• The US has been rapid in adopting a legal framework with 2025’s GENIUS Act and the follow-on Clarity Act which is working its way through the Senate, offering much more permissive legislation than in the EU and UK.

• The EU has 2022’s MICAR, which is restrictive on reserve requirements (over 60% of backing assets to be held in EU depositary institutions, likely lowering yields and disrupting issuer models). MICAR is currently under review, until end-September. The EU is also focussing on the digital euro, the only retail CBDC which appears to be making progress across the G7.

• The UK appears midway through a pivot, with speeches from BoE policymakers increasingly focussed on a future payments landscape which is multi-money. Previous shutting down of the debate on stablecoins with a strict focus on the singleness of money has shifted to something more permissive, and June’s policy statement and the draft code of practice pivot the focus of regulations.

Summary of June policy statement highlights, via BoE:

UK Regulatory Advantages Over the EU

This recent note from OMFIF summarises the changing landscape well, and we think that it is worth pulling out a key theme: recent legislative pivots in the UK could put sterling stablecoins at an advantage to euro stablecoins.

If stablecoins are part of the future of money, this could cement a foothold for London as a core financial sector for this new payment tech. That is a large if, and we come back to it below, but the regulatory gap is worth setting out on its own terms. There are three obvious reasons:

1. The digital euro would see the ECB directly competing with private issuers, with its ability to ensure banks offer digital euro rails putting it at a major advantage against the private sector. There is no parallel in the UK, with the digital rail left largely to the private sector (in terms of actual product provision - the BoE is open to a retail CBDC but is not advancing one like the ECB is).

2. Digital euro accounts are set to have a EUR3k deposit limit, to prevent capital flight from the banking sector. While the BoE had proposed similar caps for individual (GBP20k) and business (GBP10mn) holdings of individual stablecoins, the newly proposed Systemic Stablecoin Issuer Code would see a stablecoin issuance limit at GBP40bn, a functionally different limit to individual holder limits. This would also only act as a temporary limit while banking sector capital flight concerns are addressed. From a practical standpoint, the BoE’s approach would prevent the possibility of major banking sector capital flight, while also accommodating the possibility of having large individual stablecoin depositors.

3. The BoE has indicated it will provide a liquidity backstop, offering repos on gilts to systemic stablecoin issuers. Such access to the BoE balance sheet significantly increases issuers’ ability to maintain pegs (reducing vulnerabilities to and abilities to drive liquidity squeezes in gilt markets) and also signals a regulatory regime that is supportive of private sector activity. This is a marked contrast to Europe.

Stablecoins’ Role In The Payment System

Recent publications and speeches from the BoE have repeatedly stated that they see the future payment landscape as multi-money, with this from the June policy statement for instance:

As set out by the Bank in the Modernising markets and money speech, people should be able to pay with a range of different forms of money. Alongside traditional bank deposits, this includes tokenised bank deposits, regulated stablecoins and, potentially, a retail central bank digital currency (CBDC). More competition, from a wider range of technologies and business models, should lower costs and improve functionality for users.

Consistent with the use cases set out in the 2025 consultation, the Bank expects stablecoins could support a range of applications in retail payments. This includes everyday transactions by households and businesses such as person-to-person transfers, merchant payments and online purchases, as well as cross-border payments. In doing so, stablecoins bring scope for benefits such as faster and cheaper settlement and the ability to support greater functionalities with more programmable forms of payment.

However, while the Bank is open to stablecoins being a core part of the retail payment landscape, as OMFIF note, the BoE’s base case may be a much more limited take up:

The Bank and Financial Conduct Authority’s own joint paper includes a worked illustrative example (‘Coin Group’/ ‘Coin UK’) of a large social media and e-commerce platform building a sterling stablecoin with plans for peer-to-peer transfers, remittances, loyalty rewards and low transaction fees, integrated across its existing products. This gives a clear sense of the kind of player that the regulators are preparing themselves for. This regulatory design tilts the UK’s stablecoin market towards ‘big tech’ style platform incumbents bolting a payments layer onto an existing user base, rather than gradual, broad-based fintech-led adoption.

This means that the Bank could foresee core stablecoin adoption sitting more in the vein of Facebook’s failed Libra/Diem currency, or in gaming ecosystems, alongside other non-retail and business focussed applications. Practically, this might see users using stablecoins without ever realising that they are doing so, easing the aforementioned limits to adopting stablecoins as an everyday payment method.

In line with this assessment, we have pushed back on the idea that stablecoins will be a large part of the future payments landscape several times before, highlighting the lack of incentives for retail and businesses to transition, including low/no interest payments, no deposit insurance, incumbency advantages for banks, lack of familiarity with issuers, the need to do due diligence on issuers (ensuring they are fully backed, reputable etc). This has led us to conclude previously that:

In our view, stablecoins will not become the future of money. The combination of digital bank deposits and wholesale CBDC will. In some markets, such as the eurozone, retail CBDC (the digital euro) may complement digital bank deposits as a substitute for physical cash. Stablecoins instead will remain an important payment method in some specific cases, but broad, economy wide usage will not take off.

Also in line with our view, the BIS’ general manager Pablo Hernández de Cos recently gave a speech advocating for a payment system with tokenised bank deposits at their centre, not stablecoins, while tokenised central bank reserves would be the ultimate settlement asset. In line with our view, de Cos relegated stablecoins to a much lesser role:

Stablecoins may serve specialised roles – for instance, in decentralised lending pools. But they should do so under robust, transparent regimes that enforce par redemption for payment use. Alternatively, they could be treated explicitly as investment products with appropriate conduct and disclosure rules. Legislation and further regulations are taking a stance on this in many major jurisdictions.

It looks like our base case is increasingly becoming consensus: Tokenised commerical bank deposits at the core, settled in tokenised wholesale CBDC, with stablecoins for niche applications only.

JB Macro is my blog, where I splurge out my brain. I’m building a following for my passion, writing about economics and markets, and it would be really great to have you on board. Please consider pressing the subscribe button below. Thank you, James.

This newsletter is for informational purposes only. It does not constitute investment advice or an offer to invest. The views expressed herein are the opinions of JB Macro exclusively. Readers should conduct their own research and consult with professional advisors before making any investment decisions.

The Liquidation of Government Debt – Reinhart & Sbrancia (paper), 2015: With US public sector debt around 123% of GDP and deficits above 5% of GDP since 2020, the US government is increasingly looking to shortcuts to make current extraordinarily loose fiscal policy work, without tightening policy. There may be real prospects of significant financial repression down the line, which is why we look to excellent papers like this one:

High public debt often produces the drama of default and restructuring. But debt is also reduced through financial repression, a tax on bondholders and savers via negative or below market real interest rates. After WWII, capital controls and regulatory restrictions created a captive audience for government debt, limiting tax-base erosion. Financial repression is most successful in liquidating debt when accompanied by inflation. For the advanced economies, real interest rates were negative ½ of the time during 1945–1980. Average annual interest expense savings for a 12—country sample range from about 1 to 5 percent of GDP for the full 1945–1980 period. We suggest that, once again, financial repression may be part of the toolkit deployed to cope with the most recent surge in public debt in advanced economies.

China’s digital renminbi is running on two tracks – OMFIF (note), August 2026: A good summary of where major players are heading on the future of digital currencies. China focuses on Project mBridge internationally with wholesale settlement on blockchain as transactions are validated by the five central banks operating it, with no role for correspondent banking. However, domestically, in January China pivoted the digital renminbi to operate as an interest-bearing bank deposit. This puts China’s approach similar to Project Agora, the BIS’ main focus for international settlement. As detailed in the note, central to Agora “tokenised commercial bank deposits settle in tokenised central bank reserves on a unified ledger, but correspondent banking survives intact, keeping commercial banks and their compliance apparatus inside every cross-border transaction.”

Tariff Effects on Inflation Stabilize in Recent Months – St Louis Fed (note), August 2026: The US effective tariff rate is falling and tariffs’ impact on inflation is receding.

This decline in effective tariff rates represents a significant shift from the escalating trade tensions of 2025. The downward trend is most closely related to actual rollbacks of tariffs and tariff rates due to the Supreme Court ruling and bilateral agreements reached with different trade partners, but it may also reflect a reorientation of trade flows toward lower-tariff products and countries or alternative strategies to avoid tariff-heavy imports. A decline in effective tariffs should help ease upward pressure on import costs and, ultimately, on consumer prices.

The figures below show the contribution of tariffs (dark blue) and other forces (light blue) to observed “excess inflation,” calculated as the actual PCE inflation rate minus the Federal Reserve’s 2% target, for both headline and core measures. 3 As the figures indicate, through February 2026, a large fraction of excess inflation came from the estimated effects of tariffs. However, since March, other factors appear to be the main drivers of excess inflation, likely reflecting, among other things, the recent increase in energy prices.

China shock 2.0 and mercantilist-on-mercantilist violence – Adam Tooze (Substack), June 2026: Another excellent essay from Adam Tooze:

Comparing “China shock 1.0” and “2.0” there are key differences. The first “China shock” back in the early 2000s was a straight-forward cost-of-production, market-access story. China’s exports overwhelmed western manufacturers in low-tech, low-wage sectors. Though opinions differ about how large the impact was, there is little doubt that it was most intense in the USA. China Shock 2.0, by contrast, is above all about Europe and it is above all about China’s progress up the industrial value chain. The shock is focused on a cluster of industrial sectors and, above all, as Setser and Tordoir highlight, on Germany and on cars. 60 percent of the $27 bn euro swing in Germany’s trade balance with China between 2021 and 2025 is accounted for by vehicles.

