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The entrepreneur Matt Clifford made a speech last month at the O2 that is well worth watching because it is so damn cheering, combining economic realism with optimism about Britain’s prospects if - big if - we can get it together.

Clifford was speaking at a conference held by a new insurgent organisation called Looking for Growth, of which more in a moment. What was so transgressive, shocking even, about Clifford’s fourteen minutes of remarks is that they were optimistic and hopeful. This was a counter cultural address in which he told an enthusiastic, young audience that national decline and stagnation are not preordained. It doesn’t have to be like this and we can draw inspiration from our history of innovation to get us out of our low growth doom loop, he said. The speech is quite unlike anything you’ll hear in most of our media, which is (quite understandably) focused on how dysfunctional our politics has become and how deficient is our state capacity.

I’ll admit as a life-long journalist - now more like a recovering journalist - that of late even for a news addict like me the news, particularly on social media, has grown oppressive. I have started to try to limit consumption, sticking to a handful of respected outlets among them a few key Substacks, and I hear all the time others are doing this too. At dinner on Thursday night in Manchester, where I was delivering an after dinner speech to a business audience, several guests told me they avoid too much exposure to current affairs although they know that what is happening is important. No wonder when everything we hear seems to be doom. News now moves so fast, all of it covered by an increasingly bewildered media battling to keep up with technology and how it is changing our tastes and habits.

One even hears it said - as on the promotional film for that BBC Newscast podcast - that the news or politics have never been like this before, never so crazy is the implication, which is why we need to hear about it constantly. Which is obviously rubbish. Look at previous decades such as the 1920s, or the 1940s, or the 1970s. The Seventies were defined by tremendous turmoil from two oil shocks, a deep recession, rampant paranoia in politics, the Iranian Revolution and for British children sinister public information films warning of imminent immolation by electricity sub-station or overhead wires or early death in a quarry.

Still, perhaps because I had such a happy childhood I look back on the 1970s as a boundlessly optimistic era defined by the expansion of the British middle class, the food revolution and widening access to travel. All this good stuff happened even while the world and the economy seemed to be collapsing. A friend from the Fleet Street era still maintains that the 1970s were fantastic because he and his colleagues got such massive annual pay rises. When I point out that these pay rises were eroded by inflation, which was also massive, he waves his hand dismissively. His point is that our then politicians - and what a breed they were, the post-War generation, or most of them apart from the scoundrels - were battling epic historic forces and we all got on with it, life carried on, we came through it stronger and here we all are, still on the go.

We need a dose of that realistic optimism today. And when a friend sent me the video of Matt Clifford’s speech evangelising for growth it hit the spot in that regard.

You can watch it here.

Clifford has started firms and been a senior adviser to the government on AI. The Looking for Growth event was packed apparently. They want radical planning reform, technology unleashed, a tax system that works and pro-business supply side reform implemented to the max.

Cards on the table, I expect I won’t subscribe to every one of their policies or ideas. One attendee says it is too much of a Dominic Cummings fan club and having critiqued Dom as being brilliant but too often (what’s the word?) nuts that is always going to make me suspicious. But there is such an energy about what Looking for Growth are saying that they are worth listening to.

What’s interesting is that there is an observable wave of this, of younger people who like business and innovation deciding that actually they have had enough of decline and stagnation.

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President Trump’s signing of the GENIUS Stablecoin Act marks a chapter in an ancient storyline—the eternal tension between progress and order. Pandora's jar—mistranslated as a box—came with strict instructions never to open it. Stablecoins also arrive with promises and prohibitions.

The warnings are mounting about the Pandora's box of problems that stablecoins will unleash. The economist Barry Eichengreen, one of the leading experts on the history and development of money, invokes the spectre of coins slipping their pegs to the dollar—as happened in 2022—and recalls the chaos of the free-banking era, when dozens of regulatory systems produced banknotes trading at wildly different prices. Yet this is perhaps the least urgent danger lurking inside.

It is likely that only a few stablecoins will dominate. Despite piggybacking on the dollar and often sharing the same blockchain, out of the box their smart contracts remain stubbornly non-interoperable and therefore non-fungible.

Each coin is a brand—and combined with the network effects inherent in money itself, winner-takes-all dynamics emerge. Already, two giants rule: Tether commands a $159 billion market capitalisation - 61% of the market - while Circle's USD Coin holds $62 billion or 24%.

Say what you will about the banking system, but it resists the extreme concentration that defines Big Tech. In spite of years of consolidation, the US still has more than 4,000 banks. Europe has more. That is because, up to now, banks have made a business of a private means of payment but to an open public standard. The result is a monetary commons—a seamless blend of commercial and central bank money that, in normal times, the public can't distinguish between.

The irony is that stablecoins depend on the very openness they seek to enclose. As Rohan Grey, a law professor at Willamette, puts it: the stablecoin trilemma makes it impossible to create coins that are simultaneously stable, denominated in a public unit of account, and free from reliance on public collateral.

This reliance on public collateral is where the real monsters escape Pandora's jar. A Bank for International Settlements (BIS) study finds that even moderate stablecoin inflows lower three-month Treasury yields by 2-2.5 basis points within ten days. No wonder Treasury Secretary Scott Bessent welcomes this effect, hoping a flourishing dollar stablecoin market will cheapen escalating government borrowing.

But the effects cut asymmetrically: according to the BIS stablecoin outflows raise yields by 6-8 basis points—two to three times more than inflows lower them. It is easy to paint a scenario where the impact could be much greater, if for instance there was a repeat of the May 2022 crash in the stablecoin market.

There are other dangers. Short-term Treasury yields are the Fed's key transmission channel for controlling money-market rates. Stablecoin treasuries already rival major US money-market funds as T-bill buyers. If the sector explodes ten-fold to $2 trillion by 2028—as suggested by the Treasury Borrowing Advisory Committee, the expert panel that advises on government debt issuance—it could seriously disrupt Fed monetary policy transmission. Worse, it raises the risk of fire-sales in the very market global regulators already consider dangerously brittle.

Then there is the impact of dollar stablecoins on monetary systems beyond the dollar. US Treasury Secretary Scott Bessent says this “groundbreaking technology will buttress the dollar’s status as the global reserve currency”. In league with Silicon Valley and stablecoin issuers, the US administration is offering hope to consumers trapped by weak currencies and inflation. Yet this gift comes with Pandora’s curse. Foreign users import not just dollars but the full weight of US monetary policy and regulatory whim. Widespread adoption will hollow out local monetary systems and strip central banks of their tools—spreading the very instability it promises to tame.

The irony is, of course, that in seeking to extend dollar hegemony through stablecoins, the US may unleash forces that undermine it. Unlike the offshore Eurodollar system—where correspondent banking gives the US chokepoints for sanctions and anti-money-laundering enforcement—stablecoins open new escape routes from these very controls.

Centralised stablecoins like Tether and Circle can perform KYC checks at issuance and redemption. They can freeze wallets, burn tokens, and mint new ones as replacement. Yet once issued, tokens can flow freely to self-custody wallets or vanish via other techniques, severing links to their original identity.

However, the greatest misery escaping the stablecoin jar is that stablecoins betray the essence of money itself: credit. Where bank credit swells and contracts with the economy's pulse, a stablecoin is frozen at birth, its entire value prepaid. It cannot spin promises into purchasing power, as banks do with overdrafts, mortgages, and working-capital lines. Stablecoins remain forever rigid, unable to respond to economic need.

If households and firms park liquidity in stablecoins rather than bank deposits, banks lose a cheap funding base and must trim loan books or raise lending spreads. The money multiplier shrinks, dampening investment and GDP growth—especially in credit-intensive sectors such as construction and bank-dependent SMEs. The net effect? A more pro-cyclical real economy in which credit contracts faster and recovers more slowly.

Of course the technology that underlies stablecoins, unified ledgers, does carry a tantalising promise: running money on unified or interlocking ledgers can offer genuine advantages, eliminating the need for layers of trusted intermediaries in many transactions. This can significantly reduce the cost of international payments. Through its programmability, smart contracts could replace escrow services and collateral requirements.

Perhaps most important, tokenisation could unlock liquidity in frozen assets. Private equity or property funds, for instance, could be sliced into affordable tokens. Smart contracts could automate the securitisation chain, while tokens stream real-time data on borrower repayments directly to investors—cutting out the middlemen.

The current debate is confused by framing it as a simplistic choice between new technology and the status quo, rather than how to best apply the advantages of unified ledgers and the tokenisation they make possible to a powerful but delicate system, credit money, whose mechanics are well understood.

The tool is neutral; the risk lies in how we apply it. Exploring how to apply these advantages is where policymakers should be focusing their attention.

Programmable ledgers can streamline escrow, fractionalise real-estate, and improve market plumbing without being tied to fully reserved private money. Those functions can sit in tokenised bank deposits that expand with credit needs, alongside tokenised central-bank reserves that anchor stability.

Acting on this simple realisation will address the evils that could escape the stablecoin jar. Knowledge rarely kills but hubris about how it is deployed does.

Andreas Dombret, formerly on the Deutsche Bundesbank board and the supervisory board of the ECB, is an Adjunct Senior Research Scholar at Columbia University.

Wessel Janse van Rensburg, is a technologist, former lawyer and co-founder of e-commerce start-up Miista.

Depending on how you look at the world, the whole Trump thing, the tsunami that has all but overwhelmed us since his inauguration in January is either very good or very bad. Sure, the uncertainty he has created, not to mention the tariff war, has not been too clever although if your name happens to be Karin Keller-Sutter - and you happen to be racing around Washington DC without an invitation or a meeting scheduled with the Donald whilst trying to find a way out of the 39% punitive tariffs that are to be imposed on all imports from Switzerland as of tomorrow - then not too clever doesn’t by a country mile cover the level of uncertainty with which you are dealing.

On the plus side, and my commodities guru has done much to highlight this, Trump has shaken up the complacency with which the West has been liberally indebting itself in order to maintain a standard of social welfare and of government spending that has for a long time exceeded its fiscal capacity. Trump’s and Musk’s DOGE initiative might not have turned out quite the way it had been hoped but it has forced not only the American people to think about what the state can realistically be expected to deliver and where and how to rein in often unchallenged expenditure. I long ago noted that the first time a benefit payment is made it becomes an entitlement. The time has maybe come to arrest the ratchet, not that Trump’s One Big Beautiful Bill, now enacted, has actually done much for the country in terms of fiscal discipline.

Before moving on, I do wonder whether Ms Keller-Sutter is somehow related to John Augustus Sutter, the 19^th century pioneer who set up Sutter’s Fort, later to become Sacramento, the state capitol of California, and on whose land at Sutter’s Mill in 1848 gold was found. The gold rush that followed in time overwhelmed Sutter’s New Helvetia colony, bankrupted him and he died a broken man. Sutter is today largely forgotten but he was an incredibly colourful character. It is not often that one encounters a non-Spanish name in the making of pre-gold rush California but it is worth looking up the guy. Sutter spelt with a double-T is not common. I do just wonder but I also digress.

Back here in Britain, the fiscal imbalances appear to find themselves more starkly profiled than elsewhere. Thus it is that the London-based National Institute for Economic and Social Research, the country’s oldest properly independent economic research think tank, has just thrown a hand grenade into Chancellor Rachel Reeves’ carp pond.

Reeves, that famous ex-Bank of England economist, purports to be a follower of the Rt Hon Gordon Brown, former Chancellor and later Prime Minister. As unsuccessful as he was in the role of the latter, the same cannot be said of the former. Hardcore Conservatives would argue that he was handed inherently sound government finances by his Thatcherite predecessors and that he blew the surpluses on building a social security network that would be in normal economic circumstances and when needing to be funded out of current income unaffordable. I would not be quite so harsh and I even have a soft spot for the late Alistair Darling who served as Chancellor when Brown took over the premiership from Tony Blair. Reeves became the first Labour Chancellor since her party lost office in May 2010. It is not her fault that she has inherited a fiscal clusterf*ck but it is her fault that she has with little doubt and with no particular political bias made a bad job worse.

