Category: News

UK government borrowing rose to a five-year high in August, official figures show, fuelling growing expectations for Rachel Reeves to raise taxes at the autumn budget and knocking the pound.

Figures from the Office for National Statistics (ONS) showed public sector net borrowing – the difference between public spending and income – rose to £18bn in August, £3.5bn more than in the same month a year earlier.

Dealing a blow for the chancellor as she prepares for the 26 November budget, the reading was above City predictions for a deficit of £12.75bn and forecasts from the Office for Budget Responsibility (OBR) of £12.5bn.

On top of upward revisions to previous months, total borrowing for the financial year to date jumped to £83.8bn, also the highest level since the height of the Covid pandemic in 2020. The total was £16bn higher than in 2024 and above a £72.4bn forecast from the OBR.

Once again, Britain spend billions of pounds servicing its growing national debt (and thus adding to it!).

The interest bill on central government debt rose to £8.4bn in August, £1.9bn more than in August 2024, and £900m more than in July.

This increase was driven by higher inflation, which added to the cost of index-linked government bonds.

So far this financial year, the interest payable on central government debt has increased by £10.6bn to £49.9bn, largely because the interest payable on index-linked gilts rises and falls with the Retail Prices Index (RPI) of inflation.

The Federal Reserve lowered rates by 25 basis points to 4.25%, in line with expectations. Markets initially welcomed hints of two more cuts later this year, but Chair Powell quickly tempered enthusiasm.By downplaying concerns over the labor market and emphasizing immigration’s impact on labor supply, Powell shifted sentiment, leaving traders uncertain about the path ahead.

Why It Matters: Historically, once the Fed begins cutting, a sequence of reductions tends to follow. Powell’s comments, however, suggested a slower trajectory than markets anticipated. This has implications for gold, the U.S. dollar, and financial stocks, which may benefit if borrowing costs remain elevated for longer.

Market Headlines:

• December meeting now pivotal, with only 43.7bps of cuts priced in through year-end.

• China holds rates steady at 1.40%, citing resilient exports.

• Bank of England likely to slow its quantitative tightening while keeping policy rate at 4%.

• SEC clears new standards for crypto ETFs beyond Bitcoin and Ethereum.

It would be a big shock for the City if the Bank of England doesn’t leave interest rates on hold at midday at 4%.

The money markets are indicating there’s a 97% chance of ‘no change’, and just a 3% possibility of a hike back to 4.25%.

Last month, the Bank’s nine policymakers were badly split – with four voting to hold rates at 4.25%, four favouring a cut to 4%, and one initially plumping for a large cut to 3.75%, before joining the ‘smaller cut’ gang in a second vote.

• This September 17, 2025, the Fed may be making its third occasion since 1996 to cut rates when the S&P 500 is already trading at record highs.

• Since 1980, every time the Fed has trimmed rates with the S&P 500 within about ~1-2% of its all-time high, markets have generally responded well.

• Historically, when the S&P is already at record highs and the Fed cuts rates, those cuts have been followed by the S&P reaching new highs within the next 12 months.

• We are entering these potential rate cuts amid what some consider today’s “AI Revolution,” possibly as large a tech/structural wave as the 1990s.

• In 1996, the rate cut (with the S&P near its highs) was followed by a return of approximately +20-25% over the next 12 months.

• The upcoming Fed cut (as of mid-September 2025) may be the first in over 30 years during which PCE inflation is this high (≈2.9% core) at the time the Fed is cutting.

The central bank is largely anticipated to focus on the softening labor market, though stubborn inflation adds complexity, with investors heavily leaning toward a 25-basis-point cut. Futures pricing shows odds above 90%, per the CME FedWatch tool.

This makes for a crucial week in markets, as the Fed’s decision could dictate whether the current rally extends further.

Gold was trading flat to slightly lower early Monday with prices hovering near $3,645 per ounce. It’s a big week and some consolidation can be expected as traders brace for, perhaps, the biggest Fed event this year.

The general expectation is a fully priced-in 25-basis-point cut to 4.25%. Should it occur, the lower borrowing costs could ease pressure on the economy and support gold’s continued upward momentum.

Gold often performs better when Treasury yields decline, which typically happens as interest rates move lower.