role for institutions like the OBR?

Paul Johnson: The whole point of the OBR was to get the government out of the forecasting business – because it was pretty clear that the Treasury's forecasts were politically manipulated – and hand it to an independent body. So, I'm now confident that the forecasts are honest and not manipulated. Ironically, while the OBR has been berated for being too pessimistic, on average over the last 15 years we've found that it's been slightly too optimistic. While it's strange that there are two independent forecasters, the Bank of England and the OBR, we at the IFS thinks that the UK's main forecasting institutions are in the right place, especially as the OBR mainly produces mostly fiscal forecasts and the Bank of England focuses on monetary policy.

Matthew Partridge: What do you see as the biggest fiscal challenges for the UK economy over the next ten to 20 years?

Paul Johnson: Well, I think the big fiscal challenge is that in the past ten years we've seen an unprecedented 5%-6% increase in the share of national income accounted for by taxation. Before that, taxes were for a very long time fairly flat as a fraction of national income.

I think that what people will remember when they look back at this decade isn't going to be Covid or the energy crisis, let alone the mini-Budget, but rather that the British state grew to an extent that is totally unprecedented.

What's more, all the pressures that are pushing spending upwards are going to keep growing, with the commitment to spend another 1% of national income on defence leading to another £30 billion in expenditure. Spending on health is rising relentlessly due to the aging population, with the triple lock ensuring that the same thing will happen to pensions.

Given that we've already got a very big debt pile, it's going to be quite hard to meet these commitments with additional borrowing, especially with previous borrowing coming back to bite us in the form of debt-interest payments.

Perhaps the only silver lining is that while the UK's fiscal situation is much worse than the average OECD country, our debt-to-GDP ratio isn't above the G7 average. Indeed, it is odd that we pay more on our debt than France does, even though it has a higher debt burden. However, this interest-rate disparity is at least partially explained by the fact that we've had higher inflation here for a long period of time, and markets are less confident about our ability to turn things around.

Paul Johnson was director of the Institute for Fiscal Studies between 2011 and 2025, and is currently the provost of Queen's College, Oxford. His latest book, “Challenging Inequalities: How We Got Stuck and Where We Go Next”, with James Banks, Tim Besley, Richard Blundell, Angus Deaton, Robert Joyce and Debra Satz, (Princeton University Press, £25) is out now.

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

It is hard to see how Keir Starmer could have had a worse local election campaign. The Labour Party lost hundreds of local councillors, many of them in its core heartlands in the north of England and Wales, and it was pushed down to third place in the total votes cast. One way or another, it is likely to get wiped out at the next general election.

It remains to be seen what happens to prime minister Keir Starmer and his embattled chancellor Rachel Reeves. Their fate will be decided over the next few days or weeks. Either they will just about stagger on, leading a demoralised party that can't decide who should replace them, or they will be ousted in favour of someone else – presumably Andy Burnham, who will have no mandate to govern. We will find out soon enough. But one point is clear: after the issue is decided, the UK will be stuck with a lame-duck government.

That will lead to three big problems. First, the endless speculation about a change of leader and all the political uncertainty around that will drive bond yields relentlessly upwards. The yield on ten-year gilts, the benchmark for the cost of government debt, has already punched its way through the 5% mark, and with each crisis nudges a little higher. The 30-year yield has risen to its highest level in almost three decades and above countries such as France and Italy, even though their long-term fiscal outlook is even worse. That matters. The country has an outstanding national debt of £2.9 trillion, and it is climbing by more than £100 billion every year.

The annual interest payments on all that have climbed to £110 billion and as older debt issued when rates were close to zero has to be replaced, they will keep on climbing. If they go much higher, the government will find itself forced to raise taxes, not to spend more on public services, or invest in infrastructure, but just to service its debts. It is hard to see how that will be popular with voters or the party's backbenchers.

Keir Starmer's government will drift from crisis to crisis

Second, tough decisions will be endlessly delayed. Sooner or later, a British government is going to have to make some harsh choices on public spending. The triple lock on pensions will have to be abandoned; the welfare bill will have to be reduced by reducing entitlements and making it harder to claim for mental-health conditions, and the dire productivity of the public sector will have to be improved. Those decisions can be postponed, but they can't be avoided forever. Starmer and Reeves, however, will not have the political support to make any significant reforms, even if they wanted to. Instead, the government will drift from crisis to crisis, hoping to survive until the end of the week.

Finally, Keir Starmer will have to keep on making concessions to the left. The backbenchers, trade unions and party activists who will decide his fate, or who will choose a new leader if there is a contest, want even higher state spending, more taxes on companies and the “rich”, more rights for workers, along with fewer for landlords and shareholders, and a lot more state intervention in the economy. All of that will damage businesses' confidence.

But even if there is a change of PM, it won't make much difference. As we learned with the constant changes of leader during the last Conservative government, anyone who comes into power without a clear mandate from the voters is inevitably very weak; they don't have any real authority. Gilt yields will still go up sharply, tough decisions will be postponed, and the left of the party and the trade unions will still have to be kept quiet with higher spending. Anyone expecting a fresh start under a different prime minister, presumably with a fresh chancellor alongside them, will quickly be disappointed. There will be no changes of any substance.

Add it all up, and one point is clear. The British economy is now condemned to at least another two or three years of stagnation. At best, the economy will limp along, with 1% or less growth, depending on what happens in the rest of the world. We can give up on any hopes of a sustained recovery – that will now have to wait until after the next election.

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Last week's local election results proved disastrous for the big two parties, and a triumph for populist upstarts on the right and left as the fracturing of politics in the UK accelerated markedly. But do local elections actually matter? Sadly, not much, argues Dan Taylor in The New Statesman.

Whatever stripe of councillor you elect in the local election will “act in the same sad way as their predecessors”, under the same miserable fiscal constraints that make “local government an impotent arm of the centralised British state”.

A century ago, local councils built houses, ran trams and buses, owned utilities, employed thousands and raised most of their own revenue. Herbert Morrison's London County Council, for example, ran more than 70 hospitals and built housing on a scale unimaginable today. Now, local councils “administer social care and collect bins. Local democracy has been replaced with skint service delivery” – and it shames the nation.

Do local elections change much?

Local councils have very limited control over how they raise money, but their list of statutory duties is significant. Councils' core responsibilities include adult social care, children's services including (non-academy) schools, SEND (special educational needs and disabilities) support, local road maintenance, waste collection, housing and homelessness prevention, planning, environmental health, public health, libraries and parks.

Much of this spending is non-optional and not affected by voters' preferences at local elections. A council can choose to scale back flowerbeds and festivals; it can't decide to stop protecting children at risk or refuse to provide emergency accommodation for homeless families.

Are local councils struggling?

Indeed. Councils have spent much of the past few years lurching from financial crisis to financial crisis; more authorities are issuing so-called “bankruptcy” notices; libraries and leisure centres are closing. Everyone is familiar with the impact of the austerity years of the then-coalition and subsequent Conservative governments.

Overall, there was a 21% real-terms cut in funding between 2010 and 2019, putting massive strain on services. What's less well known is that in recent years, there have been decent real-term increases in overall funding, albeit with an increasing range of regional variation. Money for councils grew by around 12% in real terms between 2019-2020 and 2024-2025, and a further 8% since then, taking the overall pie almost back to 2010 in real terms.

Why are local council finances tight?

England's population has jumped by 11% since then and costs have surged in the areas for which councils have responsibility. According to the Institute for Fiscal Studies (IFS), funding per person is about 15% lower in real terms this year than in 2010-2011.

Meanwhile, big increases in the minimum wage have ramped up spending on social care. Other key areas where spending has shot up include temporary accommodation for vulnerable households, specialist and secure children's homes, and a surging bill for specialist home-to-school transport for SEND pupils.

Where do local councils get their money from?

Financing has changed dramatically in recent years. Council tax used to account for about a third of funding (36% in 2010), but now it accounts for the majority (about 56%). That's because central grants from Whitehall have been cut sharply since 2010 – by 55% in real terms up to 2019-2020. As a result, council tax has been rising quickly – the average band D home's annual bill has jumped 16% to nearly £2,400 in three years, an increase of about £330. This year's rise averaged £111, or 4.9%.

The rest is made up of retained business rates, and income from things such as parking fines, as well as central funding. Last year, central government made £69.4 billion of core spending available to English authorities, £4.4 billion more than the year before.

What do councils spend money on?

On average, councils spend about a third of the total budgets on (non-academy) schools and almost another third on social care. The next biggest chunks were the police, and fire and rescue services, followed by road maintenance and transport. Refuse collection accounts for only about 3% to 5% of spending.

However, these headline figures “mask the extent to which social care is squeezing some authorities' finances, because most district councils are not responsible for these services”, says Andrew Ellison in The Times. Local authorities that have responsibility for social care – county councils and unitary authorities such as metropolitan boroughs – typically spend two-thirds of their budgets on them, according to the County Council Network.

Increasingly, says Ellison, councils appear “less like all-purpose civic institutions and more like emergency care administrators with bins attached” – and without the necessary funding.

What are the pressure points?

According to a recent Local Government Association (LGA) survey of senior council leaders, the biggest budgetary worry is Send support, together with social care, home-to-school transport and homelessness. The government has extended temporary accounting rules – letting councils keep spiralling SEND deficits off their balance sheets – until 2028. But that's merely hiding and postponing a fiscal reckoning.

The LGA calculates that eight in ten councils could face insolvency once the sleight of hand is removed. There's a long and ignoble history of local councils turning to financial speculation and optimistic property deals to fill the gaps; many have come a cropper and may continue to do so.

But without radical reform of local government, councillors of all political colours face a thankless and impossible job. “New people may be in charge in many places,” said David Phillips of the IFS. “But they face the same challenges and constraints as the old guard.”

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The King’s Speech marks the beginning of the new parliamentary year. It is filled with pageantry, keeping alive traditions dating back to the English Civil War.

Though the speech is delivered by the monarch, these days the King has very little power over what the content of the speech will include as the government writes it for him.

Though the event itself is purely symbolic nowadays, the content of the speech does have real consequences.

The King’s Speech sets out the priorities of the government for the upcoming year, meaning it acts as a good reference for the broad actions the government will take.

This year’s speech included the government’s ongoing policy initiatives and aims, such as the process of nationalising the railways, building roads, reaffirming support for public services.

It also made reference to the economy, the cost of living, and how war in Iran and Ukraine may affect households and businesses, shining a bit more light on what a government response to these challenges may look like.

Were any new policies announced?

No new policy initiatives were announced in the King’s speech.

Instead, the speech contained reference to a number of policies that had already been announced which will get parliamentary time in the next 12 months.

These include bills to abolish NHS England, introduce digital ID, and move forward with the controversial decision to limit jury trials, among other things.

The King’s Speech also said that the government would help grow the economy by deepening ties with the European Union.

The economy and the cost of living

Households in the UK have struggled with the cost of living for years now as high inflation and slower wage growth has meant families can afford less on their incomes.

While no specific policy was announced in regards to this, the King said: “My Government believes that the United Kingdom’s economic security depends on raising living standards in every part of the United Kingdom.”

He added that the government will “use public investment to shape markets and attract further private investment” and strengthen ties between the state and business to boost economic growth and deliver a “fair deal for working people”.

The King also spoke about the need to fuel economic growth through strengthened trading relations with the EU, cutting red tape, and tackling late tax payments for small businesses.

Karen Northey, director for corporate affairs at the Investment Association, said: “We welcome the Government’s continued commitment in the King’s Speech to boost growth and achieve greater financial resilience for UK households, ambitions which our industry shares.

“Measures to deliver the Chancellor's Leeds Reforms and modernise the regulatory framework, so that it supports innovation and competitiveness, are vital if the UK is to remain an attractive place to invest and do business.

“This includes welcome proposed reforms to the Financial Ombudsman Service and the Senior Managers and Certification Regime which will improve regulatory certainty and reduce burden.”

Energy bills

Energy security was one of the main focuses of the speech, perhaps unsurprisingly considering the forecast hikes to energy bills due to the Iran war.

The King said the government will respond to “an increasingly dangerous and volatile world” that threatens the UK by “[taking] decisions that protect the energy, defence and economic security of the United Kingdom for the long-term”.

In particular, the King said the government will introduce the Energy Independence Bill which will increase the production of homegrown renewable energy “to ensure that enemies of the United Kingdom cannot attack the economic security of the British people”.

The King added the government will also encourage a “new era of British nuclear energy generation” and continue to champion net zero.

As for the expected energy bill shock this summer, there was nothing concrete announced about how the government might help households that struggle with the cost of heating their homes.

The closest we came to this was the King saying: “My Ministers will support measures that maintain stability and control the cost of living,” implying that targeted financial support could be on the agenda as had previously been set out by chancellor Rachel Reeves.

What does it mean for your money?

The King’s Speech is not an event like the Budget where concrete policies are announced that could change the state of your finances in the short term.

Instead it should be understood as a statement of the guiding principles the government will follow in the year ahead.

As the bills mentioned in the King’s speech had already been announced, you are unlikely to need to make immediate changes to your finances.

Charlotte Kennedy, chartered financial planner at Rathbones, said: “Whether or not these plans ever make it into law, the key for individuals is not to overreact. Trying to pre-empt potential policy changes can do more harm than good.

“Decisions should still be driven by long term goals, tax allowances and careful planning – not political headlines. Any real impact on household finances is more likely to emerge at the next fiscal event, not from today’s speech.”

Starmer on the ropes

Following a brutal drubbing by Reform UK in the May 2026 local elections, pressure is building on prime minister Keir Starmer to resign, with many members of the parliamentary Labour party publicly calling for the PM to go.

That has overshadowed the King’s Speech as many question whether the prime minister will still be in office to see this agenda through.

Indeed, in the hours before the speech, headlines were dominated by rumours that health secretary Wes Streeting, who is seen as a favourite to replace the prime minister, was set to resign and launch a leadership challenge the next day.

Other challengers for the leadership reportedly include Andy Burnham, the mayor of Greater Manchester, and Angela Rayner, the former deputy leader of the Labour party who resigned after it emerged that she underpaid stamp duty.

Streeting is viewed as being on the right of the party and Burnham and Rayner are perceived to be on the left.

If either of the latter two were to replace Starmer after a leadership contest, it is likely that a much more radical legislative programme would follow, effectively making this King’s Speech pointless.

Kennedy at Rathbones said the speech “has been overshadowed by serious questions over the prime minister’s future after hefty local election losses, making today’s agenda look fragile. Any change at the top could leave large parts of it redundant, with a new leader likely to pursue a different course.”

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In January 2013, the then-prime minister David Cameron announced that there would be a “very simple” referendum on whether Britain should stay in or get out of the European Union. The result would draw a line under the whole issue for a generation, he said, so that we, and in particular his party, could all stop “banging on” about it. As the tenth anniversary of the Brexit referendum approaches in June of this year, we might all now reflect on just how simple the whole thing proved to be and how joyful it is that everyone has much better things to talk about.

That reflection would at least help us appreciate that God does indeed have a sense of humour. The process of leaving the EU and judging its consequences has turned out to be anything but simple, of course, and the conversation about our membership of the EU has not ended – in fact, in recent months it has all been rather stirred up again.

Prime minister Keir Starmer is exploring a deal that would align Britain with the EU's single market for goods under his EU “reset” plans. He had already signed agreements to align with the bloc's rules on food standards and carbon emissions. The latest plan would force British manufacturers to comply with hundreds of EU regulations, says The Telegraph, without having any say in how they are shaped. It would, in effect, return Britain to something like the “backstop”, the former prime minister Theresa May's attempt to lock Britain into EU rules to avoid a hard border in Ireland. That idea was repeatedly defeated by MPs and ultimately scrapped by Boris Johnson when he became prime minister. The difference is that rejoining the customs union has been ruled out, to avoid breaking manifesto commitments and protect trade deals with India and the US.

The cost to Britain of Brexit

Those on one side of the Brexit wars – and even some of those in the opposing camp – will say that this is all to the good, at least in principle, as very clearly something had to be done. Brexiters at the time of the referendum argued that disentangling from the EU would unlock long-term economic potential as it would free British policymakers from EU red tape and give them more freedom for manoeuvre, as Ryan Bourne, a member at the time of the referendum of Economists for Brexit, said in The Times towards the end of last year. Yet ten years on, “we cannot pretend things have gone well so far” on that score. A review of the data from the National Bureau of Economic Research (NBER) has suggested that GDP per person is 6%-8% lower today than it would have been if Britain had voted to remain in the EU. Business investment is down 15%, and employment and productivity by 3%-4%.

True, the NBER's study has been loudly mocked. It requires us to believe that if only the vote had gone the right way Britain would have grown four times more than Japan and Germany, almost twice as much as France and Italy, and be performing as well as the US. “If you believe that I have a bridge to sell you,” as Andrew Neil put it on X.

But still, “let's not kid ourselves”, says Bourne. The facts show that the UK has grown more slowly than Italy, France and Japan, and the microeconomic, firm-level data are “crystal clear” that Brexit had a “significant, depressive impact”. The NBER study showed that the more exposed to the EU a company was, the more likely it was to cut investment and slow hiring in the wake of the referendum. By 2023, average business investment was 12% lower and productivity within firms 3%-4% weaker. Roughly half of firms listed Brexit as a top source of uncertainty for years after the vote.

Such evidence cannot easily be dismissed, whatever your political inclinations. “Brexit did not cause Britain's growth malaise, but it undoubtedly deepened it,” says Bourne. “Nor did it create our fiscal woes, although it worsened them too. Denial… helps no one.”

Indeed, Brexit was never likely to be a solution to the underlying complaints that provoked it, and “so it has proved”, says Jeremy Warner in The Telegraph. Ten years on, and the economy is in even more of a mess than it was back then. Immigration has “surged”, the public finances are in “a state of ruin”, many public services appear “broken beyond repair”, and voters are “angrier than ever”. This might not be the fault of Brexit as such, but nor did leaving the EU prove to be “the moment of national renewal that its cheerleaders promised”. Nor was it ever likely to be. “Economic salvation seems as far away as ever.”

Edging closer to the EU might be the best way forward

Brexit remains an issue for a reason. The most obvious impact of the decision to leave the EU was on trade. UK exports since 2019 have been much weaker than in other G7 countries, and trade is an important driver of productivity growth, which in turn is the most important factor in improving living standards. Some of that weakness may be a result of Donald Trump's tariffs, but that in itself just goes to show how much the world has changed since the Brexit referendum, as David Smith has pointed out, also in The Times. Tensions with the US and with China show that “dreams of a painless transition to non-EU trade were the wishful thinking of a different age”. The Iran war quickly brought changing global geopolitical realities into even sharper focus and has bolstered the case for closer cooperation with the EU. “It is increasingly clear that as the world continues down this volatile path, our long-term national interest requires closer partnership with our allies in Europe and with the European Union,” as Starmer has said. The opportunity to strengthen security ties and improve economic relations is, says Starmer, “simply too big to ignore”.

That's surely true, but reversing Brexit – or “resetting” relations – will be easier said than done, as The Economist points out. It would, for a start, be impossible to revert to the pre-2016 status quo. Britain would have to reapply for membership and negotiate its conditions, and would be unlikely to secure the opt-outs it had previously. It would not regain its special budget rebate, for example, and might have to agree to join the euro. The EU has also changed significantly in the interim and there is little desire to reopen a painful debate.

Starmer's attempts to find pragmatic ways quietly to edge closer to the EU might be the best way forward. The EU is more open than it was to allowing non-members to cherry-pick bits of the single market and “new forms of partial membership, Swiss-style, may seem more acceptable to the EU as it considers its further expansion eastwards”, says The Economist. Different types of relationship with the EU could emerge from the reopening of debates about Norway and Iceland joining, or from forging closer links with the western Balkans, Moldova and Ukraine, which “might suit Britain better than a hard Brexit”.

“In retrospect, the 2016 referendum may come to be seen not to have permanently settled Britain's place in the European project,” says The Economist. The relationship will keep evolving, sometimes in unpredictable directions. And for the next few years, that is likely to push the two sides closer together, not further apart.”

What David Cameron got right about Brexit

Whatever happens, Cameron was right about one thing. On one level, the issue voted on in the referendum ten years ago was a simple one. Economics is mostly common sense and the issue at stake and the likely consequences should have yielded to some simple logic. Britain was on the doorstep and a member of one of the largest free-trade blocs in the world. Making a decision that would certainly make trade with that bloc more costly and raise barriers would, all else being equal, surely leave Britain worse off.