The car industry is decisive in German industrial politics. And Germany is decisive in Europe, so this is a disruptive shock. But focusing in this way on German manufacturing also changes the terms of the “China shock” conversation. After all, Germany is itself a chronic trade surplus country. So, China shock 2.0 is mercantilist-on-mercantilist violence. Indeed, even as the deficit with China widens, the EU’s manufacturing trade surplus with the rest of the world is at new highs.

China’s property bust is spilling across its borders – Peterson Institute (Note), August 2026: A convincing note on why China’s property bust-up is the driver of its surging current account surplus:

Much of the recent criticism of China has focused on the role of government subsidies and industrial policy in driving the trade surplus. Those policies matter, but they are only part of the explanation. A deeper force is the aftermath of the bursting of China’s housing bubble since 2021. When Chinese households stopped buying homes and developers sharply curtailed new construction, domestic investment fell sharply. Household saving did not decline by nearly as much. The resulting gap between domestic saving and investment has helped to generate a larger current account surplus.

This pattern is not unique to China. Housing busts often lead to rising current account balances globally because investment tends to collapse more quickly than saving. But because China is the world’s second-largest economy and a dominant force in global manufacturing, its domestic imbalances are transmitted abroad on an unusually large scale, inflicting pain on some exporting countries and their industries…

The table shows the average sectoral saving and investment balances by component for two periods, 2010-20 and 2021-24, respectively. Between the two periods, the household sector became a much larger net saver, while the general government became a much larger net borrower, leaving China’s overall saving-investment balance and thus its current account surplus slightly higher…

Because household gross capital formation consists largely of residential investment, the growing household imbalance in recent years is likely driven primarily by the sharp declines in household homebuying. This point is important because it shows China’s external surplus did not rise because Chinese households suddenly became more frugal. Household saving remained broadly stable. What changed was that households stopped channeling as much of their saving into housing.

Cottonopolis: Manchester, the Growth and Growing Pains of a Modern City – Legatum Institute (lecture), April 2016: A lecture on the origins of Manchester, with a focus on its time as the world’s most important industrial city. Some interesting insights into productivity growth over the long run too, including its disinflationary nature (as we have focused on previously):

This productivity race between agriculture and industry, one in which industry was improving at the faster rate, acted to reduce the relative cost of manufactured goods (compared with food) and, given sufficient competition between producers, lowered the price for customers. In response to falling prices, customers both at home and abroad were attracted to British manufactures, boosting the production of industrial goods and, with it, the development of urban centres such as Manchester, home to the cotton industry. Whilst some manufactured goods were produced in rural areas where labour was generally cheaper (known as proto-industry), and whilst some of the initial cotton factories were built in the countryside, where economies of scale and technological spillovers existed, these rural regions developed into urban-style agglomerations of their own.

The 20% of the Economy That Drives 100% of Recessions – EPB Research (Substack), December 2025: Cool concept, highlighting that while private consumption is the main driver of GDP growth, it is not very volatile and often does not front-run or even contract during recessions. Instead, to understand the business cycle, EPB Research advocate focussing on cyclical GDP, which includes durable goods, residential investment, and business equipment investment:

The AI Buildout and the Economy: Publicly Available Data to Assess AI’s Impact – Fed (article), July 2026: A framework from the Fed telling you which data to follow to track the AI rollout and its macro impacts. The conclusion remains that AI has not filtered through to macro outcomes yet (in line with our recent note):

If AI is driving aggregate productivity, it most likely appears first and foremost in high-exposure sectors. Figure 9 tracks sectoral productivity by AI exposure level. While sectors with more exposure appear to have higher labor productivity growth, we see that productivity trends across all three levels have been relatively consistent over time, suggestive of micro-level productivity gains not adding up in aggregate.

JB Macro is my blog, where I splurge out my brain. I’m building a following for my passion, writing about economics and markets, and it would be really great to have you on board. Please consider pressing the subscribe button below. Thank you, James.

This newsletter is for informational purposes only. It does not constitute investment advice or an offer to invest. The views expressed herein are the opinions of JB Macro exclusively. Readers should conduct their own research and consult with professional advisors before making any investment decisions.

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1. Scott Bessent Vs Markets

Bessent has framed the intervention as suitable temporarily as market participants across the board have a major misunderstanding of where treasury yields should be. It is very strange for an ex-hedge fund manager to have so little faith in the wisdom of markets. Bessent appears to be taking a very large bet on the structure of interest rates (that the curve will flatten), which is perhaps more usual territory for an ex-hedge fund manager, albeit such a trade on the government balance sheet is a little odd still.

2. Scott Bessent Vs Kevin Warsh

“… When all the financial markets are doing is reflecting back what we’ve said, then we’re taking the most important source of information and we’re being blind to it. I’d like us to create a system where those blinders come off, where markets are following data that they efficiently think is reliable. And they’ll be watching data.” said Fed Chair Kevin Warsh in his June press conference. Warsh appears to look mainly to long end treasury yields for his signal as to what markets believe, and he firmly believes that he cannot even speak his mind in case he influences it. Bessent on the other hand is looking to spend billions influencing the long-end. So much for Warsh get unadulterated signal from the markets.

3. The Treasury Vs The Fed

Where Bessent and Warsh do seem to agree is on where the relative power should lie, and that is less with the Fed. Warsh has been critical of apparent monetary dominance over recent years, in line with his somewhat odd logic that super low interest rates forced the government to run very large deficits (most analysts would instead note the risk of fiscal dominance). Shortly before he became Fed Chair, Warsh proposed revisiting the 1951 Treasury-Fed Accord, which established Fed independence as we know it, and Warsh has a much narrower view on what Fed independence should pertain to. In particular, Warsh seems to think that the government should have more of a say in Fed balance sheet policy. Bessent and Warsh could oversee quite a significant transfer of power.

4. Scott Bessent Vs The Fed Balance Sheet

However, that is not to say that Bessent would have an easy time taking more duration on the Fed’s balance sheet. Warsh has been very public in his views that the balance sheet is way too big, and it would be quite difficult to foresee a Republican policy keen for a major expansion. The balance sheet could technically be kept the same size, with average duration lengthened as the Fed acquires more longer-term debt. However, this would take more interest rate risk on the balance sheet, which has been undesirable for policymakers (e.g. Governor Bailey from the BoE has been explicit on this).

5. Scott Bessent Vs Financial Repression

Financial repression is a set of policies that governments use to keep their financing costs artificially low, and was the hallmark of post-WW2 debt sustainability for several developed markets and for many emerging markets through the second half of the twentieth century. Such policies tend to be more extreme and long-lasting than Bessent’s Operation Twist; however, it is somewhat worrying that the conversation is increasingly tilting towards less orthodox methods of financing the deficit, from manipulating the yield curve to shifting capitalisation requirements to allow banks to hold more treasury debt. Is it so unimaginable that more extreme examples of financial repression emerge?

6. The Trump Administration Vs Debasement

Core to post-WW2 financial repression were a series of policies that suppressed real rates (chart below from Reinhart and Sbrancia). Debt to GDP collapsed on artificially low nominal yields (interest rate caps etc) but also on elevated inflation. Such debasement is a tried and tested route to lowering debt burdens in real terms (the liquidation effect in Reinhart and Sbrancia’s parlance). Expecting intentionally very high inflation is likely inappropriate, but serious people are starting to interpret an implicit Fed inflation target which is higher than 2.0%. In such a world, hard assets do much better than debt instruments.

7. The Republican Party Vs Primary Surpluses

While the Administration appears to be attempting to treat the symptom either through Operation Twist or even higher inflation, the root cause of treasury market stress has not been confronted: a very large US government debt pile. The deficit has been running above 5% of GDP since 2020, and the Big, Beautiful Bill will likely worsen things. There appears to be a narrative still that the US spends too much money. While it indeed does spend too much relative to revenues, fundamentally, the problem appears to be that the US is a low tax country trying to support a modern state (chart below). As per Stanley Druckenmiller’s riposte to Bessent, the solution to the problem is indeed primary surpluses (that is, the balance ex interest payments). The way to do that appears to be to start taxing appropriately.

8. Crisis Norms Vs Normal Time Norms

The tools that are typically reserved for fighting crises are increasingly rolled out in normal times. The Treasury’s Exchange Stabilization Fund was used last year to stabilise Argentine balance of payments, draining resources typically reserved for stabilising overseas countries facing economic threats that would damage the US (e.g. the 1994 peso crisis). There now appears to be serious talk of expanding the Fed’s balance sheet to lower long-end yields, with QE the preserve of responses to the GFC and Covid so far. The US has been running huge fiscal deficits, even with GDP growth at or above potential and unemployment close to sustainable lows. Using economic firepower in normal times blunts the ability to respond in times of stress.

9. RoW Vs US Hegemony

Fundamental to the current global financial system is the idea that some countries import more goods and services than they export, and they must finance these with international borrowing. Other countries export more than they import, and they provide financing to debtor countries. Japan has persistently lent money to the rest of the world due to its current account surpluses, while the US has persistently borrowed money from the rest of the world due to its current account deficits. This has led to Japan having a huge amount of US assets, specifically, US Treasuries.

That is, Japan’s excess savings have been temporarily stored in Treasuries, until the country wishes to use them. However, recently, when Japan wanted to intervene in its currency, it clearly felt it could not sell treasuries, with the US stepping in with coordinated intervention instead, in a clear parallel to Bessent’s direct UST interventions. Japan now owns such a huge amount of treasuries (chart below) that should it wish to sell a meaningful amount of them, it would push yields up, which is an outcome the Trump Administration would very much dislike. Foreign policy now intervenes in economic policy, rendering the massive NIIP surplus much less useful than it appears.