She arrived at Number 11 Downing Street, the official residence of the Chancellor, banging on about her cast-iron fiscal rules and about the £22 billion “black hole” that she had found in government finance. Brown arrived at the Treasury and in the first week announced the independence of the Bank of England. Reeves’s big first call was the revocation of the pensioners’ universal winter fuel payment. Having nailed in the election manifesto that she would not raise taxes on “working people” – that being income tax, Value Added Tax and employees’ National Insurance contributions – she had to find the money from other sources, ones she described as being “broad shoulders”.

It is fairly widely assumed that Reeves saw pensioners as tendentially more likely Conservative than Labour voters and thus as fair game, a miscalculation that has proven to be not only fiscally but also reputationally incredibly damaging. At around £12,000 per annum, the UK has one of the OECD’s lowest basic state pensions so the winter fuel payment was to many of those who depend on their peppercorn pension a significant boost. The pushback was huge and ‘ere long Reeves has had to conduct a U-turn.

The NIESC paints a grim picture and one which Ms Reeves will not like. According to its forecasts, the presumptive black hole of £22 billion is about to grow to £51 billion and Reeves is rapidly running out of options to soak business and the rich to get the national finances back in order. It sees few options other than to break the election promise and to raise one or all of the three universal taxes which between them supply around 70% of all the government’s revenue by enough in order to increase overall fiscal income by not much less than 5%. Over the weekend, we had a houseguest, a retired educationalist, himself like Reeves and Oxford PPE – Philosophy, Politics and Economics – graduate who frankly declared: “She lied on her CV and lying on a CV always comes out”. Did she really oversell her skillset to her party? Did they take at face value that she really was a highly rated ex-Bank of England economist and did nobody question why she apparently voluntarily moved from the Old Lady to a middle-ranking retail banking position at the Halifax?

The report goes on to highlight her dilemma or, as it notes in its title, her trilemma. It forecasts UK GDP growth for 2025 of 1.3% and in 2026 of 1.2% although it also notes that if she raises taxes in line with its own expected deficit the drag on growth needs to be included in the calculation. The NIESC then goes on to remind that the third element in the trilemma is the acceptance of her policies by the financial markets. Although the media love to paint Reeves as sitting between a rock and a hard place, in reality it is the entire country that is squeezed in there with her.

There seems little doubt across the City that the Bank of England will tomorrow cut Bank Rate from 4.25% to 4.00% despite inflation remaining stubbornly high with the June reading at 3.6% and with little prospect of it in the immediate future going much lower. If nothing else, the Bank can look at the eurozone where real interest rates are now negative which does not say anything nice about the economic and monetary backdrop.

So where does that leave the government and the British taxpayer? A good few years ago, I joined a business venture in Portugal. There I met an English ex-Goldman Sachs girlie who had junked it all to set up an estate agents focused on selling Portuguese properties to Brits. She had by dint of circumstance grown up in Brazil and was entirely bi-lingual. In a quiet moment, she opined that Portugal’s biggest problem was that long ago anybody with a bit of get-up-and-go had in fact got up and gone and that not only since accession to the EU but as far back as the colonisation of Brazil. She felt that this ongoing mass-migration of the brightest had – her words - depleted Portugal’s residual gene pool. This is by all accounts a problem currently being faced by New Zealand where again the brightest and best are leaving the country in search of a wider range of opportunities than their home country can offer them, leaving behind a gap which will over time have New Zealand trailing further and further behind its friends and relations. Britain next?

The Danish philosopher Soren Kierkegaard - an existentialist but not as many believe a nihilist – once wrote that if he sticks his finger in the ground and smells it he knows where he is. If, however, he sticks it into his soul he smells nothing at all. I detect a similar sense amongst many of our ambitious young who fear there to be no future for them in this country and who think it to be becoming a soulless place in which they will morally and financially be punished for any success they might have. That sentiment is redolent of the 1970s and, as much as the traditional Left might kick and scream, it was under Margaret Thatcher that a sense of “can do” was revived and, as much as the Conservatives will also kick and scream, it was during the Blair years that the country felt even more confident in its abilities.

In this context, there was a week back an article by Patrick Barrow in Reaction, well worth reading, titled “Managerial fatalism is the defining feature of Britain’s political class” and subtitled “More troubling than the noise of decline is the silence and resignation”.

On the subject of Reaction, it is with great sadness that I yesterday received the news from its editor and all-round supremo Iain Martin that the online magazine that has for a few years republished some of my musings is to fold in its current form. I have been honoured to have had my teenage scribblings published along with the work of the likes of Tim Marshall, Adam Bolton, Gerald Warner, Maggie Pagano, Iain himself, the hugely talented deputy editor Caitlin Allen and many, many others.

Iain and I spoke at length about the problematic future of proper journalism – AI is busily snapping at its heels – and about where I am to go next. I shall of course plough on. Ongoing correspondence with readers remains encouraging. Thus it was that I received an email yesterday which read “I can imagine sometimes when you send off your Good Morning Letter, you wonder how many people read it. I just wanted to assure you that in my case I think your commentary and perspectives are routinely quite the most insightful and helpful analysis available anywhere to understand what’s going on. Accessible, interesting, timely, pithy and clear!”. Thank you for the kind words. My alarm clock shall remain set on 5:00 am.

Switzerland’s stunned leader is heading to Washington today to avert an economic crisis after the wealthy alpine nation emerged as one of the biggest losers of Trump’s erratic trade war. 

President Karin Keller-Sutter and her delegation insist they are “ready to present a more attractive offer” to US officials. They are scrambling to negotiate better trade terms after Donald Trump hit Switzerland with a shock 39% tariff rate on 1 August. An announcement that, just to add insult to injury, came as the entire country was out celebrating Swiss National Day. 

Aside from being the most punishing rate in Europe, even worldwide, it is topped only by the steep tariffs Trump has imposed on Syria, Laos, Myanmar and Brazil. 

This is a major blow for Bern which considers Washington its largest market for luxury watches, jewellery, chocolate, machinery and pharmaceuticals. Swiss companies’ exports to America account for around one-sixth of their total foreign sales. 

A 39 per cent tariff would have a huge impact on Switzerland’s export-oriented economy and could spark a recession, especially if Washington applies this rate to pharmaceuticals too (at the moment, Trump is still mulling over his desired import taxes for the global pharma industry). 

The slight from America has been politically damaging for President Keller-Sutter, who stands accused of fumbling a vital phone call with Donald Trump, just prior to his shock announcement. Swiss newspaper 24 heures has labelled it “the heaviest defeat of her political career”.

The Swiss were caught unaware, with national media reporting that negotiators were confident they had secured a 10 per cent tariff on exports to the US. 

Instead, the US president opted to hit them with an even higher rate than the 31 per cent he announced on “Liberation Day” back in April. And far higher than the EU’s 15 per cent and Britain’s 10 per cent rate.

Switzerland, often labelled Europe’s “most stubbornly independent country” lies in contrast to Britain in that the nimbleness that comes with not being part of the bloc has done little to secure it more favourable trade terms with the US.

Now, Keller-Sutter is desperate to negotiate a better deal. Yet she has also argued that there are limited concessions she can offer given the extremely favourable trade terms that Washington already enjoys with Bern. 

She’s not wrong. Keller-Sutter could hardly open the Swiss market up to American goods any further: Switzerland unilaterally abolished all customs duties on industrial goods on 1 January 2024, allowing more than 99% of US goods to enter the Swiss market without any duties. And multiple Swiss companies have already heavily invested in the US, making the small Alpine nation the sixth largest foreign investor in America and the leading investor in research and development.

This begs the question: what exactly has Bern done to be hit with quite such a punishing rate?

While it is not, unlike say India, being punished for its protectionism, this harsh treatment appears to stem from Donald Trump’s obsession with trade deficits.

In an interview with CNBC, Trump alluded to his phone call with Keller-Sutter. “The woman was nice, but she didn't want to listen”, he told reporters, adding that he had told the Swiss leader: “We have a $41 billion deficit with you, Madame ... and you want to pay 1% tariffs."

It’s not immediately clear where Trump’s $41 billion figure comes from. According to the US Census Bureau, Washington ran a $38.3 billion trade imbalance on goods last year with Switzerland. 

Regardless, that is $38.3 billion too much for a deficit-obsessed American president, who seems to think that any surplus with the US amounts to “stealing money” from Americans. 

It’s worth adding that, even taking this trade deficit into account, the extent of Trump’s punishing rate on Switzerland remains a little puzzling. After all, America’s deficit with Japan and South Korea run considerably higher at  $70bn and $56bn respectively. 

There is also a curious irony to all of this. Switzerland’s outsized trade surplus with America has only widened under Trump. And indeed largely thanks to Trump.

In the first quarter of 2025 alone, Switzerland’s trade surplus with America ballooned to a whopping $54bn. As Trump’s erratic policies created a period of heightened economic uncertainty, American investors increasingly sought safety in one of Switzerland’s main exports: gold.

Caitlin Allen

Deputy Editor

ON REACTION TODAY

Adam Boulton

The divisiveness of "centrist" Starmer

READ HERE

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1. What the next round of US sanctions against Russia should look like. Nicholas Fenton and Maria Snegovaya in Foreign Policy.

2. PR is no longer unthinkable, says Tom Clark in Prospect.

3. Jeffrey H. Michaels in Engelsberg Ideas on the Cold War origins of Trump’s rift with Europe.

4. The dark roots of the University of Edinburgh racism review. Sebastian Milbank in The Critic.

5. The Economist: On Ukraine’s front lines the kill zone is getting deeper.

The late British Prime Minister Harold Wilson will forever be remembered for his line “A week is a long time in politics”. In markets, a week is an aeon. Sometimes a day is a long time, sometimes even an hour. And in the age of Trump, that wisdom - if it is indeed a wisdom rather than merely a pragmatic observation - carries more weight than ever.

The past week, a goodly part of which I spent sitting on the River Tay in Scotland hoping in vain to hook a salmon which I’d have been obliged by law to put straight back into the water even if I had done, had been touted as being unusually important for determining the trajectory of markets through the end of 2025. And, although it did in the end prove to be one of great surprises, it would be a brave investor who would take what was revealed, position the books and declare “Alea iacta est”, the die is cast.

The Federal Reserve had surely done what had been expected by not cutting US interest rates and all was good. But then Friday not only pulled down the flag but then cut off the flagpole at the base. The July jobs report at the flash of a screen looks to have reset America’s economic narrative and by all accounts not in the way President Trump would have wanted.

The key headline number for jobs created was a disappointing 73,000 which was below the 110,000 consensus expectation but it was the downward revision of the May and June figures by an aggregate of 258,000 that set off the alarms. US bond markets went into overdrive and, although it will be the decline in the Dow Jones by 1.23%, the S&P500 by 1.60% and the Nasdaq by 2.24% that will make most of the headlines, it is the collapse in yields across the curve that tells the best story.

The yield on the benchmark 10 year note had immediately before the Bureau of Labor Statistics released its findings been marked at 4.41%. By the close of business, that had collapsed to 4.21%. Meanwhile, the 2 year note, the canary in the interest rate coal mine had fallen even further to close at 3.68%, 26 bps lower on the day. Moves like these are rare which indicate a market in shock. The argument that the US economy and its employment situation were weathering without notable impact the first six months of the Trump presidency with its relentless attack on the global trade edifice had, so it appears, just been holed below the waterline.

There seems little doubt that the members of the Federal Reserve’s monetary policy committee, the FOMC, had no prior knowledge of what was in store - they opted not to ease policy by cutting rates on Wednesday – on Friday afternoon markets did it for them. Fed Chairman Jay Powell and his committee clearly put gently rising inflation ahead of all other considerations although now with a new light being shone on labour market developments the future interest rate trajectory seems to be set.

The President who has been demanding lower rates – and we’re not talking the odd quarter point here and there – went apoplectic and in short order shot the messenger by summarily firing Erika McEntarfer, the Commissioner of the BLS. Ms McEntarfer had been appointed by President Biden so Trump announced that the figures were “phoney”, that they had been manipulated for political reasons and that it was all a conspiracy against him. Markets were and are appalled by her firing and above all by the accusation that the BLS, or any of the other federal statistical agencies for that matter, might be political and that by firing its head it now seriously risks becoming just that. On the follow McEntarfer’s predecessor William Beach, himself a Trump 1.0 appointee, called her removal from office “damaging”.

