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The UK's Labour government sought to fight through an astonishing crisis on Wednesday.
Prime Minister Keir Starmer yesterday sought to contain an extraordinary political crisis, denying accusations that he had authorised Downing Street staff to brief against health secretary Wes Streeting. Government insiders claim Streeting has been gunning for the top job, a rumour Streeting fiercely denies.
This morning’s GDP data will not have helped the mood in Numbers 10-11. The UK economy unexpectedly shrank by 0.1% in September and grew by just 0.1% across the third quarter of 2025 following a downgrade to August’s number. September was particularly tough for the manufacturing sector, with a cyber attack halting production at Jaguar Land Rover and weighing on output.
The last few days have exposed the Labour government’s factional fault lines ahead of the autumn Budget. As the chancellor prepares to raise taxes and break a manifesto promise, several ministers appear to be very much on covert manoeuvres, jostling for position should Rachel Reeves be forced to resign. The worry now is that this will be enough to bring down the entire Starmer government and cause chaos for the pound.
Machiavelli’s long shadow extended across the Atlantic. The silver lining for the Democrats in their capitulation in the Senate earlier this week was that it ultimately forced a vote on the release of the Jeffrey Epstein files.
That vote will now take place next week after President Trump signed the spending bill that ended the longest government shutdown in US history. Government will reopen for business 44 days after shuttering and following widespread chaos at the country’s airports.
Enough politics? Us too. Despite all number of worries, business confidence in the UK actually edged up last month, per S&P’s study. UK firms were “moderately hopeful” of better conditions over the next year, although expectations are still below the post-2008 average.
Wednesday was a productive day for Britain’s FTSE 100 stock index, which hit a record high on lower interest rate expectations. The biggest move came from energy provider SSE, up almost 17% after announcing a £33 billion investment in UK electricity networks.
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GBP: Politics destabilises pound
Sterling slipped against its peers across Wednesday as an extraordinary rift at the heart of government opened. UK markets will no doubt spend the majority of today chewing over the growth figures and what they mean for the Budget. Another angle of speculation is the last thing the pound needed.
GBP/USD: the past year
EUR: Quietly confident
The euro strengthened slightly against the pound on Wednesday and still sits close to a 30-month high. Trading has been quietly confident for some time now, with the European Central Bank signalling stable rates, lower inflation and a hopeful growth outlook.
GBP/EUR: the past year
USD: Data glut ahead
Thanks to the resolution in the government shutdown, there is a significant glut of postponed economic data to be released in the coming weeks. We don’t know yet exactly when that will come, but expect some sudden movements once key labour data hits screens.
EUR/USD: the past year
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