Treasury ‘Putting the Squeeze’ on OBR Over Labour Growth Plans Amid Tensions Over Downgrade

Economic

Summary:

Rachel Reeves may have to find up to £30bn in tax rises or spending cuts if forecaster revisits expectations

Treasury policymakers frustrated by the politically damaging timing of a downgrade to UK productivity forecasts by the Office for Budget Responsibility (OBR) are pressing the watchdog to score the benefits of Labour’s pro-growth plans.

Rachel Reeves faces the prospect of having to find up to £30bn in tax rises or spending cuts in her 26 November budget if, as expected, the OBR cuts its forecast for future productivity growth to match the consensus of other experts.

The timing of the OBR’s decision to revisit its expectations for future productivity – which will shape the forecasts Reeves must use to set her tax and spending plans – has caused consternation within the government.

One irked Labour insider pointed out that had the OBR cut its productivity forecast earlier – in 2023, for example – then the former chancellor Jeremy Hunt’s pre-election cuts to national insurance contributions (NICs) might have been ruled out as unaffordable. A former senior Labour adviser said: “Rachel has every right to be livid.”

For some years, the OBR has been more optimistic about productivity – a key determinant of economic growth – than many other independent forecasters. After a carefully choreographed “summer stocktake” of its forecasting model, it is expected to cut future growth forecasts by up to 0.2% – putting Reeves £20bn off course without any change in policy.

That comes in addition to up to £10bn from a combination of recent policy U-turns – on welfare cuts and the winter fuel allowance – and the rising cost of government borrowing.

With the first iteration of the forecast already delivered to the Treasury, ministers and officials are focused on trying to persuade the OBR that recent planning legislation and trade deals with India and the EU merit a modest rethink in the government’s favour. One person with knowledge of the discussions suggested the Treasury was trying to “put the squeeze on” the independent forecaster.

In its March forecast, the OBR did lift its GDP forecast for 2029-30 by 0.2% as a result of Labour’s planning changes, at the urging of Reeves’ then chief economic adviser, John Van Reenen.

But some economists expressed scepticism that the OBR was now likely to go further. “I think of these as measures needed to achieve the productivity growth expected by the consensus and IMF (ie below the OBR current base case),” said Michael Saunders, a former member of the Bank of England’s monetary policy committee , now at the consultancy Oxford Economics.

Ministers are also understood to be considering announcing that only the autumn OBR forecast will measure the chancellor’s tax and spending plans against her fiscal rules, with the spring forecast focused on economic growth. This plan was recently mooted by the IMF, and would be aimed at damping constant market speculation about Reeves’ next move.

However, the OBR’s director, Richard Hughes, has publicly played down the need for a change, saying the chancellor could already have chosen not to respond to bad news in its March forecast with tax and spending changes – as she did this year by announcing botched welfare cuts.

“The government have that option now, and they always had that option,” Hughes told MPs in July. He is understood to be firmly opposed to the idea of reducing the number of OBR forecasts, which he told MPs would make the UK “one of the least fiscally transparent countries in Europe and of any major advanced economy”.

Some economists echoed the Treasury’s concern that the OBR’s productivity rethink could have happened earlier. Saunders said: “I have quite a lot of sympathy with the view that this is a revision which could have been done at any one of the last few years, and it’s not a reflection of the current government’s policies or the policies of the last year.”

Andy King, a former member of the OBR’s budget responsibility committee, now at the consultancy Flint Global, said the underlying message of the forecast would have been a tough one to deliver at any time. “It would have been very difficult for the OBR to have done it in the last forecast before the election or the first one after it.”

But he added that the downgrade was needed, as the OBR had become an outlier, with a rosier forecast than its peers that was “not tenable in the long term”.

He added: “If they’d correctly predicted this economic weakness five years ago, would this all have been easy? No, because the forecast would have said: ‘There’s not going to be enough tax revenue to pay for the public services that people want.’”