10. US Vs Global Imbalances

A core theme running through this analysis is the US’ central spot in global imbalances. Lax US fiscal policy has been a core contributor to the US running persistent current account deficits, which require financing from overseas. Bessent’s attempts do little to avoid a reckoning which is surely due as we outlined recently. Persistent US current account deficits will increase the NIIP deficit further and further, until it is difficult to finance. It would be very difficult to avoid an adverse outcome, making a meaningful macro adjustment in the present the best way to avoid a disastrous one in the future.

JB Macro is my blog, where I splurge out my brain. I’m building a following for my passion, writing about economics and markets, and it would be really great to have you on board. Please consider pressing the subscribe button below. Thank you, James.

This newsletter is for informational purposes only. It does not constitute investment advice or an offer to invest. The views expressed herein are the opinions of JB Macro exclusively. Readers should conduct their own research and consult with professional advisors before making any investment decisions.

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I think I first heard of this concept on TCAF, when a guest said their one indicator would be the ten-year yield. This is a great indicator as it could tell you something about fiscal risks, short-end interest rates, long-run growth expectations, etc etc. But that is also its weakness. If you saw treasury yields were at 3.5% in two years’ time vs 4.6% at present, you would be hard pressed to say if this was down to a collapse in inflation or in real GDP growth or in fiscal risks (or a mix of them all).

Another problem is that different indicators matter more at different times. Government bond yields are timeless and can tell you about the macro regime we are in, but there are two problems that jump out.

First, there can be long periods where they don’t change much. That in itself is information (e.g. knowing in 2011 that government bond yields were still stuck below 2.5% in 2013 would tell you something about the post-GFC reflation) but fundamentally it would be good to have an indicator that changes frequently.

Second, other indicators are needed to help interpret what your one indicator means. For instance, combining our 10 year yield with shorter run rates could tell you a lot more about the cycle.

That said, although it completely defeats the point of this stupid little desert island game, it is clear that we need multiple indicators, which may change in relevance slowly over time. This got us thinking, there is surely something in the clarity of being able to refine the most powerful macro forces into a few variables and use them as a framework for monitoring what’s going on. Usually, we follow an overwhelming number of variables, but repeated focus on just a few could offer clarity.

Based on this concept, we’ve had a go at identifying 5 economic indicators which will help us see the future.

5 Economic Indicators To Understand The Future

1: US Real Disposable Incomes

As we have highlighted before, we think one of the best ways to understand how the economy works is to put the collective mass of every person at the centre of it as the main source of demand. Everything in the economy is essentially done to service private consumption and individual investment. i.e. every transaction is done either to immediately (private consumption) or eventually (business investment and exports) or indirectly (government consumption) service the needs of said people. Remember, businesses do not have wants and desires.

Humans as a collective will buy as much shit as they can manage (taking into account some desire to intertemporarily smooth consumption, via savings) so ultimately what matters is how much resource they have to do that. The best way to judge that is real disposable incomes and we care the most about that data series for the US market as the US is the most important consumer in the world.

Right now, US real disposable income growth is collapsing:

2: US Cyclical GDP

While private consumption is the centre of the economy, it tends to be quite slow moving. It may contract after a recession, or not even record a contraction at all. That means that while real disposable income growth (which as we said above drives consumption) can tell us something about where trend growth is heading, it may fail to spot the cyclical story, in particular turning points. That’s where cyclical GDP comes in.

As EPB Research demonstrates, cyclical GDP (as defined as durable goods consumption + residential investment + business equipment investment) accounts for just 20% of GDP, but for most of the variability in GDP. The other advantage is that contractions in cyclical GDP as a percent of overall GDP often are leading indicators for recessions (chart below). This makes sense as these areas of activity are the most sensitive to the economic cycle. We again focus on the US for our variables, with the US being the most important source of demand globally.

Right now, US cyclical GDP as a % of total GDP has ticked down slightly, but is mostly stable. Component wise, durable goods consumption and residential investment are behaving like we are in a down cycle. Business equipment investment is doing the heavy lifting, as powered by AI. Unsurprisingly, a downshift in equipment investment could presage a broader downturn.

3: AI Token Cost Index

With investment in AI core to the current cycle, right now we need some indicator to give us a solid lead on whether all this datacentre investment is sensible or not, especially given equipment investment has driven a lot of US GDP growth in 2026.

If this datacentre investment (and broader AI related corporate investment) proves sensible, we could see an upshift in the cycle, and major debt funded capital investment by the biggest firms on the planet will pay off. If not, we see major corrections in asset prices and potentially recessions as investment is massively reduced.

Fundamental to if this datacentre investment pays off is the idea that demand for tokens for the latest models stays high enough to support higher and higher token prices (equalised over time for performance). That said, some measure of token prices is (an imperfect) way of judging that question. Take your pick of which one, there is a Silicon Data series which is available on a BBG terminal or this free one from Token Price Index. (It is worth noting that falling token prices don’t necessarily mean that AI isn’t the tech of the future, just that the datacentre investment may be getting way ahead of itself.)

Since mid-July, token prices have taken a worrying turn down:

4: Global Supply Chain Pressure Index

Thus far, we have focused mostly on the demand side (1 and 2), and narrowly on a secular theme (3). However, lots of demand without adequate supply is not a good thing (because inflation). So we need to have more on the supply side. We could try to look at changes in hours worked, productivity, or capital investment, but they all have issues such as being very slow moving and having data quality issues.

Instead, considering shocks over the last 5 years or so have been dominated by interruptions to global supply chains, we think the best indicator to contribute to our understanding the economic cycle is the New York Fed’s Global Supply Chain Pressure Index (GSCPI). The GSCPI aggregates a bunch of measures (covering global transportation costs, airfreight costs, and supply chain related components from PMIs across markets) to give a single signal of supply chain pressure.

Right now, supply chain pressures are elevated, but falling:

5: Chinese PPI

Finally, with our measures of demand (1 and 2), the most important secular growth theme (3) and the biggest source of shocks (4) in place, we just need a final read to flesh out drivers of cost push inflation. With this, it makes sense to look to China, the most important producer on the planet.

We have to be wary of data quality, but the chart below from MacroMicro (easiest to source from given the clunkiness of the China stats office website) shows that Chinese producer prices have spent many years with very low or negative growth. This has enabled China to be a very low cost producer of intermediate and final goods, exporting very low inflation or deflation to the rest of the world. We could have made this choice with export prices instead, but we chose PPI instead as in theory PPI should front-run export prices.

Currently, Chinese PPI prices have experienced a surge, having spent the last couple of years in deflation:

The Collective Read

With the clarity of focussing on just the few indicators that we have picked out, we actually can derive quite a clear economic outlook, which is different to what many would say.

From this data, it is evident that the US economic growth impulse is slowing. Real disposable income growth has pushed well below historic norms recently, suggesting a sputtering US growth engine. There is a lot of pressure on the secular AI buildout to hold up the economy. For now, this has meant equipment investment has managed to offset weakness in durable goods and residential investment, but a lot rides on the AI narrative playing out. It is worrying in this regard that token costs have topped out in July, which could call into question AI related investment.

While demand is weakening, easing supply chain pressures do alleviate a headwind. This should reduce some cost push pressures for importers globally. However, that easing has come just as Chinese producer price growth has picked up the pace sharply. This might mean that as inflationary pressure from the energy shock dissipates, it could be partially replaced by pressures from China.

Our five indicators don’t suggest calamity, but they are not exactly bullish.

JB Macro is my blog, where I splurge out my brain. I’m building a following for my passion, writing about economics and markets, and it would be really great to have you on board. Please consider pressing the subscribe button below. Thank you, James.

This newsletter is for informational purposes only. It does not constitute investment advice or an offer to invest. The views expressed herein are the opinions of JB Macro exclusively. Readers should conduct their own research and consult with professional advisors before making any investment decisions.

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The Trade: Short December 2026 SONIA STIRs, long December 2027 SONIA STIRs.

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Why is your base case for the BoE/ECB/Fed so much lower than market pricing?

Why is consensus on xyz central bank so much lower than market pricing?

This often seems to be levelled as a sort of accusation that my own views or the consensus view (of many economists per aggregators like Bloomberg) is not facing up to the reality that markets are aware of, regarding either how bad the energy shock is or just how much central banks will have to do in response.

The answer to these questions is that markets and economists/consensus do completely different things.

As an economist, I spend my time focussing on distinct scenarios for growth, inflation, GDP etc. I consider how things look in different risk scenarios, but generally I focus on a base case, i.e. the outcome that I think is the most likely. Consensus is just an average of a bunch of economists base cases.

For example, my base case is for the BoE to remain on hold for the rest of 2026 and to cut twice in 2027. I think risks in 2026 bias to the upside (on a more extreme energy shock or signs of more sticky inflation) and if we don’t get see those risks materialise in 2026, then I think risks bias to the downside in 2027 (there are already signs of strong underlying disinflation and aggregate demand could remain weak).

However, markets are doing something fundamentally different.

One of the most useful frameworks we have consistently used to understand market prices is expected value (e.g. here and here), where we think of the price of an asset as equal to its probability weighted value. i.e. its price is equal to the sum of the probability of all possible scenarios that can happen multiplied by the value of the asset under each scenario. Or, for scenarios i:

Through this framing, we can see that markets are not just considering the most likely outcome as consensus is doing. They are incorporating the impact on prices of less likely scenarios too.

