Weekly Market Roundup - 💰💰💰 - Small Change: New Prime Minister, Same Old Sums

Hi Reader,

Happy Friday! Investing means weighing risk against reward. Here's how Britain feels about that:

In today's newsletter:

In-depth: Can Manchesterism survive contact with the Westminster bubble and Britain's fiscal constraints?
Newsbites: Oil rises above $100, Trump announces fresh tariffs, and the London Stock Exchange set to open round the clock.
PensionCraft News: Retiring abroad, Britain and the bond market, and July's member portfolio critiques.

IN-DEPTH

Small Change: New PM, Same Old Sums

Andy Burnham takes the keys to Number 10 as Britain’s seventh Prime Minister in ten years.

Every new PM gets the same welcome pack: a briefing on the nuclear codes, a pack of Whiskas Fish Favourites for Larry the cat, and the creeping realisation that the previous occupants weren't incompetent so much as trapped. Burnham has promised the "biggest changes of the past 40 years", which is what they all say before their first meeting with the bond market.

Once in office you run into hard constraints. Let’s take a look at them.

BORROWING

Start with the overdraft. The Office for Budget Responsibility warned this month that the public finances are in a "challenging position relative to history and to other similar countries" after one of the biggest increases in debt as a share of GDP of any advanced economy over the past two decades.

In the first quarter, the government borrowed £57.6 billion — £3.7 billion less than the same period last year, but £2.7 billion more than the OBR expected. Since the end of the pandemic, borrowing has settled at between 4% and 5% of GDP.

And borrowing is only the flow. The stock is where it hurts. The UK pays the highest borrowing costs in the G7, and debt interest now runs to more than £100 billion a year — nearly double the defence budget.

“Debt interest has exceeded the OBR’s forecast by £1.6 billion, largely driven by higher payments on index-linked debt following upwards pressure on inflation from the war in Iran.” — Nick Ridpath, IFS Research Economist

Add it all up and the debt pile now stands at its highest as a share of GDP since the early 1960s, when Britain was still paying down its war debt.

The fiscal rules require debt to be falling as a share of GDP over the medium term. Burnham has promised to stick to them, albeit with some “flexibility”.

“I’ve said we’ll stick to the fiscal rules, and by that I mean the existing fiscal rules, and use obviously any flexibility within them.” — Andy Burnham

The flexibility hasn't stretched far yet. Expensive ambitions have already been shelved, with plans to unfreeze the personal allowance at a cost of £3.7bn a year quickly dropped.

Instead, Burnham's first week has focussed on the cost of living in exactly the way the British public seems to want: cheap little presents.

Pubs and clubs in England will get a 20% discount on their business rates from April, and punters are already demanding the savings be passed on. Fair enough, until you learn the savings for a typical pub are around £1,100 a year. Or £3 a day. Somewhere in England, someone is getting a free pint. It probably won't be you.

INFLATION

The second constraint is, for now, the one behaving itself.

CPI eased to 2.6% in June, the lowest reading since March 2025 and below expectations of 2.7%. The drop was driven by falling fuel prices, easing food inflation and cheaper clothes.

Core inflation — excluding volatile food and energy prices — was unchanged at 2.6%. Services inflation, a key read on domestic price pressures, fell slightly to 3.6% from 3.7% in May.

Burnham wants to push the numbers down further by scrapping the 5% VAT on domestic electricity from October. Another cheap little present, with the typical household saving £45 a year. Or about 87p a week. Officials estimate it will shave around 0.1 percentage points off CPI.

But in the aggregate, it’s not so cheap. The Treasury puts the cost at roughly £850 million for October to March. Burnham said the move was “fully funded”, which is one of the few genuinely unifying phrases in British politics. Every party says it, every party means the same thing by it, and the thing is nothing. In this case, the cash is apparently coming from cancelling Starmer’s Digital ID scheme.

There's just one wrinkle. According to the Office for Budget Responsibility, the Digital ID programme was never funded in the first place. Its £1.8 billion price tag relied on departmental savings that had not yet been identified. Essentially, the Treasury has to find the money down the back of the sofa. Only they haven't decided which sofa.

Darren Jones, until recently Chief Secretary to the Prime Minister and not at all bitter at being sacked, confirmed as much.

Add it to the long line of wheezes politicians use to rustle up money for pet projects.

You’ve got the efficiency saving, in which billions magically materialise because civil servants will supposedly start working harder. The tax avoidance crackdown, which always yields a suspiciously round number and never actually gets collected. The reallocation, where money is "saved" by cancelling something and then spent several times over — the rump of HS2 has now funded Network North, potholes, and assorted regional promises so many times that it would have been cheaper to build the thing. And the growth dividend, in which the sums balance provided the economy performs like it's 1997. Which it never does.

GILT YIELDS

There is, mercifully, one constraint on those in power that refuses to play these silly games.

Remember that first meeting with the bond market? It's already happened. Just a brief chat. A raised eyebrow across the corridor.

Gilts underperformed other markets on Monday after Burnham uttered the word “flexibility”, with the 10-year yield jumping eight basis points to 5.04%. It settled down once wage data came in soft, but rose again throughout the week.

But it’s a mistake to obsess over minute-by-minute gilt moves. Plenty else is going on, not least the rebound in oil and gas prices after hostilities resumed in the Middle East. While the Bank of England is expected to hold interest rates at 3.75% next week, markets are pricing in two hikes by early next year. Not long ago they were pricing cuts.

POLITICS

Finally, the constraint that does for every leader in the end. Opinion polls sow panic. Backbenchers become unruly. The media goes in for the kill. Starmer's government was repeatedly forced into U-turns on everything from winter fuel payments to welfare reforms.

It remains to be seen whether Manchesterism can survive contact with the Westminster bubble. Optimists will say Burnham arrives with a higher approval rating than Keir Starmer ever managed. Though if the last six Prime Ministers are anything to go by, the King of the North will soon start to see things go south.

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NEWSBITEs

Oil topped $100 a barrel for the first time since May. Yemen's Houthis struck two Saudi tankers, enforcing a new naval blockade of the Bab el-Mandeb—a chokepoint carrying 12% of world trade. European gas reached Iran-war highs at €62/MWh, while 10-year Treasury yields hit 4.71%, their highest since January 2025. Just what we needed, a second front in the Iran war.

Trump slapped fresh tariffs on more than 60 trading partners, including the UK and EU. The new Section 301 duties, charged at 10% or 12.5%, cover countries responsible for 99% of US imports. Trump justified the move by citing ~~unfair trade practices~~ ~~border security~~ ~~drug smuggling~~ lax enforcement of forced-labour bans. By a stroke of luck, the tariffs took effect the moment his temporary 150-day levy expired.

China's 'national team' bought $9bn of shares to steady its stock market. State-owned funds have repeatedly stepped in since the 2015 crash, this time after the global AI sell-off sent the tech-heavy ChiNext index down 17% over the past month. Buy the dip, or else.

The London Stock Exchange will launch overnight trading next year. LSE 24 will run from 5pm to 7.50am London time, offering exchange traded products from the first half of 2027. The 300-year-old exchange’s move follows Nasdaq, which will offer 23-hour weekday trading later this year. Time in the market beats timing the market—and now there’s even more time to be in the market.

Washington is weighing a ban on Chinese open-weight AI models according to Axios. Regulatory options reportedly include Entity List designations and government procurement rules, with momentum having built since Moonshot's Kimi K3 launch accelerated a rout that has wiped more than $3tn off global chip stocks. Critics, including former White House AI czar David Sacks, warn a ban would entrench OpenAI and Anthropic's duopoly. Build a moat, or have the government dig one for you.