Whoever thought they might have just about got the measure of the emotionally volatile President will surely have to admit that they must have spoken too soon as in a second unexpected act he declared trade negotiations with Switzerland to have been a failure and imposed an eyewatering flat tariff rate of 39% on Swiss exports to the USA. The Swiss are speechless as their negotiators thought they had a deal ready for signing and Switzerland’s President – it’s an annually rotating privilege – Karin Keller-Sutter is left wearing the emperor’s new suit of clothes.

In her shell-shocked home she stands accused of misreading the runes although who was to know that, despite apparently having the buy in from Treasury Secretary Scott Bessent and from Trade Representative Jameson Greer, their boss was going to so demonstratively throw his toys out of the pram. Somewhat remarkably, however, the Swiss franc did not notably weaken against the US dollar and although trading at above 80 centimes/dollar remains at the stronger end of its more recent range. If the Donald had preferred skiing to golf the outcome might have been different.

Well, never a boring moment.

Meanwhile, I have been more than just mildly annoyed by much of what I have been reading in the established press as swathes of journalists are already busily seeking the guilty parties for the next financial crisis. My suspicion of private equity and debt are no secret and The Spectator which I generally read with pleasure last week headlined with a sweeping kick at private markets. I read the long article and decided that it, like so many analyses of risk, somehow missed the point. I had during the first years of the century found myself on the structured credit desk of Bank of America and as we all know the Global Financial Crisis was made by greedy bankers of whom by definition I would have had to have been one. There is, however, an angle which is always overlooked and that is that no matter what bankers might have created there would have had to have been people prepared to buy it. And let us not forget that the investors, the ones who so loudly cried “Foul!” when it all went to hell in a handcart had the same quantitative degrees, the same MBAs and the same CFAs as the bankers with whom they were doing business. They were in essence all part of the same value chain.

There was much handwringing back in 2007 and 2008 about the unemployed, unmarried mothers who took out mortgages in order to buy their mobile home and who sat at the base of the subprime mortgage crisis. ”How could they be so stupid?”, “How could they not know that they would never be able to afford the mortgage?”, “Didn’t they see that the teaser rate would not last?”. I have always wondered why it was only the investment bankers who did the repackaging who were given stick and not the local mortgage brokers who filled in the application forms for the potential mortgagees and who fed the beast or the investment managers who of their own volition bought hundreds of billions of the stuff. Yes, they too were part of the value chain. The borrowers who should not have borrowed, however, were in my book in many respects innocent. If you put a box of chocolates in front of a four year old who proceeds to eat them all, do you blame the child when it is subsequently violently sick all over the beige sofa? And trust me, there were at the time near-illiterate mortgage borrowers whose intellect did not by far exceed that of said four year old.

The current market is of course not the same. It is in fact the 180 degree opposite. This time, it is not the innocent punter who is the borrower facing highly qualified lenders – the bankers are still in the intermediary role – but within the private markets it is the borrowers who are the ones with the CFAs, the MBAs and the PhDs and it is the punters, the retail investors, who have been bamboozled into providing the capital to fund the value chain.

Peters’ First Law which emerged in the early days of the GFC holds that credit risk is like energy; it can be converted but it cannot be destroyed. It doesn’t matter how one repackages the risk, how many hedges are applied or how the portfolio is sliced and diced, if at any time or anywhere there is a default someone will lose their money. More to the point, the more highly structured the investment vehicle, the more mouths will have had to be fed along the way and the greater the loss or lower the recovery rate for the poor sod at the end of the chain.

Funnily enough it was not the actual defaults that launched the GFC but it was the sudden discovery that, if defaults were to occur, the lenders to structured finance products - from residential mortgage-backed securities to repackaged auto loans - no longer knew to whom they were actually lending. They were lending to a statistic. I well remember a meeting I had at the Bank of England where there was great excitement over securitisation. It meant, so said the folks at the Old Lady, that risks would be far more evenly distributed across the financial system. Regulatory authorities had always been fearful of risk concentration and on how much one lender was exposed to one borrower. Selling bits of whole portfolios of loans to multiple lenders spread the exposure and so it was argued reduced concentration risk. Bingo! As such not wrong although when in late 2007 things began to get hairy and lenders tried to assess how much they had lent to whom they discovered that they no longer knew. They panicked. This was where the first landmine went off and the rest, as the saying goes, is history.

A market is where buyers and sellers meet and if there are only sellers and no buyers there is no market. That happened variably throughout 2007 and 2008 when perfectly good investments could barely be given away. The epic 2019 collapse of Woodford Investment Management was living proof of what happens when lesser liquid assets find themselves being forcibly sold into a market that sees them coming. The same risks that downed Neil Woodford lurk everywhere and although private funds quite clearly warn potential investors of underlying liquidity risk it is not until the crisis hits that it becomes clear that this is not a phenomenon that builds up gradually but that it will in all likelihood go from nought to a hundred with no stops in between.

On my drive north, I stopped off in Penrith in Cumbria – for geographically challenged readers that is on the map just a few inches south of the Scottish border - where I met up and took tea with my commodities guru. Two old troopers swapping war stories? Nearly but not quite. We are both aware that in market terms we are superannuated and that the current crop of movers and shakers do not have the experience of the long market depression of the 1970s and ‘80s, of the Crash of ’87, of the dot.com bust of 2001 and even at the point of the GFC, now going on two decades ago, they were in many cases still graduate trainees or junior jubs. This does not make them bad people or us good ones. What it does mean, however, is that although they can read all the books in the world about how these crises played out, they will never be able to study in theory the experience of smelling and tasting the gradual and inexorable build-up of risk. They will all be carefully studying the horizon without having found themselves as we did under attack from an entirely unexpected direction.

Please don’t get me wrong. Neither of us or any other old codger for that matter would claim to be able to accurately predict when and where the brown stuff will hit the propellor or what might be the catalyst that will trigger the seismic event but we do have the experience to have developed a pretty good idea of where the greatest amount of damage will be done if, as and when.

So off we trot into a new week and how do I wish that for once we won’t have eight out of ten headlines containing the word “Trump”. I was seriously worried when I read that the 200 Civil Service internships are in future to be handed exclusively to students of provable working class backgrounds. Those with memory of the German Democratic Republic, that paragon of liberal democracy, will no doubt recall that it decreed that only children of working class parents could go to university. In other words, even if the youngster had an IQ of 140 and was what the Americans call a “straight-A stoodent”, if the parents were university graduates, there was no academic future for the child. I am not trying to imply that young people of working class backgrounds should be any less competent and that on merit they must be given an even chance but I remain a fervent opponent of all forms of social engineering. Look where it got the GDR. By the way, how small does your parents’ farm need to be for you to rate as working class or are youngsters of a farming background entirely excluded? Are they about to be treated as the kulaks were by the Bolsheviks? Unfashionable thought as it might be, could it not be argued that many of this country’s current problems result not from too much but too little good old cold meritocracy?

More on the Bank of England's rate decision due Thursday to follow although it looks as though, despite being faced with above target inflation, a quarter point cut in bank rate is to be expected.

With the summer holidays upon us, this week’s briefing provides a reading list of articles – and one podcast – designed to offer a distraction from the rigours of travel, leisure or, indeed, of continuing work.

These articles are free, although some websites may have restrictions on how many articles can be read without charge.

• The proliferations of remakes, sequels, and franchises in film, television, and theatre have sparked criticism of a lack of originality in modern entertainment. Noah Smith's blog post explores this apparent stagnation in American pop culture, attributing it to technological shifts, creative constraints, and a decline in avant-garde innovation. Read here.

• Tariffs, rearmament, a cash-strapped welfare state and calls for new taxes on wealth may sound familiar but equally could describe Britain in the early part of the 20th century. This Works in Progress essay describes how the Liberal government of the day failed in its ambition to introduce a land-value tax and, the author contends, left a legacy of over-reliance on other taxes and ineffective local government.

• A smaller global population appears to be the obvious solution to the challenges of climate change. Author and researcher Hannah Ritchie refutes this idea, demonstrating that even drastic restrictions on having children would not turn the tide on carbon reduction. Read here.

• This account of the closure of an ethylene cracking plant on Teesside shows how industrial leadership is won – and lost. Ed Conway describes how the British chemicals industry pioneered innovations that were the envy of the world. That advantage has slipped away as foreign companies have caught up, regulation has added to costs and the supply of cheap, plentiful energy from the North Sea energy has wound down.

• The jet airline was one of the great innovations of the 20th century. This article from Construction Physics traces the jet engine's origins in the 1930s, charting subsequent industrial advancements and exploring the engineering challenges that underpin this multibillion-dollar industry.

• The emergence of AI-powered chatbots in late 2022 sparked great excitement but the limitations of using models trained to imitate behaviours in their large training datasets quickly became apparent. More recently, as this article from Timothy B Lee explains, developers have been using learning by doing or “reinforcement” learning to create “agents” that can think step by step, reflect and respond to novel situations. As the capabilities of these AI models continue to increase, so too does the potential for economic gains and disruption.

• Globalisation has come under increasing pressure since the financial crisis. This research piece from our colleagues in Germany examines how the unwinding of financial integration and a decline in multilateral cooperation have weakened global economic linkages. It concludes by offering advice on how businesses can navigate increasingly fractured and contested global systems. (Downloading this report requires registration.)

• Electricity grids balance consumer demand with power generation. The intermittent nature of wind and solar energy means that batteries have become a key tool in this matching task. Following our recent Monday Briefing on the UK energy sector, this article by Construction Physics discusses the growing role of batteries in the US grid and explores how batteries are helping to improve grid stability and reliability.

• The UK’s recent Strategic Defence Review described Russia as “an immediate and pressing threat”. The Wargame, a five-part podcast from Tortoise Media and Sky News, pits a team of former British politicians and military leaders against a simulated Russian attack on the UK. The podcast explores vulnerabilities and underinvestment in the UK’s defence capabilities, examines the extent of dependence on our allies and offers a stark conclusion on the UK’s preparedness. Listen below.

A personal view from Ian Stewart, Deloitte's Chief Economist in the UK. Subscribe and/or view previous editions of the Deloitte Monday Briefing here.

Exactly four months after Donald Trump stunned the world with his “Liberation Day” tariffs, the US President has reignited his global trade war, albeit with one striking difference this time round. 

Global markets have slumped today after Trump imposed another set of sweeping tariffs on 69 countries, as his self-imposed deadline of August 1 for striking bilateral deals with trading partners passes. 

Today’s sell-off has dragged European stock markets down to a five-week low while Asia-Pacific stock markets encountered their worst week since April. US stocks fell sharply too, with the S&P 500 index down 1.2 per cent, and, in the UK, the FTSE 100 dropped by over 0.5 per cent.

In this latest round of world trade war, Brazil - which initially got off relatively lightly with a 10 per cent US tariff - has been hit the hardest. Despite enjoying a sizeable trade surplus with Brazil, Trump has raised tariffs on Latin America’s largest economy to 50 per cent. 

Nor has Trump’s newfound admiration for Syria’s strongman leader shielded Damascus from a steep 41 per cent tariff. And there was shock in Switzerland which has been lumbered with a 39 per cent levy. 

The US President has also hiked import taxes on Canadian goods from 25 to 35 per cent and imposed chunky tariffs on South Africa and India of 30 and 25 per cent respectively. 

The ambitious target set by White House trade advisor Peter Navarro of “90 deals in 90 days” was optimistic, to say the least. We have ended up with eight deals - many of which remain scant on details - in 120 days. We can expect bilateral negotiations to continue. Trump has already extended the deadline for a tariff agreement with Mexico by another 90 days.

All of which means that the August 1 deadline Trump was so keen to portray as a make-or-break cut-off point feels somewhat anticlimactic. This is unlikely to be the final word. 

Perhaps the most striking difference with April’s “Liberation Day”, however, is that Trump is no longer simply using tariff threats to pile pressure on other countries to re-write their trade policies. His tariff war is also becoming a means to bully other countries into altering their political agendas. 