We can demonstrate this quite easily. Taking my example from before, let’s lay out three hypothetical paths for Bank Rate, with subjective probabilities of them playing out. We have a base case (red line), more hawkish, and more dovish outcomes, on a quarterly basis:

Let’s say that markets completely agree with us on our scenarios, where Bank Rate will be in each of them, and their probabilities. To figure out where rates need to be priced, we turn to our expected value formula. For example, for Q426 there is a 50% chance of Bank Rate at 3.75% (base case), 30% chance of Bank Rate at 4.50% (hawkish), and 20% chance of Bank Rate at 3.50% (dovish). That means the appropriate Bank Rate which would need to be priced for Q426 is:

50% x 3.75 + 30% x 4.50 + 20% x 3.50% = 3.93%

This means that even with the identical views, markets are pricing in almost an entire extra hike than our base case (3.75%). Here are the full trajectories for our base case vs market pricing, with our illustrative market pricing consistently above our base case:

We can also see this empirically. The Bank of England regularly surveys market participants on a variety of topics, including expectations for Bank Rate. For the last survey, covering July 15-17, here are market participants median expectations for Bank Rate:

Over the same period, market pricing for end-2026 Bank Rate came in at 4.16% and for end-2027 at 4.24 (3M SONIA STIRs). These are both well above even the median respondent of the 75th percentile.

This is because in the survey data, traders were asked to do the same thing economists do all the time – provide a base case.

So there you have it. Stop asking analysts why their base case is different to market pricing. They do completely different things.

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This newsletter is for informational purposes only. It does not constitute investment advice or an offer to invest. The views expressed herein are the opinions of JB Macro exclusively. Readers should conduct their own research and consult with professional advisors before making any investment decisions.

Reading through the announcements from the UK’s new PM Andy Burnham, the scale of the change that the UK needs is palpable. The agenda is huge, from infrastructure investment to boosting defence spend to social care to overhauling education.

This prompts two thoughts.

First, it is incredibly tough to enact these changes with a very tight fiscal backdrop. Net debt is just short of 100% of GDP, the fiscal deficit has been hovering in the 4-5% of GDP region, and gilt markets have been very sensitive to increased deficit spending over recent years.

Second, it is incredible just how much of a squandered opportunity there was in the 2010s to address structural issues.

To understand this, we first must run through a short history of the financial crisis and its aftermath.

1. Private sector banks overleveraged in the 2000s

2. Certain private sector banks blew up so bad that they risked bringing down the entire financial system

3. The government (correctly) stepped in to avert contagion, bailing out banks with massive direct equity investment

4. The increased equity buffer stabilised the banking sector

There are clear criticisms to be made of government and regulators ahead of the crisis, and many to be made during the crisis (e.g. bail outs over bail ins), but the biggest criticism to be made comes in the response after the crisis: austerity.

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The great escape Why Britain is stuck in a fiscal funk and how we can break free – Resolution Foundation (paper), July 2026: A deep dive through all the UK’s fiscal problems, from diagnosis to cure. Includes many excellent charts:

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This, we are told, undeniably shows that the advent of AI has triggered a sharp rise in the unemployment rate, in particular for young people.

How are those first entering the labour force, in particular in professional services, supposed to find jobs when the leading-edge firms are disbanding graduate schemes and automating those jobs away? AI can do these roles better.

The same narrative from a different approach shows the anger among young people as business leaders talk to them about AI, seen clearly in this article for instance:

The idea that AI is automating away whole contingents of the workforce would have major macro implications. In line with the narrative, alongside rising unemployment, it would also see a major rise in productivity growth. This would come as the AI triggering job losses narrative has the flipside of firms getting more output from fewer workers, which is the same as higher productivity growth by the most common measure, output per (human) hour worked.

However, we have not seen that in the data. We have seen similar trends in youth unemployment across both the UK and US (first chart), but productivity growth is not exactly booming globally. There has been a rebound in the US in recent years, but this is not exactly an unprecedented pace, while many European economies are struggling to grow productivity at all.

Without passing judgement on whether AI will or will not eventually push up productivity growth, the fact that productivity growth has not pushed up significantly does pour some cold water on the idea that we are seeing a big surge in unemployment on the back of AI.

This is also backed in much of the survey data we have seen. For instance, the ONS found that the vast majority of UK businesses reported no headcount changes due to AI:

There are some studies that have concluded that AI may have driven up unemployment, for instance this from the St Louis Fed:

The figure below shows that occupations with higher AI exposure experienced larger unemployment rate increases between 2022 and 2025, with a 0.47 correlation coefficient.

However, such studies often recognise the important caveat that other things are happening at the same time. From the same St Louis Fed analysis:

The findings presented here represent correlation, not causation. Multiple factors could explain rising unemployment in AI-exposed occupations, including economic uncertainty, postpandemic monetary policy tightening and chance timing.

Given the lack of solid evidence that AI is actually the driver of the surge in unemployment, in particular for young people, and the fact that productivity growth has not risen to levels that are historically very high, we need to consider alternative explanations.

Of which, there are many.

Some analysis, for instance this note from the New York Fed put the rising prevalence of remote work at the core:

Youth unemployment has risen dramatically since the pandemic—as has the prevalence of remote work. Our analysis suggests that these trends are related, with remote work making it more difficult for managers to train and mentor new employees. Accordingly, companies may be reluctant to hire less-experienced workers in distributed work arrangements. We estimate that remote work can explain 64 percent of the recent increase in unemployment among young college graduates. Further, the timing of this surge suggests that remote work—not generative AI—explains the bulk of the rise in youth unemployment.

Others point to the fall in employment over recent years being a correction from the post-pandemic surge in hiring:

This is the explanation favoured by Goldman Sachs CEO David Solomon, with this from his recent appearance on the Odd Lots podcast:

If you look at 2022, a bunch of what we’ve done from 2022 to 2025 and now in 2026 was correcting the stupid things that we did in 2020 and 2021…

If you look over the last 10 years, I’d say what’s happened is the amount of engineering talent we had at the firm grew materially on a relative basis to operational talent OR client talent.

OK, there are a variety of things that happened because of the pandemic that bloated or inflated hiring across all large enterprises.

And so if you if you say, but since Chat GPT like if you take 2022 is that was like the high watermark of the bloat.

However, to us, there is a simpler explanation.

The rising unemployment rate is the intentional consequence of central bank interest rate hiking. Central banks responded to the post-pandemic surge in inflation with a very sharp hiking cycle starting in 2022. Looser labour markets are one of the primary mechanisms that interest rate hikes work through. Here is the 12-month lagged US policy rate vs youth unemployment (12-month lagged because mon pol works with long and variable lags):

A great fit.

And here is the same chart for the UK:

The UK youth unemployment rate follows a similar pattern to the US data up to early 2025, but by mid-2025 it is rising again. This is again not AI. This is down to the large increases to the National Living Wage and employer NICs, which sharply increased the cost of employing people. We know businesses reduced employment due to these policies due to both the timing of falling employment per the official data and also due to surveys, such as the below from the BoE’s DMP:

But if interest rate hikes are the reason and not AI, then why has the youth unemployment rate in both the UK and US risen so much more than the unemployment rate for older cohorts?

Well, the youth unemployment rate tends to be much more sensitive to the economic cycle. Amid a monetary policy driven slowdown in economic growth, firms are likely to slow down expanding new activities, which means less hiring (this was characterised by Fed Chair Jay Powell as the “low hire, low fire” labour market). Those that are likely to bear the brunt of that lower hiring are new entrants to the labour force. Those new entrants to the labour market are most concentrated in younger cohorts (i.e. young people getting their first job after they finish university).

And for the UK, employer NICs are typically higher proportions of costs for firms in labour intensive industries like retail and hospitality, predominantly employers of young people. Younger people also have higher representation amid the group of workers on the minimum wage. That means the employer NICs and NLW changes most drastically increased employer payroll costs for younger employees.

I don’t mean to diminish AI as a macro force – it clearly will be hugely consequential. It has already triggered some marginal shifts in labour markets, for instance with the biggest tech firms focussing more so on AI Capex than increasing headcount (an inherently different thing to AI-induced productivity gains driving job cuts) and major shortages of plumbers and electricians in the US.

However, the labour market implications of this new tech are largely in the future, with post-2022 monetary policy likely the driver of the recent rise in unemployment.

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This newsletter is for informational purposes only. It does not constitute investment advice or an offer to invest. The views expressed herein are the opinions of JB Macro exclusively. Readers should conduct their own research and consult with professional advisors before making any investment decisions.

In part 1 of this 2 parter we begun to explore The Productive State: A Framework for Manchesterism, the late June manifesto from the policy advocacy group Mainstream. We view Mainstream as a crucial voice in the debate over where UK policy under new PM Andy Burnham will head for the simple reason that Burnham is a founding member of Mainstream and perhaps its most influential voice. The report also well synthesises Burnham’s actual approach to policymaking in his time as Mayor of Greater Manchester, giving a good framework for how he will govern the country.

In part 1 we discussed the motivations behind The Productive State (perceptions of a perpetual cost of living crisis), the problems it identifies (the cost of private provision and the fiscal escalator), the solution (interven[ing] on the supply side by investing public money into public assets for public provision of the essentials required for a dignified life) and the limits on intervention (The five criteria below [see table] are diagnostic rather than justificatory — they identify the structural conditions under which private ownership fails on its own terms, and which warrant consideration for public intervention.)

While we have laid out the policy framework quite comprehensively last time, we left the nitty-gritty questions of implementation for part 2.

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Andy Burnham entered number 10 on Monday with quite an ambitious agenda. Given said ambitious agenda likely involves substantial changes to the operations of government, major public sector investment, and innovations in UK industrial strategy, it will take quite some time for those changes to be reflected in any sort of feel-good factor. That is not good considering Labour’s low polling, and the need to increase support ahead of general elections due by August 2029.