The former Bank of England deputy governor Charlie Bean blamed the way the chancellor had made tax and spending decisions, including the slim £10bn of “headroom” she left herself against her fiscal rules, for her current predicament.

“Because of the way she’s chosen to operate policy, and adopted a ludicrously small headroom, she’s made herself a prisoner of the OBR’s judgment, which is a bonkers way to operate fiscal policy, but it’s not really a criticism of the OBR,” he said.

A Treasury source rejected the idea of tension with the OBR. “Rachel has defended the OBR, including in response to people in her own party. She’s strengthened the OBR. She respects institutions because she knows they’re integral to our economic credibility,” they said.

Source: TheGuardian

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Glendon

Economic

Forex

U.S. consumer spending increased slightly more than expected in August, keeping the economy on solid ground as the third quarter progressed, while inflation continued to rise at a measured pace.

Consumer spending, which accounts for more than two-thirds of economic activity, rose 0.6% last month after an unrevised 0.5% advance in July, the Commerce Department's Bureau of Economic Analysis said on Friday.

Economists polled by Reuters had forecast consumer spending increasing 0.5% after a previously reported 0.5% gain in July.

Spending has marched ahead despite a significant labor market slowdown, marked by stall-speed job growth in the last three months. It is being driven by high-income households as a robust stock market and still-elevated home prices boost their wealth. Federal Reserve data this month showed household wealth jumped to a record $176.3 trillion in the second quarter.

But lower-income households are struggling, and bearing a large share of the burden from higher prices on goods from import tariffs. More pain lies ahead when cuts to the federal government's supplemental nutrition assistance program, commonly known as food stamps, take effect.

"With spending concentrated among high-income households the risk to the consumption growth forecast is more concentrated in the drivers of household wealth – the stock market and house prices," said Ryan Sweet, chief U.S. economist at Oxford Economics. "Wealth effects have become more potent for consumer spending, a positive when stock and house prices are rising, but a risk if, and when, they sputter."

ECONOMISTS EXPECT SPENDING WILL SLOW

Strong consumer spending contributed to gross domestic product growing at a 3.8% annualized rate in the second quarter, the fastest in nearly two years. Growth estimates for the third quarter are converging around a 2.5% pace.

Economists expect spending to slow considerably by the end of the year, undercut by higher prices. Inflation has been slow to rise in response to President Donald Trump's sweeping tariffs as businesses sold inventory accumulated before the duties kicked in and even absorbed some of the duties.

The Personal Consumption Expenditures (PCE) Price Index increased 0.3% in August after gaining 0.2% in July, the BEA said. In the 12 months through August, the PCE Price Index advanced 2.7% after climbing 2.6% in July.

Excluding the volatile food and energy components, the PCE Price Index rose 0.2% last month after increasing 0.2% in July. In the 12 months through August, the so-called core inflation increased 2.9% after rising 2.9% in July.

The Fed tracks the PCE price measures for its 2% inflation target. The U.S. central bank last week resumed policy easing, cutting its benchmark overnight interest rate by 25 basis points to the 4.00%-4.25% range.

Fed Chair Jerome Powell said this week that "near-term risks to inflation are tilted to the upside and risks to employment to the downside - a challenging situation."

Source: Yahoo Finance

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Samantha Luan

Economic

Forex

Political

Russian aircraft have been violating countries’ airspace more frequently in recent weeks.

Two Russian platforms have been spotted in the airspace above Alaska. According to the North American Aerospace Defense Command (NORAD), two Su-35s and two Tu-95s were detected operating in the Alaskan Air Defense Identification Zone (ADIZ). In response to the situation, nine American aircraft, including F-16 Fighting Falcons, E-3 Sentrys, and KC-135 tankers, were scrambled to identify and intercept the Russian jets. This incident comes just one day after US president Donald Trump wrote on Truth Social that he believed Ukraine was capable of re-capturing all the territory it had lost to Russia over the last three-plus years of war. This announcement from Trump was surprising, as the president previously called on Kyiv to make concessions to Russia in order to achieve a more imminent ceasefire.