All else is never quite equal, of course, hence the arguments that Brexit could conceivably give the country more freedom to make better arrangements that would be more conducive to growth. In other words, alongside the fact that Brexit would probably make us worse off there was a judgement to be made about whether Britain's elite and bureaucracy would in the long run prove more effective than the one in Brussels. A relatively simple matter of judgement on both counts, if ones that have had, as we have seen, some rather more complex ramifications.

There is no point relitigating the matter. We are where we are. But in the years since the vote we might draw two lessons from the experience of Brexit. The first is that Britain's historical tendency to “muddle through” rather than plan might not be such a bad one, as Paul Cornish, a professor of strategic studies at the University of Exeter, points out in the Financial Times. As Charles Lindblom put it, “Policy is not made once and for all; it is made and re-made endlessly. Policymaking is a successive approximation to some desired objectives in which what is desired itself continues to change under reconsideration”.

What could be more appropriate, says Cornish, in “a time of seeming chronic volatility and complexity, particularly in matters of national strategy and international security”? Breaking free from the EU and setting out alone as “Global Britain” on the high seas of freedom and opportunity might have seemed like a great plan to some and far superior to all the muddling and compromise of EU membership. Following a raid from the pirates of reality, we're back to the muddling.

“Populists” unwittingly make the case for a stronger Europe

The second lesson is that the EU may be less bad than all the alternatives, as Janan Ganesh puts it, also in the FT. At the time of the referendum, victorious Brexiters were fond of predicting that other countries would soon follow our good example and fall like dominoes out of the EU. A decade on, all of the EU's 27 other dominoes stand and, despite having entered an “era of ardent nationalism”, no one really wants out of the “supranational club”. If anything, nationalist politicians on the continent go out of their way to reassure voters that they have no intention of leaving. Europeans still trust the EU above their national political systems, and support for the euro has grown.

“Few things are stranger about modern politics,” says Ganesh, but the explanation is not hard to find. Nigel Farage, Vladimir Putin and Donald Trump have all unwittingly helped to make the case for a stronger Europe and have “given a multilateral, technocratic and liberal institution a sense of existential purpose that it was starting to lack”. Moreover, the “debasement of our own political elite” post-referendum has “brought the UK closer to the European experience”. As Labour edges closer to the EU, Conservatives may “scream betrayal”, but “voters shrug”. “Through their comportment in office, Brexiters have forfeited the benefit of the doubt.”

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More Britons than ever dream of being their own boss. A survey published earlier this year by market research group Public First found that one in ten adults in the UK hoped to start their own business in 2026. The findings mirror Warwick Business School's influential Global Entrepreneurship Report, which suggests that 36% of Britons are either already running their own business or plan to start one within three years. However, many would-be entrepreneurs complain that a lack of funding stands in the way. Access to finance is consistently among the top issues highlighted in research into the barriers facing people trying to get start-up businesses off the ground. Public First's survey warned that 37% of those hoping to launch their own business had run into problems raising money for it.

Still, while starting a business with no capital at all would be impossible, it doesn't have to cost the earth to get a new venture off the ground. Data from the Company Warehouse suggests that the average budget for new start-ups in the UK is around £5,000 – and that fewer than a third of new ventures have more than £10,000 of funding. Founders of service businesses, often able to work from home using IT equipment they already own, will need less cash to get going than a retailer, food producer or manufacturer, say, where money is required for supplies and inventory. Businesses requiring expensive equipment or machinery will similarly need bigger budgets. Even so, funding your start-up business may be less daunting than you might imagine. And if you don't have the cash, there are now many more ways to raise finance than ever before.

How to raise money for a start-up business

Self-fund or look to family and friends

Most entrepreneurs “bootstrap” their businesses to some extent, particularly in the very early days. This means self-funding – some entrepreneurs start their businesses with a redundancy payment, for example, or just from savings they've built up over time. Family and friends may also be prepared to help, but tread carefully here. Everyone needs to be clear upfront about the terms on which money is offered. Is it a gift with no strings attached, or will supporters be entitled to a share of the returns if the business is successful? Put something down on paper to protect everyone's interests – and to avoid potentially bitter disputes later. Even if you can't raise enough by yourself to get the business off the ground, other potential funders will expect you to be prepared to put your money where your mouth is.

Apply for grants and subsidised loans

Successive governments have got excited about the economic benefits of entrepreneurship and launched initiatives to support it. There is now a patchwork quilt of funding awards available – including non-repayable grants. Central and local government bodies make awards, along with government agencies such as Innovate UK. Some of these are aimed at start-up businesses in particular sectors or areas of the country, but others are more general. The government's Business Finance Finder tool is a good place to start. But also look elsewhere in the public sector – many universities offer support, for example – and in the third sector, too, where charities such as the King's Trust run grant schemes.

The Start Up Loans scheme is another government-backed initiative. Since its launch in 2012, the scheme has made 134,500 loans worth a total of £1.3 billion. Founders can borrow up to £25,000, with the loan repayable over a term of between one and five years, at an annual interest rate of 7.5%, less than you'd pay to a bank. One attraction of the scheme is that it comes with significant advice and support. “We encourage entrepreneurs to back themselves – and we support them with developing a pre-application business plan and post-application mentoring,” explains managing director Louise McCoy. Successful borrowers get 12 months of free business mentoring, plus access to resources such as business tools and guides.

Borrow the money you need

Once upon a time, the bank would have been the obvious place to seek start-up business funding. Today, while the high-street banks all claim to be keen to back small businesses, most are reluctant to lend to new start-ups with no trading record or credit history. Such loans are riskier for banks, plus they're required to hold more capital against them for regulatory purposes; they would rather focus on more established businesses.

That's not to say you'll find it impossible to secure a business loan, particularly as competition has grown stronger in recent years, with challenger brands and new digital entrants joining the fray. If you have a strong application with a robust business plan and cashflow forecast, you'll stand a better chance, especially if you've got even a few months of trading under your belt. Banks will also assess your credibility as a business founder and investigate your personal credit history.

Still, even if a bank loan is an option, it may not be the best one. Loans to risky propositions such as early-stage ventures are likely to be expensive; they're also inflexible, typically requiring you to make a fixed repayment each month irrespective of your business's trading performance. You will also be asked to put up collateral – possibly even your home. Other banking products could therefore work better. For example, overdraft facilities and credit cards can help you manage the business's financial challenges as they arise; you take on debt only when you need to, with greater flexibility about when you pay the money back. A line of credit could also be an option; this gives you the ability to borrow money, up to a certain amount, via a revolving facility, and money repaid can be borrowed again when needed. Lines of credit are typically larger than overdrafts, which are intended to be a safety net.

A growing number of lenders – both within banking and beyond – now offer more imaginative products. Invoice finance can work well for many businesses, for example, enabling you to borrow against the value of invoices issued to customers for work completed so that you get paid more quickly. Asset finance enables you to borrow funds to buy equipment or machinery, with the kit serving as collateral for the loan. Revenue-based finance allows you to borrow a fixed sum of money, but your repayments are calculated as a percentage of your revenues – in good months, you pay back more, but when times are leaner, your repayments are smaller.

These flexible arrangements can protect the start-up business from being overwhelmed by debt. But the longer you take to repay, the more you'll pay in interest. Lenders will also want to see data showing that you're likely to generate at least a minimum level of revenue. These arrangements can therefore work well for e-commerce businesses – some platforms now offer their own revenue-based lending services – and businesses where customers take on subscriptions. They're less useful to completely new ventures with no sales.

One other option is a peer-to-peer platform. These are digital marketplaces where you can pitch your business direct to investors looking to earn interest by lending to small businesses. Leading players such as ThinCats bring such investors together with firms looking for finance. Former peer-to-peer platform Funding Circle also offers loans.

Sell a share of your business

If you can't – or don't want to – borrow to build your business, selling a chunk of it could be another way to secure funding. If you can find investors to buy shares in your business, that could raise precious capital for investment. One big advantage to raising money through equity rather than debt is that the business won't have to worry about making repayments. But you will be diluting your ownership of the company; you'll need to share the returns it generates – possibly through dividend distributions to shareholders, and certainly with a proportion of the profits if and when you sell up. Equity investors may also expect to be consulted on key business decisions and long-term strategy. You'll retain control, but shareholders have a right to a say. You'll need to agree how and when such rights can be exercised as part of the fundraising process.

There are several places to look for investors. Crowdfunding platforms, such as Crowdcube and Republic Europe (until recently known as Seedrs), are one option, providing a single venue where investors can congregate to assess potential equity investments. You make your pitch to these investors via the platform – some businesses have raised tens, or even hundreds of thousands of pounds in this way.

Seek an angel

Business angels are another possibility. These are wealthy individuals looking to back small companies. Many angels are entrepreneurs with experience in building their own businesses. They can therefore provide useful advice – as well as access to networks of useful contacts – in addition to finance. Angel groups such as the UK Business Angels Association (UKBAA) and the Angel Investment Network are a good place to start your search. “We are very often the only source of capital for these early-stage companies,” says managing director Roderick Beer. Indeed, while professional private-equity and venture-capital firms also invest in small, privately owned companies, they are typically looking for more established enterprises. They'll want to see a record of trading and a business that is moving towards profitability, even if it isn't yet in the black.

One possibility for boosting your business's attractiveness to potential investors is the Seed Enterprise Investment Scheme (SEIS). Launched in 2012, this is a government initiative to encourage investors to put money into very small, early-stage businesses by buying their shares; in return for risking their cash on such ventures, investors get valuable tax breaks. To be eligible to offer SEIS benefits, your firm must be established in the UK, have been trading for no more than three years, have fewer than 25 employees and assets worth less than £350,000. You're also limited to raising no more than £250,000 from investors.

Assuming you meet these requirements, you can apply to HMRC for “advance assurance”. This is guidance from the tax authority that it expects investments in your business to qualify for SEIS tax benefits. Having that confirmation will help you market the business on crowdfunding platforms and to business angels, although you will still need to apply for formal SEIS status once your fundraising is complete.

Where to find help

If you're struggling to work out how best to raise money for a start-up business, consider professional support from a commercial finance broker. These specialist advisers work with small businesses to help them identify the most appropriate sources of funding, and then to secure the money. “Intermediaries are a structural component of how funding flows to small businesses,” explains Jim Higginbotham, CEO of the National Association of Commercial Finance Brokers, whose members helped firms raise £33 billion of finance in 2025. “As complexity in the market increases, so too does the value of informed, professional guidance.” Brokers specialise in working with lenders, so they'll be less use if you're hoping to raise equity funding, but they can also provide more generic advice. Firms may be regulated by the Financial Conduct Authority, providing important protections, although this is only a legal requirement for brokers that have dealings with individuals, sole traders, or partnerships with three or fewer partners.

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Savvy Squirrel is the mascot for the latest government campaign to get people investing, rather than “squirrelling away” their money in savings accounts. But there is something you should know about red squirrels. They aren't much good at anything. At the end of the 19th century, there were over 3.5 million of them knocking around the UK. Now they are all but extinct in England and Wales, while across the UK there are well under 300,000 of them left – mostly in Scotland. They succumb easily to squirrel pox carried by grey squirrels; they aren't as big or as good at finding food as grey squirrels; and when they do find food, they often fail to hang on to it.

It's nice that they put food away for the winter (everyone loves a saver). But depending on whom you listen to, they lose anywhere up to 25% of the food they cache to either theft or forgetfulness (scientific arguments about the spatial memories of the red squirrel are ongoing). They also can't seem to be helped. There are some 47 different organisations trying to stop them disappearing from the UK altogether. But their numbers just keep falling. They are, effectively, Britain's pandas.

Imagine being a policymaker in the UK, knowing all this, looking for a mascot for a new campaign to encourage ordinary people to invest and choosing this animal. One that never invests, only saves; that saves in such a way that guarantees a negative return in not just inflation-adjusted terms but also in nominal terms every single year; and which is heading down the path to extinction despite large sums of taxpayers' money being chucked at it every year.

Savvy Squirrel picks up where “Tell Sid” left off

Older readers will remember the Tell Sid campaign of the 1980s, born out of Margaret Thatcher's plan to get shot of the UK's nationalised industries and create a culture of shareholder democracy at the same time.

The Savvy Squirrel campaign is an infantile attempt (the squirrel is animated) to pick up where that left off. Expect to see Savvy Squirrel on billboards near you soon if you haven't already, on taxis in Manchester, or on the telly with the messages “Take the next Step. Invest” and “Saved a bit? Why not invest a bit?” The message isn't idiotic, of course. The UK has an unusually high savings ratio and households have lots of cash – there is around £ 2 trillion sitting in our accounts.

That doesn't make sense. Not for the savers themselves – once you have six months worth of emergency cash, given up the superior returns that come from an equity portfolio, makes your future less comfortable than it could be. Not for the market – all that money could be flowing into the UK stock market, bolstering liquidity, valuations and the associated ecosystem of profession that the UK needs to keep supporting. And not for the state, either – the less people invest, the less wealth they will have on retirement and the more expensive they will be for the state.

That's why chancellor Rachel Reeves wants to encourage people to “have a small stake in the future of this great economy”. However, if Reeves really wants the UK to become a nation of shareholders, there are more useful things to be done. The first might be to explain to the 22 million people with auto-enrolment pensions in the UK that they are already shareholders, what that means and why it matters. That needs to be done on social media rather than on the telly, as it is best to take information to where people are already talking about these things. Next would be to work on making things more simple rather than more complicated: every change to the pension system and the ISA system makes people trust the wrappers they should be using to invest less.

Then there is the tax system – if you want people to invest in shares, maybe cut capital-gains tax to a level where is it not an effective wealth tax (at current levels it almost always taxes nominal rather than just real gains). The same goes for stamp duty on shares, another one of the UK's underappreciated wealth taxes, and one you pay even inside your ISA and SIPP (when they say tax-free, they don't mean entirely tax-free).

Reeves might also take a very firm line on annual general meetings (AGMs). The government is reviewing the rules on corporate reporting, and there is talk of removing the requirement for in-person AGMs and shareholders' votes on executive pay. Both are appalling anti-shareholder democracy ideas.

Finally, risk warnings. There are changes to these on the way, but if you try to buy any investment product you will find “capital at risk” warnings everywhere. So heavy-handed has the warning system been, says Holly Mackay of Boring Money, a financial research platform, that they are “akin to British Airways telling anyone trying to book a flight how many aviation deaths there have been in the last year”. The result is that around 75% of cash-only savers think that there is a less than 50% chance that £1,000 invested today will be worth more than £1,000 in five years. Either these overly nervous people were squirrels in a past life or the regulators have overplayed their hand.

Risk warnings need to be toned down and the ability of both funds and the listed companies themselves to advertise their wares rapidly ramped up. The Savvy Squirrel campaign has something going for it. It shows that the government recognises there is a problem with the investing environment in the UK. However, it also shows that they won't be solving it any time soon. Not like this, anyway.

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.

A global energy crisis is emerging, following a similar pattern to the Covid pandemic. Then, impending disaster could be seen approaching from a distance. In January 2020, the Chinese city of Wuhan was locked down. In early March, Italy followed suit. Two weeks later, Boris Johnson announced a nationwide lockdown in Britain.

Emerging Asia is already in the throes of an energy crisis. Sri Lanka and Bangladesh are rationing fuel. The Philippines has implemented a four-day work week for civil servants. Egypt has imposed a 9pm curfew for shops and restaurants. Could similar pain be heading for Britain?

For all the grumbling about more expensive petrol, daily life in Europe hasn't yet been much affected by the closure of the Strait of Hormuz, says The Economist. But the last tankers to leave the Persian Gulf before the war began have now reached their destinations. No more fuel is on the way. Strategic stockpiles are being drawn down. Even if Hormuz reopened today, a cumulative loss of about 5% of annual global oil output now looks baked in, a figure that could double if the strait remains closed. The last time oil demand fell by 10% was during the Covid-19 lockdowns of 2020.

How are markets reacting to the energy crisis?

Brent crude oil hit $115 a barrel on Wednesday, its highest level since the summer of 2022 and a 90% rise since the start of the year. While oil futures have risen, markets remain “strangely sanguine” given the huge scale of supply destruction, says Liam Denning on Bloomberg. Oil prices for 2027 delivery are up a modest 17% since the war began.

It could take years to undo the damage that has already been done to global inventories. And with “two blockades” in place and little progress on peace talks, it is still far from clear when the strait will reopen. A survey from the Federal Reserve Bank of Dallas reports that four-fifths of US oil executives now don't expect traffic in the strait to return to normal levels before August, with 40% thinking it won't happen until November or later.

Stock traders optimistically expect everything to be resolved soon, but energy experts and commodity traders are far more alarmed, says Robert Armstrong in the Financial Times. “Horror stories” about the prices paid to deliver diesel to Asia are rife. Those prices are sucking scarce global barrels away from European ports.

Uncertainty levels are through the roof – even the geopolitical “pointyheads” don't have a clue what the outcome will be from US-Iran negotiations. Energy traders, who usually profit from volatility, hate the uncertainty created by Donald Trump's Truth Social posts, which are impossible to predict and cause markets to swing wildly.

There is a growing “disconnect” between “buoyant” stock prices and a real economy suffering energy shocks, says an article by Edmond de Rothschild Asset Management. On a relative basis, the US and China look better placed to face the coming energy crisis than Europe or Japan. “Behind the facade of market rebounds, the “economic fundamentals” are slowly “deteriorating”. Investors “need to stay invested but without being led astray by illusions”.

How the energy crisis is affecting the Persian Gulf region

World markets have “lost their fairy godmother”, says Ambrose Evans-Pritchard in The Telegraph. The Gulf states boast vast sovereign-wealth funds – valued at $5 trillion – representing years of accumulated oil profits. Most of those funds have been invested in Western assets, keeping government borrowing costs low and “turbo-charging excesses in US private credit”. Yet with problems to solve closer to home, the region's monarchies are about to tap those rainy-day funds.

Signs of stress are apparent. The wealthy Emiratis have reportedly raised the topic of securing an “emergency dollar swap line” from US Treasury secretary Scott Bessent, to the “consternation” of those who believe in “America First”. Swap lines are a “backbone of the global dollar system”, says the Financial Times. They see central banks or finance ministries swapping currencies at times of financial stress, when demand for US dollars often surges. Swaps prevent financial panic from spreading and are reversed once the crisis passes.

Gulf states boast large foreign reserves and are unlikely to face liquidity stress. But swaps might help “avoid financial market disruption”, says Stephen Paduano of Oxford University. Gulf sovereign-wealth funds have ample stock and bond holdings, but selling those to raise quick cash “could cause a stock market rout” and stress the US Treasury market.

“Emirati officials haven't made a formal request for a swap line,” says The Wall Street Journal. Discussions are only “preliminary”. The idea may not be so much a request as an “implicit threat” to the global role of the US dollar. The US Treasury has been warned that if the Gulf runs short of dollars “it may be forced to use Chinese yuan” for oil sales instead.

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.

Summary

• The MPC’s base rate decision for April was released today (30 April) at 12pm
• Prior to the conflict in the Middle East, the Bank of England had been forecast to cut interest rates twice in 2026
• Rising inflation has caused economists to reconsider their predictions for the year
• When the Bank of England’s Monetary Policy Committee (MPC) met in March, it held rates at 3.75%

| UK inflation forecast | MPC meeting dates | Is the UK heading for stagflation? |

Good afternoon and welcome to our live coverage ahead of the Bank of England’s Monetary Policy Committee announcing its latest base rate decision tomorrow (30 April).

Stay with us as we bring you all the latest news, analysis and reaction.

What is the current bank rate?

The Monetary Policy Committee, which is responsible for setting the base rate, decided to hold interest rates at 3.75% when it last met in March.

In a rare decision, the committee voted unanimously to hold interest rates, citing the increase in global energy and commodity prices caused by the conflict in the Middle East.

It said it would continue to monitor the situation in the Middle East “closely” and its impact on wholesale energy costs.

When does the MPC meet to decide UK interest rates?

The Monetary Policy Committee meets today, Wednesday 29 April, but the decision made by the committee’s nine members won’t be released until tomorrow at midday.

The announcement comes alongside a report detailing how each member voted and why they decided to lower, raise or hold rates.

Keep with us as we’ll announce the committee’s decision as soon as it’s confirmed at 12pm.

Why the MPC might hold UK interest rates

Given the degree of uncertainty over the eventual fallout from the conflict in Iran, and the UK’s precarious economy, some experts think that the MPC will once again err on the side of caution and hold UK interest rates unchanged.

“We expect the MPC to lean heavily into the uncertainty angle on Thursday,” said Matthew Ryan, head of market strategy at financial services firm Ebury. “In our view, it remains too soon for the bank to both assess the effect of the energy price spike on second round inflation, and have a clear timeline for when oil traffic will resume through the Strait of Hormuz.”

