PM Starmer Shows His True Colors & the FTSE Reverses Course

The UK Prime Minister revealed yesterday he would have to make “unpopular decisions” to fix the country.

Starmer addressed a group of teachers, small business owners and firefighters in the Rose Garden at 10 Downing Street. He promised he was leveling with the British public, by telling them things are going to get worse before they get better.

He blamed the previous Tory governments for leaving a £22 billion black hole, which he said was unexpected. His speech opens up to the possibility of higher taxation, presumably affecting the wealthy more, and spending cuts.

He may backtrack on his pre-election pledge not to raise taxes on the general population. In the meantime, he has already cut back on winter fuel payments to the elderly.

The opposition Tory party is accusing Stramer of depicting a much worse situation to justify breaking his election pledge. Starmer said that there would be short-term pain, but that he would stick to his pledge of not raising taxes on the working class.

At the same time, he also mentioned that the coming Budget in October “is going to be painful. We have no choice”

BoE at Jackson Hole

The Bank of England Governor Bailey gave a speech Monday, during a UK bank holiday, most people would have missed it. However, traders were paying attention. The BoE governor said it was “too early to declare victory” in reference to inflation.

Although he did seem confident about the possibility of further rate cuts, the market is still betting the Fed will ramp up faster in monetary easing. Further cuts by the BoE will be a relief for homeowners, and also for the UK government.

But the UK market is following the US developments closely. If the BoE anticipates the Fed we could see a weaking pound that would also create concerns about imported inflation. So, if the Fed cuts rates, it’s a sign the BoE is more likely to follow suit.

Tomorrow we can expect US GDP QoQ Growth, forecasts are for an increase to 2.8% from last month’s 1.4%. While strong economic activity is a bullish factor for stocks, a higher-than-expected number may stifle the view on rate cuts.