Sorry, no search results could be found.
6 Oct 2026 | 3 minutes to read
(All equity data is MSCI; all data in sterling unless stated)
With the Autumn Budget looming, Prime Minister Andy Burnham's keynote speech at the Labour Party Conference was closely watched. The headline grabbing proposal was an end to the state pension ‘triple-lock’ from 2030 – after the end of the current parliament. The guarantee is to be replaced by a more limited measure, with savings redirected to social care. A free at the point of use National Care Service was outlined. The growing pressures on public finances from an ageing population are well known. But it is difficult to model the savings Burnham’s adjustment to the triple lock will bring. And funding long-term social care will very likely require additional savings and/or tax hikes.
Elsewhere, the prime minister signalled a desire for closer long-term ties with the European Union. Any improvement in UK-EU trade relations is likely to be welcomed by many businesses and could improve UK growth prospects. On the matter of growth, second quarter UK GDP was revised up, to +0.5% from +0.4%. The reading takes growth in the first half of 2026 to +1.1%. And it paints a picture of a more resilient economic backdrop than many had anticipated. The International Monetary Fund (IMF) forecast that the Iran war would hit the UK harder than other advanced economies, but this latest upgrade underscores its status as the fastest growing G7 economy in the first half of 2026. However, ongoing inflationary pressures could curtail demand. The Ofgem energy price cap is expected to rise notably again from January, potentially weighing on household spending.
Chancellor John Healey has reportedly summoned leaders of the UK's largest banks for a pre-Budget summit amid speculation over potential financial sector tax measures. The government is seeking ways to balance its growth ambitions with fiscal discipline, within the confines of manifesto pledges. For UK banks, a greater tax burden could further restrict their ability to finance growth and undermine international competitiveness. Several bank-specific levies remain in place from the 2008 financial crisis.
With the debt burden already high and rising borrowing costs eroding fiscal headroom, the chancellor will face some tough choices at some point. Healey may look to deliver a “do no harm” Budget, aimed at providing breathing space for households and businesses facing rising costs, rather than fundamental reforms. But that will likely push tougher choices to next year’s spending review. Hopes may be pinned on lower oil prices and gilt yields materialising to improve the fiscal outlook.
The euro has continued to slide against the dollar amid concern that France’s debt position could threaten eurozone stability. France’s debt pile now amounts to around 119% of GDP, while the budget deficit is projected to reach 5.4% of GDP this year. As with other developed market economies, France’s fiscal position has been brought into sharper focus amid sharply rising borrowing costs. The public finances will provide the backdrop to next year’s presidential election. And news of a snap election in Spain amid budget wrangling added to eurozone uncertainty.
With little sign of a diplomatic breakthrough in the Middle East, renewed inflationary pressures have contributed to a sell-off in sovereign debt. Yields, which move inversely to prices, have spiked. And the 10-year yield on French government debt reached the highest level since 2002 last week. The difference, or spread, between France and Germany’s borrowing costs, long a key measure of market concern, rose above 1.45% on Friday – the highest level since the height of the eurozone sovereign debt crisis in 2012. French Prime Minister, Sébastien Lecornu, has announced plans for savings of €54bn in the 2027 budget. But adoption of the measures is uncertain given parliamentary fragmentation.
There are fears of contagion spreading across European markets, stirring memories of the European sovereign debt crisis. In an environment of more normalised developed market monetary policy, and bumper sovereign and corporate bond issuance, the supply-demand dynamics are very different to the 2010s. Bond investors have plenty of choice. And markets will quickly pass judgement on sovereign issuers without a credible or workable long-term fiscal plan.
G7 countries have confirmed they’ll release up to 100 m barrels of crude oil and diesel to try to limit soaring prices triggered by the US-Iran war. Their decision came after President Trump was reportedly considering banning exports of US diesel to bring down fuel costs there. The Iran war has triggered persistently higher prices of products refined from crude oil such as diesel. In the UK, diesel recently topped £2 per litre for the first time, and in the US $6.5 per gallon. Whilst consumers are feeling a cost-of-living squeeze, Trump has put the “affordability crisis” front-and-centre of the Republicans’ November mid-term elections campaign in the US. Not being able to lower gasoline prices risks appearing impotent for Trump amid a war which is increasingly unpopular. At the beginning of March, the US said that its military campaign, Operation Epic Fury, would last 4-5 weeks. Seven months on, it’s without end.
Higher energy costs will likely continue to feed into inflation measures with a lag, challenging policymakers’ interest rate policies. Longer-term, the apparent willingness of the US to even consider a diesel export ban may push the G7 towards greater self-reliance. Last week’s wranglings saw notable gyrations and divergence in the prices of Brent Crude and WTI Crude oil.
A slew of US economic data last week provided policymakers with food for thought ahead of forthcoming interest rate decisions. Notably fewer roles than expected were created in September, with the closely watched nonfarm payrolls print indicating employers added just 29,000 jobs. The unemployment rate rose slightly, from 4.1% in August to 4.2% in September. And wage growth also cooled and undershot expectations. Estimates had been for job growth of c.84,000 and a steady unemployment rate. The print shows a sharp drop from the 133,000 roles added in August, which was itself revised down. Collectively, downward revisions to August and July data amount to 60,000 fewer jobs than previously reported.
The news lessens the probability of a further Federal Reserve (Fed) interest rate hike later this month. Nevertheless, policymakers will need to consider any labour market cooling in a wider context. The US economy and labour market have been resilient in the face of geopolitical upheaval. And last week saw second quarter US GDP revised up to an annualised rate of 2.2%, from the 1.5% reported previously. First quarter growth was also revised up. On the jobs front, the longer-term picture has generally been one of a low-hire, but low-fire backdrop. Outright deterioration is far from evident.
Inflation tends to be more prominent in policymakers’ thinking. And prints here have stubbornly held above the Fed’s 2% target for over 5 years. Therefore, data last week showing consumer prices posting a smaller-than-expected increase in August, would have been welcome. The personal consumption expenditures (PCE) price index – the Fed’s preferred measure of inflation – came in at an annualised rate of 3.4%, compared to expectations of 3.7%. Core inflation, which excludes volatile food and energy prices, came in at 3%, vs expectations of 3.3%. While the data does not fully reflect the recent surge in diesel prices, it too offered some relief for investors worried about the recent surge in bond yields, lessening the case for a Fed rate hike in October.
Yet, with meaningful progress on bringing inflation back towards target still to become evident, persistent price pressures – coupled with the unknowns regarding the Iran war and Artificial Intelligence (AI) development – continue to pose a dilemma for the Fed.
Disclaimer
Past performance is not a reliable indicator of future returns. Nothing herein should be construed as a recommendation to hold, buy or sell any security or encourage any investment decision. The mention of any particular asset class, sub-asset class or company does not imply that it is held, or may ever be held, in any product or service.
Before you invest, make sure you feel comfortable with the level of risk you take. Investments aim to grow your money, but they might lose it too.