Holding UK interest rates unchanged would have the added benefit of signalling to markets that the MPC is willing to move UK interest rates in either direction, depending on how events unfold.

“[Bank of England governor Andrew] Bailey could again gently push back against market pricing for hikes, but we do not expect the statement to rule anything out,” Ryan added.

Who are the nine members of the Monetary Policy Committee?

The Monetary Policy Committee is made up of nine members - the governor, three deputy governors for monetary policy, financial stability and markets and banking, a chief economist and four external members appointed by the chancellor, currently Rachel Reeves.

External members are appointed by the chancellor to ensure outside voices are heard within the MPC.

A representative from HM Treasury also sits with the MPC at its meetings and can discuss policy issues, but is not allowed to vote.

These are the current nine members of the MPC:

• Andrew Bailey - governor
• Sarah Breeden - deputy governor, financial stability
• Clare Lombardelli - deputy governor, monetary policy
• Huw Pill - chief economist and executive director, monetary analysis
• Sir Dave Ramsden - deputy governor, markets and banking
• Dr Swati Dhingra - external member
• Megan Greene - external member
• Professor Alan Taylor - external member
• Catherine L Mann - external member

Where have interest rates been since 2008?

Interest rates spent years below 1% in the aftermath of the 2008 Financial Crisis, but started shooting up in 2022 as the Monetary Policy Committee looked to tame runaway inflation.

Three major factors caused inflation to surge in 2022, according to the Bank of England: countries emerging from coronavirus lockdowns which released pent up demand for products and services, Russia’s invasion of Ukraine, which saw energy and food prices soar, and a shortage of workers in the UK post-Covid which raised the cost of hiring (some businesses put their prices up to cover these costs).

In response, the Monetary Policy Committee voted for a number of interest rate hikes in 2022 and 2023, with bank rate hitting 5.25% at its peak.

Inflation has since slowed, meaning the committee has been able to steadily lower interest rates to 3.75%.

However, the inflationary effect of the conflict in Iran and the Middle East has dented hopes rates could fall again in 2026.

What do you think the Monetary Policy Committee's decision will be?

It’s time for you to have your say. Do you think interest rates will be lowered, held or raised tomorrow?

Where is inflation forecast to go in 2026?

Inflation has a bearing on what the Bank of England decides to do with interest rates, but where are experts and economists predicting it will go?

In its March report, the Monetary Policy Committee forecasted the Consumer Price Index (CPI) measure of inflation could increase to 3.5% by July (Q3).

The International Monetary Fund (IMF) is also expecting inflation in the UK to rise to 4% in 2026.

The Food and Drink Federation, the UK trade body for food and drink manufacturers, has said food inflation could hit as high as 9% by the end of the year.

How does base rate affect inflation?

The Bank of England uses interest rates as a lever to control consumer spending, which can influence price rises.

Higher interest rates generally lead to higher charges on mortgages and loans, meaning people spend more on them and less on other things, like goods and services.

They also see savers getting bigger returns on their savings which can incentivise people not to spend money and stash it away instead.

When people spend less, businesses are generally less willing or able to raise their prices, which keeps inflation lower.

Lower interest rates can have the opposite effect, making it cheaper to borrow money and take out a loan or mortgage.

Savers also get a smaller return on their savings so may feel it is more worthwhile to spend their money rather than save it. All of this can stimulate consumer spending and push up inflation.

The government sets the Bank of England a 2% target for inflation because low-level inflation is generally seen as more positive than deflation, where prices fall.

Energy prices forecast to rise in July – why the Bank of England is so concerned about inflation

A large reason the Bank of England is concerned about inflation is because of energy prices.

A focal point of the conflict in the Middle East has been the Strait of Hormuz, through which around 20% of global petrol and 20% of the world’s gas goes through each year.

The strait has effectively been blocked since the start of the conflict, which has pushed up wholesale prices.

This is expected to feed into energy prices from July, when the new price cap comes into effect. Ofgem will announce what the cap is on 27 May.

However, forecasts from consultancy Cornwall Insights, which is well-regarded for its price cap predictions, say the July price cap will rise to £1,836 per year – an increase of more than 12% from the current cap.

It is a major contrast to where the consultancy expected energy prices to go before the conflict began, when it forecasted them to rise modestly to an average of £1,645 a year, broadly the same as the current price cap.

Goodbye for now

Thanks for following our coverage ahead of the bank rate announcement tomorrow (30 April).

We’re going to end our live reporting for today and we’ll be back tomorrow first thing to bring you more reaction and analysis.

Make sure you keep an eye on the MoneyWeek website for all the latest investment and personal finance news.

Welcome back

Good morning and welcome back to our live coverage ahead of the Bank of England’s Monetary Policy Committee’s (MPC) bank rate decision today.

The MPC’s decision will be confirmed at 12pm, so stay with us for rolling analysis and commentary following the announcement.

A quick recap

If you’ve not been with us since our coverage started yesterday, here’s what you’ve missed.

The Monetary Policy Committee will have been weighing up the inflationary effects of the conflict in the Middle East when deciding whether to lower, hold or raise bank rate.

Economists and experts mostly believe rates will be held as policymakers take a wait and see approach.

Sanjay Raja, chief UK economist at Deutsche Bank, said: “We don't expect any change to bank rate in the April meeting (3.75%). Instead, we see the upcoming meeting as a 'risk posturing' event – with the Bank (of England) laying bare the risks to the economic outlook as a result of the energy shock.”

Quiz question: What is the current rate of inflation?

It’s time to test your knowledge and see how much you’ve been paying attention to the latest macroeconomic news.

What is the current rate of Consumer Price Index (CPI) inflation (as of March 2026)?

What has Andrew Bailey said about interest rates?

The governor of the Bank of England, Andrew Bailey, has said despite energy prices rising as a result of the conflict in the Middle East, the Bank of England would not rush to make any decisions on interest rate rises.

Speaking at a meeting of the International Monetary Fund (IMF) earlier this month, Bailey said the MPC would not “rush to judgements” on rates because the impact of higher energy prices could cause inflation to spike but also stunt economic growth, the BBC reported.

“There are a lot of uncertainties around this, not just how it's going to play out, but also how it's going to pass through into the UK economy,” he said.

Oil prices hit four-year high

The price of oil hit a four-year high last night (29 April) after US president Donald Trump told aides to prepare for an extended blockade of Iran, according to a report in the Wall Street Journal.

The US has been blockading Iran’s ports in a bid to squeeze its economy and prevent oil exports.

Following the reports, the price of a barrel of Brent Crude oil shot up to $126 overnight, its highest level since March 2022, shortly after Russia invaded Ukraine which sent energy prices soaring. Since last night, the price of a barrel of Crude Oil has fallen to $116.

Susannah Streeter, chief investment strategist at investment platform Wealth Club, said the surge in oil prices was unlikely to have an effect on any interest rate announcements from the Bank of England today.

She said: “For now, a wait-and-see stance is expected to be adopted, with the Bank of England looking set to keep rates on hold, and the European Central Bank poised to take the same action.

“But inflation is already ramping higher, as higher forecourt prices show up in the data. But they will want to see signs that inflation is becoming embedded in the economy, through higher consumer prices, and sticky wage growth before they make a move on rates.”

Interest rate announcement just minutes away

The Monetary Policy Committee’s announcement on interest rates is just minutes away. Stick with us and we’ll bring you the decision as it’s confirmed.

BREAKING: BANK OF ENGLAND HOLDS INTEREST RATES AT 3.75%

Decision from the Bank of England expected

The announcement from the Bank of England’s Monetary Policy Committee confirms what experts and economists had been predicting – that interest rates would be held.

The committee will next meet in June when the ripple effects of the conflict in the Middle East will be more apparent.

If inflation continues to rise, it could force the committee to increase interest rates.

Monetary Policy Committee votes to hold rates by 8-1

The MPC voted to hold rates at 3.75% by a majority of 8-1.

The committee’s chief economist and executive director, Huw Pill, was the one person who voted to raise rates, to 4%.

All other members, including the governor Andrew Bailey, voted to hold rates at 3.75%.

'Brace for bumps ahead'

What does the Monetary Policy Committee’s report say?

The report published by the Bank of England alongside its latest interest rate decision reveals a cautious stance from the Monetary Policy Committee.

It states that the conflict in the Middle East means that “prospects for global energy prices are highly uncertain”.

It adds: “Monetary policy cannot influence energy prices but will be set to ensure that the economic adjustment to them occurs in a way that achieves the 2% inflation target sustainably. The policy stance required to achieve this will depend on the scale and duration of the shock, and how it propagates through the economy.”

What does the interest rate decision mean for your mortgage and savings account?

The decision to hold interest rates means nothing major is likely to happen to your savings account rate in the immediate term.

The same goes for standard variable rate and tracker mortgages, which mirror the base rate.

Those on fixed-rate mortgages are less affected by immediate changes in the base rate as the interest rate you agree on your mortgage stays the same for the duration of its term.

Why Huw Pill voted to raise interest rates

As we’ve reported below, just one member of the Monetary Policy Committee voted to raise interest rates today – Huw Pill, chief economist and executive director.

Pill voted to raise interest rates by 0.25 percentage points to 4%.

His justification for a hike was that the effects of higher energy prices had the potential to create second-round effects which could “raise UK inflation beyond the near term in a persistent manner”.

Second-round inflationary effects occur when workers start asking for pay rises so their incomes keep up with inflation and firms raise prices to protect profits.

Worse-case scenario could see inflation could hit 6.2% in 2027

The Monetary Policy Committee’s report, published alongside its interest rate decision, says inflation could hit a peak of 6.2% at the start of 2027.

It describes three scenarios which could occur due to rising prices caused by the conflict in the Middle East. The worst of these, Scenario C, suggests inflation could reach as high as 6.2% in Q1 2027.

This, the report says, could lead to interest rates rising as high as 5.25% by the start of next year.

However, it’s worth noting this is a worse-case scenario, based on energy prices rising sharply and remaining elevated for a “prolonged period”.

In Scenario A, inflation would rise to 3.6% at the end of 2026, while under Scenario B, it would hit 3.7% by the end of this year.

Interest rates ‘another headache for the chancellor’

Despite a hold in the base rate today, markets are largely expecting an increase at some point in 2026.

This, combined with domestic political instability and a weak economic outlook, has prompted investors to sell UK government bonds, pushing yields up. This week, the 10-year gilt yield rose above 5% for the first time since 2008.

Lucy Smith, senior investment manager at wealth manager Killik & Co, said: “A high base rate, political instability in No.10 and a weak economic outlook will all contribute to driving gilt yields up. In real terms, this means the government will have to pay a premium on new debt, weakening its fiscal outlook.”

When will the next interest rate decision be announced?

The Bank of England’s Monetary Policy Committee will next meet in around six weeks’ time, with an announcement on interest rates scheduled for 18 June.

The next decision after this will be announced on 30 July.

Thanks for following

We’re going to end our coverage for today. Thanks for following and make sure you check out Moneyweek.com for all the latest personal finance and investment news.

Charles Jillings, co-fund manager of Utilico Emerging Markets Trust, discusses the outlook for emerging markets and the long-term investment opportunities in infrastructure and utilities.

In this episode of MoneyWeek Talks, Andrew Van Sickle speaks to Charles about how emerging economies are dealing with Donald Trump's tariffs, the after-effects of the war in Iran, and why countries like Brazil and the Philippines are overlooked markets.

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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.

From acorns grow oak trees: that's the sales pitch from fans of the Seed Enterprise Investment Scheme (SEIS), though the scheme's offer of more generous tax incentives than any other similar investment initiative is also part of the appeal. And with other opportunities to shelter from rising taxes now diminishing, many experts think the SEIS is set to become more popular than ever in the current tax year, which began earlier this month. Introduced in 2012, the SEIS aims to help very small and very young companies raise money to fund their growth. These are businesses that may lack the trading record necessary to borrow money from the bank, or to raise capital from other sources. Without access to finance, their growth may be stunted, preventing them from fulfilling their potential.

We really are talking about acorns. Raising money through the SEIS is only an option for businesses that have been trading for less than three years, which have assets of no more than £350,000 and fewer than 25 employees. There are also several more technical qualifying rules that limit SEIS eligibility to start-ups and very early-stage businesses. Inevitably, many of these businesses fail, taking investors' money with them. A recent study from Warwick Business School put the three-year survival rate for start-ups in the UK at 47% – falling to just 10% after ten years. Even businesses that show some early success – those that might therefore catch investors' eyes – often don't progress. Just 7% of businesses making it to £1 million of turnover go on to surpass £3 million, the Warwick study found.

That said, some start-ups do turn into scale-ups. New investors come in at higher valuations; SEIS investors who took the early risks may be able to exit at a handsome profit. It's even possible for SEIS-backed firms to make it all the way to a stock market listing.

SEIS can offer some extraordinary tax breaks

One example of a successful SEIS investment is Cognism, now regarded as one of Europe's leading data technology companies. The business raised SEIS funding in 2017, two years after its launch, with investors then able to exit when the business secured new backers in 2022; their returns were estimated to be worth around 40-times their initial stake. Only a handful of such winners can be rocket fuel for a SEIS portfolio, says Alex Davies, founder and CEO of investment platform Wealth Club. “The SEIS offers the chance to back very early-stage businesses with genuine high-growth potential, while recognising that most won't succeed,” Davies says. “The key is that you don't need many winners to generate significant returns.”

In part, that's because a few very large gains will compensate you for losses elsewhere. But the tax incentives offered on the SEIS – the government recognises that investors need some encouragement to risk their money – also provide plenty of insulation. Those tax breaks genuinely are quite something. You can invest up to £200,000 each tax year through the scheme, but you get 50% income-tax relief on this subscription, reducing its cost by half as long as you're earning enough to claim relief in full. In addition, you can claim capital-gains-tax reinvestment relief – if you've got taxable profits on other investments, you can reduce the bill by 50% by reinvesting these gains through the SEIS.

There's also support later on. Once you've held shares in a SEIS company for three years or more, any profits you make on the investment are free from capital-gains tax. Alternatively, if the business goes bust, you can claim loss relief, setting your losses against other taxable income you may have. SEIS investments also get preferential treatment on inheritance tax. The first £2.5 million worth of qualifying investments don't count towards the value of your estate for inheritance tax (IHT) purposes; on investments above this threshold, IHT is charged at only 20%, half the usual rate.

The combined effect of all these reliefs is significant. “SEIS tax reliefs turbocharge returns when things go well and cushion the impact when they don't,” explains Davies. “In today's high-tax environment, it's increasingly difficult for non-tax-advantaged investments to compete.” If you invest £100,000, say, in a portfolio of SEIS investments that returns 50%, your effective gain after income tax and capital-gains reinvestment relief will be 112%. But even if there's no growth and you only get your starting capital back, you would still be making a 62% gain.

Alternatively, the tax reliefs limit downside risk. If your £100,000 investment halves in value, you'll still be making a positive return of 12% after the income-and capital-gains tax breaks. Or, in the worst case scenario, where your investment ends up worthless, the actual loss on your initial £100,000 stake would only be £15,500.

Such perks look even more attractive given that the tax reliefs available on similar schemes are being reduced. The upfront income-tax relief on offer to investors in venture capital trusts (VCTs) – which also invest in early-stage businesses – fell from 30% to 20% on 6 April. At the same time, the tax burden that investors in these schemes are often looking to mitigate is increasing. Most notably, the IHT net will shortly be extended to include unused pension savings, while exemptions for business and agricultural assets are being eroded. Together with an ongoing freeze on the thresholds at which IHT becomes payable on estates, this has the potential to drive up bills for many families.

In fact, the SEIS is one of the few tax-efficient investment schemes to offer relief on IHT – along with its big brother, the Enterprise Investment Scheme (EIS). Cash and assets held within an individual savings account (ISA), for example, will count towards the value of your estate for IHT purposes. The same is true of VCTs. No wonder that the SEIS is attracting more interest, with investment in qualifying businesses already on an upward trend. “The SEIS is a key part of the UK's dynamic start-up environment, and recent changes with the reduction of tax relief for VCT investors make it even more attractive by comparison,” says Matt Cooper, co-CEO of the private market investment platform Crowdcube.

Pause and think about the risk

In the 2023-2024 tax year, the most recent period for which data is available, 2,290 companies raised £242 million through the SEIS, up more than 50% on the previous year, partly thanks to a tweak to the rules that enabled more companies to participate and to raise more money. Almost 10,150 investors put money into companies qualifying for the scheme, a 23% increase compared to the 2022-2023 tax year. The early indications are that the SEIS saw further growth in 2024-2025, with HM Revenue & Customs receiving 3,195 applications for “advanced assurance” – essentially requests from companies for guidance that they qualify for the SEIS scheme before they seek investment. That was 18% more than in the previous year.

Nevertheless, investing in the SEIS simply for tax reasons would not be sensible. Given the elevated risk profile of SEIS companies, this is an investment only suitable for wealthy and sophisticated investors who feel comfortable with the possibility of losing some or even all of their money. You will almost certainly have made good use of ISA and pension allowances before thinking about the SEIS; you may well have invested in VCTs and the EIS too. Also, remember that the scheme is most tax-efficient for investors who have other capital gains to roll over into it.

Still, the good news from an investment perspective, argues Joseph Zipfel, the chief investment officer of early-stage investment specialist SFC Capital, is that the SEIS has matured since its launch more than a decade ago. “The risk profile has changed materially,” he says. “While early-stage investing will always carry risk, the underlying quality, maturity and resilience of SEIS-backed companies has improved over the last ten years.”

The explanation, Zipfel believes, is that the UK's start-up ecosystem has improved markedly in terms of the amount of support available to entrepreneurs, with help on offer from universities, incubators, accelerators and government-backed organisations such as the British Business Bank and Innovate UK. Business founders are more sophisticated as a result – and the backing available has encouraged a broader range of people to launch their own enterprises.

Moreover, many SEIS-eligible businesses are now run by more experienced founders. “The SEIS has funded more than 2,000 companies every year for more than a decade; one of the most important consequences of this scale is the recent emergence of a second wave of entrepreneurs building their second or third venture,” Zipfel adds. “These founders bring hard-earned lessons from their first businesses, whether successful or not. They are typically more disciplined in capital allocation, clearer on go-to-market strategy, and faster at identifying what does not work.”

Add in the changes to the SEIS rules made in 2023, which saw slightly larger businesses become potentially eligible, and the overall picture is of a more resilient set of opportunities. “This evolution does not eliminate risk,” says Zipfel, “but it does mean that the starting point is much stronger and the overall risk-adjusted opportunity has improved materially.”

How to invest in the SEIS

There are two ways to take advantage of the investment opportunities and tax incentives that the SEIS offers. Your first option is to invest directly in a qualifying company that is currently raising money. The firm will need to have checked its SEIS eligibility with HMRC and should be able to tell you that it has received assurance that investments are likely to qualify.

The easiest way to find such opportunities is via a crowdfunding site – an online platform where early-stage companies appeal directly to retail investors. Platforms including Crowdcube, Crowd for Angels, Republic Europe (until recently known as Seedrs) and SyndicateRoom all feature SEIS-eligible businesses making pitches to investors.

The advantage of investing directly is that you have total control over which firms you decide to back. The downside is that it may be harder to spread your bets – you'll need to invest in multiple qualifying companies to avoid the danger of being exposed to a single high-risk business, or even a small handful. You'll also need to do your own due diligence.

Option two, therefore, tends to be more popular. Many investors opt for a SEIS fund – essentially a portfolio of ten to 25 or so qualifying companies chosen by a professional investment manager who specialises in investing in early-stage companies. Specialists in this area include Fuel Ventures, Guinness, Haatch and SFC. Wealth Club is one central point of access to a choice of SEIS funds.

With a fund, you get diversification and the benefit of the manager's expertise and experience. Funds may also have access to a wider range of opportunities, including attractive companies not on your radar. Investing in SEIS funds can also be a useful way of spreading risk, “although this needs to be balanced against the likelihood of higher returns from a direct individual investment if it goes well”, says Crowdcube's Matt Cooper.

There are downsides to the fund approach, too. Expect to pay much higher charges than on other types of collective investment funds, which will dilute your returns. You'll also be surrendering control of investment decisions and losing the direct relationship with individual firms, which many investors enjoy.

Finally, note that once you've made your investment, the business or fund will send you a form so that you can claim the various tax reliefs through your self-assessment tax return. This paperwork – known as the SEIS3 form – is critical; you won't be able to apply for relief from HMRC without it.