Burnham clearly feels more immediate relief is needed and has confirmed a VAT removal for household energy costs is to come from October onwards. This is an interesting topic as it sits at the intersection of politics, fiscal policy, inflation, and monetary policy, giving us a chance to fly through a few meaningful areas.

First, some background. UK energy companies are not free to charge households whatever they please. Energy prices are capped (under the aptly named Energy Price Cap or EPC) at a figure calculated by the energy regulator (Ofgem) on a one-quarter ahead basis (e.g. the Q3 price cap was announced on 27 May). The breakdown of this cap is fairly transparent, with the biggest two drivers being direct fuel costs and network costs:

VAT on household energy on the other hand is set at just 5%. That said, with network costs relatively stable, the variability in energy costs is mostly driven by wholesale fuel costs. The marginal price of UK electricity is almost always set in line with gas prices (given gas almost always provides the marginal unit of energy required to match demand). Most UK household heating is powered by either electricity or gas. This effectively means that electricity follows gas prices and heating follows gas prices, so direct energy costs follow gas prices:

So the biggest drivers of household energy costs are wholesale gas prices and network costs. However, the government can do little about these, at least in the short term. That leaves the tax lever as the one to pull to give households relief. This lever was pulled in Q2 2026 as the Starmer government pulled some taxation out of energy bills into general taxation, with the EPC “policy costs” component falling from a GBP236 effective annual charge in Q1 to GBP106 in Q2. Burnham’s VAT change will similarly reduce energy costs, with our estimate for this to reduce annual energy costs by GBP94 annualised for the average household in Q4:

This policy change does not hit in isolation – we are amid a global energy shock and there is uncertainty over the course of BoE policy. At a headline, the VAT cut appears set to reduce inflation, with our projection that it might lop off up to 0.2pp off average inflation over Q4 2026 – Q3 2027. As a caveat, we do need to be cautious with this interpretation – while the direct impacts of the policy on inflation are clear, the indirect are not, given that tax cuts can stimulate demand (so can drum up inflationary pressure elsewhere), which might explain why the government’s assessment is that the policy will only reduce inflation by 0.1pp

Considering the direct impacts of the energy shock more broadly, household energy costs are only half of the puzzle. The other half are motor fuel prices, which are determined largely by wholesale oil prices which have shot up sharply in 2026 too (other drivers include crack spreads and the strength of sterling, and the two taxes you can see in the chart below).

Unlike household energy prices, there is a fairly immediate transmission of global oil prices to motor fuel costs. UK petrol and diesel prices have already risen quite sharply, and our modelling suggests that even in a bad scenario for global crude prices (e.g. averaging around USD100 per barrel in H2 2026), petrol prices would only just rise above April’s peak.

That said, especially given there is no guarantee we are heading for that really bad scenario for crude, it appears that the peak inflationary impact of petrol prices is already in the rear-view mirror. This came when motor fuels contributed +0.6pp to headline inflation in April.

From here, we can combine our projections for the contribution to inflation from the shift in household energy prices (where we have also assumed quite a high number for direct energy costs, partially offset by the VAT decrease) with our high estimate for motor fuel prices to derive an estimate of the impact on inflation of the direct effects of the energy shock. In the chart below, we can see that in this bad scenario, the contribution peaks at around 0.8pp.

That is 0.8pp above the rate of inflation that would have prevailed absent the energy shock, which previous BoE projections put at roughly 2.0% from Q2 onwards. Adding our 0.8pp to this rate, we get inflation peaking at just below 3.0% y-o-y.

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The big question from here, and indeed the big question for the BoE, is to what extent this inflation will generate second round effects. This is in line with our framework for how the BoE would set policy amid the energy shock.

We need to be mindful that there could be a bit more inflationary pressure in the pipeline via the indirect impacts of the energy shock as businesses attempt to pass on their own higher energy costs to customers:

It is quite hard to put a number on this. Businesses could absorb some of this increase in margins, although margins have been squeezed recently and businesses may struggle to absorb even higher costs. Demand is also weak at present, making it more difficult to push costs on without losing market share.

Acknowledging that uncertainty there, it seems reasonable to conclude that indirect cost pressures will generate some further inflationary pressure, but the contribution is likely to be much smaller than the direct energy impacts for households. For now, let’s say it is a 0.5pp one-time increase in inflation, which would bring our estimate of inflation to 3.3% y-o-y, a peak that would be hit at some time in late 2026 or early 2027, with base effects meaning there will be a mechanical rapid fall from April 2027 onwards. Remember, our energy calculations here were all estimates well on the high side, so this is a topside estimate.

From here, the question is whether this is a high enough level of inflation to be of sufficient concern for households that they begin to adjust upwards their wage demands and inflation expectations, generating second round effects. The BoE has a rough benchmark that households begin to care about inflation in the 3.5-4.0% y-o-y region, and our estimate is below this level. Meanwhile, there is no sign of expectations that businesses will need to increase pay next year due to this dynamic in the DMP.

While there is an incredible amount of uncertainty in the question around second round effects, we would bias at this point toward the re-peak in inflation off the back of the direct and indirect impacts of the energy shock just not being high enough to be a major consideration in household wage negotiations and inflation expectations. And if it is just about large enough to begin to be considered, the demand backdrop is weak enough that businesses can push back against higher wage demands.

In this environment, we find it difficult to expect the BoE to need to hike rates, and the aggressive base effects due for April 2026 could even lead to the Bank putting cuts on the table sooner than many expect.

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This newsletter is for informational purposes only. It does not constitute investment advice or an offer to invest. The views expressed herein are the opinions of JB Macro exclusively. Readers should conduct their own research and consult with professional advisors before making any investment decisions.

Three policy advocacy groups have been vying to influence the post-Starmer Labour Party: The Labour Growth Group, Tribune, & Mainstream.

Over the last few months, we took a dive into the Labour Growth Group, anchored around its “An Honest Day” manifesto, published in May. We quite liked much of the advocation for correcting “the architecture of incapability”, which has meant government over recent decades has consistently failed to deliver on its agenda. However, we found the second strand of its policy advocacy – addressing the “extraction economy” - utterly unconvincing, finding that it struggled to name its own bad guys.

We also explored the Tribune Group’s “Renewing Britain’s Economy”, also published in an attempt to influence the incoming Labour Leader. Tribune’s contribution makes many solid policy recommendations, but we found the overall macro policy framing quite worrying. Namely, advocacy for running the economy hot in order to bolster the supply side, without any recognition that this would drive inflationary pressures and without advocating for a sensible policy framework to ensure such policy does not go too far:

If prolonged low demand can scar an economy permanently, then could high excess demand heal those scars? In other words, should the UK follow in the footsteps of the early 2020s Biden administration, and run the economy hot?

For a considerable period of the debate around where post-Starmer policy should head, we had not heard much from the third of the currently more influential advocacy groups, Mainstream. This changed with the publication of their own manifesto style report in late June: The Productive State: A Framework for Manchesterism.

While the other two advocacy groups are important, we view Mainstream as by far the most influential of the three for the simple reason that the UK’s incoming Prime Minister Andy Burnham is a founding member of Mainstream and perhaps its most influential voice.

There has been tremendous speculation about what Burnham will do as PM, but much of it ventures into ill-informed fearmongering over his likely tax policies, nationalisation, or devolution. What “The Productive State” offers is a coherent framework for Andy Burnham’s likely ideology and policy stances. While Burnham is not an author of the report, it does reconcile well with our understanding of Burnham’s approach, which we outlined in our 6000-word deep dive on the man. Another reason to believe the report informs what Burnham will do as PM is that it grounds its views in the experiences of Burnham’s successful tenure as Mayor of Greater Manchester, with it clear that he views his policies there as a framework for national policymaking.

The Productive State - Motivations

The Productive State is the foundation for a different kind of economy — one organised around a principle that four decades of market primacy systematically suppressed: that the essentials of life should be provided for need rather than profit, and that economic security is the condition of genuine freedom rather than its enemy. The architecture achieves three reinforcing outcomes simultaneously: stability, abundance, security.

At the heart of The Productive State there is one overarching theme: the UK managed to build a great deal of housing and infrastructure, and run an incredibly productive government through the first half of the twentieth century, largely through the public sector. This came without the obsession with privatisation which defined the Thatcher years and became a cross-party consensus thereafter. The rejection of the Thatcher legacy – a common theme for The Productive State and Andy Burnham – is postulated to see the creation of a more proactive state, better capable of responding to the challenges of the twenty-first century.

The motivations for the program come on the back of what Mainstream judge to be an awful outlook for households:

Almost two thirds of the public believe the cost of living crisis will never end. That sentiment is not undue pessimism. It is a sober assessment of an economy that routinely produces exactly this outcome. For millions of households, the basic non-negotiable expenses of life — rent, energy bills, water charges, transport fares, the cost of care — now consume so large a share of their income that insecurity has become a permanent condition. The experience is degrading and exhausting, and breeds a sense of pervasive unfairness and constant frustration matched only by the inability of the political class to fix problems that have become obvious.

At its root, Mainstream finds two fundamental problems:

First, the cost of private provision:

Privatisation was designed to solve the problems of a different era. As new challenges have emerged, policymakers have responded with patch fixes in sector after privatised essential sector that have accumulated into an unwieldy and incoherent mess — systems far removed from what their architects envisaged. Government interference, through departments, regulators, and quangos, is more extensive than ever, yet because ownership remains private, must always act at arm’s length: wide-reaching in scope, weak in control. The result provides the worst of both worlds: price distortions, excess profits, regressive distributional impacts, and chronic underinvestment, matched to cumbersome but ineffective public oversight — a mutating state-market hybrid that promises certainty to investors and transformative change to society, while delivering only one half of the bargain.