After Canada announced its intention to follow the UK in taking steps to recognise the state of Palestine, Trump took to social media to warn that such a move from Ottawa would “make it very hard for us to make a Trade Deal with them.” 

Similarly, Trump has cited the “witch hunt” against his hard-right ally Jair Bolsonaro as the main justification for his punishing tariff rate against Brazil. 

The former Brazilian president faces decades in jail for allegedly plotting a military coup to stop current President Lula da Silva from taking office after losing the 2022 presidential election.

This elaborate Brazilian plot - which allegedly even included a plan to poison Lula and shoot dead Supreme Court justice Alexandre de Moraes - makes the Capitol Hill insurrection appear tame in comparison. Yet Trump has been quick to liken the “disgraceful” prosecution of Bolsonaro to the “witch hunt” he himself endured after his own unsuccessful attempt to overturn the result of the 2020 US presidential election.

While Lula has indicated that he is willing to negotiate economic issues with Washington, he has been clear that there is no room for negotiation when it comes to upholding the right of Brazil’s judiciary to carry out a lawful prosecution. “Brazil has a constitution, and the former president is being tried with a full right to a defense,” insisted the left-winger. 

The notion that America would use its economic prowess to bend other countries to its will is hardly a novel one. However, there is a key difference between Trump’s tariff threats and other US attempts to pile pressure on countries through sanctions or the withdrawal of aid: Trump’s trade war threatens to punish America’s own population more than any of the countries being targeted.

There is no shortage of economists warning that it is US consumers, above all else, who will foot the bill for Trump’s sweeping set of tariffs. 

Caitlin Allen

Deputy Editor

ON REACTION TODAY

Tim Marshall

Starmer’s move to recognise Palestine overshadowed a more consequential Arab League announcement

READ HERE

Jenny Hjul

Civil service will be poorer under Labour’s social engineering ploy

READ HERE

Neil Collins

Shell has learnt from its painful episode

READ HERE

Gerald Malone

Dido and Aeneas: Graham takes the Purcell favourite for an extended work-out

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Men arrested over child sex abuse in Bradford - Ten men have been arrested in Bradford on suspicion of alleged child sex offences occurring between 1994 and 1997. The men, aged between 49 and 71, have been interview and bailed pending further enquiries. The six victims were aged between 13 and 15 at the time.

Millions of Brits denied car finance compensation payouts - The UK Supreme Court has sided with finance companies over car buyers, ruling today that lenders won't have to pay compensation to millions of motorists over car finance loans, in a case focussed on whether or not the dealers had a duty to act in the interests of the buyers when selling a car on finance.

Syria to investigate Sweida violence - The Syrian government has formed a committee of lawyers, judges and a military official to investigate recent clashes in the city of Sweida between tribal fighters and the Druze, which began in mid-July and resulted in hundreds of killings. It was the second major outbreak of violence since the fall of the Bashar al-Assad regime, the first being in March when Alawite civilians were killed by forces aligned with the Syrian caretaker government.

El-Salvador abolishes term limits - El Salvador’s legislature has voted in favour of a proposal for constitutional reform which will scrap presidential term limits. The duration of presidential terms has been extended and the next election has also been delayed. President Nayib Bukele, who has been in power since 2019, may now potentially be able to rule for life. Concerns have also been raised about his human rights record, and that his heavy crackdown on crime has resulted in arbitrary arrests and an estimated 75,000 arrested under emergency measures.

FIVE THINGS

1. Russia’s war is also cognitive: to achieve more, Putin needs others to do less, says Nataliya Bugayova in Foreign Policy.

2. Duncan Weldon on how liberal capitalist economies adapt to total war, on the Engelsberg Ideas podcast.

3. DAT Green in Prospect: Why two recent judgements of Lord Leggat matter.

4. Rachel Reeves has crushed confidence in Britain, says Matthew Lynn in The Spectator.

5. The upstart company that wants to build the world’s largest aircraft. Mark Piesing in BBC Future.

The usual suspects were quick to complain about the results from Shell yesterday. “Climate scientists have warned us that this new normal will spell the end of human civilisation by 2100. It’s time for destruction to stop raising billions in profit," according to Robin Wells of Fossil Free London.

The executives and (us) shareholders have long since got used to this sort of thing, and the timing was not exactly helpful to the protesters, as Shell’s quarterly profit to June fell from $6.3bn to $4.3bn.

Perhaps he would rather see the profits fall further or faster, or to see the company change course.

Unfortunately, he has a template for this, and it is not helpful to the cause. BP led the charge for renewables, and has discovered that it ain’t easy being green. Its investments in renewables have yielded far less than it hoped. Its share price has been left behind by the other two oil majors, Exxon and Chevron, to the point that it is widely viewed as a takeover target.

Shell’s previous management also got into a muddle during the covid crisis, and this week’s results demonstrate that they have learned from that painful episode. The company is buying back its own shares at a rate of $3.5bn a quarter, making a total of more than $45bn in the last three years, alongside a slowly rising dividend.

Shell, as the protesters have spotted, is an oil company. The industry has learned the hard way that the skills honed over the last half century do not translate to planting and running offshore wind turbines. Harnessing the wind is a tough business where even the specialists find it hard to make money. Shares in Orsted, the market leader, have fallen by three-quarters from their peak four years ago.

That $45bn which Shell might have sunk in the sea is far better employed by other investors, who can judge where their capital is expected to produce the best return. Besides, Mr Wells and his fellow protestors should have a care. Shell is an important UK company, after the dual structure with The Netherlands was scrapped in favour of London some years ago. Should the protests become more than a minor irritant, Shell’s board could decide to move the domicile to America, along with the jobs that any HQ generates, where they could concentrate on running the business with fewer distractions. They might end up pumping more oil and gas rather than less, too.

European stock markets soared to a four-month high today amid relief that a EU-US trade deal has finally been struck, but not everyone on the continent is in celebration mode. 

On the contrary, French Prime Minister François Bayrou has labelled the agreement hashed out between EU Chief Ursula von der Leyen and Donald Trump yesterday in the US President’s Scottish golf resort as a “dark day” for Europe. 

“An alliance of free peoples, brought together to affirm their common values and to defend their common interests,” wrote Bayrou today, has “resign[ed] itself to submission”. 

That Germany’s Dax jumped by 0.86% this morning and France’s Cac 40 index by 1.1%, lifting the pan-European Stoxx 600 index to its highest level since late March, reflects relief that a ruinous trade war has been averted, putting an end to a period of crippling uncertainty.

But that’s not to say Brussels got a good deal. Bayrou isn’t the only figure voicing concern that this is a heavily asymmetrical agreement, amounting to a European surrender. 

Under the deal reached between VDL and Trump, almost all EU exports to the US will be subject to a 15 per cent tariff. A zero-for-zero tariff rate will apply to several strategic products including aircraft parts, semiconductor equipment and some chemicals. The deal will also require the bloc to make big investments in American industry, and, over three years, purchase $750bn worth of US energy products such as liquefied natural gas. 

While the 15 per cent rate is half of what Trump has threatened to impose on the bloc, this is still a significant climbdown from Brussels. It’s worth remembering that the EU initially responded to Trump’s “Liberation Day” tariff threats by proposing a “zero-for-zero” tariff deal on all products and threatening retaliation if Washington didn’t agree. 

German Chancellor Friedrich Merz has welcomed the deal on the basis that it has “succeeded in averting a trade conflict that would have hit the export-orientated German economy hard”. But the country’s biggest industry trade association, the BDI, is unconvinced: “Even a 15% tariff rate will have immense negative effects on export-oriented German industry,” it warned today.

For a bloc that prides itself on being a trade powerhouse to have folded so easily shows that European leaders are weaker than Europe itself, say critics of the deal. Though others point out that this in part reflects fear amongst Brussels’s top brass that a deepening trade rift could prompt Trump to withdraw security guarantees for Europe. 

While the EU’s perceived submissiveness hands Trump a win, the deal is not necessarily a win for American business. 

As Simon Nixon points out on Wealth of Nations, one area in which the EU has stood firm is in refusing to rewrite its regulatory rulebook to benefit US companies. It refused to bow to Trump’s demands to change its digital services rules, agricultural rules or pharmaceutical pricing. “The irony”, Nixon argues, “is that this is the one thing that US companies would have most wanted out of any trade deal”. Instead, they have been hit with a massive hike in imports taxes that they are currently having to absorb through lower profits.

What’s the significance of all this for Britain? Broadly speaking, it means that the UK has secured a better trade deal with Washington - with the majority of UK goods now subject to a 10 per cent US tariff rate, compared to the 15 per cent import tax Trump is levelling at most EU products. 

This disparity will create fresh complications in Ireland. But, aside from the further headache for custom arrangements in Northern Ireland, Britain’s comparatively lower tariff rate does point to a reward of Brexit. Business Secretary Jonathan Reynolds has not shied away from this: “I'm absolutely clear, this is a benefit of being out of the European Union, having our independent trade policy, absolutely no doubt about that”. 

Caitlin Allen

Deputy Editor

ON REACTION TODAY

Ian Stewart

Why Britain pays more for electricity

READ HERE

Patrick Barrow

Managerial fatalism is the defining feature of Britain’s political class

READ HERE

ALSO KNOW

Victorious Lionesses celebrate at Number 10 - The England football women’s team are being hosted in Downing Street today for a special reception after winning the 2025 European Championship yesterday, beating Spain on penalties after a 1-1 draw. The back-to-back European Champions are being hosted by Deputy Prime Minister Angela Rayner and sports minister Stephanie Peacock.

Starmer recalls cabinet over Gaza - The UK Prime Minister recalled his cabinet during the summer recess today for emergency talks on the humanitarian crisis in Gaza. It comes as 14 more Palestinians died of malnutrition and Israel agreed to pause its military operations in parts of Gaza for 10 hours per day, amid international pressure to allow more aid into the enclave.

Trump threatens Putin from Scotland - After meeting with Keir Starmer on his golf course in Scotland today, Donald Trump set a new deadline of “10 or 12 days” for Vladimir Putin to agree to a deal with Ukraine or face sanctions.

Thailand-Cambodia agree ceasefire - Thailand and Cambodia have agreed to an "immediate and unconditional ceasefire", effective from midnight, after five days of fighting at their border killed at least 33 people and displaced tens of thousands.

FIVE THINGS

1. Israel’s zones of denial. David Remnick in The New Yorker.

2. Tony Lodge in The Times on how to make Great British Railways a success.

3. What does regime change in Iran look like, ask Kasra Aarabi and Saeid Golkar in Engelsberg Ideas.

4. How NASA engineered its own decline, in The Atlantic

5. Compact’s Helen Penatzer on the fatal incoherence of BRICS.

UK electricity prices are among the highest for developed economies. The UK’s reliance on gas to generate electricity meant prices surged following Russia’s invasion of Ukraine. Despite falling back from the 2022 peak, electricity prices are currently more than 50% higher than before the invasion. High energy prices have squeezed households and created huge challenges for energy-intensive businesses.

In 2023, the UK had the highest industrial electricity prices among 24 members of the International Energy Agency (IEA), a group of developed economies. UK firms paid around 50% more for electricity than German and French competitors, and four times as much as companies in the US. India and China are not members of the IEA, but data for 2024 shows UK firms pay around three times as much for electricity as those in India and China.

Raine Newton-Smith, head of the Confederation of British Industry, said recently that 40% of UK firms were holding back on investment due to high energy bills. Earlier this year, Jim Ratcliffe, owner of the petrochemicals group Ineos, said energy prices were killing the UK’s chemical industry.

Energy-intensive industries, mainly operating in international markets, include paper products, petrochemicals, metals and inorganic products such as cement, ceramics and glass. In the UK, the combined output of these sectors has fallen by one-third since 2021 and is now at its lowest level since data started to be collected in 1990. It’s not just the UK. The European Central Bank reports that euro area manufacturers are increasingly relying on imports, rather than domestic production, for energy-intensive intermediate goods.