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Another week, another FTSE 250 company disappears. On Monday, William Hill's owner, Evoke, said it was in talks with Bally's over an offer for the company that would value it at more than £200 million. It may not seem like much for such a well-known brand, but Evoke is weighed down by debts that have depressed the value of the shares. The bigger problem, however, is that it is grappling with the huge rises in gambling taxes imposed by chancellor Rachel Reeves in the last Budget. She pushed up remote gaming duty, which applies to online casino and roulette games, from 21% to 40%, and online betting duty from 15% to 25%. The rate for betting at old-fashioned bookmakers on the high street was left at 15%, but that was little consolation for the major chains, which these days make most of their money from their apps, and mainly use the shops as a form of advertising.

It is not just Evoke that has been hit by that tax rise, although it has suffered more than most as its operations are concentrated in Britain. Paddy Power said late last year that it was closing 57 of its British shops with the loss of more than 250 jobs, while Entain, the company that owns Ladbrokes and Coral, has also started to close branches. Ahead of the tax rise, Betfred warned it might close all of its more than 1,200 physical stores if the new levies went ahead, and while that has yet to happen, it might well over the next year or two. Add it all up, and the outcome is clear. The tax rise has led to a big wave of closures across what has always been a huge industry.

There are three big problems with gambling tax rises. First, they will deal another big blow to the high street at a time when it is already facing a wave of closures of retailers, cafes and restaurants. There are more than 5,500 betting shops across Britain, at least before the latest round of closures. That is more than triple the number of bookshops and double the number of newsagents. Sure, that branch of Coral or William Hill, with its tatty biros and slightly dodgy-looking punters, was never exactly the most cheerful place in the typical town centre. But even so, it paid business rates, employed people and, in a small way, helped keep the high street alive. If they all start to close down, nothing will replace them. There will just be a few more dismal boarded-up shopfronts.

Raising gambling taxes will crush a British success story

Next, it does not look as if gambling tax rises will raise anything like as much money as expected. The £1.1 billion in extra cash forecast to roll into the Treasury assumes that there will only be very minor changes to behaviour (it would be £1.8 billion with no change). But that hardly seems plausible. If there are fewer physical shops, if the odds are less attractive and less money is spent on online marketing, the casual punter who puts the occasional fiver on the Cup Final or the Grand National will drift away. The hardcore gamblers will use a “virtual private network” that disguises which country you are visiting the internet from, to bet offshore, or else to gamble on the fast-growing prediction markets. Either way, the tax will raise far less than forecast.

Finally, raising gambling taxes will damage a major British industry. Companies such as Bet365 and Entain are among the global leaders of an industry that is worth well over $250 billion worldwide and growing all the time as legal restrictions are relaxed. A robust domestic market is vital if entrepreneurs are to flourish and established businesses are to succeed on the global stage. You might think the Treasury would want to back such success stories. After all, there are not that many of them any longer. Instead, it seems determined to tax them into extinction.

It seems extraordinary that the Treasury hasn't worked out by now that when you increase the taxes on an industry, it gets a lot smaller very quickly. But it looks as if it hasn't and will have to relearn that lesson all over again, and in the most expensive way possible. Even if the Treasury gets its extra billion, it will, in the process, have crippled a major British industry, worsened the crisis on the high street and pointlessly destroyed thousands of jobs. Even for the most hopeless chancellor of the last 50 years, that seems like a losing bet.

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What is happening at Royal Mail?

Royal Mail announced this week that a pilot scheme it's been running since last July – under which it delivers second-class mail only every other weekday and not at all on Saturdays – is to be rolled out nationwide from next month. This scaling back of its level of service to customers, it says, is part of a £500 million investment plan to tackle late deliveries. There will be no change to first-class post, which will still be delivered daily from Monday to Saturday, or to parcels, at up to seven days a week. The plan ends a dispute with postal unions and includes a provision to allow 6,000 part-time postal workers to increase their average weekly hours if needed. Meanwhile, earlier this month, the price for a second-class stamp rose another four pence to 91p.

So, worse service for more money?

That's par for the course with Royal Mail. The cost of first-class stamps has risen by 10p to £1.80 – meaning the price has more than doubled since 2020 (it's up 137%) with eight separate increases. Yet the quality of the service has declined and the business has repeatedly failed to meet delivery targets set by the regulator, Ofcom. In 2024-2025, only about 77% of first-class mail was delivered on time (against a 93% target), alongside similar underperformance in second-class deliveries. There have been multiple reports of a chaotic and demoralising working environment. Mail has been piling up in sorting offices from Cornwall to the Scottish islands, with numerous accounts of postal workers being instructed by managers to prioritise parcels over letters and even hiding vast quantities of mail from bosses. Ten different postal workers, all from different delivery offices, told the BBC that “take the mail for a ride” was a common phrase in their workplace.

Why is Ofcom not doing anything about Royal Mail?

Arguably not furious enough. In October 2025, Ofcom fined Royal Mail a record £21 million for failing to meet its delivery targets – not nothing, but hardly draconian for a business turning over £8.2 billion a year – and issued some stern words. But the regulator has been dishing out similar warnings and fines every year for the past three years – with fines for the period totalling £36 million – and nothing has changed. Part of Royal Mail's failure is due to operational failures and labour disputes. But the company is also battling a giant structural issue that may well make it doomed to fail without radical surgery.

Why is Royal Mail struggling?

In the age of the internet, individuals and businesses are sending a fraction of the letters they used to, but a lot more parcels. Over the past two decades the number of letters sent each year in the UK has collapsed from around 20 billion annually in the mid-2000s to roughly six billion today, while parcel volumes have surged with the rapid growth of online shopping. That transition has proven all but impossible to manage because Royal Mail's cost base – its nationwide delivery network and legally mandated “universal service obligation” (USO) – was designed for a high-volume letters business that no longer exists. The modern Royal Mail is still obliged to deliver letters to all 32 million addresses in the UK (four million more than 20 years ago) at a uniform price, but it doesn't have the volume of letters business to do so economically and efficiently.

Who owns Royal Mail?

Royal Mail is owned by Czech billionaire Daniel Kretinsky, an energy magnate who made a fortune transporting Russian gas to eastern Europe and is one of the richest people in Europe. For most of its five-century history Royal Mail was a public service, but it was privatised by the Tory-led coalition government in 2013, having been legally separated from the Post Office the year before. The state kept a 30% stake, but sold its shares (at a profit) in 2015, ending 499 years of state ownership. Then, in 2022, Royal Mail changed its name to the unlovely International Distribution Services (IDS), becoming a subsidiary of a listed holding company that also owned Parcelforce Worldwide and GLS Group.

In 2024, having built up a large stake in IDS over several years, Kretinsky's privately owned Czech-based EP Group offered to buy the whole thing – a £3.6 billion takeover that was approved by shareholders and the Labour government, and which was completed in May 2025. But since EP took control, the service has only got worse. Now, only about 75% of first-class mail arrives on time. Promises of new investment have not materialised. And the firm has been loaded up with £3 billion in debt, private-equity-style.

Is Royal Mail more stable now?

Too early to say. In September 2025, Royal Mail announced a profit on an adjusted basis for the first time in three years for 2024-2025, having increased volumes through automation and locker deliveries, as well as cutting costs. Royal Mail's adjusted operating profit was £12 million, its first since the year to March 2022. Including voluntary redundancy costs, it reported operating losses of £8 million, against a £348 million loss for the year to March 2025, on revenue up 7% to £8.23 billion. However, these figures pre-date the takeover: Kretinsky inherited a modestly improving scenario, in which marginal profitability was heavily dependent on cost reductions. Analysts also have concerns about debt and financial engineering associated with the takeover.

Questioned by a House of Commons trade and business committee in March, Kretinsky said he was “deeply sorry” for late deliveries, but that getting the service back on track would be conditional on further reform of the universal service obligation. Alas, trying to “stitch a 21st-century parcels service onto a regulated letter-delivery service is never going to work”, says Alex Brummer in the Daily Mail. What is needed is radical reform and modernisation at all levels, “otherwise the start-up services, without historic costs and obligations, are going to make mincemeat of Royal Mail”.

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The government has been shouting about getting more people to invest for some time now. For the chancellor Rachel Reeves, it would mean more money to help boost the UK economy.

And she so desperately wants people to invest, she even went ahead with plans to slash the cash ISA allowance from £20,000 to £12,000, effective from the next tax year, for those under age 65.

For anyone looking to take advantage of a £20,000 ISA allowance, they would need to invest anything above £12,000 using a stocks and shares ISA.

This has caused a bit of a stir among cash lovers, though in reality, a large majority of those stomping their feet over the cut have never used their full cash ISA allowance in the first place.

But, if we put feelings aside, the important thing to remember is that people should consider investing – not to please Reeves, but to boost their own wealth. See our guide to investing to help you get started.

I am not sure a squirrel is the right choice for its Invest for the Future campaign, though. It's too closely associated with cash and investing is not squirrelling. Investing does not mean hoarding your cash. And while a squirrel may stash its nuts, investing means you may lose some nuts along the way but hopefully end up with a lot more than you started with.

Savvy the Squirrel is certainly cute and likeable, unlike the pensions ‘Workie’ for those who remember the scary monster appearing on TV screens in 2015 to promote auto-enrolment pensions.

Though, I am not convinced the squirrel will be effective in converting cash hoarding Brits into a nation of investors with the same power as the British Gas ‘Tell Sid’ campaign – now that really did demonstrate the power of spreading the word.

Investing versus saving

If the Savvy Squirrel doesn't convince you to invest, then it’s worth considering what investing could mean for you in the first place.

Latest data from investing platform Vanguard shows that if you had invested £100 in global shares in 1970 and held them through the oil shocks of the 1970s, the dot-com boom, and the Global Financial Crisis, it would now be worth around £35,000, that is 10 times the £3,400 if you had kept your savings in cash.

We take a closer look at saving versus investing in our article.

When should you invest?

Getting started with investing is simple, despite the myths that you need expertise or a lot of cash – you need neither of those. You can invest with just a few pounds and you don’t need to be a trader.

But there are some simple rules you should consider before you invest. This includes:

• Clear unsecured debt
• Build emergency savings
• Have some cash for short-term goals (five years or less)
• Do not invest money you need for bills

And then there are also simple rules to consider when you do start investing. This includes:

• Start small to build confidence
• Do not panic when markets fall; keep investing each month
• Investing is for the long term, so invest money you do not need for five years or more.

According to Vanguard, Brits have a collective £200 billion sitting in excess cash. This is cash that can be invested. By not investing, you are at risk of letting inflation eat into your savings over the long-term. Inflation has come down from its highs of 9.6% in November 2022, but at that time, unless you were earning over 9.6% in cash interest, you were losing money.

Inflation is 3.3%, but again, if your cash is not earning more, you’re losing spending power as the value of your cash erodes.

And remember, when you invest, the power of compounding can be phenomenal and over time, you will build more wealth. And of course, while there are risks in investing, most people see an upside and become more financially resilient than if they had stuck with cash.

Summary

• UK inflation rose by 3.3% in the 12 months to March 2026, up from 3% in the year to February.
• Prior to the conflict in the Middle East, experts had predicted inflation to fall from 3% in February.
• Some forecasters expect CPI inflation could rise above 4% by the autumn.

| What is inflation? | UK inflation forecast | Inflation basket of goods | CPI release dates |

Good afternoon and welcome to MoneyWeek’s live coverage of the latest UK inflation data release.

Tomorrow morning, we’ll find out just how heavily the oil squeeze that followed the outbreak of the Iran conflict pushed up UK prices.

Follow us here today for rolling preview and analysis.

When is the March UK inflation data released?

The Office for National Statistics (ONS) will release the latest UK inflation figures – covering the month of March – tomorrow morning (22 April) at 7am.

Inflation statistics are always retrospective; they cover the month before the one in which they are released.

Last month, the inflation release for February showed that CPI inflation held steady at 3% over the preceding year. Significantly, this covered the period up until the outbreak of the conflict in Iran.

It is almost a given that inflation will have risen during March as a result of the war. The most important question is how significant the increase will prove to have been.

What is CPI inflation?

Inflation measures the pace at which prices increase. It is calculated by assessing changes in a core, representative basket of goods and services that economists deem representative of the UK economy as a whole.

The core measure of inflation – and the one we’ll be referring to here unless specified – is the annual change in the Consumer Prices Index (CPI). There are other measures of inflation which we’ll refer to, but CPI is the metric that is most closely followed, largely because it is the easiest metric with which to make international comparisons.

The Bank of England – like most central banks – targets a 2% annual CPI inflation rate. This is generally viewed as healthy by economists, representing an economy that is growing but without prices increasing too fast for household spending power to keep up.

What do analysts expect happened to UK inflation in March?

March is a key month in the recent history of UK inflation.

Up until February, inflation had been on a downward trend. There were some bumps in the road, but the expectations from most commentators and the Bank of England’s own forecasters was that inflation was trending down towards the 2% target – perhaps as soon as the second quarter of 2026.

The Iran conflict has drastically changed the picture. With the Strait of Hormuz effectively closed since the beginning of March, oil prices have risen, putting pressure on the input costs for almost every kind of business.

“March's CPI figures are expected to show inflation edging up, reflecting the impact of geopolitical tensions on oil and commodity prices, which feed through into energy, fuel and food costs for households,” said Harriet Guevara, chief savings officer at Nottingham Building Society.

Analysts at Bank of America and Deutsche Bank predict a 3.3% rate of annual CPI inflation.

Why does inflation matter to you?

Inflation impacts your money in two different ways – one of them direct, the other less so.

The direct impact is the amount that you pay for things. As far as the March data goes, you’ve already felt this impact; if you noticed goods (especially petrol) being a little more expensive over recent weeks, or your budget didn’t stretch as far as normal, that’s because of inflation.

But it has a less direct, and longer-lasting impact. Higher inflation is a warning sign for central bankers, and the only lever they can pull to bring it down is to increase interest rates.

Higher interest rates mean that mortgage rates increase, as do interest rates on any kind of debt you hold. On the other hand, it could see the interest that you earn on your cash savings increase.

How high could UK inflation go this year?

The oil shock following the Iran war will almost certainly have pushed the UK’s rate of CPI inflation up in the year to March. The bigger question in many respects is how high the metric could reach later this year.

Former Bank of England rate-setter Michael Saunders, now senior economic adviser at advisory firm Oxford Economics, thinks CPI inflation could reach as high as 4.5% by the end of the year – and that even if the oil crisis resolves, the impact could be long-lasting.

“Because of uncertainties regarding the extent to which higher inflation will affect inflation expectations and pay growth, the scale of any second-round effects is unlikely to be clear until early next year,” said Saunders.

See our UK inflation forecast explainer for more detail on where inflation is expected to go next.

Thanks for following our preview coverage of tomorrow's UK interest rates decision this afternoon. We're pausing live coverage for now, but join us from 7am tomorrow as we bring you live coverage of the inflation figures from their release.

Good morning and welcome back to our live coverage of the inflation data for March 2026. The Office for National Statistics (ONS) will release the figures very shortly.

UK inflation rises by 3.3%

The Consumer Prices Index (CPI) rose by 3.3% in the 12 months to March 2026 – up from 3% in the year to February. This data covers the first month since the conflict in the Middle East began on 28 February.

What drove the UK inflation rate rise?

On a monthly basis, CPI rose by 0.7% in March 2026 – up from 0.3% the year before.

The Consumer Prices Prices Index including owner occupiers’ housing costs (CPIH) rose by 3.4% in the 12 months to March 2026, up from 3.2% in the 12 months to February. On a monthly basis, CPIH rose by 0.6% in March 2026, compared with a rise of 0.3% in March 2025.

Motor fuels was the main driver of the monthly change in the annual CPIH and CPI rates, the ONS said. Falling prices in clothing partially offset the rise.

Rachel Reeves: “Our economic plan is the right one”

Chancellor Rachel Reeves has responded to the latest inflation data, insisting the government’s economic plan has put them in a stronger position to help families as the impact of the war in Iran affects the UK economy.

“This is not our war, but it is pushing up bills for families and businesses. That’s why it’s my number one priority to keep costs down,” she said.

"Our economic plan is the right one and has put us in a stronger position to support families in the face of this new crisis.

“We’ve taken £117 off energy bills, frozen rail fares and protected motorists with the fuel duty freeze. We’re acting to protect people from unfair price rises if they occur to bring down food prices at the till, and are boosting long-term energy security — building a stronger, more secure economy.”

Transport drives UK inflation in March 2026

Transport, principally motor fuels, made the largest contribution to the increase in CPI annual inflation in March.

Housing and household services prices also accelerated as did food and non-alcoholic beverages, and recreation and culture prices.

The increase in the inflation rate was partially offset by a fall in clothing and footwear prices.

How have petrol prices changed?

Fuel prices have shot up in recent weeks, after the US and Israel launched strikes on Iran on 28 February. Wholesale oil prices increased after Iran shut the Strait of Hormuz, a narrow waterway between Iran and Oman through which 20% of the world's oil is transported. As petrol and diesel are made by enriching crude oil, drivers saw prices at the pump surge.

The average price of a litre of petrol has now fallen back slightly to 157p, according to RAC fuel watch on 21 April, but it’s still 24.7p per litre more than before the Iran war began. On 14 April, it had risen to 25.5p more than before the conflict. The average price of a litre of diesel was 190p a litre on 21 April – 47.8p higher than before the conflict, but slightly less than the 49.2p difference on 14 April.

The price of a litre of petrol is now 24p more expensive than a year ago, according to analysis by roadside assistance provider, The AA. It means drivers are now paying £13.20 more to fill a typical 55-litre petrol tank compared to this time last year.

Signs of living costs rising

While drivers may have noticed the price of fuel rising when they visited the pumps since the war began, today’s inflation data shows how prices of goods and services have changed in March.

“These are the first flickers of the Middle East conflict heating up everyday costs, with volatile oil and gas market pricing hitting forecourts,” Susannah Streeter, chief investment strategist, Wealth Club said.

“There’s likely to be further flare-ups on the way, especially if a longer-term resolution isn’t agreed.”

The renewed climb in fuel prices puts households at risk of squeezed budgets, Streeter said.

“Shoppers have turned cautious, and it seems retailers have had to discount to shift stock, with prices for clothing and footwear declining sharply month on month. They dipped by 0.8% in the 12 months to March 2026 compared with a rise of 0.9% in the 12 months to February.

“It was the lowest recorded annual rate for March since 2021 when prices were hit by the COVID-19 pandemic. Clearly consumers are tightening their belts as another cost-of-living crisis arrives.”

How do you feel about the cost of living?

Inflation affects people in different ways – as people have different spending habits, your personal inflation rate can differ to the national inflation rate.

For instance, motorists who need to regularly fill up their car with fuel will notice their transport spending increasing more than people who tend to walk everywhere.

How are you feeling about the rising cost of living?

What does the UK inflation rate rise mean for savers?

The average savings rate is currently 3.46%, according to money comparison website Moneyfactscompare.co.uk. This is higher than the latest inflation rate of 3.3%, meaning savers can get real returns on their cash – but it’s important to shop around.

The best easy access savings account on the market right now pays 4.50%. This is the Chase Saver with boosted rate – it includes a 2.25% AER bonus rate that's fixed for 12 months. The underlying variable rate is 2.25%.

There are currently 1,582 inflation-beating savings accounts, including 139 easy access, 131 notice accounts, 138 variable rate ISAs, 387 fixed rate ISAs and 787 fixed rate bonds.

Caitlyn Eastell, personal finance analyst at Moneyfactscompare.co.uk, said: “During times of uncertainty, some savers may place higher value on flexibility. Easy access accounts can be useful to help manage monthly volatility, giving savers the freedom to respond to unexpected costs."

Savers face a "tricky balancing act" when choosing between a fixed or variable rate account, Eastell said. "While they may be able to enjoy more competitive returns in the short-term, inflation will quickly catch up, eroding their hard-earned cash. In any case it’s crucial savers shop around for deals that pay over 3.3% to ensure they aren’t left out of pocket.”

Is the UK heading for stagflation?

The latest UK inflation figures are a worry for policymakers given that they arrive alongside a weakening economic picture.

The International Monetary Fund (IMF) downgraded its forecast for UK economic growth last week, saying that the country would be hit harder by the fallout of the Middle East conflict than any of the other members of the G7 (a group of seven rich nations of which the UK is a member).

This combination of inflation and economic stagnation is often referred to as ‘stagflation’, and poses a major headache for rate-setters. Usually, the Bank of England would hike rates to combat higher inflation – but that risks exacerbating the weakening economic situation.

On the plus side, economic weakness could in itself prevent inflation getting too out of hand.