At its heart, “inescapable and consequential extra costs are paid by a captive public in the form of a privatisation premium… Britain’s essential sectors cost more than comparable alternatives not because they deliver more, but because they are organised to extract more.”

Second, the fiscal escalator:

The privatisation premium squeezes more than household budgets. It puts upward pressure on public spending. Welfare transfers chase a problem whose supply-side causes remain intact. Each pound of housing benefit flows through the household into the pocket of the landlord to pay rising rent. Support for energy bills protects the consumer but funds profit margins that remain in place as prices rise. The state ameliorates without ever being permitted to cure directly. The fiscal escalator is not caused by excessive public ambition. It is caused by the compounding cost of private failure and market scarcity in the wake of retreating public provision…

The fiscal escalator and the investment shortfall are two sides of the same problem — the privatisation premium operating simultaneously on the expenditure side and the investment side of the public finances. The fiscal case for public ownership is about recovering what has already been extracted, while avoiding the extraction that current policy is in the process of locking in.

In Mainstream’s mind, this hits the public doubly hard… The public pays twice: through higher bills, and through the taxes needed to fund cost of living support…

A rejection of the huge role of the private sector in the essentials of life is not exactly a controversial take from the left. As we mentioned in the intro, even the Labour Growth Group – perhaps the furthest right of the three influence groups – had their “extraction economy” narrative.

While Mainstream appear to take a more expansive view on the ills of the private sector, what they do along the way is to justify it in a much more economically orthodox way. There is appropriate recognition of the important role the private sector can play, a clear framework of the limits of public sector action, recognition of the importance of staying on the right side of gilt markets, and acknowledgement of what higher public spending might mean for inflation and importance placed on how to keep inflation in check. In our view, failure on that latter factor was the downfall of Tribune’s ambitions for the UK economy.

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However, amid what can feel like an insanely pessimistic economic backdrop and outlook, it’s worth bearing in mind how bad the downsides we are talking about here really are.

We mentioned on Wednesday the hit to UK GDP from Brexit being estimated as high as 8% now. There were also large, sustained hits to GDP from the 2008/09 financial crisis, the pandemic, and the 2022 energy shock. While these are very notable, and the UK still faces major economic headwinds, the economy has still grown. Living standards as proxied by real household disposable incomes have advanced, albeit slowly:

To be more precise, when we are talking about the rough economic outlook, we are generally looking at hits to GDP growth. We are not talking about sustained reductions in domestic production nor real incomes. We are talking about failures to be able to afford the latest technology or enjoy the best experiences, not a failure to sustain the living standards achieved by prior generations or in recent years.

When economists talk about bad outcomes, it might come across to lay folk that we are talking truly cataclysmic stuff. In reality, we most often would associate a really bad outcome with something like trend GDP growth being say 1pp below its prior trend for instance. Living standards still advancing, consumers still being able to buy some of the latest tech, but this consumption to come with greater trade offs (shall I buy the latest iPad or go on a luxury holiday?).

This is true for both the poorer and richer segments of society. While richer folk have seen incomes advance more quickly over recent years (not least on post-GFC asset price inflation) and those advances come on top of a larger base, we are still talking about a whole society advance in living standards persistently across recent decades.

While the challenges ahead are tough, we shouldn’t forget that we are talking about the incremental advances in the amount we consume reducing, not absolute reductions in annual consumption. We are fundamentally not talking about huge hits to living standards, and generally, we are still talking about advances in real disposable incomes (just not as quickly as before). The ideal situation is that we hop back on the prior growth path, but we should not allow populists to dominate the narrative with a narrative of decline-ism, because categorically we are not talking about decline, we are talking about slower advance to already all time high living standards.

Where Things Are Indeed Tough

While standing behind the idea that living standards are likely to continue to rise, there are two areas of obvious strain.

The first area of concern is in fiscal policy.

In the US, the problem seems much more about an inability to implement a tax regime anywhere near in line with OECD averages (34.2% of GDP in 2024 vs 25.6% for the US). This appears the primary driver of the deficit and debt trajectory as opposed to overly large expenditures.

That said, leaving the US aside, the problems facing other developed markets are much more profound, with multiple trends over recent years coalescing to strain fiscal policy. Broadly, many DMs focussed on developing robust social safety nets in the second half of the twentieth century, while other expenditure areas were left to stagnate. For example, security was left to the US, the social housing stock was run down, infrastructure investment slowed, while insufficient money was set aside to handle long-term problems like the green transition or funding for retirement for past workers (who enjoyed retirement ages that were too low). In the UK, North Sea hydrocarbon revenues were used to fund Thatcher-era tax cuts instead of creating generational wealth as the Norwegians managed.

These problems have come home to roost, with the state suddenly facing the consequences of decades’ long short-term thinking.

Meanwhile, the public-sector wage bill has ballooned in real terms, to a large extent on the back of Baumol’s cost disease, as we have discussed before. Productivity rises in other parts of the economy (notably goods production) pushes up economy-wide wages, including wages in low-skill services where productivity growth has been poor. Given low-skill services dominate the public-sector wage bill, this means that the government wage bill has risen sharply while public-sector productivity has not risen in turn, creating persistent pressure on public sector accounts. A caveat here is that while Baumol’s cost disease is bad for government accounts, it has meant that many folk in low-skill services jobs who have not seen advances in their productivity have enjoyed persistent real wage gains that might not be justified in a conventional economic sense.

The second area of concern is democracy.

Above, we noted that the bad scenarios we talk of are concerned with slower advances in living standards, not falls. However, this is still a real concern in one (huge) respect; voters in democracies often vote in line with incremental advances in living standards:

This adds serious nuance to our let’s not be too down on the situation message given slower advances in living standards drive anti-incumbency and anti-incumbency at the moment often means populism. This is borne out in the chart above, and was a lesson hard learned by both Adlai Stevenson in 1952 (“You never had it so good”) and Harold Macmillan in 1957 (“Most of our people have never had it so good”). The macro data indeed showed that living standards had never been higher for both of these party leaders, but economic challenges elsewhere meant that the electorate did not feel they had it “so good”. They were both punished at the ballot box, losing votes in the US and the UK respectively on their incumbent status (Adlai Stevenson was not incumbent himself, Truman was, but his party were in power prior to the 1952 election).

While living standards indeed do rise, perceived wellbeing is clearly associated with the pace of advances, with little satisfaction with only gradual increases. We live in a consumer society, and we live relative to both other people and to the goods and services available to us. If your peers are doing better than you, or you see ostentatious consumption on social media, it makes you feel worse. If there are suddenly new, expensive products available that you can’t afford, you feel bad.

This consumerism has fuelled the greatest growth known to mankind but has left populations dependent on it and angry when it is removed. This means that the electorate can indeed never have had it so good, but at the same time be ready to punish the establishment as they feel times are tough.

Even as things are really not as bad as they feel, we still need to be cautious.

JB Macro is my blog, where I splurge out my brain. I’m building a following for my passion, writing about economics and markets, and it would be really great to have you on board. Please consider pressing the subscribe button below. Thank you, James.

This newsletter is for informational purposes only. It does not constitute investment advice or an offer to invest. The views expressed herein are the opinions of JB Macro exclusively. Readers should conduct their own research and consult with professional advisors before making any investment decisions.

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The GFC dominated the premiership of Gordon Brown. After that, the 14 years of Conservative government went something like this: four years of everything is about austerity, one decent year, Brexit referendum, four years of panic, the pandemic, actually leaving the EU, and the 2022 energy shock. Then the Conservatives were booted. Labour have done no better since 2024’s general election, and Keir Starmer has recently booted himself from office before someone else did it for him.

The long-ranging impacts of the GFC, Brexit, the pandemic, and the 2022 energy shock all combined to make a pretty brutal political backdrop. The GFC pushed the UK’s growth trajectory down a peg, nullifying one of the most vibrant sectors for years (financial services). The damage to the public sector balance sheet from communalising bad financial sector assets led to austerity, with the politically expedient things to cut being the ones that did the most damage to long-run growth. The crises we’re in now across local government and investment can in part be traced back to post-crisis cuts.

Brexit smashed the supply side of the economy, while generating uncertainty across the board. CEOs and CFOs spent countless hours gaming what exiting the EU would mean for their firms rather than planning how to expand or increase productivity. Inventory levels increased out of precaution, sapping spare capital. Investment did not make sense between 2016 and 2020 as the profitability outlook on said investment was super unclear. The whole country derisked. Similarly, four years of parliament was dominated by Brexit; supply-side reform did not get a look in. Some mainstream estimates now put the long-run impact of Brexit as an 8% hit to GDP; really significant lost economic activity and potential tax revenue.

The pandemic and the energy shock went on to show what damage hits to the supply side can really do. Both led to huge cost increases for businesses, sapping executive and parliamentary time; time not spent thinking about the future. Household balance sheets took a mighty hit on the energy shock, while the UK’s late-stage de-industrialisation accelerated yet again, as manufacturing stalwarts couldn’t take it anymore. Worker shortages through the period led to incredibly expansive immigration policy under the Conservatives, with the backlash driving the Starmer government to introduce austere policy, bound to constrain potential GDP growth.

Meanwhile, the global backdrop had changed. China was suddenly no longer just a massive target market for UK corporates, but a major competitor internationally, benefitting from both Chinese innovation and less globally sustainable drivers like domestic wage suppression, large-scale subsidies and an overly cheap yuan. Multiple crises over recent years saw the EU fix some of its most glaring problems, tapping joint financing which the UK was left out of. The US grew tired of the international order it created, imposing tariffs on its international partners.