US electricity prices are low partly because of America’s abundant domestic supply of cheap gas. The same cannot be said for France or Germany, which, like the UK, import fossil fuels. The UK’s unusually heavy dependence on gas helps explain why UK industry and consumers pay more for electricity than those in France and Germany.

In 2024, gas accounted for 30% of UK electricity generation, 16% in Germany and just 3% in France. Germany has a diversified mix of energy generation, with more than two-thirds coming from coal, solar and wind. France generates almost 70% of its electricity from nuclear.

EU members produce on average almost 50% more electricity than the UK on a per capita basis. Sweden and Finland are the leaders, with the lowest prices among the EU and by far the highest per capita electricity generation. These countries combine renewables and nuclear to generate around four times as much electricity per person as the UK.

The UK’s reliance on gas means it is often expensive gas that sets the price for all electricity due to Britain’s system of marginal pricing. The final unit of supply needed to meet demand sets the price for all electricity sold. So even if 99% of demand is met with cheaper low-carbon energy, the gas plant that is required for the last 1% will set the price. In 2021, gas power stations accounted for 43% of UK electricity output but set the system price 97% of the time. In comparison, gas sets the marginal price for electricity in the EU 36% of the time. In France, with its huge nuclear capacity, gas sets the price only 7% of the time.

Policies designed to encourage decarbonisation have also added to electricity prices – though this effect is dwarfed by the impact of higher gas prices. The renewables obligations, the feed-in tariffs and the climate change levy collectively account for about 10% of industrial users’ electricity bills. Fewer exemptions are available from these levies than for comparable schemes in Germany, France and the Netherlands.

In the UK, all electricity-related costs are included in the customer bill. In other countries some components — mostly policy — are paid through general taxation. This applies both to domestic and industrial energy prices.

Renewables accounted for just over half of all UK electricity production last year, up from 2.5% in 2000. At the same time, the cost of renewable energy technology, such as solar panels, has fallen precipitously. So if the UK technology is getting cheaper and the UK is producing more green electricity, why aren’t bills lower?

A number of factors are at work.

First, consumers and industry are still paying for renewables that came online several years ago when costs were higher. Under the contracts for difference system, operating since 2014, each vintage of contract guarantees energy suppliers a ‘strike price’ for the next 15 years; earlier strike prices, set up to nine years ago, at a time when costs and risks were greater, were higher than more recent ones.

Second, land, labour and capital account are major costs for renewable producers, and, unlike green technology, they’ve risen in price.

Third, and most obviously, solar and wind are subject to the vagaries of the weather and are frequently offline. Renewables need backup capacity, storage, transmission and system balancing, the costs of which are added to bills.

The government recently set out measures to reduce costs for some industrial users of electricity. Next year, the government plans to reduce electricity network charges for industrial businesses and, in 2027, it will exempt about 7,000 energy-intensive businesses from some green levies.

Such measures are palliatives, not a cure since they shift the incidence of higher electricity costs to other energy consumers or to taxpayers. Gas prices could, of course, fall further and, in the meantime, the technology for renewables and battery storage is getting cheaper. Other costs, however, continue to rise while a huge programme of investment in Britain’s energy system lies ahead. Renewables offer the ultimate prospect of cheap, secure energy. Getting there will take time and a lot of capital.

A personal view from Ian Stewart, Deloitte's Chief Economist in the UK. Subscribe and/or view previous editions of the Deloitte Monday Briefing here.

Most people are broadly familiar with the condition of the squalid failed state that is Cuba, a monument to 66 years of communist rule, of the …

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The careful investigation into the water industry from Sir Jon Cunliffe could be summarised in one word: Thames. Whatever the sins and shortcomings of the rest of the industry, only Thames Water is on the brink of collapse.

The next least-worst miscreant, Southern, is in the process of rescuing itself, helped - ironically enough - by Macquarie, the Aussie bank that set Thames on the path to perdition.

As so often in this emotion-inducing industry, the biggest howls of rage are reserved for secondary things that users of the product can most easily understand. Send cheating chief executives to jail! Force them to get along without bonuses! Stop dividends to fat-cat investors! Raise the fines for pollution! Unfortunately, executives with the talent to run big companies are rare and thus expensive. Identifying such people is hard; the talent is not going to take on the Thames task under a variant of “beatings will continue until morale improves”.

The politicians know this, but dare not admit it. They also know that straight nationalisation would essentially bust the public finances with a further £100bn of debt - and the record of nationalised industries in the UK is hardly glittering. This is why Steve Reed, the environment secretary into whose lap this effluent has dropped, was keen to focus on the sparkling far future.

He has a stroke of luck, here, pointing to the regulatory shambles today. The combination of water regulator Ofwat, the Environment Agency, the Drinking Water Inspectorate and Natural England could have been designed for bureaucratic buck-passing. One super-agency will at least concentrate responsibility.

For a financial perspective, consider the stock market reaction to the Cunliffe report. Prices of the two largest listed water companies, United Utilities and Severn Trent, rose marginally. Less than a minor squall on their (depleted) reservoirs, then.

So we come back to Thames Water. Reed has got to say that the company will not be let off the fines that are (and will be) due for failure to hit pollution targets, but he knows that if forced to pay them, the company will have that much less to spend on avoiding them in future.

The answer to all this is the same as it has been ever since the crisis began. Not nationalisation, but special administration, a temporary financial state which could have been designed for Thames.

Since the company is so obviously in gross breach of its operating licence, Reed is entitled to step in and temporarily take over the business. The holders of Thames’s ocean of debt would have to wait, and should expect to endure some financial water-boarding before they know their fate.The key word here is “temporarily”. The government should pledge to return Thames to the public markets with (moderate) new debt as soon as practicable, with the proceeds divided between the bondholders. The net effect on the public finances is essentially zero.

The bondholders’ lawyers will howl, and claim that administration somehow makes London a riskier place for lenders. This is so much effluent. If New Thames looks like a good risk, the lenders will rush in. After all, they did so enthusiastically when the old business was already struggling under the weight of its borrowings, a decade ago. Some might say that a nasty capital loss serves them right.

The first half of this year has been good for equities. Global equity markets have risen by 9.5% following gains of 15% in 2024 and almost 21% in 2023. This year’s upward progression has been far from smooth.

Equities hit the buffers in April with most major indices falling sharply on the announcement of US tariffs on 2 April. The US market fell 18% from its February peak, the sharpest decline since the pandemic. Technology, financial, oil and gas stocks saw the biggest declines on concerns that tariffs would hit US growth. Other equity markets also sold off sharply, though the US suffered one of the largest declines.

Since then, equities have bounced back on the US decision to leave time for negotiation and postpone the introduction of many tariffs until 1 August. Renewed enthusiasm for equities comes despite the fact that, on current announcements, the average US tariff on imports of goods is eight times higher than at the start of the year and at the highest level since the early 1900s.

In recent weeks, President Donald Trump has proposed a 50% tariff on imports of copper and a 200% tariff on pharmaceutical products. Markets appear to have shrugged off the news, with the S&P 500 index trading near record highs and up 25% from April’s low. Investors seem to be betting that tariffs may not reach the levels threatened by Washington or that they will not have a major impact.

In the US, the “magnificent seven” major technology stocks now account for 27% of the US equity market, up from just 5% in 2013. The performance of these behemoths, from Apple to Tesla, has an outsize impact on the performance of the US market. The magnificent seven sold off in early April but have since risen 39%. Since the start of the year, they have risen by 5%.

The fortunes of these tech firms have diverged. Nvidia, Microsoft and Meta have risen 20% to 30% on a tide of optimism about AI. Amazon and Alphabet are broadly flat since the start of year while shares in Apple and Tesla are down by nearly 20%. The latter have both said that tariffs will significantly raise their costs.

In May, Apple CEO Tim Cook said that then prevailing tariffs would cost the business $900m. Tesla’s share price has suffered from the impact of tariffs and CEO Elon Musk’s feud with President Trump.

Retail, and in particular consumer discretionary stocks, have been among the poorest performing US sectors. Exercise bike maker Peloton has fallen in value by a quarter, while premium fitness retailer Lululemon is down 39%. US firms face a weaker consumption outlook as confidence has softened since the start of the year. Lululemon manufactures most of its products in Vietnam, Cambodia, Sri Lanka and Indonesia, countries that are threatened with high US tariffs.

The US has been the star equity market of recent years, with gains far eclipsing those in most of the rest of the world. That pattern has gone into reverse this year as investors have started to question the notion of US exceptionalism. So far this year, the US market is up 7%. Euro area stocks have risen 26%, Chinese stocks 25% and the UK 11%.

Banks have performed strongly across Europe. Expectations for the sector were low at the start of the year but it has delivered strong earnings, share buybacks and high dividends. Euro area bank stock rose by over 50% in the first half of this year, with UK banks up 27%.

Defence stocks have performed strongly in the wake of rising international tensions and NATO’s commitment to spend 3.5% of GDP on defence. Shares in Germany’s largest defence contractor, Rheinmetall, have almost tripled in value this year.

Returns on government bonds have been poor this year. Yields on government bonds, especially long-dated bonds, have tracked upwards on investor concerns about inflation and levels of government borrowing. (Rising bond yields mean lower bond prices.) The tax cuts in Mr Trump’s “big, beautiful bill” will add significantly to US debt levels, which are forecast to rise from 100% of GDP to 211% by 2055. In March, Germany changed its constitution to allow for a significant increase in borrowing to finance higher spending on defence and infrastructure. As in the US, the long-term path of public borrowing in Germany has shifted up.

The year 2025 has not been a good one for the US dollar that has come under pressure as investors weigh the impact of US tariffs, sharply higher public borrowing and White House criticism of the Federal Reserve. Against a trade-weighted basket of foreign currencies the dollar has fallen 11% so far this year.

The oil price spiked during the conflict between Israel and Iran in June on fears Tehran might disrupt oil production and shipping in the region. That spike was short-lived, and oil is trading well below levels at the start of the year. Following the ceasefire between Israel and Iran the market switched back to the fundamentals of softer global demand and rising supply as OPEC+ raises oil production.

Uncertainty has been good for gold, which has seen its price rise 28% this. Investors turn to gold when there are concerns about the economic outlook, or market volatility, particularly when other “safe-haven assets”, such as government bonds, are out of favour. Bitcoin, another supposed hedge against risk, has continued the ascent that started in 2023 and has risen 25% this year.

Investors seem to be counting on a benign outcome, in which US tariffs and growing geopolitical tensions have little impact on equity valuations. That sits uncomfortably with the IMF’s recent observation that, amid recent volatility in equity, bond and currency markets, the risk of financial instability has “increased significantly”. For now, equity markets are shrugging off such risks.

A personal view from Ian Stewart, Deloitte's Chief Economist in the UK. Subscribe and/or view previous editions of Deloitte Monday Briefing here.

Another day, another subsidy to try and make us love electric cars. Like its predecessors, this bung shows signs of being inserted into the leaking vessel without much thought. Unlike its predecessors, it has already irritated the Chinese, who have emerged as market leaders in this new industry.

Despite the unrelenting efforts of the car industry trade body to spin the figures, citizens paying with their own money remain wary. The bulk of sales are to corporates, thanks to a benefit-in-kind tax regime that effectively means that petrol company cars are an indulgence. Despite this, the Society of Motor Manufacturers and Traders never lets another disappointing month go by without calling for taxpayers’ help to lure in private buyers.

Now, it seems, persistence pays, as so often with pressure applied to this incontinent government. The details are vague. A lucky few models will qualify for a grant of “up to” £3,750, while the rest get £1,500. Apparently, Chinese-made models will not qualify, because they are made with coal-fired electricity, which at least shows some imagination from the Energy Department. Teslas are again regarded as playthings for the rich, so they get nothing.

Showing their mastery of hypocrisy, the Chinese have said this is against the principles of fair trade which they hold so dear. The small band of UK manufacturers are far from gruntled, too. They were promised a meeting this week to explain the new rules, although if the scheme had really been more than a back-of-the-envelope sketch, an explanation could have come with the announcement.