“Though rising services inflation will worry rate-setters as it suggests that the fallout from the Iran war is already intensifying underlying price pressures, the squeeze from a weakening economy should limit any second-round effects,” said Suren Thiru, chief economist at the Institute of Chartered Accountants in England and Wales.

However, Thiru added that despite the extended ceasefire that has been announced, energy costs and food prices are likely to continue to rise and could lift UK inflation above 4% by the autumn.

Higher UK inflation could push mortgage rates higher

Despite the weakening economic situation in the UK, the Bank of England may veer towards hiking interest rates anyway if it deems the risks from runaway inflation to be too great.

“That would likely mean higher mortgage rates, adding to the cost pressures facing those looking for a home loan and putting further strain on borrowers coming to the end of cheaper fixed-rate mortgages,” said Charlotte Kennedy, Chartered Financial Planner at wealth manager Rathbones.

According to data from Moneyfacts, the UK’s average mortgage rate has risen from 5.50% to 5.71% since the previous inflation announcement.

“Homebuyers will need to evaluate their affordability because rates could stay higher for longer as the Bank of England tries to bring inflation back towards its target,” said Caitlyn Eastell, personal finance analyst at Moneyfacts.

How could higher UK inflation impact your investments?

While higher UK inflation is likely to lead to increased mortgage and savings rates, it is less straightforward to say how it could impact your investments – largely because different investments will respond differently to higher inflation.

Gilt yields are likely to rise, assuming that the Bank of England delays or reverses its cutting cycle in response to higher inflation, and this would likely feed through into higher bond yields.

But equities are a mixed bag. “UK equities, particularly consumer-facing sectors, face margin pressure from rising input costs,” said Lale Akoner, global market analyst at trading platform eToro.

“Conversely, energy and commodity-linked stocks should benefit from sustained oil strength,” Akoner added.

How will the Bank of England respond to higher inflation?

The Bank of England’s Monetary Policy Committee (MPC) faces a difficult decision when it next sets UK interest rates.

Given the twin challenges of a weakening economy (which would normally imply rate cuts) and rising inflation (which would normally imply rate hikes), it is far from clear what the MPC will decide.

“After the shocks of Covid and the Ukraine war, central bankers remain hypersensitive to anything that risks embedding another round of inflation,” said Rob Morgan, chief investment analyst at investment manager Charles Stanley Direct.

The next MPC meeting takes place next week, and its decision will be announced on 30 April.

“The BoE is expected to put interest rates cuts on the backburner once more,” said Morgan. “The MPC needs time to assess the impact and will no doubt resist jumping to any conclusions about how long the conflict lasts and the extent of any pass through to core inflation.”

Services inflation remains sticky

Most experts had expected an increase in goods inflation, which is a logical consequence of the Iran war pushing up oil prices.

Alarmingly, though, this was accompanied by a rise in services inflation from 4.3% in the 12 months to February to 4.5% in the 12 months to March.

Services inflation has been running persistently ahead of goods inflation since July 2023. This sticky services inflation has been a major upward driver of overall UK inflation throughout that time.

This was largely due to increased air fares, and according to Deutsche Bank’s chief UK economist Sanjay Raja the bank’s core services measures, which factor out some more volatile inputs, “remained broadly unchanged”.

Still, persistent services inflation compounds the headache faced by MPC rate-setters next week.

UK inflation: other metrics

So far today we’ve mostly discussed the headline consumer prices index CPI figure, which rose 3.3% in the year to March.

Some of the other key metrics from today’s release are:

• Consumer Prices Index including owner occupiers' housing costs (CPIH) rose by 3.4% in the 12 months to March 2026, up from 3.2% in the 12 months to February;
• Core CPIH (CPIH excluding energy, food, alcohol and tobacco) rose by 3.3% in the 12 months to March 2026, down from 3.4% in the 12 months to February;
• Core CPI (CPI excluding energy, food, alcohol and tobacco) rose by 3.1% in the 12 months to March 2026, down from 3.2% in the 12 months to February;
• On a monthly basis, CPI rose by 0.7% in March 2026, compared with a rise of 0.3% in March 2025;
• CPIH rose by 0.6% in the month to March 2026 (up from 0.3% in the month to March 2025), while core CPIH rose by 0.3% over the same period (down from 0.4% a year before).

Recap: UK inflation rose to 3.3% in year to March

Here’s a recap of this morning’s UK inflation headlines:

• CPI inflation rose to 3.3% in the 12 months to March;
• This was largely driven by increases in transportation costs, especially motor fuels – largely thanks to the impact of the war in the Middle East;
• Services inflation has remained sticky, rising from 4.3% in the 12 months to February to 4.5% in the 12 months to March;
• Higher inflation could prompt the Bank of England to slow its pace of rate cuts, or even raise interest rates – potentially leading to higher mortgage rates.

Thank you for following our coverage of today’s UK inflation data release. As expected, the Iran war has pushed up prices across the UK – how will policymakers react? We’ll find out at the next MPC meeting, which is taking place next week.

We’re ending today’s live coverage here, but keep an eye on the MoneyWeek website and subscribe for email updates as we bring you more inflation news and reaction following today’s release.

Should you invest in China, or is it essentially “uninvestable”? That was the gist of the debate just a few years ago. The West can never quite seem to make its mind up about the Middle Kingdom. Once derided as cheap but tacky, in 2026 China is suddenly cool. Social-media influencers show off their indoor slippers and traditional Chinese medicine, while quipping that they are “learning to be Chinese”.

Polling by Pew Research shows that, while only 28% of Britons aged older than 50 have a favourable opinion of China, that figure doubles to 56% of the demographic aged 18-34. Where older Westerners see a repressive one-party state, the young scroll TikTok and share images of the futuristic “cyberpunk” city of Chongqing (it's worth a visit, if you can handle the brutal humidity).

A warning for those wanting to invest in China

This pendulum swing is nothing new. During the 2000s, China's extraordinary growth (14% in 2007 alone) led to feverish speculation about when exactly it would become the world's largest economy (2027, according to one widely cited projection). The story remained bullish during the early 2010s, as China used a massive infrastructure stimulus package to duck the stagnation plaguing developed economies after the great financial crisis. In the process, the country built the world's largest high-speed rail network, a service whose gleaming modernity makes Britain's trains feel like a donkey and cart by comparison.

But simultaneously, a more negative narrative took hold. The first signs of trouble came in summer 2015 after a parabolic run-up in Chinese shares went into reverse. The CSI 300 index plummeted 44% between June of that year and January 2016. A MoneyWeek cover at the time depicted a dragon roller-coaster hurtling downwards. In many countries, such a plunge would herald the beginning of a devastating recession. Not in China (GDP registered an official growth rate of 6.7% in 2016, a modest fall from the previous year).

In China, where the stock market is traditionally regarded as being little better than a casino, it is state banks, not investors, that decide where credit will be allocated. But it was a warning shot to investors. The most optimistic projections for Chinese growth didn't quite pan out. Today, total GDP is still only 65% of the US level, and a mere 15% of the level in terms of GDP per capita.

Still, grown it has, and at a rate and consistency with little precedent in world history. Yet those gains haven't accrued to those who decided to invest in China. Since the start of 2008, Chinese GDP has risen by 344%. The CSI 300? 1%. You can still make money if you invest in China, of course. Local shares have zoomed 43% higher since September 2023. But as a long-term investment, the case remains unproven. Stock markets rise and fall, but most trend upwards. It is the reason investing has a better reputation than gambling. Yet China's equity graph really does resemble a roller-coaster, with long climbs followed by hair-raising plummets.

China is far from the only emerging market to exhibit a disconnect between GDP growth and equity returns, although its case is especially extreme. The exact causes are much debated.

One important factor is simply that investors adore a good emerging-market growth story. That causes valuations to rocket, front-loading years of earnings growth into current valuations (something that current buyers of expensive Indian shares would do well to bear in mind).

A second reason is that many of the gains from growth tend to be captured off stock markets, particularly by landlords. Just imagine the fairy-tale returns from holding a patch of land in Shenzhen, an impoverished collection of fishing villages that blossomed in two decades into the centre of global technology manufacturing.

China's property bubble has burst

The gains to be had from property weren't lost on the Chinese. Newly wealthy Chinese households had few other investment options. Bank deposits pay miserable returns. Foreign shares are off limits, and the local stock market is volatile. So they went massively for bricks and mortar, buying second and third homes as investments. When built, these assets were often not even rented out, lest tenants detract from the much more important objective of maximising capital gains.

What followed was a property boom for the ages. During three years in the 2010s, China used more cement than America employed in the entire 20th century. The bubble was clearly getting out of hand. In 2020-2021, officials called time by imposing stricter caps on leverage. Property developers went to the wall, most famously including giant Evergrande, which imploded with $300 billion in liabilities. In 2023, Reuters estimated there were 7.2 million unsold homes. National property prices fell 40% between 2021 and 2025. That was devastating for a middle class that holds nearly 70% of its wealth in property. The property-shaped cloud over sentiment has yet to lift. In January and February, retail sales endured their weakest two-month start to any year since 2000 outside the Covid era.

There are plenty of other concerns for those looking to invest in China. The country's fertility rate is running at close to one child per woman, making it one of the world's most rapidly ageing societies. And a 2021 crackdown on tech firms (now largely reversed) was a reminder that all businesses ultimately operate at the pleasure of the Communist Party.

How China learnt from Japan's mistakes

Since the property bust, many economists have noted parallels between China and Japan. During the 1980s Japan was regarded as the world's most technologically advanced nation. Following the crash in the 1990s, its corporations slowly began to slip behind, failing to capitalise on the rise of the internet. But it looks as if China will avoid Japan's fate.

Tokyo spent the 1990s pouring money into zombie firms; in 2021, Beijing pulled credit from property and redirected it with military zeal towards the “New Productive Forces”, official jargon for things such as electric vehicles, rare earths, batteries, green technology and AI. Chinese companies are now conquering new global markets with terrifying efficiency. One in seven cars sold in the UK this year was Chinese, up from 1.3% just five years ago. Britain's top-selling car is currently the Jaecoo 7, a brand that almost nobody had heard of until recently.

China's critics have long pointed to what might euphemistically be called the country's relaxed attitude towards other nations' intellectual property. But China's days as a mere imitator of Western inventions are ending. As economics commentator Noah Smith notes on Substack, Chinese firms now know how to do things that Western companies simply can't replicate. Nowhere else has such a dense clustering of electronics and tooling engineers. Chinese firms are opening factories in other countries, and those factories are proving more productive than the foreign competition. Soon, the Germans will be copying the Chinese.

Better ideas are only one part of the equation. The other is lavish levels of state support, especially in the form of never-ending credit lines. Chinese factories are producing too much. The country's global export dominance – the trade surplus reached $1.2 trillion last year – is a symptom of the fact that there aren't enough domestic buyers to soak up a glut of batteries, solar panels and especially cars. China's manufacturers have turned to world markets not out of strength so much as desperation; razor-thin profit margins mean they are fighting to keep the lights on. China's industrial strength and its chronic deflation are thus two sides of the same industrial-policy coin. You might argue, as Smith does, that China is simply making a huge capital-incinerating mistake. But you might also argue, as Jeremy Warner does in The Telegraph, that given the choice between wasting capital on excess industrial capacity and wasting it on unsustainable welfare, as the West does, China is making the better strategic choice. Chinese industrial policy makes a lot more sense “if your objective is that of enfeebling the US... while insulating China against the sort of supply-chain vulnerabilities we see buffeting Western economies”.

Should you invest in China?

Will Chinese shares prove a good investment over the next ten to 20 years? Given the historical record of equity returns, the jury is still very much out. What does seem less likely today than even a few years ago is a repeat of the Russian experience, where foreign investments were effectively zeroed out following Vladimir Putin's invasion of Ukraine.

In 2022, the parallels with Chinese assets in the event of a Taiwan conflict seemed obvious. But the world has changed. It is far from clear that Donald Trump's America would stand in the way of a Chinese invasion across the Taiwan strait, and even harder to believe that the UK, acting in solidarity with the US, would cut off trade with China, the world's second-largest economy, as aggressively as we have sanctioned Russia, a comparative minnow.

Taking a one- to three-year view, the Middle Kingdom looks a reasonable bet. Firstly, because China's newfound coolness might just be a foretaste of a “vibe shift” about to occur in the market. Markets have always traded on narrative as much as cold, hard facts about Ebitda, and over the past decade, the rise of social media has only amplified this trend (how else can we explain car-maker Tesla's current price-to-earnings ratio of 324 times earnings?). Secondly, unlike Tesla's stock and its ilk, China has genuine value appeal. The MSCI China index trades on a very reasonable 11 times forward earnings, which should cap downside risks if anything goes wrong.

Punting the whole pension on Shanghai would be imprudent, but a trade that ticks both the momentum and value boxes deserves to be taken seriously. In 2026 the meme winds are blowing in favour of China. Given the entry price, it seems foolish not to lean into it.

The best ways to invest in China now

Before investing in China, it's worth auditing your current exposure. Enthusiastic buyers of emerging-market funds may well discover that they already have quite enough Chinese shares. As much as a quarter of many emerging-market trackers and funds are allocated to China. And for those nervous about conflict in the Taiwan strait, note that soaring semiconductor valuations have recently seen Taiwan's share of the emerging-market sector balloon, in some cases to another fifth or more of many funds.

By contrast, investors with a bias towards developed markets may be underweight China. China accounts for a mere 2.9% of the MSCI ACWI index (ranking behind the economic juggernaut that is Mark Carney's Canada). Compare that with China's 17% share of global GDP. There are sensible arguments for why Chinese markets shouldn't take up that much of a typical equity portfolio, but a 2.9% allocation is much too low for a country that is seizing the high ground in so many of the industries of the future.

The three leading active China trusts are Fidelity China Special Situations (LSE: FCSS), JPMorgan China Growth & Income (LSE: JCGI) and Baillie Gifford China Growth (LSE: BGCG). The funds have more similarities than differences, with each having put in a similar performance over the past 12 months, and a rising tech tide driving gains of about 25%. JPMorgan pays out a 4.7% dividend.

There is a solid case for active management in China, where Western investors will want to load up on tech and consumer shares, while steering clear of state-owned banks and low-quality firms. Fidelity has the best long-run record, but its slight tilt towards small and medium-sized firms may not be the best play at a time of relentless domestic deflation. Baillie Gifford, which has more of a growth bias, fits the bill better for those seeking a tactical momentum play.

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Is the US dollar still king?

Yes, the US dollar remains the world's de facto reserve currency and the unrivalled backbone of the global financial system: it accounts for 56% of global foreign-exchange reserves and is involved in 89% of all foreign-exchange market trades worldwide.

Although the US is responsible for less than a tenth of global trade, about 54% of it is still invoiced and settled in US dollars. About 60% of all international loans and deposits are denominated in dollars, as is 70% of international bond issuance. Even physical US banknotes are widely held abroad thanks to the dollar's broad acceptance in almost every country in the world and its perceived utility as a low-risk store of value. Indeed, the Federal Reserve estimates that over half of the more than $2 trillion of US banknotes in issue are currently held by foreigners.

Is that good for America?

Yes. The vast global demand for US dollars translates into an embedded premium for US assets and a discount for its debt – what France's former president Valery Giscard d'Estaing famously dubbed America's “exorbitant privilege”. It also puts the US in a uniquely strong position to damage the financial systems of other countries via the use of punitive sanctions.

Not everyone agrees that the privilege is all that exorbitant, however. Some US economists, including advisers to Donald Trump, argue that the costs of the US dollar's reserve status outweigh the benefits. It might make borrowing rates lower than otherwise, but (they argue) this discount is overstated, while reserve status also makes the US currency unduly strong, hurting US exporters.

From the rest of the world's perspective, though, controlling the world's most powerful and desired currency does seem like a very nice problem to have.

Why is the US dollar supreme?

The US dollar's strength rests on solid structural foundations: the size and openness of the US economy (accounting for about a quarter of global GDP), the liquidity of its financial markets, the rule of law and powerful network effects that are self-reinforcing. Put simply, says Paul Krugman on Substack, “the most powerful force behind the dollar's dominance is the fact that the dollar is already dominant. The very fact that everyone uses dollars as money makes it easier to use dollars than any other currency.”

The privilege this confers is often overstated, says Krugman, but it is real. Businesses and banks must often use the US banking system, meaning that US officials have the power to observe and, in some cases, block these transactions by, for example, imposing sanctions on adversaries and secondary sanctions on those who trade with them.

Is the US dollar's dominance declining?

Yes. Measured by central-bank reserve holdings, the US dollar's share has fallen from around 71% in 1999 to around 56% today. That's a meaningful shift, driven in large part by the creation of the euro at the turn of the century (it now has a 20% share). But that's scarcely a collapse. The dollar may well become less dominant as a unit of exchange, but it's unlikely to lose its crown as the global reserve currency, argue analysts at Charles Schwab, since there's no real alternative.

A reserve currency needs to be freely convertible and have deep and liquid bond markets to be considered safe for foreign central banks to hold – and there is no other national market that matches the US in terms of size and openness. The euro area's bond markets are far more fragmented. Japan's bond market is closely controlled by its central bank, which owns the bulk of its government debt. China has capital controls, excessive political risk and its currency isn't even freely convertible.

Is the US dollar safe?

It's more that “de-dollarisation” is likely to be gradual rather than imminent. Central banks are already diversifying holdings, buying gold (exceeding 1,000 tonnes annually, the highest in decades) and currencies that come without the geopolitical baggage of today's US (Canadian and Australian dollars, for example).

And there's been a proliferation of bilateral trade arrangements denominated in non-dollar currencies, particularly involving China – including agreements to settle energy trades in yuan, especially among countries (such as Iran) that are subject to, or wary of, US sanctions.

The “weaponisation” of the US dollar to impose sanctions following Russia's invasion of Ukraine gave new impetus to that trend. Yet to date, none of this amounts to a systemic shift. The yuan, despite China's economic heft, still accounts for only around 2% of global reserves. Yuan-denominated trade accounts for less than 4% of the global total; payment systems such as China's Cross-Border Interbank Payment System (CIPS) remain tiny relative to the dollar-based infrastructure centred on Swift.

How is Trump affecting the US dollar?

The turbulence of the second Trump presidency – from the tariff scares to the Iran war and oil shock – has ramped up talk of the US dollar's decline. Trump's unpredictability and apparent disdain for international order and traditional alliances sits uneasily with the dollar's putative role as a global public good.

The dollar slumped in the early months of the second Trump presidency, falling more than 8% in the first four months of 2025 as the world took fright at Trump's tariffs. Yet even from its peak in January 2025 (the start of Trump's current term), the dollar's fall still leaves the US currency near the high end of its 15-year range in trade-weighted terms.

Geopolitical shocks may well encourage hedging and experimentation with alternatives, and chip away at the dollar's aura of neutrality. Equally, economists will continue to worry about the sustainability of US deficits and its gigantic, growing debt pile ($39 trillion, or about 124% of GDP). But none of these factors, in themselves, create a viable successor. The dollar may decline, but there's no sign yet of its fall.

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It is an audacious bid. Through his hedge fund Pershing Square, Bill Ackman has offered $64 billion for Universal Music, one of the largest music conglomerates in the world and a producer for artists including Taylor Swift.

It is a complex deal involving both cash and shares and would move the company's listing from Amsterdam to New York.

It remains to be seen whether the deal is successful or not. The decision will probably rest with French billionaire Vincent Bolloré, who controls 18% of the company, and on its British chief executive Lucian Grainge, who is widely credited with managing the transition from analogue to digital music. Predictions markets are giving the bid a 37% chance of success by 30 June.

It is far from the only recent media megadeal. After a battle with Netflix, Paramount Skydance, which is controlled and financed by the Ellison family, has agreed to pay more than $100 billion for Warner Bros, the studio that controls a huge library of films, along with news channel CNN and sports broadcaster TNT. It still needs regulatory approval in the markets where it operates, but the deal is agreed, and there is little to stop it from happening now.

Investors are betting against AI slop

There is a common theme to both major bids. Huge sums of money are being wagered on the proposition that the arts will still be created and controlled by humans. That goes against the hype in the rest of the market.

We have read huge amounts about the rise of AI and the vast sums being poured into the software and data centres that will power super-smart chatbots. The leading companies in the sector, such as OpenAI and Anthropic, may well be worth more than $1 trillion if they list their shares later this year, while established giants such as Google, Meta and Elon Musk's X have been pouring fortunes into developing their own systems.

The creative industries are meant to be right in the firing line to be replaced by AI. The bots are good at generating music tracks that can be surprisingly popular. There have been plenty of AI-generated songs that have topped the streaming charts, and the likes of ChatGPT and Google Gemini offer music-generating tools. It is not hard to choose a genre, come up with a theme, and then upload a track onto Spotify or Google Music. It can be very lucrative.