The legacy of these multiple growth hits has strained UK government. The current trajectory for fiscal policy does not quite make sense. Government expenditures averaged 45.1% of GDP over 2020-25, versus 43.8% over 2010-14 and 39.8% over 2015-19. Despite the huge jump, government is in crisis across the board, with the main demand being more cash, across NHS, infrastructure, schools, prisons, justice, … the list goes on.

Tax revenues have in turn risen sharply, up at 39.5% of GDP in 2025, versus a 36.8% of GDP 2015-19 average. The burden has increasingly fallen on the average worker, with marginal tax rates up at 42% above £50,271, plus an extra 15% for those who have both undergrad and postgrad loans. Fiscal drag will ensure that the tax take on young, university-educated professionals will continue to rise.

In this arrangement, fiscal headroom has tightened, and policy becomes even more so than usual about trade-offs. The GBP28bn shortfall in crucial defence funding identified in the Strategic Defence Review last year met with just GBP15bn of funding. The situation has driven the emergence of an astonishing degree of unity within the Parliamentary Labour Party that benefit payments need to be completely overhauled (and cut), provided it is done in the right way (e.g. with the political cover of the Timms Review).

These problems mentioned are huge. It took two decades of stacking monumental (mostly global) economic shocks to push the economy and government into its current terrible spot. We have expressed optimism on Andy Burnham’s likely policy agenda, but it will take the combination of good policymaking, better global economic outturns, success of AI in raising productivity, and a good dose of luck to get out of this mess.

Andy Burnham has a tough job ahead.

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Don’t bother squinting at my scribbles below, I’ll walk through it all, but you can tell a document gets me animated when my copy of it looks like this, page 2 of Starmer’s piece:

Maybe this is just politics, and spin might be expected. But the thing that has made me angry through the tail end of the Starmer government is the intellectual dishonesty exhibited when claiming its achievements, whereas the government could have an honest attempt at speaking up its genuine accomplishments. While the economist in me thinks some of them have gone too far, the huge expansions in workers’ and renters’ rights, the changes to the UK’s planning framework laid out, and the range of white papers and reviews started could all form part of Starmer’s political legacy.

Instead, the claims consistently made leave these aside and bump into basic, widely acknowledged facts.

To be petty and pedantic (a favourite pastime of ours), we have opted to dissect the claims made through Starmer’s piece, seeing how they stack up against the real world outcomes.

The NHS is now on track to cut waiting times at the fastest rate in its history, with the shortest cancer diagnosis times on record. Net migration has fallen from a high of nearly 1 million under the Tories, to just 171,000 now - a fall of 82%. The asylum backlog has been slashed, hotel use is falling and the number of small boat crossings this year is also down by 37%.

Starmer’s claims on the NHS are fair. One of the government’s early successes was agreeing a pay deal with junior doctors to get hospitals back moving. Otherwise, the Starmer government prioritised throwing more money at the beleaguered National Health Service. The second half is also fair; there has been a huge fall in immigration. However, what gets me here is that in spite of Starmer having resigned, he instinctively is still trying to play politics in a manner that no one ever believed.

In spite of the PM overseeing an incredible tightening in immigration policy, voters do not seem to think there has been progress under him on the apparent immigration problem (chart below from YouGov). No one believes that he wants to see tighter immigration, and it is frankly weird that a Labour PM would want the second item on their legacy to be an intense tightening in immigration. When New Labour politicians look back, they talk about the NHS as Starmer did, Sure Start, expansions in civil liberties, independence for the BoE etc etc. Is this what Starmer honestly wants to talk about in line 3 on his legacy?

We have slashed the cost of childcare, saving working parents an average of £8000 a year. Child poverty is set to come down by over half a million – a record for one-term of Government. Meanwhile, last week we invested a further £15bn in our defence, ending the shameful period of Tory austerity for our armed forces.

The intellectual dishonesty begins to creep in from here. The huge fall in child poverty came from the abolition of the two child benefit cap in November 2025, which had limited access to benefits for the parents of multiple children and was well regarded as the single policy which was increasing child poverty the most. However, the abolition of this policy was opposed previously by Starmer (on fiscal grounds) so vehemently that he removed the whip from seven Labour MPs who had voted for an SNP amendment to scrap that same cap. He had to be dragged kicking and screaming to this policy change by his backbenchers.

The GBP15bn of additional funding in defence fell short of the GBP28bn “black hole” identified in the Strategic Defence Review by Lord George Robertson (ex. Labour Defence secretary and NATO gen sec). This shortfall led to intense and rare criticism by Robertson of the Starmer government and the resignation of Defence Secretary John Healey and Armed Forces Minister Al Carns.

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No more. Andy Burnham has overcome the parliamentary loopholes he had to jump through, with a weakened Starmer no longer able to prevent him from contesting a by-election and becoming an MP. With Burnham in parliament and Starmer having handed in his notice, if a contender does not emerge from the Parliamentary Labour Party (PLP) come 17 July, Burnham will be crowned king of the jungle the UK’s sixth prime minister in 10 years. That outcome is an almost certainty per odds from Polymarket:

Now, journalists and analysts alike are suddenly becoming specialists on Burnham and his policies. We on the other hand have 6000 words published, have laid out his ideology and his policy views, and even read his (very interesting) book (with Steve Rotheram).

In this deep dive, we will explore what we have learnt about Andy Burnham’s policy agenda since we published our three parter, before cracking back open our prior notes on his ideology and what we learn about Burnham from his book.

What We Have Learnt Recently

Watching Burnham’s speech on 29 June, you’d have been forgiven for forgetting he was but a lowly backbench MP. His first speech since rejoining parliament was front page news.

Central to the performance was his advocacy for devolution, with the launch of “No 10 North”, to be based in Manchester (the greatest city in the UK), as part of “the biggest rebalancing of power our country has seen.” In Burnham’s view, it would move a significant portion of government power out of London, and be “the conduit through which we redistribute power and resources across the UK.”

No 10 North would take the lead on reindustrialisation, a 10 year plan to regenerate towns and high streets, and reform of essential utilities. This is consistent with Burnham’s rejection of Thatcherism, and more explicitly his advocacy of much greater government involvement in the economy (which we view more in the industrial strategy vein than as broad nationalisation).

The rejection of Thatcherism was also evident in his commitment to the “biggest council house building programme since the post-war period,” with his analysis putting poor housing policy central to poor fiscal outturns and dissatisfaction among the electorate. There are big open questions on how said houses would be financed given fiscal constraints, but our intuition is that he could lean on public-private partnerships and private sector investment flows to finance these, made more attractive by coupling the projects with easier planning rules (a combination he used with great success in Greater Manchester).

Elsewhere, he called for:

• Business rates reform for pubs and high street businesses

• Rolling out Greater Manchester-style “good growth funds”

• Greater equivalence between academic and technical education (as he pioneered with the Greater Manchester Baccalaureate)

• “not using the whip system to create fear or close down debate”

Burnham more broadly committed to making change in line with 2024’s manifesto. As we outlined on Monday, this did not seem necessary: ultimately, governments are judged come the next election on how well people feel they have done (often just a product of how much real disposable incomes have advanced through the term). There are no points for having overseen a shitshow but not breaking any manifesto pledges. However, the manifesto still contains a many decent ideas that are aligned with Burnham’s ideology that appear to be largely untouched by the Starmer government.

Most notably, Burnham committed to maintaining Labour’s fiscal rules (not that they make much sense), and also to not raise income tax, NICs, VAT, or corporation tax. That leaves much smaller levers available to pull in order to raise revenue for the large changes that he wants to make. On tax increases he could introduce, he has loosely spoken on shifting taxation from council tax to a land value tax (which could raise more money), and introducing wealth taxes. And in terms of shifting who pays tax, he’s mentioned reducing small business employer NICs, reducing business rates for smaller firms (offset with higher rates on distribution/warehouse businesses) and replacing inheritance tax with a social care levy. Meanwhile, he has said he wants to “develop a policy” to address fiscal drag which is pumping up the income tax take significantly (good luck trying to do that given it is projected to be the key incremental revenue raiser over the next half decade).

Another key aspect of Burnham that came across during the speech and likely will be crucial over the coming years is his ease with politics. He joked with the audience in a performance that was clearly much more charismatic than anything Starmer ever managed (quite a low bar), and he managed to appear, (dare I say) normal.

With mind to this northern charm, there are two arguments doing the rounds, one of which is that Burnham would just be a more charismatic version of Starmer (a criticism) and the other that Burnham only need be a more charismatic version of Starmer to deliver the apparently strong agenda that Starmer struggled to sell to the public (a compliment).

Neither seem to be overly sensible.

Burnham is clearly not just Starmer in “Manchester clothes” as Burnham called them (image below). He has long standing policy views and a strong ideology as we will discuss below. He is not a charismatic Starmer clone.

The other, that Burnham need only be more charismatic due to the apparent strength of Labour’s existing agenda falls at the first hurdle – the smell test.

First, it should be noted that there are a whole series of reviews that have been completed under Starmer that can put real rigor behind coming legislative changes. This includes the Strategic Defence Review (delivered June 2025, although the government has baulked at investing in line with its recommendations), the Timms review into PIP (due late 2026), the NHS 10-year plan (delivered July 2025), immigration white paper (delivered May 2025), child poverty strategy (delivered December 2025).

In this respect, sure, Burnham can hop into Starmer’s shoes and pick up the agenda where his predecessor left it. However, Starmer did not just lack charisma. He was a terrible administrator (Mandelson), terrible strategist (U-turns), terrible legislator (PIP cuts), and terrible manager (Gray Vs McSweeney). Burnham will need to be so much more than just a more charismatic Starmer. He will need big policy ideas, to be a canny political operator, and have a considerable amount of luck.