As for the bung itself, it may do more harm than good to sales of electric vehicles. They currently cost around a fifth more than the equivalent petrol car, and no buyer is going to rush in until she knows how much cheaper the car will be. The move threatens to deal another blow to second-hand values, hitting the three-quarters of private buyers who have bought under a leasing scheme. The gap between the three-year depreciation of a petrol car and the corresponding EV is already a big disincentive to new car buyers, and any further deterioration in values could outweigh the saving from a subsidised purchase.

In addition, the looming ban on sales of new petrol cars will keep their second-hand values embarrassingly high. It seems that here is another government initiative that will have the opposite effect to that intended, at an estimated cost of £650m. As the director of one motor manufacturer told the FT: “It’s a total mess,” while another said: “This is what the industry wanted . . . but there is going to be a lot of uncertainty, which is the last thing we need.” Be careful what you wish for.

There is an old saying that it is much better to make the news than to be the news. One might not believe it but even Hollywood actors and Hip Hop musicians know that although it would of course not help the gossip columnists and paparazzi make their living. If you are, however, the head of a central bank, it is your fate to be the news as much as to make it.

That might sound fatuous, but I’d suspect that more people can name the governor or president of their respective central banks than that of their ministers of transport who, let’s face it, as they commute to and from work have a significantly more direct influence on their everyday lives. The names of the central bank bosses are always in the news and, although they are on their monetary policy committees supposedly merely a prima inter pares, we all know that ultimately it is they who determine what policy looks like and where rates will be set.

In 2012, Jerome Powell was appointed by President Barack O’Bama to the Board of Governors of the Federal Reserve System (for the benefit of more recent readers, I began to dub him “O’Bama” when after having been newly elected to the White House in 2008, like most of his predecessors, he turned up on the front pages of the papers propping up the bar in a pub in Ireland clutching a pint of Guinness whilst seeking his Irish roots and credentials although my various editors have over the years either got or not got the joke). Powell, elevated in 2018 by Donald Trump to the chairmanship has since been a notably low key holder of the office. He for one has certainly tried to make rather than be the news but Donald Trump has decided that it is to be different.

Powell has sat in the chair through some pretty difficult times, especially through the pandemic years from 2020 to 2022. Although he was back then widely praised for the Fed’s generously accommodative monetary policy including a winding back up of quantitative easing, his ultra-loose policy is also blamed for the ensuing rise of inflation and above all he will be remembered for having missed the boat. Who can forget his description of the incipit post-pandemic rise in CPI as “transitory”, something that it most certainly proved not to be and the subsequent aggressive tightening which was aimed at getting the Fed back ahead of the curve came not only at a cost to the economy and the people but got into the head of the ex-President and highly leveraged property developer Donald Trump that he was a man out of time.

Since Trump’s re-election Jay Powell has had a target on his back although the law does not permit the President fire him, one of very few senior public servants to enjoy that privilege. Now there is the rising story of the huge cost of renovating the Fed’s building but above all the US$800 million by which the works are reputed to exceeded budget and all of a sudden the anti-Powell gang in the West Wing can see cause to have him prematurely removed from office.

By all accounts – I’m not on the ball here – he now stands accused of having misled Congress when he apparently denied that the cost of the renovation works had strayed too far from the original estimates, the cost of which will have had to have gone through Congressional appropriation processes. Trump can see a charge of the misconduct of having knowingly misled Congress coming on and with it the opportunity to dismiss him not only from the chairmanship of the Fed but also from the Board of Governors on which he could otherwise continue to sit until that mandate also expires and which he insists he wants to see out even after his tenure as chairman runs out in May 2026.

There is a battle of wills going on here and as much as I respect Mr Powell, he looks from where I am sitting to have possibly handed the President a smoking gun. The possible successors – remember that the Fed Chairman is a Presidential appointee – are already fawning their little heads off as though the job will go to the one who writes the most compelling poetry praising the virtues of the Commander in Chief. The old mid-20^th century German concept of “Gleichschaltung” springs to mind; the literal translation is either “coordination” or “synchronisation” although in the context of Germany in the 1930s, it means the alignment of all parts of the country and its administration to the prevailing ideology.

My dear friend Professor Gwythian Prins refers to the Trumpian “quinfecta” which covers the White House, both houses of Congress, the electorate and of course finally the Supreme Court. If – not really if but when - Powell goes and a loyal yes man is installed at the Eccles Building in Washington, Trump will at least until January 2027 have a “sexfecta”. Powell did of course do himself no favours by cutting rates by 50bps ahead of the November election in what Trump can with some justification see as having been fairly overt support for his Democrat opponent Kamala Harris.

Forward markets are currently pricing in two rate cuts before the end of 2025, the first one being in September and after the summer recess, so not at the next FOMC meeting on 31 July, and the second one either at the October or the December convocation and most likely at the latter. If, on the other hand, Trump gets his man and brings the Fed in line with his thinking, then do not be surprised if rates find themselves in short order being cut by as much as 200 bps from the current 4.25-4.50%. Tuesday’s US CPI report was not quite in tune with headline inflation rising from 2.4% in May to 2.7% in June and core inflation rising to 2.9%.

On that basis, the Fed Funds target rate at 4.50% looks high but Powell is adamant that until the new tariff regime has found equilibrium - giggling, shrugging of shoulders and rolling of eyeballs permitted – he’d rather see the Fed err on the side of caution. Anyhow, the long expected tariff-induced inflationary spurt and slowing of the economy don’t appear to be happening although, as we all know, the economy is not as politicians would like to have it one great harmonious construct in which everybody does well when statistically it is growing nicely.

The experiment of cutting rates in the hope of generating growth and at the same time, by lowering industry’s cost of investing in productivity, bringing down inflation was tried by Recep Tayyip Erdoğan in Turkey – he even appointed his son in law to the governorship of the Central Bank of Turkey - and it proved to be disastrous. In the five years since July 2020, the Turkish lira has declined from TRY 6.85/US$ to TRY 40.25 at which it is trading at the time of writing. We might lack the “lived experience” of tariffs being systematically imposed on international trade but the same cannot be said for cutting rates in the hope of generating inflation-free growth.

UK government borrowing costs rose at the fastest pace in Europe today, after a fresh set of data showed that the rate of inflation unexpectedly jumped last month to the highest level in over a year. 

Yields on ten-year gilts rose to 4.67 per cent this morning in the wake of the latest ONS figures that defied economists’ expectations that inflation would remain unchanged. Instead, it rose to 3.6% in the year to June, up from 3.4% in May. Meaning Britain is now contending with the highest rate of inflation in the G7. 

This is well above the Bank of England’s 2 per cent target, casting uncertainty on whether, when the Bank’s Monetary Policy Committee meets next month, it will press ahead with another rate cut which would have made borrowing that bit cheaper.

Much of June’s rise was driven by the cost of motor fuel, according to the ONS, while food inflation - which rose to the highest level in over a year - also contributed.

Worryingly, core inflation - which strips out volatile food and energy prices and is generally considered a more accurate measure of underlying trends - also jumped to 3.7 per cent, from 3.5 per cent in May. 

And the annual RPI inflation rate was 4.4% in the year to June, a rise from 4.3% in May.

Analysts say that the Chancellor’s decision to impose a £25 billion tax rise on employers in her maiden Budget has likely contributed to this lousy set of data: a rise in the cost of restaurant meals, hotels and the price of supermarket groceries provide early signs that businesses are passing on their higher employment costs to consumers. 

Higher-than-expected inflation piles further pressure on Rachel Reeves, who is already under intense scrutiny following two consecutive months of negative growth, and mounting speculation about another set of tax rises in the Autumn Budget that could further hinder growth.  

Last night, Reeves attempted to shrug off Britain’s anaemic growth performance in her much-hyped Mansion House speech. She promised City bankers she would reinvigorate the economy by cutting red tape that acts as the “boot on the neck of business”. And she called for a new era of “shareholder democracy” to encourage all Brits to invest. 

It was a speech attempting to reset the economic narrative.

Unfortunately, this attempt at optimism has been overshadowed today by renewed fears that the UK economy is entering stagflation: that highly undesirable combination of rising inflation and stagnant growth. 

Stagflation leaves the Bank of England walking a difficult tightrope. When it comes to rate cuts, ONS unemployment data set to be published tomorrow will give us a better indication of the BoE’s next move. If the jobs market has been weakened in the face of of a £25 billion rise in payroll taxes and sluggish economic growth, then the Bank is more likely to press ahead with another rate cut next month, in spite of this inflationary spike.  

Caitlin Allen

Deputy Editor

ON REACTION TODAY

David Waywell

MAGA fallout: is this really about Jeffrey Epstein or 2028?

READ HERE

Gerald Warner

How Reform prepares for government

READ HERE

ALSO KNOW

Starmer spends Labour MPs- Prime Minister Sir Keir Starmer has suspended four Labour MPs over repeated breaches of party discipline. Neil Duncan-Jordan, Brian Leishman, Chris Hinchliff and Rachael Maskell have had the party whip removed, meaning the MPs will sit as independents in the House of Commons. Three other Labour MPs - Rosena Allin Khan, Bell Ribeiro-Addy and Mohammed Yasin - have been stripped of their trade envoy roles. It comes after all four of the suspended MPs and the former trade envoys voted against the government's welfare reform bill earlier this month.

Israel strikes Syrian military HQ - The Israeli military struck the Syrian defence ministry in Damascus twice on Wednesday, collapsing four of its floors and wounding at least two officers, as it intervened in the clashes between the Syrian army and Druze fighters in southern Syria in the country’s deadliest violence in months. This was the first time that Israel had targeted Damascus since May and the third day in a row it had conducted airstrikes against the Syrian military.

Afghan data breach fallout - Keir Starmer has insisted that the Tories have “serious questions to answer” for their handling of the Afghan data breach while Defence Secretary John Healey warned against a Ministry of Defence “witch hunt”, pointing out that the person involved in the leak was “no longer doing the same job”. Writing in The Telegraph, former Defence Secretary Ben Wallace has said he makes “no apology” for stopping the reporting of the data leak, insisting that the injunction was “not a cover-up”.

Deadly crush at Gaza distribution site - At least 20 Palestinians have been killed in a crush at a food distribution site near Khan Younis run by the US-backed Gaza Humanitarian Foundation. According to Palestinian health authorities and witnesses, it happened after GHF guards used teargas or pepper spray on crowds arriving at the centre. Nineteen people were crushed and one stabbed in a “chaotic and dangerous surge” on Wednesday morning, the GHF said in a statement which did not respond to questions about the use of pepper spray or teargas by its staff. Gaza’s health ministry said in a statement that fifteen people died from suffocation after toxic gases were fired at the crowd.

FIVE THINGS

1. William Hague on how to attract talent and keep the wealthy, in The Times.

2. Jensen Huang is right about the real AI race with China, writes Catherine Thorbecke, in Bloomberg.

3. Samir Puri on the West in the age of Westlessness, in Engelsberg Ideas.

4. No, Rachel Reeves: Britain doesn’t look “open for business”, writes Michael Simmons, in The Spectator.

5. Trump and MAGA are no longer the same thing, argues Janan Ganesh, in The Financial Times.

British economists are enjoying a good news story today after the FTSE 100 hit a record high, signalling soaring investor confidence in the UK stock market. 

In early trading this morning, Britain’s flagship stock index smashed through the 9,000-point threshold for the first time in its 41-year history, taking its gains during 2025 to over 10 per cent. 

It’s been a standout year so far for UK stocks, which have outpaced their European and US peers. Why so? 

The London stock market has at times been dismissed as a “Jurassic Park” index, owing to its shortage of fast-growing tech companies. But, in a highly volatile era, its reliance on companies in long-established industries has proven to be a strength too. Indeed, as AJ Bell investment analyst Dan Coatsworth told The Guardian today, “The UK stock market is the calming cup of tea and biscuit in an uncertain world. There’s nothing fancy on offer, just reliable names that do their job day in, day out. That’s an underrated characteristic”. 

UK stocks have benefited from a range of other factors too this year. And Donald Trump has no small part to play. 

A silver lining of the US President’s erratic policymaking is that it has prompted global investors to diversify away from US shares - and UK-listed firms have been a key beneficiary. 

