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27/05/2026

27th May - Bank lending to UK businesses hits 30-year low, markets are pricing a US rate hike by year-end and USD gains as the Iran deal is called into question.

Bank lending to UK businesses reached nearly 90% of GDP at the peak in 2008, but has dropped to 59%. SME loans have halved since 2011, when they were 12% to just over 6% today. The gap is being filled by the private credit market, which a sector that Andrew Bailey doesn’t like. He fears trouble lies ahead with the opaque, unregulated lending space.

On the political front, things are fairly quiet ahead of Makerfield on June 18th. Many feel Starmer has resigned himself to the inevitable end, but for the time being, all the jockeying is behind closed doors.

Markets are pricing in a rate hike from the Fed by December. This is a sharp reversal from three months ago, when further rate cuts were the general consensus. As such, Warsh will inherit a Fed committee that is increasingly hawkish, a President in his ear demanding rate cuts, and a growing inflation problem driven by a war he can’t control.

US consumer confidence slipped in May as lower-income households are bearing the brunt of gasoline prices, which are up 50% since the war began and where Trump’s approval keeps sliding ahead of the midterms in November, the pressure to close a deal is as much political as it is diplomatic.

18/05/2026

18th May - Gilt yields are at a 30 year high, business investment is on hold and the leadership challenge is on pause for the by-election.
Reform won a significant majority in the Makerfield local election a couple of weeks ago so the by-election is no gimme for Burnham.  
Starmer is a lame duck in Westminster and Reeves is facing similar uncertainty over her future. She will likely loses her job under new leadership, but there are questions over who would replace her, and who could improve the economic mess they would inherit, so some fear she may get a stay of execution. 
Employment data is due out tomorrow and Wednesday’s CPI inflation for April is expected to confirm a June rate hike is on the cards.

It’s Warsh’s first day as Fed Chair. He joins an FOMC that is increasingly hawkish as inflationary pressure is rising and without Miran calling for rate cuts, he looks likely to lose any rate cut debate for the time being. 
Trump-Xi summit is being seen as a strategic win for Beijing. Xi arrived with a clear agenda and delivered it, while Trump arrived under domestic pressure and things wrapped up with no big deal for Donald.

13/05/2026

13th May - Four ministers have resigned and pressure is mounting. Starmer told the Cabinet he’s not going anywhere, but he is due to meet Streeting this morning.
About 100 MPs have signed letters asking Starmer to set a timetable for his departure, but about 100 others have signed a joint statement of support and it seems that no single candidate has the numbers necessary under Labour Party rules.
The gilt market is concerned and the cost of borrowing has risen way past the point where Truss and Kwarteng crashed the economy. And the futures markets are now pricing in 2-3 rate hikes by December.

Warsh will get his final Senate confirmation and Powell’s term expires in two days.
Goolsbee thinks the US has an inflation problem in the service sector, which may suggest the underlying economy is overheating. Warsh will walk into a Fed that is increasingly hawkish, with a President who wants rate cuts, and an economy that’s overheating in exactly the wrong places. Good luck Kevin!

05/05/2026

5th May - This time next week, Labour could have a new leader and a new Chancellor as markets are pricing in wholesale changes in Downing Street.
Both Labour and the Tornies are expected to lose out as Reform UK and the Greens are expected to take control of several councils in the local elections and the SNP has a real chance north of the border.
If Labour’s performance is bad enough, then pressure will mount for leadership change. The economy won’t save him as NatWest has the UK growing at just 0.4% this year, which is even lower than the IMF’s latest forecast.

Focus remains on the Fed and Warsh will take over the Fed Chair from May 16th.
He’ll inherit a Fed that remains politically independent, but Powell plans to stay on the board a little longer, just to help ensure that remains the case.
There are at least three hawks who want tighter language and while Trump’s other mole, Miran, is already in situ, many expect Warsh will need to govern by persuasion from day one.

28/04/2026

28th Apr - UK retail sales posted the worst year-on-year decline since the survey began in 1983 and -68 was down from -52 in March.
Consumer confidence is also at the lowest since October 2023 and the CBI is calling on the Government to help.
The MPC is widely expected to hold this week and the Bank of Japan also held this morning as central banks opt to sit on their hands, waiting for clarity.

The Fed meeting will likely be Powell’s last as Fed Chair. The Warsh confirmation is all but done now the DOJ dropped the investigation and Tillis confirmed his support.
The Fed is expected to hold, but CPI inflation is already showing its biggest increase in nearly four years, which will add to the debate around how entrenched the oil price is… or if it is transitory.

27/04/2026

27th Apr - Will the Warsh nomination go ahead now the DOJ has dropped the investigation into Powell?
The MPC and the Fed meet this week and both are likely to keep rates on hold. Markets are pricing in virtually no chance of a move.
UK retail sales beat forecast in March but Consumer confidence saw the largest quarterly drop in four years - not exactly the perfect backdrop as we go to the polls in the local elections next week.
Starmer seems to have survived the Mandelson fall-out, but the local elections will likely deliver his next test of his leadership.