Moscow has violated international airspace more frequently in recent weeks. Earlier in September, European nations were put on high alert after Russian unmanned aerial vehicles were shot down by Polish and NATO allied warplanes after crossing into Poland’s airspace. Shortly after this incident, Estonia reported that Russian fighter jets had crossed into its own airspace.

The Su-35

The Sukhoi Su-35 remains one of Russia’s workhorses in its aerial fleet. Designated by NATO as the Flanker-E/M, the twin-engine, 4.5-generation platform was originally conceptualized during the Cold War as the definitive production iteration of the Su-27 “Flanker.” The Russian jet is powered by a pair of turn/UFA AL-31F 117S turbofan engines that enable the fighter to fly at speeds reaching roughly Mach 2.25 (times the speed of sound). In addition to its top speed, the Flanker-E is loaded with ordnance power. The Russian fighter can carry an array of air-to-surface and air-to-air missiles, including the long-range Kh-48 UshE. As explained by Air Force Technology, “The Su-35 can be armed with a range of guided bombs, including the KAB-500Kr TV-guided bomb, KAB-500S-E satellite-guided bomb, LGB-250 laser-guided bomb, Kab-1500Kr TV-guided bomb and KAB-1500LG laser-guided bomb. The aircraft can also be armed with 80mm, 122mm, 266mm, and 420mm rockets.”

The Tu-95

Like the Su-35, the Tu-95 Bear Bomber was conceptualized in the Soviet era. After the United States introduced its own strategic bombers during World War II, the USSR prioritized developing its own counter. Soviet officials issued a request for a bomber series capable of flying long ranges in order to strike targets across the continental United States. The resulting Bear bomber, designed by the design bureau led by Andrei Tupolev, was sufficient. Four Kuznetsov NK-12 engines with rotating propellers power the platform, making it one of the loudest bombers in service across the globe today. Over the years, the Tu-95 has undergone several overhauls in order to remain relevant in modern times. Notably, the Soviet Tsar Bomba nuclear bomb was released from a modified Bear variant specially equipped with redesigned engines, suspensions, and release mechanisms in order to successfully release the large nuclear weapon.

Source: The National Interest

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Adam

Stocks

U.S. stock index futures rose Friday, helped by relatively benign inflation data as investors digested a flurry of new trade tariffs from President Donald Trump.

At 08:33 ET (12:33 GMT), Dow Jones Futures gained 220 points, or 0.5%, S&P 500 Futures rose 20 points, or 0.3%, and Nasdaq 100 Futures climbed 60 points, or 0.2%.

The main Wall Street indices registered a third straight session of losses on Thursday, after hot economic data, including a decline in weekly jobless claims and an upward revision in second-quarter gross domestic product, dented bets around the scope of potential additional Federal Reserve borrowing cost cuts over the rest of 2025.

Markets were also on edge over a looming government shutdown, amid limited bipartisan efforts to push through at least a stopgap spending bill.

PCE inflation as expected

The August PCE price index data, the Fed’s preferred inflation gauge, was released earlier Friday, and investors have nbeen boosted by the numbers coming in largely as expected amid fears that the Trump administration’s tariffs policies would lead to higher prices. .

The underlying measure of PCE inflation cooled to 0.2% month-on-month and matched July’s pace of 2.9% on an annualized basis, as widely expected. Fed policymakers often closely monitor this metric to judge the state of price gains in the world’s largest economy.

Cautious comments from Federal Reserve Chair Jerome Powell have weighed on markets this week, with Powell flagging persistent concerns over a cooling labor market and sticky inflation.

Data released on Thursday highlighted some strength in the world’s biggest economy. Second-quarter gross domestic product data was revised upwards to reflect much stronger growth in the economy than initially expected.

Trump announces new tariffs

Elsewhere, Trump announced a flurry of trade tariffs late Thursday, most notably a 100% levy on all “branded and patented” pharma products, although drugmakers building manufacturing facilities in the U.S. will be exempt from these levies.