Britain is also one of the few countries to have reached a trade deal with the US, while the EU continues to face the threat of 30 per cent tariffs from Washington. This has given the London market a competitive advantage over its European peers, with investors viewing the UK as a comparatively safe haven. 

Currency has played a part too in driving up Britain’s flagship stock index. The FTSE 100 has been helped by a weaker pound, which makes the overseas profits of many UK-listed companies worth more in pounds.

As for specific shares that have helped drive the trend, the precious metals producer Fresnillo has been the top performer on the FTSE 100, up by 155 per cent this year, largely thanks to the surging price of gold which has hit several record highs in 2025. Silver is also trading at a 14-year peak this week. 

Defence stocks are another of London’s strong performers. NATO’s pledge to beef up military spending has pushed up shares in the defence contractor Babcock by 120 per cent since the start of the year, while Rolls Royce - a major player in the military aero engine market - has climbed by 77 per cent. 

Although the FTSE 100’s record performance suggests a stellar year for the UK stock market, there are caveats to this good news story. 

Despite investors pouring into UK-listed companies, the London Stock Exchange is still struggling with an exodus of high-profile companies.

Last month, Wise, considered a British fintech darling, confirmed its decision to switch its primary stock market listing from London to New York. In the same week, the drugmaker Indivior announced that it was abandoning its secondary listing on the London Stock Exchange, solely maintaining its primary listing on the Nasdaq. Meanwhile, retail behemoth Shein is filing for an IPO in Hong Kong amid a drawn-out battle with UK regulators. 

Even more worrying are the rumblings that AstraZeneca, the UK’s most valuable company, is considering moving its listing from London and heading across the Atlantic. 

Read Maggie Pagano in Reaction for more on the reasons behind London’s slow burn as one of the world’s great financial cities for IPOs. In a nutshell, the UK has a punitive tax regime which favours debt rather than equity including high stamp duty on share-buying. And private equity money from the US has led to a takeover buying frenzy of UK companies on the cheap.

Isaac Goldring, also writing recently in Reaction, predicts that, for as long as Trump reigns with an iron first, portfolio managers will de-risk themselves from US assets, meaning we will continue to see a mass exodus of investment from American shores.

But, he adds, it’s not enough for the UK to simply capture this investment. It should then be using it as an incentive for companies to list in London and strike inflated valuations.

Ultimately, concludes Goldring, without a massive overhaul of the UK's overbearing regulators to create a more streamlined process for listing in London, companies will continue to be deterred from Britain’s shores. 

A ripe topic for the Chancellor when she dines with the cream of the City’s crop at Mansion House tonight. 

In her much-hyped Mansion House speech, Reeves is set to announce a raft of measures which aim to double the growth rate in financial services exports over the next decade, by easing regulation that UK businesses complain is weighing on activity. The Chancellor claims that her regulatory shake-up will amount to “the widest set of reforms to financial services in more than a decade”.

Caitlin Allen

Deputy Editor

ON REACTION TODAY

Adam Boulton

Donald Trump's golf imperialism

READ HERE

Anthony Peters

A government’s most valuable asset is its inflation option

READ HERE

ALSO KNOW

Fresh doubt cast on Lucy Letby conviction - Stephanie Davies, a senior coroner’s officer who first reviewed the deaths of babies at the Countess of Chester hospital for Cheshire police in 2017, has said that she now believes Lucy Letby has suffered a miscarriage of justice. Davies said she has become increasingly alarmed since December, when she learned that the hospital doctors had not reported a key medical procedure on one of the babies to the coroner at the time.

Netanyahu’s razor-thin majority - Israel’s ultra-Orthodox party, United Torah Judaism, has quit the country’s fractious right-wing coalition government in protest over a new conscription bill, amid a long-running dispute over mandatory military service. The move threatens Prime Minister Benjamin Netanyahu’s hold on power, leaving him with a one-seat majority in the Knesset.

DOJ urges Supreme Court to reject Maxwell appeal - The US justice department has asked the Supreme Court to reject Ghislaine Maxwell’s bid to overturn her 20-year federal prison sentence for recruiting girls and young women for Jeffrey Epstein.

Ceasefire in Sweida - Syria’s Ministry of Defence has declared a “complete ceasefire” in the Druze-majority Syrian city of Sweida, saying an agreement has been reached with the city’s “notables and dignitaries” after days of deadly clashes with Bedouin tribes. The announcement came shortly after the ministry deployed government forces to halt the violence that has killed dozens since Friday. The Israeli air force also conducted airstrikes in Sweida this morning, with Israel Katz, the defence minister, saying: “We will not allow harm to the Druze in Syria.”

FIVE THINGS

1. The FT on the British state’s battle to contain the fallout from the catastrophic Afghan data leak

2. New Lines on apartheid’s unpunished killers

3. How we got the dodo so absurdly wrong, in BBC Future

4. How Australia stopped grooming gangs, in COMPACT

5. The real reason Trump suddenly sounds tougher on Russia, in The Atlantic

Here’s an interesting one: what is a government’s most valuable asset?

Parliamentary democracy? In many respects, and in light of Sir Kier Starmer’s failure to get his and his Chancellor’s welfare reform through the House of Commons, it is as much a liability as an asset.

Its property portfolio? That doesn’t belong to the government, it belongs to the Crown. It’s tax raising powers? Very much a two-edged sword to which Ms Reeves, that famous ex-Bank of England economist, nine months after her confident budget speech of October 2024 can surely attest. No, a government’s most valuable asset is its inflation option.

As government debt has in the past couple of decades risen and risen, there has of course been much written about how the government can inflate itself out of debt and I can assure you that I have written as much or more than most on that subject. But that is not the only place where the inflation option comes into play. It is at its most powerful at the source of all government revenue. The British government expects to receive in fiscal 2025/2026 somewhere in the region of £1.2 trillion in fiscal income of which income tax and VAT will at £329 billion and £214 billion respectively be the largest providers.

Inflation is a funny fish. Although an everyday occurrence, it gets reported monthly on an annualised basis and once a year - post factum – wages and pensions will rise with an eye on the past year’s reported inflation rate. So they only go up after the increase in prices has already occurred and therefore inevitably lag behind last year’s inflation and rarely, if ever, pre-empt the erosion in income which will befall households in the coming twelve months.

Please don’t get me wrong. It’s the most practical way of dealing with inflation unless as occurs in some economies in times of hyperinflation, adjustments are applied monthly or quarterly. But the government does not have to wait. Every time the price of an item on the shelves goes up by a pound, irrespective of the day of the week, the government here is in there for 20p of VAT. With every extra pound invoiced by a business, whether a large corporation or a small business, HRMC is ringing the till and if prices are increased, so is the bill for corporation tax, not to mention the immediate impact on income tax. Every increase in every price, be that for goods or labour, the government’s revenue stream grows in line and immediately. In other words, the government is on the revenue side and in real time 100% inflation proofed.

That cannot be said of investors who by way of the UK gilts, US Treasury, German Bund, French OAT, Italian BTP or any other government and by extension corporate bond market, fund the portion of government expenditure that is not covered by fiscal revenues.

The average annual UK inflation rate over the past 10 years has been 3.54%, so £1 in 2015 money would have to be £1.42 in order to keep up with inflation. Average interest rates for 10 year gilts, however, have over the same ten years not been 3.54% so the interest income has not compensated for the erosion in nominal capital value. And before sniggering, have the prices of your equity investments risen above the cumulative rate of inflation? The key is not the nominal return, but the real or inflation-adjusted return.

During the high inflation period of the 1970s and into the 1980s, governments were making out like bandits as their debt piles - to a large extent residual from both the cost of fighting the Second World War and the huge expense of war damage and reconstruction - were finding themselves being repaid by Mr Inflation.

But what was pennies from heaven for the Treasury was ruinous for investors who saw the real value of their savings being washed away year after year. Up pops Geoffrey Howe, Chancellor of the Exchequer in the Thatcher government in 1981 and announces that henceforth the UK government will begin to issue a portion of its debt in the form of inflation-linked gilts which will not only pay interest linked to the rate of the Retail Price Inflation index but, additionally, the capital invested will accrete at the cumulative rate of RPI and at maturity will be repaid in accordance. The government has done the unthinkable. It has generously and at no notable cost given away its priceless inflation option to investors, to the people.

A little less than half a century on, last Friday in fact, The Times carried an article, “Britain is broke; how inflation-linked debt cost us £60bn”, penned by one Andrew Ellson, who according to his byline is The Times’ consumer affairs correspondent. With no disrespect to Mr Ellson, I somewhat wonder whether he properly understands the private life of gilts in general and of Linkers – that is as what inflation-linked gilts are generally known – in particular. He based his article, so he indicates, on a paper published by the Office for Budget Responsibility, the OBR, and to be frank I doubt even more that the civil servants at the OBR have a deeper understanding of the subject matter than Mr Ellson himself. Those who would, that being amongst other Sir Robert Stheeman who for a quarter of a century and until last year ran the UK Debt Management Office, the agency tasked with borrowing money for the government in the markets and his successor Ms Jessica Pulay are mentioned by name but were as far as I can tell not asked what they might have to say.

And what Sir Robert’s salary, equivalent maybe to the income of a Goldman Sachs graduate trainee and a tenth of that of a partner in a Big Four firm of accountants, has to do with matters escapes me entirely.

That aside, the cost of borrowing for governments is subject to the same strictures as that of households. The more you owe, the more expensive it gets. What for individuals is their credit score is for governments their credit rating and that of the UK has in more recent times gone only one way.

Yes, inflation has gone up and yes, the cost of servicing Linkers has gone up with it but did Mr Ellson ask how brilliantly linkers served us all during the low inflation years between the GFC and the pandemic?

Having first put Sir Robert’s and Ms Pulay’s names up in lights, he then decides that they weren’t really to blame as they only execute what their masters at HM Treasury ask them to do. The role of the DMO Is not only to issue debt on behalf of the government but to advise the Treasury on where demand will be, both in terms of whether with a fixed coupon or inflation linked, and what maturities are in demand and will sell at the finest rates to the taxpayer.

The DMO reported that in 2023 it had undertaken the valuable exercise of evaluating how Linkers had from the borrowing side’s perspective performed in comparison to fixed rate gilts, known in the trade as “Conventionals”. They found that, since first issued in 1991, Linkers had saved the country a nominal £76 billion which in 2023 money was worth £158 billion. The Times article then cries that when inflation spiked at 14.2% the cost of Linkers had “ballooned” but by how much the author fails to add. This is, to go back to one of my more recent analogies, like trying to shoot flying pheasants with a rifle.

I personally in the late 1990s had the privilege of being co-opted onto the French Trésor’s team involved in pre-marketing their own inflation-linked government bonds, to be known as an OATi. My main bailiwick was German-speaking Europe with an obvious focus on Germany, the 500 lb gorilla in the European investment market. In Germany at the time, there was behold a prohibition on the issuance of inflation linked bonds. Germany has with good reason lived with congenital fear of inflation and the Bundesbank, then still managing rates in the Deutschmark, had a peerless record of fighting incipit inflation early and hard. Thus it was that the Fed had the reputation of setting the lowest rates it could justify whilst the Buba set the highest. So far, no German has ever been President of the ECB. The passing over of Jens Weidemann, a virtual shoe-in for the presidency, in favour of the French politician Christine Lagarde provided proof positive that German monetary conservatism was not in demand and that for political reasons installing a “Minister for the Single Currency” was what the Brussels Eurocrati really wanted.

Alas, as I did my rounds in Germany and found the regulatory constraints on Linkers, I had explained to me that from the Bundesbank’s point of view issuing and investing in inflation-linked securities was deemed to be tantamount to speculating against the Buba’s strict anti-inflationary monetary policy.

I had many strained conversations with regulators, several of which ended with the phone being put down on me. Eventually, the German government relented, joined the Linker market but in 2023 suspended issuance. It’s ironic that Howe launched the UK Linker market with the argument that their very existence would encourage governments to keep inflation as constrained as they could – this was before the Bank of England had been granted its independence – and yet the Germans saw investing in them as an expression of a lack of faith in central authorities. Now put that in yer pipe and smoke it.