Trump was rushed away and the shooter was dealt with. After a thorough review, the King’s trip will still go ahead.
Trump has backed down from his witch hunt with Powell and the DOJ is ending the probe, handing the case to the Fed’s own inspector general instead. This should effectively remove the block from Senator Tillis and clear the way for the Warsh confirmation.

24/04/2026

24th Apr - PMIs showed UK activity picking up, but input prices and costs are increasing and markets are pricing a 70% chance of a rate hike by June.
Any increased activity was a short-term boost from purchases rushed through ahead of feared price rises and supply shortages as a record-breaking surge in business costs showed input prices rose at the steepest rate in more than three years.
Sarah Breeden is concerned about the global economy. She thinks the Hormuz closure is the worst energy shock in living memory and she warned that private credit, sovereign debt and stretched asset valuations are all exhibiting similar traits to the 2007 CDO crisis.

The DOJ investigation into Powell will continue, regardless of the impact on Warsh’s nomination. Senator Tillis is still blocking Warsh and Powell may stay on as interim chair.
Ontario Premier Doug Ford thinks the Canadian boycott of the US is costing American businesses tens of billions. He pointed out that Canada didn’t start the tariff war after US Commerce Secretary Lutnick called the boycott insulting.

22/04/2026

22nd Apr - The ceasefire has been extended, Warsh was asked if he was lying, or if it was Trump and the Ollie Robbins hearing adds pressure on Starmer to go.

Ollie Robbins was in front of a Parliamentary committee yesterday about Mandelson’s vetting failure. He is ‘desperately sad’ about losing his job and does not ‘fully understand’ why he was sacked but Downing Street has denied that No. 10 had a ‘dismissive approach’ to the vetting process.
UK unemployment fell to 4.9%. A positive figure on paper but the data masks a shrinking labour force as much of this drop is driven by people exiting the workforce entirely rather than by finding new jobs and that is a sign of economic weakness.

Warsh had his Senate confirmation hearing but it did not appear to advance his nomination and Senator Tillis is still blocking until the DOJ drop the investigation into Powell.
Trump announced an indefinite extension to the ceasefire, following a request from Pakistan’s Prime Minister. Meanwhile, the US blockade remains in place, and peace talks are still on hold.

21/04/2026

21st Apr - Starmer got a grilling in the Commons, Warsh will have the hearing to determine if Trump gets his new Fed Chair and the ceasefire may end tomorrow as both sides remain far apart.

Starmer was up against it for about 2.5hr over Mandelson’s failed security vetting and the debate focused whether he misled Parliament.
He is desperately sticking to the position that he didn’t know and comparisons to Partygate are evident. The difference is that Johnson’s defence of ‘I didn’t know’ was thrown out by the Committee, which concluded he did know and that he was deliberately misleading Parliament.
Reeves had an idea is to float ‘war bonds’ - government-backed bonds earmarked specifically for defence spending. Defence Secretary John Healey is supportive and it would allow her to fund the increase to 3% of GDP without technically breaking her borrowing rules.

Warsh is due before the Senate Banking Committee. He will vow to protect Fed independence and retain the focused mandate, but the Senators recognise him as Trump’s mole, knowing Trump has been trying to take control of the Fed, fire Powell and weaponise the DOJ against the Fed.
Meanwhile, Trump’s approval rating has hit a new second-term low. He’s down to 37% and the Middle East outlook is unlikely to reverse that while he is broadly seen to be on the backfoot with Iran.
In the market the dollar index fell to around 98.05 as risk appetite improved.

20/04/2026

20th Apr - The ceasefire looks fragile after US Navy intercepted an Iranian cargo ship attempting to take on the blockade. Iran say this is “piracy” and have threatened retaliation.
The UK economy will be affected by the war more than any other G7 nation and Reeves has been unable to address this growing dilemma, clinging to her day-to-day spending rules, while the economy gets battered. She seems to be avoiding a difficult decision on whether to keep growing the benefits bill, or fund the increase in defence spending.
Retail sales, PMIs and consumer confidence will be overshadowed by the middle east and the effects on oil/petrol. Oil fell 10% before the weekend, but can expect that move to reverse pretty sharpish today.

Tehran has refused to attend a second round of peace talks in Islamabad and threatened retaliation, claiming the US violated the ceasefire. Trump has made more threats to Iran’s infrastructure, expecting escalation will see Iran will attack the energy and domestic infrastructure of its neighbours again.
Meanwhile, Iran plans to enshrine sovereignty over the Strait of Hormuz into law, claiming that they will decide the right of passage. Where that sounds less like a negotiating position and more like a closing statement, we can expect more volatility to follow.

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