He also announced a 25% tariff on heavy trucks, a 50% tariff on kitchen and bathroom fittings, and a 30% tariff on upholstered furniture.

Trump’s pharma tariff threats had drawn billions of dollars in U.S. investment from major global drugmakers earlier this year.

Thursday’s duties are the latest in Trump’s sectoral tariffs, with the president having imposed steep levies on several sectors, including automobiles, steel, and electronics, earlier this year.

Major pharma stocks, such as Johnson & Johnson (NYSE:JNJ), Pfizer (NYSE:PFE) and Eli Lilly (NYSE:LLY), will be in the spotlight Friday as a result.

The tech sector could also be in focus after the Wall Street Journal reported that White House is considering a new policy that would require U.S. tech firms to match their domestic semiconductor output with imports or face tariffs.

The proposed plan could hit foreign tech stocks by curbing U.S. demand for overseas semiconductors, pressuring margins, and adding to trade uncertainty.

Crude set for weekly gains

Oil prices were stable Friday, on track for a substantial weekly gain, as attacks to Russia’s energy infrastructure and a surprise drop in U.S. crude inventories tightened the market outlook.

At 08:33 ET, Brent futures dropped 0.1% to $69.36 a barrel, and U.S. West Texas Intermediate crude futures fell 0.1% to $64.97 a barrel.

Both benchmarks have jumped around 4% this week, their biggest increase since the week ended June 13.

Source: Investing

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Warren Takunda

Economic

Gold prices surge to new record highs and the Swiss franc outperforms

The Swiss franc continues to be viewed as the foreign exchange market’s answer to gold, with Barclays describing it as “gold’s FX twin” amid ongoing fears of inflation and monetary debasement.

Analysts at the bank ar gue that both assets play a similar role in investor portfolios. "They yield about the same and are both supported by concerns about currency debasement," Barclays writes in a recent note.

Gold rallied to record highs this week while the Franc is the year's second-best performing G10 currency.

This CHF outperformance looks absurd: its central bank sits on a 0% interest rate while global stock markets print record highs.

FX theory states that higher interest rate currencies should strengthen against low-yielding currencies. It also states that the traditionally safe-haven Franc should struggle at times of market exuberance.

The Yen shares similar characteristics to its Swiss peer, yet it is underperforming massively.

It's gold that offers the answer as to why CHF is doing so well:

"At first glance, the Swiss franc appears to be gold's incarnation in FX space. The CHF is currently yielding about the same as gold, it has also been trending up for a while – and particularly so since the GFC – and is heavily thought of as the place to be if one is worried about currency debasement," says a currency note from Barclays.

Debasement is where a central bank increases the money supply excessively and reduces the purchasing power of the currency it issues.

This is the case for central banks such as the Bank of England and the Federal Reserve, where interest rates are being cut despite inflation rising.

Swiss inflation is contained while the central bank and government oversee credible fiscal and monetary policies, ensuring confidence in the franc as a store of value, akin to gold.

Yet, for all their similarities, Barcalys says there are crucial differences too.

"The main of which being valuations. It is hard to evade the conclusion that the CHF is currently c.10% overvalued, even if this mismatch is likely to stick with us for a while. This makes the CHF a second-best as an inflationary hedge versus gold," says the research note.

The franc's overvaluation is a consistent feature across models and frameworks.

Barclays' BEER model has EURCHF fair value at parity, some 8% above current levels. Its FEER model says the franc is about 10% overvalued, depending on the current account metric one uses as a benchmark.

The trade-weighted franc remains c.10% higher than where it should be in order to neutralise the inflation differential between Switzerland and its trading partners, argues Barclays, adding it is around 8% too cheap versus short-end rates in the Eurozone.

Despite being overvalued, Barclays thinks the currency is not at risk of correction:

"That said, we expect this misvaluation to persist given strong safe asset demand and the SNB's reluctance to cut to deeply negative rates territory or engage in aggressive FX intervention."

