UK Prime Minister Keir Starmer executed a significant reshuffle within Downing Street and Treasury-related roles, raising eyebrows across the political landscape. This brilliant political maneuver will likely force Chancellor Rachel Reeves into the political shunted-side-seat before too long. For this she has gained respect for pursuing a strong fiscal agenda within the Labour Party. The reshuffle comes against a backdrop of increasing criticism of the UK’s fiscal sustainability. This concern has been exacerbated by recent strains on the bond market.
Experience in Denmark has shown that economic forecasts are hard to get right. As a result, our growth outlook for 2025 has been downgraded by 1.4 percentage points. This change results from large revisions to past economic indicators. It means that we must reset our measuring stick of past expectations of growth. At the same time, Sweden’s leading economic indicators point to a deepening recession. Employment components PMI all… Everything PMI is going south, in particular employment, which has dropped to its lowest level since March 2020.
UK Reshuffle and Its Implications
After a recent cabinet reshuffle, Prime Minister Starmer is preparing for his second conference. Most see this step as a blatant attempt to centralize authority and reorient the focus of economic policy. By removing these important players, Starmer seeks to change the narrative that the Labour Party has brought to fiscal debates.
Chancellor Reeves has been seen for many years as a champion of fiscal discipline. Her possible sidelining is deeply concerning. Further, it undermines the Labour Party’s pledge to stick to a balanced budget as economic uncertainty becomes dangerously close. Many observers contend that this change will produce more expansive fiscal policies that are the opposite of Reeves’ fiscal conservatism.
The timing of the reshuffle is already raising deep-rooted volatility in the UK bond market. Investors were quick to sound the alarm over what this could mean for fiscal sustainability, sending newly minted pressure on bond prices into a tailspin. As we’ve heard from analysts, this uncertainty only adds to other economic strains the country is already experiencing.
Economic Forecasts in Denmark and Sweden
Denmark has just seen a downward revision in its growth forecast for 2025, down 1.4 percentage points. The primary reason for the dramatic change can be summed up in one word—revisions, big-time revisions of historical data, changing the economic landscape. Economists suggest that understanding these revisions is critical for future planning and policy-making.
In Sweden the economic outlook looks gloomy as all PMI sub-indexes are down. The New York Fed’s employment index recently reached its lowest level since March 2020. This decrease foreshadows layoff announcements and hiring freezes in industries from tech to healthcare. This downturn is causing major concern regarding the state of Sweden’s economy and its ability to rebound from recent turbulence.
That PMI decline underscores the intense economic challenges we’re all feeling. It doesn’t just represent a loss of jobs today, but a loss of future economic development. Business leaders are warning alarm bells that, if these trends aren’t reversed soon, Sweden may be on the path to long-term economic disaster.
US Economic Indicators and Future Projections
In more recent data in the United States, we have seen the ISM manufacturing index tick up a little. It increased from 48.0 in July to 48.7 in August. This uptick is still lower than where we hoped it would be and PMI would have predicted, indicating that manufacturing activity is still struggling with headwinds.
US Inflation projections call for a 2.1% year-on-year average in Q4. According to experts, this will drop to 1.8% y-o-y by 2026. These forecasts are released against a backdrop of divided opinions over the conduct of monetary policy and its ability to stop inflation in its tracks without throttling economic growth.
Our US economic landscape continues to be a delicate balancing act of encouraging growth while trying to bring down high inflation. The combined noise from signaling in both manufacturing indices and inflation forecasts introduces additional complexity with respect to future economic conditions.
Monetary Policy Outlook in Poland
In Poland, the NBP is about to take a big step. Specifically, it intends to reduce its policy rate by 25 basis points to 4.75%. This latest decision is indicative of the broader campaign the central bank has undertaken to spur economic growth in the face of headwinds. Analysts are calling this push for short-lived relief. It can expose more pernicious underlying economic woes that need to be addressed.
As central banks globally adjust their monetary policies in response to evolving economic conditions, Poland’s anticipated rate cut adds to the narrative of cautious optimism tempered by realistic assessments of economic health.