Likewise, AI actors can replace real ones, and the same is true of scriptwriters, technicians and directors. Indeed, Netflix last month paid $600 million for InterPositive, an AI start-up developing post-production tools for the film industry, backed by the actor Ben Affleck. There are already reports of AI helping with scripts, and it may not be long before the bots are up on the big screen.

So why would anyone in their right mind want to pay tens of billions for a film studio or a music label? After all, there is not much value in a studio if films can be created by anyone with a laptop and a subscription to ChatGPT or Claude AI.

Conventional wisdom says the world will soon be flooded with AI slop – films of every conceivable genre, written for you, directed in any style you choose, and acted by AI-generated bots, or else by digitally recreated megastars from the past. Every taste will be catered to, and it may not be long before you can choose from a range of plot twists or endings depending on your personal taste. Traditional films will be finished.

Likewise, the streaming apps will also soon be flooded with AI slop – Taylor Swift knockoffs, along with tracks from every possible musical style, from classical to jazz to soul. We will all be able to create our own personal track-lists, made up of a mash-up of styles, singers and musicians precisely tailored to our own tastes or mood.

AI slop cannot create anything new

Well, perhaps. Yet the billionaire bidders for Warner and Universal are clearly on to something. In the end, human creativity will survive. The chatbots can recreate plots or tunes that already exist, study the libraries and rustle up a reasonable facsimile. But they can't create anything new; they don't have personality, they don't have any insight into our feelings, and they are never going to be able to make us laugh, cry or dance.

The chatbots might change the way industries function, but they are unlikely to destroy them. Investors are pouring huge sums of money into AI start-ups, confident that the systems will be able to replace just about any form of human endeavour.

Some of the world's richest people are betting the other way – against the triumph of AI slop. So should ordinary investors.

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The UK economy is now expected to grow by less than 1% in 2026 following disruptions due to the war in Iran, new forecasts from the International Monetary Fund (IMF) show.

Economic growth in the UK, as measured by GDP, is now forecast to come in at just 0.8% in 2026, down from the 1.3% that the IMF predicted before the war started.

This growth downgrade of 0.5 percentage points is the largest among the G7, a group of seven rich nations of which the UK is a member.

Every G7 country has had its growth forecast cut by the IMF in its latest forecast apart from Japan, which has remained stable.

The IMF’s latest forecast has also downgraded UK economic growth expectations for 2027, to 1.3% from the 1.5% expected in January.

The IMF also downgraded the global economic growth forecast, revising it to 3.1% this year, down 0.2 percentage points from its January prediction.

Growth downgrade is a result of Iran war, says IMF

It comes after the war between the United States and Iran has thrown the global economy into turmoil, with disruption to the global oil supply being particularly damaging.

Kristalina Georgieva, managing director of the IMF, said: “Had it not been for this shock, we would have been upgrading global growth. But now, even our most hopeful scenario involves a growth downgrade. Why? Because of infrastructure damage, supply disruptions, losses of confidence and other scarring effects.

“Even in the best case, there will be no neat and clean return to the status quo,” she added.

The direct consequences of the war have led the IMF to forecast a rise in global inflation, fewer interest rate cuts across the globe, and higher energy prices that may continue for the rest of 2026 and beyond.

Each of these factors hurt the global economic outlook.

IMF: Higher energy costs set to hit UK living standards

Heightened energy prices are set to be one of the major obstacles households will have to contend with this year following the war.

That is particularly painful to hear as many have struggled to keep up with the price of energy since the 2022 energy crisis following Russia’s invasion of Ukraine.

Cornwall Insight, an energy consultancy, expects the typical energy bill for the average household to reach £1,861 in July, 13% higher than the current average thanks to elevated energy prices in the wholesale market.

These higher energy prices will feed into inflation, with the IMF now expecting UK price growth to head towards 4% in 2026, while unemployment is expected to reach 5.6%.

Rising inflation will hit UK households as the purchasing power of their income will fall.

What is more, high inflation is likely to mean the Bank of England will keep interest rates where they are, at 3.75%, forgoing a cut until 2027, according to many economists.

All these factors have resulted in the IMF also downgrading its living standards forecast for the UK.

The body now expects minimal change in UK living standards this year, as output per person is projected to increase by a barely-noticeable 0.3% per person, the lowest in the G7

The growth downgrade is particularly bad news for the government’s target of securing the highest sustained growth in the G7, which it promised as part of its election manifesto.

Lindsay James, investment strategist at Quilter, said: “The conflict in the Middle East has effectively blown a hole open in the economic plan the Labour government was embarking on, and without a significant calming of the tensions, the UK is expected to fare the worst of the world’s developed economies.

“The government came into this year hoping it would be one of stabilisation, with Budget concerns now out of the picture and the fiscal headroom being enlarged.

“The US-Iran war, however, has blown that off course and instead resulted in the UK suffering from increased energy prices and the potential for an inflationary shock. With interest rate cuts now firmly off the cards for now, and the potential for hikes very much live, economic growth is going to be hard to come by.”

Asian markets (excluding Japan) are still widely classed as “emerging markets”, but the description is misleading. China, South Korea and Taiwan now account for more than 75% of the MSCI Asia ex Japan index and more than 60% of the MSCI Emerging Markets. South Korea and Taiwan are high-tech economies by any standards. China is a more mixed picture, but highly advanced in many areas.

This means that Asia is a hard region to ignore. Four of the world's 30 largest firms are based there: Taiwan Semiconductor Manufacturing (TSMC); Korea's Samsung Electronics and SK Hynix; and China's Tencent. Crucially, these “fantastic four” are not just big companies, but also very well-placed. “The AI build-out is positive for Asia, with 38% of data-centre capital expenditure going to Asian businesses,” says Emily Whiting of JP Morgan.

In particular, TSMC is “one of the best businesses in the entire world”. While Nvidia and others design cutting-edge chips, it is TSMC that makes them. The market is growing strongly and chips are becoming almost a consumable, replaced every few years. That makes TSMC's forward price/earnings ratio in the high teens look almost like a bargain.

Meanwhile Samsung and SK Hynix dominate the market for memory chips, with Samsung trading on a single-digit forward multiple. SK Hynix's specialism in ultrafast, high-bandwidth memory commands a higher rating, but still only in the mid-teens.

Tencent is very different: it is mostly a domestic business, focused on entertainment, social media, the internet and gaming in China – ie, a consumption play. “Asia has 60% of the world's population and 48% of its GDP yet only accounts for 9% of the global stockmarket valuation,” says Whiting. “Demographic trends are strong, with over one billion people moving into the consumer class, to the benefit of the banking, financial and consumer sectors.”

Wider opportunities in Asian markets

This ensures that while nearly all the Asian specialist trusts have an exposure of more than 30% to the “fantastic four”, managers can find plenty to buy beyond the heavyweights. Look for value in Southeast Asia rather than China or Korea, suggests Abbas Barkhorder of Schroders. Return on equity in China has been “heading in the wrong direction since 2012 due to over-investment”, he argues.

India “remains expensive” among Asian markets, but offers some opportunities. The banking sector is attractive given “low banking penetration and private sector banks taking market share from state-owned ones”. Insurance also has scope for strong growth due to “low levels of insurance cover and a significant need for cover, given high out-of-pocket expenditure on healthcare”.

Recent performance of most of the Asia regional trusts has been very strong, led by Baillie Gifford's growth-focused Pacific Horizon (LSE: PHI) and Schroder Oriental Income (LSE: SOI). The market setback has knocked the region back by about 10%. This re-establishes absolute as well as relative value and provides an opportunity to invest for the long term.

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US debt is getting out of control. Amid the fog of war, it would have been easy to overlook the latest deficit number coming out of Washington. According to figures from the Treasury Department, the US national debt is now more than $39 trillion. It is only five months since it went past $38 trillion.

US debt has doubled from only $19 trillion when Donald Trump was sworn in for his first term as president. The overall debt-to-GDP ratio is now more than 124%, and by the end of 2026, interest payments will be more than $1 trillion a year. The deficit is rising at a relentless pace and the Treasury is issuing more and more debt to stay afloat.

The US debt pile is going to get a lot bigger over the next few years. Firstly, the Iran war is going to prove hugely expensive. According to the Pentagon, the first six days alone cost $11 billion and the total bill is already more than $40 billion and going up all the time. The hi-tech missiles and bombs the US deploys to such lethal effect are very expensive and the arsenals will have to be restocked soon. If the war goes on, the bill will keep rising – and that is before looking at aid to rebuild a shattered country if the regime falls.

Tariffs won't reduce US debt

Secondly, the revenue from tariffs looks more and more uncertain. Putting levies on everything America imports was always going to be a problem for the economy, but at least it brought in significant new revenue. It was, in effect, a tax, and given the size of the deficit, perhaps that was just what the US needed. The federal government collected $280 billion in tariff revenue in 2025, triple the figure for 2024, and the levies were only fully implemented in September. In March, however, the US Supreme Court ruled that the way they were imposed was illegal and exceeded the powers of the presidency. Even worse, the ruling may mean the revenue has to be repaid. The result? We can forget about that extra money reducing US debt, and the repayments, if that is what happens, will have to be paid with yet more borrowing.

Thirdly, the Department of Government Efficiency (Doge), the ruthless cost-cutting machine established by Elon Musk to take a chainsaw to government spending, has achieved very little. Musk talked grandly of cutting hundreds of billions from the state machine and hired a bunch of whizz-kids to make it happen. As it turned out, however, it turned out to be a lot harder than cutting costs at Twitter (now X) or one of his other companies. Doge did have some success: it cut the number of Federal employees by 9%, the largest fall since the demobilisation after the end of the Korean War in the 1950s. Even so, the unit has now been effectively disbanded as a single entity.

In effect, the Trump administration has given up on the attempt to slash waste and inefficiency. It proved to be too hard and little progress was made. Indeed, with the watchdog out of the way, all the staff who were laid off will probably be quietly restored to the payroll.

Finally, the mid-term elections due later this year will be terrible for the Republicans. Trump was already falling in the opinion polls, and the war in Iran has made his ratings worse. If there is a deadlock between Congress and the White House, we can forget about any controls on spending, on tax rises, or any serious effort to balance the books. There may be periodic shutdowns as the two sides fail to agree on a budget, but that won't reduce spending – it will just make the state even less effective. In reality, the political machine has lost the ability to put any meaningful restraints on spending.

True, the US economy remains strong, certainly compared with a stagnant Europe. But the maths can't be ignored forever. The last president to balance the books was Bill Clinton back in the 1990s. We don't know yet how a fiscal crisis will play out. There may be a surge in inflation, tolerated by the Federal Reserve, to whittle it away in real terms. The dollar may collapse as investors lose faith and switch to alternative currencies, perhaps including the newly launched digital yuan, or else gold or bitcoin. Or there may be a long shutdown as the federal government simply runs out of cash. We will find out over the next few years. For investors the important point is surely this: the dollar is not nearly as strong as it looks. Sooner or later there will be a crash – and the only smart move is to diversify before it happens.

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What’s happening with UK energy prices?

Energy secretary Ed Miliband is set to approve the first major North Sea oil and gas project in almost ten years, says The Times. The licence to exploit the Jackdaw gas field, 150 miles east of Aberdeen, was granted under the previous Conservative government, but has been held up by legal wrangling.

Giving it the green light would not technically contravene Labour's ban on “new” drilling in the North Sea, but it would be a striking policy shift for Labour, and in particular for Miliband, a net-zero true believer.

Proponents say the energy shock caused by the Iran war has strengthened the case for drilling. Adura, the joint venture that owns the rights to the field, claims it could produce the equivalent of 6% of the UK's future gas supply.

Is that realistic?

Others are sceptical. Uplift, a lobby group, claims Jackdaw would have zero impact on our bills and do little to increase gas supply. Indeed, even if the UK extracted every last hydrocarbon from the North Sea, it “would not raise this country's long-term output of oil and gas by more than homeopathic amounts” and “would not move the needle on UK energy prices”, says Ambrose Evans-Pritchard in The Telegraph.

Oil is priced off the global market and the gas price would continue to track the international cost of liquefied natural gas – “unless we cut off our European inter-connectors, tore up our EU trade deal and retreated into energy autarky”.

Why are UK energy prices so high?

There are several reasons why UK energy prices are so high (we pay more for electricity than almost anywhere else in Europe). One is that, although the UK is getting good at producing renewable energy, it's terrible at scaling up its storage capacity. Despite improvements in battery technology, the UK's current capacity is negligible compared with the volume needed to affect electricity prices.

Another is geography and climate: while the price of solar power continues to plummet, wind power prices have plateaued, and the network costs of getting the power from the windy places (mostly northern and offshore) to the more populous ones are large. Green levies and other so-called “policy costs” make things worse, accounting for up to 11% of a typical bill for a dual-fuel household and 16% if it's electricity-only.

Another crucial factor is that we're a net importer of natural gas and highly vulnerable to external shocks. Moreover, our electricity prices are priced largely off the gas price, even though renewables now make up more than half the mix in terms of generating electricity.

Why is UK electricity priced off gas?

Because the UK – like almost all other developed, liberalised, economies – uses a “pay as clear” system of “marginal pricing” to match buyers with sellers so the market clears and overall demand is met by sufficient supply. In practice, that means that all power plants available to generate and sell electricity are continuously making “bids” to do so at a particular price. The bids are then arranged in a “merit order stack”, from the cheapest to the most expensive.

Because gas still makes up a big chunk of the mix, it is almost always the provider of the “marginal” unit of energy – the point at which the market clears and supply meets demand. One study found that in 2021, gas set the price of power 97% of the time, even though it generated only 37% of electricity. In France, where the market is dominated by nuclear, gas sets the price just 7% of the time.

Why not change the energy system?

We could, and there are various options. One is to move to a “pay as bid” model, where each power plant is paid the amount that it has bid to supply electricity, rather than the higher marginal price. But the risk there, says Simon Evans for Carbon Brief, is that all bidders (including cheap renewables) would seek to maximise their profit by bidding at the price they expect the market to clear, not at their own generation costs. As such, the system wouldn't lead to lower prices.

A second option would be to create two separate markets: a “green power pool” for renewables and another for conventional sources. This option was considered – and rejected as undeliverable – in the government's 2024 “review of electricity market arrangements”.

What other options are there for lowering UK energy prices?

A third, more radical, option for lowering UK energy prices would be to take gas out of the market completely. The sector would be managed as a strategic national reserve, receiving a regulated return for remaining open and available as a stand-by resource, while the rest of the market continues to use marginal pricing. It's doable, but would be politically very contentious.

The reality is that marginal pricing appears to be the “worst approach to clearing markets apart from all the others”, says Jon Ferris of consultancy LCP Delta. For the UK, where gas still sets the price, that leaves us stranded for now in a very expensive halfway house – bearing the capital costs of building a low-carbon system, while still paying the current fuel costs of the obsolescent fossil-fuel system.

What’s the solution to high UK energy prices?

In the absence of a new pricing mechanism for UK energy, some more pragmatism and less ideology would be a start, says The Economist. More than four-fifths of British homes still rely on gas for heating, far more than in the EU. So at some point, the commitment to hitting 95% clean electricity – renewables and nuclear – by 2030 is going to come unstuck.

In the long run, this is a sensible economic and geostrategic aim: the National Energy System Operator, which designs Britain's grid, projects that the country's energy-related costs (comprising transport, heating and electricity) could fall from 10% of GDP in 2025 to less than 6% by 2050 in a low-carbon world. We'd be much less vulnerable to external shocks. Yet even in 2050, the UK will still need gas as back-up. The government needs to recognise that and allow more North Sea exploration and drilling now. Even though it wouldn't bring down domestic prices, it would increase UK energy security and lend a fiscal hand, too.

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Recession is coming. Any hopes chancellor Rachel Reeves may have had of keeping her promise to make Britain the fastest-growing economy in the G7 have surely finally been dashed. Last week, the OECD think tank warned that Britain would be hit harder than any other

Britain's ideologically driven commitment to being the world leader in hitting net-zero carbon emissions means we already have to import most of our energy and prices are now rising out of control. Likewise, in February, retail sales fell back again, and that was before the impact of the conflict in the Middle East fed through to the data. Jaguar Land Rover temporarily suspended production at its Solihull plant over a supply issue, while shoe chain Russell & Bromley collapsed into administration, knocking out yet another high-street stalwart. It is hardly an encouraging outlook.

It is going to get a lot worse. The living wage went up on 1 April, rising by another 4.1% to £12.71 an hour, piling more costs onto employers. From the start of the new tax year, both companies and individuals will be hit with a whole blizzard of tax increases. Business rates will go up sharply as reliefs are withdrawn, with the vast majority of companies having to pay up regardless of whether they are making any money or not. Council taxes will go up, with a typical rise of 5% across England and Wales. The higher rate of tax on dividends and savings and rental income also comes into force, hitting anyone running a small business hard. Even more landlords will give up, making the rental market even worse than it already is.

Frozen tax thresholds will mean that even a modest annual pay rise, and one that barely keeps up with rising inflation, may well take you into a higher tax bracket, and mean that you end up with hardly any extra take-home income (and we all know what kind of impact that will have on incentives to work. Even air passenger duty will go up yet again, making it more expensive to get out of the country if you have had enough of all the other tax rises. The list goes on.

The rises are bad enough in themselves, but the real problem is the timing. Reeves has adopted a strategy of pre-announcing tax rises: in each Budget, she sets out a series of increases that will start to bite a year, or even two or three, out. To the officials at the Treasury, that may seem clever. It allows the Office for Budget Responsibility to say that the books will be balanced, at least one day in the future if not right away. It keeps the bond market happy, so long as no one digs too deeply into the numbers. It allows spending to be increased right away, keeping the backbenchers happy, and the actual pain of the tax increases is a long way off so no one complains about it too much.

Risk of recession means the chancellor needs to act

The trouble is, the moment when taxes go up steeply always arrives one day. The blunt reality is this: no one in their right mind would think that Britain in April 2026 is a country where everyone needs to be forced to pay more to the government. The economy has stagnated and is at risk of sliding into a recession. The Iran war means energy costs are exploding and the Bank of England may have to raise interest rates twice or more before the end of the year, instead of reducing them as had been expected.

Against that backdrop, you would expect the chancellor to be cutting a few taxes and announcing some targeted infrastructure spending to cope with any rise in unemployment, to try and support the economy. But it is too late to change course now. The plan has already been set and the machinery of taxation moves relentlessly forward, with zero flexibility and without any ability to respond as the outlook for the economy changes.

If the chancellor had any courage she would postpone many of the tax rises due to come into force this week. Instead, she would embark on a long-overdue review of public spending, identify savings, stop spending such insane amounts of money on welfare, and find a way to convince her party that the money had run out. She would, after all, have a convincing story to tell.

Unfortunately, Reeves is neither brave nor clever enough to attempt that. Instead, business and consumer confidence will be crushed even further – and a recession now looks close to certain.

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In 1776, Adam Smith, often described as the father of economics, published his masterwork, The Wealth of Nations. It was in many ways a very different world to the one we now know, as John Kay recounts in The Corporation in the 21st Century. The men founding the new nation flattered themselves that it would become “the greatest and most formidable that ever was in the world”, and that “indeed seem[ed] very likely”, as Smith wrote. That seems prescient, but it was not for his political acumen that he is remembered, but for his economic insights.

“It is the great multiplication of the productions of all the different arts, in consequence of the division of labour, which occasions in a well governed society that universal opulence which extends itself to the lowest ranks of the people,” said Smith in The Wealth of Nations. Since he wrote those words, inflation-adjusted GDP per head in Britain has grown more than tenfold. The scale of that change can perhaps better be imagined, as Kay recounts, by remembering that Adam Smith wrote his manuscript with a quill pen and that his Edinburgh residence was lit by candlelight. Smith, you could say, had barely glimpsed the modern world. It's unlikely he had even seen inside that famous pin factory he used as an example to describe the power of the division of labour. And yet he saw further and deeper than most men – of his own time, or indeed since.

Adam Smith's “invisible hand” is omnipresent

The true depth and greatness of Adam Smith's writings are unlikely to be fathomed by those who content themselves with commentary about them. A great deal of the latter was produced last month to celebrate the 250th anniversary of the publication of The Wealth of Nations, but those ploughing through it all would be unlikely to come to a true appreciation of Smith's contribution. It was dispiriting to read pieces intended as celebrations of Smith that were really little more than pretexts for marshalling, for a narrow ideological or political cause, some of Smith's most familiar and overused quotations – those making the case for and championing free trade and the power of the “invisible hand”, if of one ideological persuasion; those lamenting the power of the rich and the damaging effects of monopoly and the division of labour if of another.