Source: Poundsterlinglive

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Adam

Economic

Key takeaways

SPX 500 pullback: Index fell -1.9% over three sessions from its all-time high, testing key support at 6,580/6,560 near its 20-day moving average.

Bullish setup intact: price remains within its short- and medium-term uptrend, with momentum indicators pointing to easing bearish pressure.

Sector rotation support: Consumer Discretionary’s outperformance over Consumer Staples signals potential for a bullish reversal in SPX 500.

Key levels to watch: a rebound above 6,635 could extend gains to 6,670/6,680 and 6,730/6,745; failure below 6,560 risks a deeper slide to 6,530/6,460.

Since hitting the latest fresh all-time high of 6,710 on Monday, 22 September 2025, the US SPX 500 CFD Index (a proxy of the S&P 500 E-mini futures) has dropped for three consecutive sessions and shed -1.9% (high to low) to print an intraday low of 6,580 on Thursday, 25 September 2025.

The recent corrective pullback in the US SPX 500 CFD Index has been attributed to overvaluation concerns in mega-cap technology stocks and a potentially less dovish Fed, where a stronger US Q2 GDP growth reduced the odds of a December Fed rate cut to 58% from 79% a week ago.

Let’s now focus on the latest short-term trajectory (1 to 3 days), relevant key elements, and key levels to watch for the US SPX 500 CFD Index from a technical analysis perspective ahead of today’s key US PCE data (inflation, personal income, and spending) releases.

Fig. 1: US SPX 500 CFD Index minor trend as of 26 Sep 2025

Preferred trend bias (1-3 days)

The three-day sell-off of 1.9% seen in the US SPX 500 Index has not damaged its short-term (minor) and medium-term uptrend phases.

Maintain a bullish bias for a potential near-term recovery above 6,580/6,560 key short-term pivotal support. A clearance above 6,635 is likely to increase the odds of a bullish reversal towards the next intermediate resistances at 6,670/6,680 before the next resistance at 6,730/6,745 (Fibonacci extension cluster).

Key elements

The current price actions of the US SPX 500 CFD Index are still oscillating above its 20-day, 50-day moving averages and within a medium-term ascending channel in place since 22 May 2025 low.

The 6,580/6,560 key short-term pivotal support of the US SPX 500 CFD Index confluences closely with the rising 20-day moving average.

The hourly RSI momentum indicator of the US SPX 500 CFD Index has shaped a bullish breakout above its former descending trendline resistance, which suggests that the recent bearish momentum has eased.

The relative chart of the cyclical-oriented equal-weighted S&P 500 Consumer Discretionary sector ETF versus the defensive-oriented equal-weighted S&P 500 Consumer Staples sector ETF has rebounded after retesting its 20-day moving average. This development signals continued outperformance in Consumer Discretionary over Consumer Staples, reinforcing the case for a potential bullish reversal in the US SPX 500 CFD Index.

Alternative trend bias (1 to 3 days)

Failure to hold at the 6,580/6,560 key short-term support on the US SPX 500 CFD Index invalidates the bullish reversal scenario for a deeper minor corrective decline sequence to expose the next support at 6,530 (also the lower boundary of the medium-term ascending channel).

A break below 6,530 may trigger a deeper slide towards 6,460 (also the rising 50-day moving average) next.

Source: marketpulse

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Michelle

Economic

Forex

Underlying U.S. inflation in August matched the prior month’s pace as anticipated, in a sign of sticky price pressures that Federal Reserve officials have flagged as a key influence on the trajectory for interest rates over the rest of the year.

The so-called "core" personal consumption expenditures price index, which strips out volatile items like food and fuel, rose by 2.9% in the twelve months through August, the same as in July and in line with economists’ estimates, according to data from the Commerce Department’s Bureau of Economic Analysis on Friday.

Month-on-month, the measure came in at 0.2%, also equalling both July’s figure and Wall Street projections.

On a headline basis, PCE stood at 2.7% year-over-year and 0.3% month-over-month. The gauges accelerated slightly from July and were the same as forecasts had predicted.