I must confess to having become a little bit rusty on the subject, but I do recall the discussion as to what might happen if the cumulative rate of inflation over the life of the bond were to be negative. Would that mean that the capital repayment could be below the sum initially invested? UK, Canadian and Japanese Linkers don’t guarantee that so that at the end of a prolonged period of deflation the nominal return could be negative even if the real return wasn’t. Meanwhile, my friends at the French Trésor thought of their face value floor as a terrific selling point.

The Times article opens with the following: “Britain is broke. That was the depressing conclusion of the Office for Budget Responsibility’s annual report on the future of the public finances published this week. Of course the fiscal watchdog did not choose those exact words. Instead it used 65,000 other words, but if you were to distil the overall message, it’s hard to come to a different conclusion.”

Really? With a debt/GDP ratio of around 100%, the country is far from broke. Chancellor Reeves’s manifesto promise not to raise taxes on “working people” has become an albatross around her neck. A definition of who is included in that category is still outstanding and on form nobody in government, Starmer and Reeves included, appears to be able to offer one.

But that aside, a penny or two on income tax would quickly solve much of the problem. Compared to countries such as France - which is by the way much deeper in fiscal doodoo than Britain - the UK still enjoys comparatively low personal taxation. I suppose “We’re all in this together” ends on the doorstep of 11, Downing Street, the official residence of the Chancellor.

The article is packed solid with piffle. The staggering increase to the taxpayer of debt service costs has in reality, not mentioned of course, next to nothing to do with the rates of interest on the national debt which remain historically fairly benign and nearly everything to do with the exponentially expanding amount of it.

To be honest, the term “historically” can in markets be hugely misleading as historically is as long as a piece of string. If one goes back far enough, or the opposite if required, one can prove more or less anything. Seriously, I remember a few years ago seeing a piece of research bearing a chart tracking inflation back to biblical times. Last week, I got a note from a reader – unverified by me I hasten to add – that over 25 years gold has outperformed stocks, dividends included. And as John Maynard Keynes himself concluded, in the long run we are all dead.

I used to have a strapline on my Bloomberg screen “Investing is an art, not a science”. I suppose the same to quite some extent applies to government borrowing.

Deloitte’s second quarter CFO Survey, conducted in the second half of June, shows a surprising degree of resilience among the largest corporates in the UK. Despite the conflict between Israel and Iran, volatility in the oil price and the threat of US tariffs, CFO sentiment and risk appetite have edged up slightly. The survey is available here.

UK CFOs have also become markedly more positive about the UK as a destination for investment. Last December, CFOs rated the UK in fifth place out of a field of eight nations and regions as a place to invest, with the US, by a considerable margin, the most favoured destination. This has all changed. Now CFOs rate the UK, along with India, as their preferred investment destinations. Sentiment about investing in developed Europe has risen while the US has seen a precipitous drop in its ranking, falling from first to sixth place.

The decline in the perceived attractiveness of the US comes after significant downgrades to US growth forecasts in the first half of this year amid concerns about the effect of US tariffs. US assets performed poorly in the first half of 2025, with the US dollar falling by 10% on a trade-weighted basis and US equities underperforming European equities.

Although tariffs remain a material business risk, the announcement of a limited trade agreement between the US and UK in early May, the only one confirmed at the time of the survey, provides greater certainty for UK businesses. Improving CFO sentiment about developed Europe may partly reflect expectations that rising defence spending and EU-wide economic reform in the wake of the Letta and Draghi Reports will boost European growth. According to the latest Bank of America survey, institutional fund managers have pivoted decisively from US to euro area equities, underscoring growing optimism about the region in capital markets. Sentiment about the UK has also improved, but to a lesser extent.

The findings from the CFO survey fit with a small increase in business sentiment recorded in the latest CBI quarterly survey and a pickup in activity recorded in the June survey of purchasing managers. A swift return to more normal rates of growth in the UK is not on the cards. These surveys suggest weakness, although continued UK growth is expected in the coming months. Given the headwinds from geopolitical uncertainty and tariffs, things could be worse.

A personal view from Ian Stewart, Deloitte's Chief Economist in the UK. Subscribe and/or view previous editions of the Deloitte Monday Briefing here.

On Wednesday, a new benchmark was set when Nvidia Corporation became the first corporate entity in history to bypass the US$ 4 trillion stock market valuation. It’s hard to keep up with the speed at which Nvidia is developing and upgrading its offering in high-powered silicon chips that have become the key drivers behind the AI revolution, as little as it is with the developments in generative AI, the next stage in the digital revolution that is about to take over the world.

At the same time, however, Geoffrey Hinton CBE, the 77-year-old British-born “Godfather of AI” is warning at every possible opportunity of the fundamental risks to humanity as we know it of letting artificial intelligence, his baby, displace human intelligence at the centre of our world.

Nvidia has for all intents and purposes come from nowhere but suffice to say that its share price has risen more or less tenfold in 18 months. Few who follow markets will forget the mirth with which the decision by Cathie Wood of ARKK Innovation fame – or infamy if you prefer – in October 2023 to sell her 865,000 shares in the company was received, literally days before it began its race to the top. There is an interesting phenomenon in the divergence between the enthusiasm for AI on one hand and the very clear fears expressed by Hinton on the other. In 2025, everything appears to be polarised and there is no room in the middle.

Back in the 1970s, there was a joke doing the rounds which my late father loved to tell that if your Swiss banker jumped out of the window – shadows of 1929 – best follow him for there was bound to be a fortune to be made on the way down.

If Hinton’s apocalyptic expressions were to have validity, and he above anyone else should know, then the Swiss banker can now be replaced by Nvidia CEO Jensen Hwang. Perhaps he has unwittingly become the new Keith Gill, the legendary Roaring Kitty who launched and for some time underpinned the GameStop meme stock madness.

Please don’t get me wrong. I wouldn’t wish to compare Gill and Hwang – one an online stock tipster, the other the founder and CEO of the world’s most valuable publicly traded company but I would not stray too far from comparing the buyers of the respective stocks who really don’t give a toss for the underlying and are happy to book a profit punting on a company which does something they barely understand. Or to try to understand if you care. Even at these levels, most analysts maintain Nvidia as a strong buy.

The analogy to Johann Wolfgang von Goethe’s sorcerer’s apprentice – the original 1797 poem is far darker than Disney’s playful interpretation in Fantasia with Mickey Mouse in the role of the hapless apprentice - can never be far from one’s mind except that Hinton as the sorcerer himself is declaring himself unable to stop the show.

Much the same applies to President Donald Trump and his tariff regime. I think that at the beginning there were many who understood his contentions. The core assumption of the post Bretton Woods era of free floating currencies was that trade deficits would organically lead to a devaluation of the national currency in question which would in turn re-establish the international competitiveness of the deficit running country vis a vis the country or countries producing the surplus. The thought was easy, and it made sense except that the gradual rise of the tertiary sector and financial deregulation led to international flows that were not trade related and that could be captured neither by the General Agreement on Tariffs and Trade (GATT) nor by the subsequent installation of the World Trade Organisation (WTO) regimes. Thus, with the epic inflows into the dollar, the sole remaining reserve currency, the devaluation that should have accompanied the burgeoning US trade deficit never followed.

Donald Trump and his merry men concluded that trade flows needed to be recalibrated and that the only way to do that was by compensating for the overvalued dollar by the imposition of tariffs. A pensive economist would in principle not disagree. That all the calculations and pronouncements appear to have been made to the exclusion of considering of the USA’s massive balance of payments surplus in services looks plain stupid but, given that Joe SixPack the voter wouldn’t know the difference, suited the campaign.

A couple of days ago, I was chatting to a friend in Canada who told me of one of his own chums who had just been to a trade fair in the States. There he had met with his US client to whom he presented his business’s new price list. They were shocked and wondered why the prices had all gone up by so much. When he tried to explain that it was the tariffs, they are reported to have looked at him blankly, having believed the Donald’s assertion that it would be the exporters who would be paying the tariffs. This I fear is not some apocryphal story, it is first hand reported fact.

That said, understanding what impact a 10%, a 25%, a 30% or even a 100% tariff might have on the goods on the shelf is not easy to unravel. The latest Trump declaration to shock markets is the planned imposition of a 50% tariff on imported copper. The USA mines roughly 60% of its own copper needs and imports 40%. By far the largest copper producers are Chile and Peru which between them extract more than a third of all global output. That said and with perhaps 6% of global production, the USA itself ranks at number 5 behind China and the DRC but ahead of Australia. Exactly what the US administration aims to achieve with a tariff on copper slightly mystifies me but if one tries to estimate how much the copper content is in most electrical installations, then one cannot but conclude that other than for copper wire itself, the overall price impact must be very modest.

Altogether, the estimate is that even if the threatened Liberation Day reciprocal tariffs were to be fully imposed on 1 August, the impact on US CPI would likely be not much more than 1% and most probably less.

As far as the White House is concerned, this is a price worth paying to make America great again. From a non-American perspective, Trump has taken a sledgehammer to crack a nut and, as far as the Federal Reserve is concerned, if the inflation target is 2% then an extra 1% on top is a major issue and one that demands reticence in monetary policy.

The argument between Trump and the Fed reflects a rising polarisation not only in politics but in so many areas – Nvidia vs Hinton – and rational decision-taking as far as investors are concerned has become all but impossible. Fed Chairman Jay Powell steps down in May and if Trump succeeds, as I fear he might do, in politicising the Federal Reserve and monetary policy all bets are off.

I was rather taken by a “The Lowdown” podcast with Nick Cohen - who is to my mind one of the more pensive left-leaning scribes - in which he talked to Ben Cohen, a Washington-based Brit who in turn publishes the liberal The Banter Newsletter. They look at the way in which Donald Trump is undermining US democracy under the pretext of enforcing laws that liberal democracy failed to do. They argue that to most citizens and voters illegal immigration is a problem. If they break the law they are punished but living illegally in the country is equally breaking the law and it cannot be wrong for law-abiding citizens, whether of the left or the right but especially of the centre – we hear little of those nowadays – to feel that not pushing back against illegal immigration is tantamount to unplugging the democratic covenant which is respect for the law of the land.

They go on to criticise the left for having for too long cried “Fascist!, “Nazi” and “Bigot” at anybody who disagrees with their worldview and by doing so having debased the accusation to an extent that when fascists, Nazis and bigots do now appear their cries are dismissed or remain unheard. The polarisation and the concomitant vacating of the middle ground which has gripped the social and the political sphere has to some extent also gripped markets.

On one hand are the globalists who in the light of Trump’s tariff impositions expected world trade and the global economy to implode which it has visibly, so far at least, failed to do. On the other are the MAGA bunch who bought the fiction that when tariffs on exports to the USA - or just as accurately imports into the USA - were to be imposed, the US economy would take off like a rocket and that everybody would suddenly have a job and get rich.

There is another option, one which is rarely discussed. I have often been asked why I write so much about America and the US economy. I reply that not understanding the central role that it plays in all that goes on elsewhere is like trying to speak a language by studying the vocabulary but without learning the grammar.

The recent BRICS+ annual assembly in Rio de Janeiro, roundly dismissed by President Trump as being nasty and purely anti-American, raises other questions. The BRICS+ represents 50% of the global population and 40% of GDP. Although as a single economy that of the USA remains the single largest, were the hugely diverse members of the BRICS+ to coalesce and to jointly push back against being bullied by Washington, then there is a growing risk that an aggressive and self-centred America will end up as the big loser.

Trump is right that the country has paid a huge price for being the great guarantor of peace and prosperity although he has not yet acknowledged that the price to be paid for not being that might in time prove to be even higher.

His round assumption is that de-dollarisation cannot and will not happen although by promoting crypto currencies he is doing just that. My crypto guru is a little more sanguine as he points to stable coins as being the link between cryptos and the dollar which he suggests will assure a steady inflow of US dollars to fund the deficit even if trade were in time to be conducted through the blockchain in bitcoin or etherium. I’m not quite so sure that the Trump family’s launch of its propriety tokens $Trump and $Melania were aimed as much at a fostering a new global payments system as they were with getting richer than they already are.