On the one hand we have stock markets going up, bubbling up one might say about some American stocks. On the other hand, we have the price of government bonds going down as the cost of borrowing for hugely indebted countries increases again. There is a limit to how long this can persist.

Our economy is stuck in the slow lane, still struggling with the aftermath of the previous budgets and, depressingly, inflation remains persistent. The Bank of England did cut the Base Rate again (to 4%) but really it is quite caught now with inflation as it is, and it is hard to see many more cuts coming through soon. But, as so often, we are in danger of getting overly pessimistic for the UK. Productivity has actually improved over the first half of the year, and business investment is (finally) improving after years in the doldrums post-Brexit. Energy prices are easing and, if the Chancellor can just avoid any more self-inflicted damage, growth could begin to look up.

After the big fall in the US dollar over the first half of the year, it was much quieter in the foreign exchange markets. But not so for the price of gold, which raced up again in an ‘anything but the dollar’ mood that can hardly be said to be a healthy sign. I am still concerned with President Trump’s attacks on the US Federal Reserve and its independence from political interference, and now he has managed to appoint one more supporter to the Fed’s Board, Stephen Miran. His impatience with dissent reached new levels over the summer with the firing of the head of the Bureau of Labor Statistics after some poor employment data, claiming that the figures were “rigged”. 

The US stock market is strong, but this is focussed on a narrow range of AI related technology stocks, and gauging what is happening in the US economy at present is tricky. Employment seems to be flashing red, but spending is holding up (largely for the better off) and inflation has remained reasonably quiet despite the tariffs. Now, with a US Government shut-down, accurate information is going to be even more elusive. But I must not take from President Trump’s achievements in the Middle East where, as I write, it seems that he has been instrumental in bringing about a ceasefire, a release of the Israeli hostages and, hopefully, a lasting end to the misery in Gaza.

Back home, we are being treated to week-by-week analysis of what might be in the autumn budget without, as far as I can see, any real authority or knowledge. Chancellor Reeves faces a difficult situation with little room in the budgetary finances (and her ‘fiscal rules’) for manoeuvre. The key to unlocking growth lies in being bold, not endless tinkering with new taxes. Simplifying the hugely over-complicated taxation system would do the trick. National Insurance is a nonsense as is Stamp Duty and so much else, tax should be raised via the principal taxes: Income Tax, Corporation Tax and VAT. I wish that I had some confidence that reform of the system might actually be considered though, sadly, that word ‘reform’ might present a problem.
 

The full Quarterly Review is available here.

October 2025

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