A Direct Message to the Next Leader
Andrew Bailey, the head of the Bank of England, did not mince words. On July 14, 2026, he stood up and told the UK's almost-certain next prime minister, Andy Burnham, that the country needs to get serious about growth.
Bailey said that raising the potential and actual growth rates must be a priority. He added that the best thing the government can do is create and maintain stability - and he made clear he was talking about both monetary policy (the Bank's job) and fiscal policy (the government's job of spending and taxing).
Burnham is set to assume the role of prime minister next week after running unopposed to replace Keir Starmer, who stepped down last month following poor local election results for Labour. The transition comes at a rough time for the UK economy, which has been hit by the pandemic, the war in Ukraine, the effects of Brexit, and a recent energy shock linked to a war with Iran.
The Slow-Growth Trap
Here is the core problem: the UK economy used to be able to grow at around 2.8% a year on average without overheating. That was the rate in the 15 years before the financial crisis.
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After the financial crisis, that potential growth rate dropped to 1.3% - roughly half of what it was.
Bailey said that inflation would already be at the Bank's 2% target if not for the energy-price shock from the conflict with Iran. But that shock happened, and it is taking longer to work through the system. The Bank's job is to get inflation back to target, and Bailey says the context is encouraging even though uncertainty remains.
What Investors Are Watching
The big unknown right now is who Burnham will pick as his finance minister, known as the Chancellor of the Exchequer. He is expected to replace the current chancellor, Rachel Reeves.
The name on everyone's mind is Ed Miliband, the current Energy Secretary. Bookmakers have him as the favorite. Some investors worry Miliband would mean higher government spending and more left-leaning policies. That uncertainty alone is making markets nervous.
Meanwhile, traders are betting the Bank of England will raise interest rates at least once this year. There is a strong possibility of a second hike as well.
Oil prices have been swinging wildly. They jumped on US-Iran tensions and then fell when President Trump dropped a plan to demand payment for ships passing through the Strait of Hormuz.
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