Go to the source instead, however, and you will find an embarrassment of riches. Shortly before his death, Adam Smith was still working on revisions to his earlier book, The Theory of Moral Sentiments, which should be seen as a companion volume to his better-known work and be read alongside it. Anyone who has will see what a nonsense it is to claim, as some do, that Smith only mentioned the “invisible hand” a few times and that therefore the concept is not as of great importance as later commentators have made of it. It would be more true to say that the invisible hand is at work in pretty much every sentence Smith wrote, in both of his books.

In The Theory of Moral Sentiments, for example, Smith considers the natural sympathy that arises in our breast for the suffering of others. When another man is ill, for example, and especially if that man is Adam Smith saw further than most men near and dear to us, we imagine what it would be like to suffer ourselves as he is, and hence really do suffer on his account, and because of that seek to do what we can to alleviate his pain. Our natural sentiments assist us in this noble endeavour, yet if they did all the work perfectly naturally then our efforts to help wouldn't be seen as noble at all, rather just what happens as instinctively as a dog salivating at mealtimes. Because most of us are not perfectly selfless, at least not all the time, and because our ability to enter imaginatively and sympathetically into the suffering of others has its limits, we are apt to act in ways somewhere short of saintliness when confronted with the travails of others, especially if we consider that they are not making every possible effort to pull themselves together and get well.

Perhaps we go to see our relative in hospital, for example, but are secretly rather glad to get away from all the complaining when visiting time is over. This may seem something short of virtuous from the point of view of our own conscience, and yet because our limitations are probably all too well known by the sick person, that enters as a factor into their own recovery. They moderate expressions of their own suffering to levels that others can sympathetically enter in to, keep a stiff upper lip with regard to the rest, and make every effort to get well and return to social life. These efforts are in themselves conducive to healing. This explains why the best thing we can do when depressed is get out and spend time in company, even if it is the last thing we feel like doing. Selfishness, in short, in the right doses, can act as if by an invisible hand in ways that promote the general wellbeing of ourselves and indeed of society as a whole. A judicious mix of the sympathy and the selfishness of others helps lift us up and move us on.

The case for progress

This kind of deep psychological and spiritual insight is the sort of thing you expect more from the classic novels of the 19th century than from a philosopher or economist, and The Theory of Moral Sentiments abounds in them. They lay the basis for a true appreciation of The Wealth of Nations. Many take the later work to be a kind of dry economics textbook, but it is more fascinating than any manifesto for neoliberalism or free markets could ever be, and remains deeply relevant to modern-day issues.

Take the contemporary debate about the desirability of economic growth and progress, for example. One side argues that these represent, if not everything, then nearly everything we should care about when it comes to human flourishing and happiness. The other side mocks this crudely materialist understanding and argues instead for other, higher values, and for indifference to or even the reversal of growth, all the while unconsciously enjoying the fruits of it, and making arguments that would be unthinkable if we did not have that foundation to stand upon. The latter argument these days is more associated with the political left, the former with the right. Adam Smith sees more clearly than both. In chapter 8 of the first book of The Wealth of Nations, where Smith examines what determines wage rates, he argues that it is progress itself, far more than the level of wealth, that is important:

“…[I]t is in the progressive state, while the society is advancing to the further acquisition, rather than when it has acquired its full complement of riches, that the condition of the labouring poor, of the great body of the people, seems to be the happiest and the most comfortable,” he wrote. “It is hard in the stationary and miserable in the declining state. The progressive state is in reality the cheerful and the hearty state to all the different orders of the society. The stationary is dull; the declining, melancholy.”

Human beings, in short, are goal-oriented creatures, and are miserable if they are poor, just as they may be miserable if they are rich, if there is not a sense of progress towards higher states of flourishing and prosperity. It is not solely a question of whether or not more money can deliver happiness; it is a question of understanding human nature.

Similarly, in the same chapter Adam Smith addresses another contemporary issue – population. If you want to increase the population, as many thinkers say is now urgently necessary, then the answer according to Smith is simple. If increasing levels of wealth through economic growth were delivered, wages would inevitably rise, and hence so would population: demand creates its own supply. Stated baldly like that it sounds mechanical and deterministic, but Adam Smith is simply well attuned to the conditions most conducive to the desired course of action. When people are thinking about having families, or about the size of them, naturally their state of mind about their own situation and prospective future will enter into the decision. Happy, creatively active people whose wages and general levels of prosperity are going up might feel more positively about the prospect of a larger family and its ability to survive and thrive than miserable drudges who can barely make ends meet as it is. The economic and the moral, the selfish and the selfless, are two sides of the same coin. The thing to rely on is the invisible hand, if we were just wise enough to allow it its sway.

Shining a light on modernity

Reading Adam Smith's books will inevitably shine a light on many other contemporary issues. What is “astonishing”, as Jesse Norman, the author of Adam Smith: Father of Economics, points out in The Washington Post, is that Smith still, 250 years on, “frames the central questions we face, not just about free markets, trade and capitalism, but about the nature of human society, and even what it is to be human at all”. Smith is, for example, often cited in rows about Donald Trump's tariffs. One of the central aims of Smith's book was, after all, to counter the mercantilism of his own day, and reading it “clarifies the stakes” at issue today. The central question, says Norman, is not whether tariffs or other government interventions are ever justified. Smith himself allowed that they could be, when national defence is concerned, for example. It is “whether trade policy strengthens or weakens the competitive foundations of prosperity”. The fact is they weaken it, impose costs not on foreign rivals but domestic consumers, and lay the foundation for “institutional drift” and “crony capitalism”.

Or take another contemporary issue, the rise of AI. Adam Smith recognised that the division of labour and rise of machinery, while leading to huge increases in general efficiency and prosperity, could also lead to the crippling of human abilities if not corrected by education. Today, new technologies threaten our cognitive abilities by allowing us to delegate them to a machine. That too may lead to huge efficiency gains and prosperity, but we must be alive to the risks, as Smith was to the risks of machinery in his day. There are, as ever, moral issues too. Smith's moral philosophy revolved around what he called “the impartial spectator”, the internalised voice through which we each evaluate our conduct. AI does not have a conscience or sense of responsibility. So if institutions “shift authority from human deliberation to algorithmic outputs – because those outputs are so much cheaper, faster or statistically superior – the habits of accountability, and the demands we make for them, may weaken”, says Norman. “The danger is subtle. It is not that machines will suddenly rule us. It is that we will grow accustomed to deferring to them.”

Calling Adam Smith an economist “seriously understates his significance”, says Clive Crook on Bloomberg. The breadth of his thinking is hard for modern readers to grasp, but the effort is worth it because his followers, “intent on narrowing and thereby desiccating the field, have let him down”. Smith “delighted above all in observing and disentangling unforeseen or unintended consequences” and “as a result he ranged far beyond economics… through moral and political philosophy, sociology, and social psychology… driven by curiosity more than conviction”. Above all, Smith was a pragmatist. “He saw that commercial society worked, and applied his open mind to asking why. After 250 years, his answers are still enlightening.”

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Vietnam is one of the world's fastest-growing markets, and this trend is expected to continue over the next decade. The economy is benefiting from growth in all three key components of GDP: rising exports as global firms diversify their supply chains from China; a major investment drive backed by both the government and the private sector; and the growth of consumer spending as the middle class expands.

At present, Vietnam is still classed as a frontier market rather than an emerging market. This distinction is about market infrastructure and access rules rather than the opportunities available – it is actually a larger and broader market than some countries that are already classed as emerging markets – but it limits how much exposure many foreign investors will have. However, FTSE Russell plans to reclassify Vietnam into the FTSE Emerging Market index in September 2026. This should mean that a range of new investors – both tracker funds and active funds benchmarked against it – will begin to put money into the market.

There are three UK-listed investment trusts that specialise in Vietnam. The largest is the £1.2 billion Vietnam Enterprise Investments (LSE: VEIL), followed by the £700 million VinaCapital Vietnam Opportunity Fund (LSE: VOF), and the £75 million Vietnam Holding (LSE: VNH). All of these trusts share a number of top holdings, which reflects the reality that emerging markets often have a limited number of large, higher-quality companies.

Vietnam's banks act as “amplified growth proxies”

All three have a lot in financials – for example, VEIL has around half. “Vietnam's economy is overwhelmingly bank-funded,” says Thao Ngo, who manages VEIL with Tuan Le. Bank credit accounts for around 145% of GDP due to underdeveloped bond and equity markets and credit growth runs at roughly two to 2.5 times the nominal GDP growth rate. “This leverage to GDP makes banks not just a proxy for growth, but an amplified proxy.” The sector enjoys a return on equity of 17%-18% compared with a regional average of 9%-11%.

VNH's portfolio is more concentrated than that of VEIL. It tilts more to mid-cap stocks than its peers, although at the end of 2025, it had around 75% in larger stocks “reflecting adaptation to market realities while maintaining conviction in Vietnam's structural story”, say the managers in the latest interim report. Their strategy focuses on high-growth companies geared to domestic consumption, industrialisation and urbanisation. The largest holding (at 10%) is Mobile World Investment Corp, which is also a major holding for VEIL and VOF. This grocery-to-electronics retailer and mobile-phone group plans to expand in Southeast Asia as well as growing further in Vietnam.

VOF looks for an extra edge in private markets. It has seven private holdings alongside 21 public investments (many of the latter were made before the firms listed). This builds exposure to sectors that are under-represented on public markets, such as consumer themes, technology and renewable energy. These are “developing quickly, but are still at a nascent stage to achieve maturity for listing”, says the fund, which is managed by Khanh Vu. For example, healthcare is an important area that is under-represented in public markets: the entire sector – comprised of one general hospital, a handful of generic drug manufacturers, and pharmacies – accounts for around 1% of the index. VOF has so far invested in three hospital platforms and successfully exited two.

At present, the three are trading on discounts to net asset value (NAV) of 15%, 7% and 23% respectively, which is broadly in line with their five-year averages. The Vietnamese market has been affected by the Middle East crisis, but the impact will hopefully be “cyclical and temporary rather than structural and permanent”, as VNH puts it. The long-term story remains the shift from low-cost exports to a higher-value economy with a growing middle class.

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What is stagflation?

Stagflation is when an economy is marked by both stagnant growth and high inflation. That often means rising unemployment. In normal times, macroeconomists generally think in terms of a broad trade-off between inflation and unemployment. In recessions, with tepid demand and high levels of unused capacity, inflation tends to be low. In booms, it's the other way round: strong demand tends to push up prices.

This is the inverse growth/inflation relationship of the classic Phillips curve, one of the most fundamental concepts in macroeconomics. Stagflation breaks that logic (and indeed undermined the credibility of the Phillips curve in the 1970s). It's a highly unusual and undesirable state of affairs that leaves policymakers with no easy solutions and makes investors confused and fearful.

What happened in the 1970s?

The Arab oil embargo of 1973-1974 following the Yom Kippur war – and later, the disruption following the Iranian revolution in 1979 – sent crude oil prices sharply higher. Demand for oil is inelastic – that is, people still need to buy it even when supplies are cut and the price rises.

And because energy is such a universal input – embedded in all aspects of economic life including transport, manufacturing and food production – those 1970s oil shocks rippled through entire economies. Costs rose, output fell and inflation surged even as unemployment climbed.

The result was a sustained period of economic malaise that conventional economics struggled to explain and policymakers to cope with. In the US, real GDP shrank for two years in a row and inflation surged to above 10%.

Why is stagflation so hard to deal with?

In such circumstances, central banks and politicians are stuck in a double-bind. If they put up interest rates to bring prices under control, they risk further slowing the economy and destroying jobs in the short run. Conversely, a policy of trying to squash unemployment and boost the economy, for example through public spending or very low interest rates, risks generating inflation and even a wage-price spiral.

In the 1970s, some central banks – notably the Bundesbank in (West) Germany – stopped inflation becoming entrenched by stepping on the brakes early and committing firmly to stable prices.

In the US, by contrast, the Federal Reserve was slower to recognise the scale of the threat, fearing the political and economic consequences of unemployment. Inflation – and, crucially, expectations of higher future inflation – became entrenched. The cost of breaking that cycle, under the leadership of Fed chairman Paul Volcker, was extreme tightening and an even more painful and prolonged recession.

Are we heading for stagflation?

It's entirely possible. “Coming on top of the ongoing Ukraine and tariff wars, the Iran war is shaping up as the biggest stagflationary shock the world has seen in five decades,” reckons Kenneth Rogoff, the former chief economist of the IMF. In the short-term, most analysts' estimates put the likely blow to the global economy at less than one percentage point and the lift to inflation in the same area. Mark Dowding of RBC BlueBay Asset Management calculates the war could take half a percentage point off global growth and add a percentage point to inflation – but that's based on current projections for the conflict: “There are scenarios which could be much worse than this”, he tells the FT.

Any reasons for optimism?

Yes. Compared with the 1970s, advanced economies are less energy-intensive, central banks are more alert to the risks of unanchored inflation and more flexible labour markets are less prone to a wage-price spiral. These factors should make it harder for a temporary shock to become entrenched, says Noah Smith on Substack. Arange of academic studies add credence to that view. Yet in truth, it is early days in assessing the likely damage from the Iran war. The oil shortage is only now about to manifest itself. As that begins to bite, things could get much worse.

Does that mean stagflation is more likely?

Recession and stagflation, yes. And even if the war ends unexpectedly quickly, a lot The future for Britain might look disturbingly like the 1970s of damage is already baked in. Even if the conflict ended now, the Strait of Hormuz would remain largely impassable for many weeks, say analysts at Oxford Economics, given the time needed to restart shuttered facilities, resecure supply chains, and the continuing fear of attacks on shipping. For Europe – and in particular the UK – the risks are acute. The continent remains heavily dependent on imported energy and its growth outlook was already fragile before the war. Britain relies significantly on imported gas and our economy has long struggled with low productivity growth and sensitivity to external shocks (Covid, Ukraine). Having only recently emerged from a period of double-digit inflation, the UK faces renewed price pressures just as growth is faltering. It's an ominous mix.

What should investors do?

Broadly, stagflationary environments tend to favour real assets over financial ones. So commodities, especially those involved in producing energy, often benefit directly from the underlying shock, and gold has historically performed well as a hedge. Stagflation is, on average, the worst kind of environment for stocks. Global stocks are already down around 9% from their late February peak (MSCI World index). But don't panic, says Duncan Lamont of Schroders. “Our analysis shows that stocks often perform well when there is stagflation, just not as well as at other times.” Based on data since 1926, the median yearly real return in a stagflation year has been about 0%. Not ideal, but “getting close to inflation in a high-inflation environment is not a bad outcome”. Defensive sectors such as utilities and consumer staples perform relatively well, as demand is less sensitive to the economic cycle. Energy and materials companies have typically done well, too.

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Matthew Partridge: What prompted your book?

Ram Charan: I have been working in China for more than 20 years with American, European and Chinese companies; in some cases I was on boards as a director. The wake-up call was when I noticed that one US firm, which had a dominant position in the Chinese market, saw its market share begin to decline. Next, its unit costs went up and then the Chinese Communist Party basically forced them to sell their business to the Chinese.

This caused me to realise what China is trying to do – produce 90% of the global output in a sector, using a combination of subsidies, currency manipulation, and artificially cheap land and capital, and then using this to gain a cost advantage over the rest of the world. This strategy has already been applied to achieve a stranglehold over ten sectors in the past five years. This in turn creates a trade surplus, which is propelling China's military. It's a very sophisticated economic model, which essentially runs China as a conglomerate like General Electric.

The public may love it because it produces an endless supply of cheap goods. But in the longer run it means that non-Chinese companies cannot compete with China. And if war breaks out, this could become an existential issue.

MP: How likely is war between China and the US?

Ram Charan: We are already at war. The US House of Representatives Select Committee on China said it explicitly in October 2025: this is a war of mutual destruction; economic, technological, existential. The trigger will not be a single event. Cumulative economic strangulation will reach a breaking point. Xi has built something more powerful than an invasion: asymmetric chokehold capability. China can now shut down whole industries in America and Europe at will by controlling rare earths, battery components, semiconductor materials and advanced chemicals.

When Beijing announced requirements for export licences in October 2025, Donald Trump responded with 100% tariffs. The countdown has started. The real trigger is industrial collapse. When CEOs in the US realise they can't build anything without Chinese inputs, including defence systems, the political pressure for confrontation becomes unstoppable. Taiwan is the flashpoint everyone watches. But the invisible trigger is America losing the capacity to respond militarily because China controls the supply chains for defence manufacturing itself. China is stockpiling wheat, oil, commodities, and building the world's largest navy – 370 ships versus America's 290. It is expanding its nuclear arsenal to 1,000 warheads by 2030, and aligning with Russia and North Korea in a trilateral axis that can strike the US mainland in 30 minutes.

Xi Jinping is lighting proxy fires in Ukraine and the Middle East through local actors to stretch US military resources. Xi would prefer America to concede without firing a shot, but he is prepared to fight if the US does not yield. Unless America rebuilds industrial capacity fast enough to break China's chokehold, conflict is certain within the decade.

Matthew Partridge: What should the US do to combat the threat?

Ram Charan: Both the US public and firms must understand they are not competing with individual Chinese companies, but with the nation. And they can't compete alone. There must be more collaboration among both countries and firms. I have suggested that Trump create a Department of Manufacturing and Technology, whose full-time job is to co-ordinate, integrate and plan in a similar way to how the Pentagon organises the defence sector to fend off an equally powerful opponent.

Matthew Partridge: Didn't industrial policy fail when the UK tried it in the 1960s and 1970s? Witness British Leyland.

Ram Charan: British Leyland failed because bureaucrats picked products and ran factories. What I am advocating is government staying strategic, not operational. The Chips Act is an example. Government subsidises semiconductor making. Intel, TSMC, Samsung decide what to build and how to run operations. Government creates conditions for private companies to compete against state-subsidised Chinese opponents.

However, in addition to subsidies and support you will need enforcement of basic trade rules. Stop the dumping. Counter the currency manipulation that gives China a 20%, unbeatable pricing advantage. You also need to change US CEOs' psychology. They still think “cheaper currency, cheaper labour” is how you win. Move up the value chain. Import technology and equipment, not consumption goods. Scale up medium-sized manufacturers with AI and automation.

This is about national security. China has destroyed key US industries, including furniture, apparel, solar, rare-earth metals and ship components. The next targets are AI, biopharma, aerospace, advanced semiconductors, and chemicals. If those fall, America cannot defend itself. This is not industrial policy as socialism. This is industrial policy as survival.

Matthew Partridge: How can you ask other developed countries to work together under US leadership given that Trump has imposed high tariffs on them? Isn't that going to make them less likely to cooperate?

Ram Charan: I think people misunderstand Trump's approach. While it's true he has imposed tariffs, and this has created a lot of confusion, he has done this to rebalance trade between the US and the rest of the world, eliminating the large US trade deficit with most countries. Once this is achieved, his aim is to reduce these tariffs by as much as possible. Already small countries like Oman face barriers of as little as 2%. The idea is to bring countries to the table to discuss the issue, not protectionism for protectionism's sake. US tariffs will decline as the other sides reduce their barriers to US goods.

Matthew Partridge: You say that you are confident about the US because of the openness of its system and because of its big research infrastructure. But Trump has undermined this advantage with immigration controls and cuts to research budgets. Many of Trump's policies seem counterproductive.

Ram Charan: I agree that they are counterproductive. And that's honestly something I don't understand. Maybe it's due to his own ideological belief, but attacking universities is not consistent with his aim to reindustrialise the US.

Matthew Partridge: Moving from countries to companies, is it fair to say that investment in China is a double-edged sword? Many firms are being forced to give up their intellectual property (IP) in exchange for cheap labour and access to Chinese consumers.

Ram Charan: Yes, it is a double-edged sword. Not only will they steal your IP, but once a Chinese company shows signs of winning significant market share, Beijing will back it to the hilt, and give it a huge amount of resources to expand further, so it starts to drive you out of the market. The next thing, you notice you are making losses and decide to leave, or you get a call “inviting” you to sell up – as Starbucks and many others have done. Beijing's attitude, particularly in industries it has explicitly targeted, is that “until we get our own capability, you are our guest”– but once China starts to build its own domestic capacity, the Westerners are either asked to leave or driven out.

Some of the smarter companies started to work this out about ten years ago, and reconsidered their global strategy, including discreetly building up their operations in other countries, such as India. As a result, they are now doing very well, with their Chinese rivals still lagging behind due to the fact that they have not accumulated the necessary expertise that they would have gained from having a Western firm in their midst.

Matthew Partridge: What does India needs to do to become an attractive alternative to China for Western companies?

Ram Charan: In order to attract Western firms fleeing China, India needs to put its house in order. This includes smashing bureaucracy to make it easier for them to operate. India also needs to have better training in manufacturing, because manufacturing requires quality and reliability, and Indian firms have to learn to match customer specifications.

That said, India has some companies that are number one in the world. This includes Bajaj and TVS, which have done a great job of producing quality scooters, as well as other two-wheelers. So India needs to build on this to climb the value chain into products like semiconductors.

Matthew Partridge: Are there any other companies that stand to benefit from Western companies relocating from China?

Ram Charan: Every developed country will benefit from re-shoring to reduce dependence on China. Among developing countries, the other big winners will be Vietnam, Mexico and Indonesia. However, for companies, the solution is not substitution but diversification to break coercive power.

After all, Mexico and Vietnam are also proxies for Chinese production – Mexico's trade with China exploded after Trump's tariffs as Chinese companies set up Mexican operations to bypass US trade barriers. You must audit the entire supply chain. Where do the components come from? Who owns the factory? Where does the capital flow? Companies waiting for a single “China alternative” will wait forever.

Ram Charan has spent 30 years advising Fortune 500 CEOs on China. His latest book, China's 90% Model: China Has America by the Throat – Here's How to Fight Back and Win, is published by IdeaPress Publishing.

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Gulf states’ money has been hard to escape over the past few years. The influence of the United Arab Emirates, Saudi Arabia and Bahrain was everywhere. Saudi Arabia was a huge investor in sport and gaming as well as in infrastructure. Qatar was one of the key backers of Anthropic, the company behind Claude AI, the key rival to ChatGPT, as well as backing data centres. The takeover of Warner Brothers by Paramount was financed, in a large measure, by money from Saudi Arabia, Qatar and Abu Dhabi.

The list goes on. Whenever there was a big deal, a takeover, a venture-capital round or a new listing, Gulf states’ money was central to it. That was just what was reported. Through investment in private equity, hedge funds and property, there was probably far more than could easily be tracked. The Persian Gulf was also a major source of demand. Airbus would not be nearly so successful without all the new aircraft ordered from Gulf-state mega-carriers such as Emirates and Qatar Airlines. London's law firms, consultants, architects and engineers made huge sums selling their services into the region. One way or another, Gulf states' money became critical to the global economy.

It may be about to dry up. The Gulf states did not start the war against Iran, but they may well end up as its main victims. The Iranians have targeted them all with drone strikes and they have already done substantial damage. Worse, they have sullied the region's image. Not many people will want to fly through Gulf airports on their way to Asia when there are other routes available. Jobs in Dubai will look a lot less tempting, even if they are tax-free; and a holiday there won't tempt many of us, even if the hotels are luxurious and the sunshine guaranteed. Oil and gas revenues will start to disappear as critical infrastructure is damaged and shipping routes shut. The costs of reconstruction will be huge. The war is going to prove very expensive for all the Gulf states.

And it is not as if they were in great financial shape to start with. Saudi Arabia ran a budget deficit of more than 5% of GDP last year; Qatar and Bahrain also ran deficits. Taxes have started to be introduced across the region to make up some of the shortfall. The UAE introduced a 9% corporate tax in 2023; Bahrain is planning to introduce one at 10%. Taxes are still very low by the standards of the major Western economies, but even so they were starting to creep up – a sure sign governments were under financial pressure. With the costs of the war, that is only going to increase.

One point is certain: the huge flows of Gulf money cascading into the global financial system are going to dry up. Very soon, they may start to return home. Assets will have to be sold to pay for all the costs. It probably won't happen immediately – the huge portfolios are too well-managed to start a fire-sale. But over the next few months, plenty of Gulf-owned portfolios may start to be quietly put on the market.

Gulf states’ money is sailing out of markets

That will pose a threat to the global financial system. To start with, IPOs will be harder. Some huge new listings were planned for this year, such as SpaceX and OpenAI, along with plenty of smaller ones. And yet, the valuations depended on Gulf funds buying up lots of shares. If that money is not available, many of those will have to be postponed, or the sellers will have to accept a lower price.

Trophy assets will be stranded. Football clubs, for example, were sold from one Gulf buyer to another, and so were media properties and skyscrapers. Owning them came with a lot of prestige, and that counted for a lot in the Persian Gulf. If those buyers are not around there will be no one to replace them.

Finally, illiquid assets such as private-equity funds will be under huge pressure. The Persian Gulf was one of the main sources of fresh money. As that dries up, they will find it very hard to access fresh funds and may face a wave of redemptions. Private-equity funds could turn into forced sellers quickly.

The reality is that the Gulf money machine was one of the key drivers of the bull market of the past five years. There was always more cash to pour into whatever the latest fad happened to be or to finance a huge takeover deal. It was the key source of risk capital. It is about to disappear – and that means it will be far harder to raise investment or to keep valuations as high as they have been.

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How is Russia's economy doing?

Before the Iran war oil shock – meaning a jump in oil prices and a jump in revenues for the Kremlin – things were looking as bad as they have done since Russia's invasion of Ukraine in February 2022.

At that time, many Western politicians and economists expected Russia's economy to collapse under the pressure of sanctions and fiscal implosion. “The Russian economy is on track to be cut in half,” said then US president Joe Biden a month into the war. “It was ranked the 11th biggest economy in the world before this invasion – and soon it will not even rank among the top 20.”

How wrong was Joe Biden about Russia?

Very wrong. By 2025, Russia had nudged up the table to become the ninth biggest economy globally, overtaking Canada and Brazil, and lying just behind the UK, France and Italy. In response to sanctions, Russia ramped up state spending on its war machine, driving an unlikely economic mini-boom, and predictions of collapse proved wide of the mark.

A shallow recession of 1.4% in 2022 was followed by solid positive growth in 2023-2024, partly facilitated by high oil prices and partly fuelled by the rise in war-related spending and corporate credit growth. The fiscal position deteriorated, but remained in relatively safe territory, while a consistent current-account surplus “helped soften the impact of approximately half of Russia's international reserves being immobilised”, explains Marek Dabrowski of the Bruegel think tank. All told, the post-2022 Russian economy demonstrated striking resilience.

How is Russia's economy so resilient?

Essentially, Russia has resources and products that other countries want to buy. If the price is right that trade will happen, albeit with Russian oil and gas trading at a discount to pre-war prices. Western sanctions, which have in any event been supported by nations making up less than half the world's economy, were too telegraphed, slow, and easy to circumvent via third countries, given the weak enforcement of secondary sanctions. And China's role in ramping up Russian imports and exports was crucial: it has taken the place of Europe as Russia's biggest trading partner.

Second, the Russian regime was ready for war. It had planned for sanctions for years, stockpiling dollars, and when the crunch came it forced many foreign companies to sell their Russian entities at low prices. And third, the de facto creation of a war economy has not only fuelled growth, but also entrenched a network of supporters of the regime among the business class.

Is Russia's economy a war economy?

Over the past four years, Russia's economy has been growing, but only because civilian industry has been “progressively cannibalised” to feed dramatically ramped-up military production, say Emma Sage and Savannah Taylor on War on the Rocks. Germany's foreign intelligence believes that the war accounts for 10% of GDP and for more than 50% of government spending. Russia's Centre for Macroeconomic Analysis and Short-Term Forecasting attributes 60%-65% of Russia's increased industrial output from 2022-2024 to the sectors most implicated in the war on Ukraine, while showing that unrelated industries are declining. Meanwhile, domestic consumption is underpinned by Smertonomika, or “Deathonomics”, whereby wages for soldiers willing to brave the war – and compensation payouts to their families when they are killed – have soared. Pay for soldiers is six times what it was in 2022, while death payouts have risen to the equivalent of $130,000-$180,000 – more than the expected life earnings of many of the young men who die. In short, Russia has mortgaged its future to pay for the war. Eventually, that will have to be repaid.

What is the current situation in Russia?

Stagnation has set in and the government is $320 billion in debt. Growth fell sharply last year from 4% in 2024 to less than 1% in the fourth quarter of 2025. This week Russia's president, Vladimir Putin, announced that GDP declined 2.1% in the year to January, with industrial production also falling by 0.8%, even as unemployment remained low at 2.2%, while inflation stood at below 6%. Many Western analysts suspect the reality is worse. The economy will not collapse, says Alexandra Prokopenko in The Economist. “But nor will it recover. It has entered what mountaineers call the death zone: the altitude above 8,000 metres at which the human body consumes itself faster than it can be repaired.” Russia is sustaining a “negative equilibrium”: it has the ability to hold itself together at the cost of steadily destroying its own future capacity. Export revenues are falling and economic weakness means budget gaps cannot be filled with additional tax revenues.

Will the Iran war rescue Russia's economy?

Obviously no one knows how long the oil price will remain elevated from its pre-war levels. But Putin himself – sometimes touted in recent weeks as the “real winner” of the conflict – isn't exactly celebrating the dawn of a free-spending new paradigm. This week, he called on oil and gas companies to use additional revenues from the current rise in global hydrocarbon prices to reduce their debt burden and repay obligations to domestic banks. Clearly, Russia is a beneficiary of the conflict in the Persian Gulf and Middle East, with higher prices and (perhaps) higher export volumes to Asia able to narrow its budget deficit. “But unless disruption to global energy supplies is prolonged, this is unlikely to materially alter Russia's macroeconomic outlook,” says Liam Peach of Capital Economics. The country will remain a war-driven, low-growth, low-productivity economy that's dependent on hydrocarbons – a waning resource in the long run – and under chronic fiscal pressure. “Russia can probably continue waging war for the foreseeable future,” says Prokopenko. “But no climber can survive the death zone indefinitely – and not all climbers who attempt the descent survive it.”

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UK inflation: Summary

• The Office for National Statistics (ONS) has released the latest UK Consumer Price Index (CPI) measure of inflation data.
• It has remained at 3%, unchanged from January.
• Economists expected the February inflation data to remain at 3%.
• The data has been released as fears grow that inflation will surge in the coming months due to the conflict in Iran.
• The Bank of England (BoE) held interest rates at 3.75% at its last meeting in response to the growing threat of rising prices.
• UK inflation forecast | Interest rate predictions | Next Bank of England base rate meeting | New ONS basket of goods

Good afternoon and welcome to our live coverage ahead of the latest UK inflation data being published by the Office for National Statistics (ONS) tomorrow (25 March).

The latest Consumer Price Index (CPI) measure of inflation data will be released at 7am, covering the 12 months to February 2026.

In the 12 months to January, CPI inflation read 3%, down from 3.4% in December, marking the slowest annual rate of CPI inflation since March 2025.

Inflation for February is expected to come in around the 3% mark, according to economists.

Follow our live report here as we bring you rolling preview analysis ahead of the data being published, plus live reaction after it is released.

Economists expect inflation to have risen at same pace as January

Economists at research and consulting firm Pantheon Macroeconomics expect the February data to show inflation rising at 3% in the year to February, unchanged from January.

The firm is forecasting higher core goods inflation will offset lower motor fuel costs, with core CPI inflation set to remain unchanged year-on-year at 3.1%.

Meanwhile, it is forecasting services inflation to come in at 4.1%, down from 4.4% in January.

UK inflation since 2020

The CPI measure of inflation has broadly trended downwards since peaking at 11.1% in October 2022 following a surge in wholesale energy prices.

Global prices for gas, electricity and oil started to increase in the summer of 2021 when economies around the world opened up following coronavirus lockdowns. This increase was exacerbated by Russia’s invasion of Ukraine.

In September 2024, the CPI measure of inflation slowed to 1.7% before increasing to 3.8% in July 2025, but since then has slowed to 3% in January 2026.

Why does the ONS release inflation figures at 7am?

The ONS previously released key macroeconomic data at 9.30am and briefed some news agencies on the details beforehand.

However, it trialled a 7am release time during the coronavirus pandemic, a move it made permanent in March 2022.

The statistics body said it had decided to change the time indefinitely as it “increases the visibility and timely explanation of our statistics via the media” and made it more widely accessible to the public.

'The bigger concern is what happens next'

While the headline CPI inflation figure published by the ONS tomorrow is expected to remain roughly stable, a shock could be on the way due to the conflict in the Middle East.

The price of Brent crude oil has surged since the US and Israel first launched strikes on Iran on 28 February, disrupting shipping and leaving energy infrastructure damaged. A barrel of crude oil has gone from $72 on 28 February to $95 on 23 March.

Rising oil prices push up the price of petrol, transport costs and then consequently the cost of the weekly food shop.

Tamsin Powell, consumer finance expert at personal loan lender Creditspring, said: “The bigger concern is what happens next, as rising fuel and wholesale energy costs are already pointing to renewed pressure in the months ahead.

“Even if February’s CPI figure looks calm on paper, it may not reflect the pressures already building in everyday spending,” Powell added.

What do you think inflation will be in February?

Why rising inflation doesn’t always mean prices are going up for you

The ONS’ official measure for tracking inflation is the CPI, but even if it’s rising that doesn’t mean your cost of living has gone up.

The CPI measure tracks price rises across a virtual basket of roughly 750 goods and services, which changes once per year to keep up with market trends.

But that means the headline figure change might not reflect how much more you’re spending on a day-to-day basis.

For example, a teenager might be more impacted by price rises in video games than a pensioner.

We're going to end our coverage here for today, but keep an eye on this page where we'll bring you live reaction and analysis when the ONS releases its latest inflation data tomorrow.

Good morning and welcome back to our live coverage. The ONS is just about to release its latest inflation data, so stay with us for rolling reaction and analysis.

BREAKING - UK INFLATION REMAINED AT 3% IN FEBRUARY

Data from ONS today unsurprising

The data released by the ONS this morning is what was expected from economists.

The annual rate of CPI inflation has stayed the same as January, but it doesn’t reveal much about where prices, which are likely to be impacted by the war in the Middle East, might go in the future.

Rising clothing prices offset by slowing petrol costs

The ONS said rising clothing and footwear prices saw the headline CPI figure rise in the 12 months to February, but falling petrol prices offset the increase.

Prices also rose across furniture and household goods, but slowed across food and non-alcoholic drinks.

Grant Fitzner, chief economist at the ONS, said prices for petrol costs were collected before the conflict in the Middle East broke out, meaning they are likely to rise over the coming months.

Core CPI rises while services inflation falls

Core CPI, which strips out prices for more volatile items like food and energy, rose by 3.2% in the 12 months to February, up from 3.1% in January.

Meanwhile, the CPI services annual rate eased from 4.4% to 4.3%.

The Consumer Price Index including owner occupiers’ housing costs (CPIH), which includes council tax costs and is considered the most comprehensive measure of inflation, rose by 3.2% in February, unchanged from the 12 months to January.

February inflation figures a ‘false flag’ for the economy

While the February inflation figures released today might seem positive, they’re still over the Bank of England’s 2% target, which is set by the government.

Meanwhile, they measure price rises which happened before the conflict in the Middle East, which economists expect will have a significant inflationary impact over the coming months.

Sirun Thiru, chief economist at the Institute of Chartered Accountants in England and Wales (ICAEW), branded the February inflation figures a “false flag”.

Thiru added: “While inflation should fall next month (March) as the cut to green levies temporarily lowers energy bills, a brutal inflation surge looms with skyrocketing oil and gas costs likely to lift the headline rate above 4% by the summer.”

What does the latest data mean for interest rates?

Today's inflation data is unlikely to have much impact on interest rates in the near or long term.

The Bank of England’s Monetary Policy Committee (MPC) had been intending to lower interest rates in 2026 with inflation slowing, unemployment rising and the economy stagnating.

At the start of the year, the central bank was expected to lower rates twice in 2026, with the first coming in March.

But the conflict in the Middle East and its potential inflationary impact has, at least for now, given the MPC more pause for concern.

At its last meeting, ratesetters voted unanimously to hold interest rates at 3.75% rather than lowering them.

Andrew Bailey, the governor of the Bank of England, said holding interest rates was the “appropriate” thing to do with the threat of higher inflation looming and the knock-on effect this could have on consumers.

In the longer term, interest rates could remain at their current rates until well into 2027, according to advisory firm Oxford Economics, which has voiced concerns over elevated global oil and gas prices.

Inflation figures include supermarket scanner data for first time

This month’s set of inflation data is the first which includes prices tracked through supermarket scanners.

The ONS typically tracks prices by manually checking them in stores and shops, but now around 50% of the grocery market data is being tracked through scanners and online tills.

The ONS says the move will allow it to more accurately measure year-on-year price changes and find out how much of a particular item shoppers are buying.

A closer look at the figures

How inflation affects you depends on what goods and services you buy, so it helps to look at the data in a more granular way.

Here’s a breakdown of exactly how much prices rose across some of the main categories in the year to February.

A quick recap

If you’re just joining us, here’s a quick recap of what you’ve missed.

The CPI measure of inflation remained at 3% in the year to February, the ONS confirmed this morning, in line with economists’ expectations.

The CPIH measure of inflation also stayed the same as the month before, remaining at 3.2% in the year to February.

But experts are warning the data pre-dates the war in the Middle East, which is expected to put major upward pressure on inflation.

Savers should be ‘hunting down’ the best rates

Higher inflation can keep savings rates elevated, but it’s crucial your money is an account that’s paying out a rate above inflation.

The average savings rate on the market is currently paying 3.37% in interest, according to data website Moneyfactscompare, but if inflation rose to 4%, you would be losing money in real terms.

Caitlyn Eastell, personal finance analyst at Moneyfactscompare, said: “Settling for average won’t cut it, savers should be hunting down the most competitive rates. The top easy access account currently pays 4.71%, which puts savers ahead.”

Economists at Pantheon Macroeconomics believe inflation will peak at 3.6% in November 2026, but what do you think?

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

CPI data is the measure used to compare the UK's rate of inflation against other major countries.

According to the ONS, the UK’s rate of inflation was higher than the EU (2.1%), Germany (2%) and France (1.1%) in February.

The last time the UK rate was lower than the EU’s was December 2024.

When will March's inflation data be published?

The ONS publishes inflation data once per month.

It will be releasing the data for the month of March on 22 April.

That concludes our inflation coverage for today. Thank you for joining us. We will be back with more live analysis in the weeks to come.

High inflation is surprisingly hard to forecast. It's tempting to assume that the results of a major event – such as the current Middle East crisis – should be easy to predict. Yet while this must push up energy prices in the short term, it is not so simple to say whether it will drive sustained broader inflation. There are far too many factors involved, and it is often impossible to anticipate which ones will prove most important.

Consider that during the 2010s, many people – including most of MoneyWeek – expected that extreme monetary policy – including interest rates at zero and vast amounts of quantitative easing (QE) – must lead to a rapid resurgence in inflation. This very clearly did not happen.

Why? Maybe this inflationary force was offset by disinflationary forces such as globalisation (cheap imports from China), productivity gains through technology and falling energy prices from the US shale revolution. Maybe the overhang from the financial crisis and the eurozone crisis, combined with government spending curbs, kept the economy below capacity. Maybe consumers and businesses hoarding cash or a reluctance by banks to lend meant the huge increase in the monetary base did not result in a similar increase in broad money (ie, what's circulating in the economy).

That's already no shortage of explanations – and there are others, but this space is short. Which you prefer may depend on your taste in economics; none seem definitive.

Will the energy crisis lead to high inflation?

Jump ahead to the pandemic and the result was different. Central banks eased aggressively once more, but this time inflation soared within two years. Why? The energy price shock from Russia's invasion of Ukraine. The lagged effects of supply-chain disruption from the pandemic. Pent-up consumer demand and changing spending habits. A tight labour market pushing up wages. High levels of government spending, including money that went directly to individuals and businesses. Again, take your choice.

So we can't be too certain how this new shock will play out. Higher energy prices feel inflationary, but if they weaken the economy, the effect may be temporary. Central banks are less likely to sit on their hands this time, though you can debate whether tightening policy in the face of a supply shock is a sensible thing to do – maybe it just doubles the harm.

Set against that, the AI boom is hugely energy intensive, which may amplify the effects – unless, of course, the jitters in private credit start to squeeze the funding it needs for growth. But perhaps the key factor is that it now seems politically impossible for government spending to fall (the US has a 6% budget deficit in a booming economy) and this will surely be funded by central banks through QE if markets baulk. So my guess is that this energy crisis will be another upward shock for a world that already has an underlying bias. That doesn't mean double-digit inflation – but we are not getting back to central banks' 2% target soon.

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