While recent weeks have allowed us to glean more than we knew about Burnham, there are still a lot of unknowns. It is not completely clear how his agenda will be funded. We don’t have much of a lead on who his Chancellor would be. We don’t know where he stands on huge areas such as foreign policy, especially given he has been more critical of the US already in the last month than Starmer ever has. We also know he is very pro infrastructure projects such as restoring HS2, but have no lead on how much of a priority that would be amid fiscal constraints (or whether we would see another attempt to kick it to private partners). Finally, he has indicated he wants to do something about reducing benefits, while helping those coming off benefits get into work, but he hasn’t specifically addressed where he stands on the Timms Review or whether he thinks PIP should linked to work.

That said, we’ve extracted everything we can from his recent comms on policy. However, to really understand what Burnham might do as PM, we’re going to have dig a little deeper. In the next section, we explore his ideology.

Burnham’s Ideology

In piecing together a cohesive narrative of Burnham’s political views, we found it best to focus on one political ideology – “business-friendly socialism” as he calls it – and three key, overlapping strands of policy – fiscal policy, devolution, and industrial strategy.

The Ideology: Business-Friendly Socialism

First up then, what on earth is business-friendly socialism and can we think of something more oxymoronic? Looking beyond an overly-literal take of the phrase, Burnham combines soft left instincts with an appreciation that working closely with the private sector is necessary to get the best results. It is unclear whether sympathy for the private sector is realpolitik or a core part of his political philosophy.

For instance, considering his soft-left stances, Burnham has consistently called for greater control of several previously privatised industries such as water, energy, and transport (all of which are judged to have failed in the private sector). A long-running goal of his has been to create a National Care Service, bringing social care into the public sector as a parallel to the National Health Service (a policy which he introduced as health secretary in the late 2000s but was reversed by the Coalition government).

Burnham also has been clear in his belief of where Britain’s faults lie: “the four horsemen of Britain’s apocalypse, deregulation, privatisation, austerity, and Brexit… combined to leave the country in a low growth doom loop” with at least the first three of these being traditional socialist focusses of angst. His foreign policy instincts also appear grounded in the soft left, and he has variously advocated leftist policy including a wealth tax (although he has indicated he would prefer a land value tax) and proportional representation (to replace FPTP).

On the flipside, Burnham has repeatedly made policy decisions as Mayor which have been criticised for putting businesses first. For instance, he suspended affordable housing quotas in order to negotiate better terms with developers, and the Manchester Life joint venture launched in 2014 between the council and Abu Dhabi United Group has continued to thrive under his mayorship, regenerating previously derelict areas of the city. Criticism came in this venture for the sale of 999 year leases to a foreign organisation and the waiving of subsidised public housing requirements. Burnham’s tenure has seen a Manchester City Council which has been very permissive in planning, triggering a boom in city centre construction, and he has been perceived as surprisingly favourable to the private sector.

Overall, it appears that Burnham has philosophically, or at least practically, reached a compromise between his soft left instincts and an appreciation of the private sector’s ability to get things done and as a crucial source of capital. His instincts remain redistributive, collectivist, and internationalist, which his Wikipedia page tells us forms his philosophy of “aspirational socialism”, another oxymoron which we will leave you to unpack by yourself.

Policy Area 1: Fiscal Policy

Reporting on Burnham’s leadership bid soft-launch in September was dominated by a single line in his profile in the New Statesman: “We’ve got to get beyond this thing of being in hock to the bond markets.” This even became core to the key attack line for PM Keir Starmer against Burnham’s move.

In the following months, prospects of a Burnham premiership were associated with expectations of higher deficit spending and greater gilt issuance. This is a serious issue given gilt investors are still twitchy in the wake of botched budgets from both the Conservatives and Labour in recent years (the experience of the former being much, much worse than the latter) and with the UK already running a wide fiscal deficit with high public sector debt.

However, it is not clear that Burnham’s “in hock to the bond markets” implies as much of a free spending soft-left politician as many might assume, a stance that has been supported in recent weeks by a lack of obvious twitchiness in financial markets as his premiership became almost guaranteed.

As a caveat to start with, it is worth pointing out that it is not a sensible idea at present to associate yourself as a politician with denying the importance of the bond market. UK borrowing costs remain elevated on the back of the Truss Mini-Budget, meaning households are paying higher mortgage costs for a prior PM not believing that the government needed to respect the bond markets. It is not a good look if every time the prospects of your taking power rise, gilts fall. More broadly, if you don’t want to be in hock to bond markets, then don’t borrow from them.

After caveating that seeming political misstep, it is worth noting that when Burnham discusses the UK being “in hock to the bond markets”, it is not necessarily to say that the country should spend freely and ignore market based constraints. More so, it is acknowledging the market based binding constraint on UK policymaking as a result of terrible economic outturns over recent years, and of a need to address this situation.

For instance, in the New Statesman profile, he first talks about the need to “end the market instability hanging over British politics” before discussing no longer being in hock to the bond market.

This point comes across more explicitly in a separate article on the Greater Manchester Combined Authority website: “The austerity and Brexit of the 2010s deepened the hole by hollowing out English cities and towns, and of course our councils. It has all combined to leave the country in a low-growth doom-loop. Our shallow, adversarial political system has shown itself incapable of lifting us out of it, and only adds to the volatility. So we find ourselves stuck in a rut and in hock to the bond markets.”

While this may be an overly generous take (and please send over any evidence to the contrary), it suggests a more nuanced take on Burnham than an irresponsible socialist free spender. While Burnham’s messaging could be consistent with greater deficit spending than the Starmer-Reeves combination, his near-term goals appear more focussed on boosting growth (via investment) as a means to alleviate market based constraints on spending as opposed to more traditional socialist goals.

Policy Area 2: Devolution

Burnham’s fiscal and industrial policy is deeply entwined with an overriding vision for the country; huge advancements in devolution. Manchester has been the UK’s fastest growing city over the last decade, and Burnham has had many policy successes as mayor, which seemingly derive at least in part from devolved powers since 2014. However, in Burnham’s view, devolution has not nearly gone far enough.

If Burnham were to characterise the core flaw in the country, it would almost certainly be that the institutional set up favours London and the South East at the expense of the rest of the country. Devolution is Burnham’s means to address this.

For instance, this would include devolution in fiscal policy (more capability for devolved regions to tax and spend), industrial strategy, and post-16 skills devolution (so regions can provide technical education in line with their own “global clusters”). It would mean everywhere would have a devolved combined authority government, with substantial policymaking ability, providing the ability for policymakers to focus on what is best for local economies.

This would incorporate a huge reduction in the powers of central government, and would mark a historic institutional shift.

Alongside it, Burnham has advocated policies such as huge changes to the Treasury’s Green Book (the method for appraising investment projects, which typically favours investment in London and the South East due to higher economic returns), the Barnett formula (the formula to calculate block funding grants to Northern Ireland, Scotland, and Wales), and also revaluation of the council tax base (council tax is based on historic valuation from 1991, which means areas of high house price growth, for instance in London and the South East, pay less tax than they would under current valuations).

Policy Area 3: Industrial Strategy

Our final theme is industrial policy, which a Burnham premiership likely would bring an intense focus on, with his mayorship defined by several examples of focussed attempts to develop regional economies. This is most evident in progress on Greater Manchester’s five global clusters, five locations across the region which specialise in “pioneering sectors”.

Core to this development is a policy backdrop focussed on easing barriers to investment and job creation, for instance via creation of a joint development plan to handle land allocation, a ten year project pipeline (offering certainty of demand for the private sector), and a focus on providing education in the areas relevant for these sectors (e.g. the Greater Manchester Baccalaureate).

These policy aims are explicitly in collaboration with the private sector, in line with Burnham’s “business-friendly socialism”, and are in line with the current government’s goals of using investment spending to crowd-in the private sector.

At a national level, devolution would likely go hand in hand with localised industrial strategy, with individual regions likely expected to produce their own approaches, focussing on areas where they are globally competitive. This would naturally put the government semi-detached from decision making, limiting the role of the prime minister and parliament in decision making, but that sounds like exactly the point.

A core focus to be encouraged alongside solid industrial strategy would likely be a major focus on improving the UK’s transport, under public ownership. The greatest success of his premiership has been widely judged to be changes made to Greater Manchester’s Bee Network, creating a London-style integrated transport system which is planned to incorporate commuter rail from 2028. This could include a revival of the Northern leg of the HS2 rail network, the scrapping of which Burnham very publicly opposed.

So we have an ideology and three policy strands as a means to frame what the man would do in number 10 (unsure at present if that is the London number 10 or the Manchester one now though).

The Head North Plan (What we learnt from Burnham’s book)

With our views on Burnham’s ideology and priorities laid out, there isn’t much more we can tell you. The good thing here is that while we don’t have much more to add, we can hear more from the horse’s mouth with a dive into Burnham’s book with Mayor of Liverpool City Region Steve Rotheram, Head North, published in 2024. The entire second half of the book is dedicated to a ten part “Head North Plan” for UK policy, the need of which is justified as:

People can see Britain slipping backwards and dislike feeling powerless about it. What has not yet been established is a broad public consensus about the form that change should take. The Head North Plan is a serious attempt to fill that void… Each of its ten points involves a transfer of power to people and places and, taken together, are intended to create the conditions for a more functional, fairer country.

From here, it makes sense to just get to it with a deep dive on the ten points. Quotations are quoted from the book, the rest are our interpretations. We have mish-mashed quotes from various sections of the book to piece together the summaries below. The book splits text between Rotheram and Burnham; we have been careful to quote mostly from Burnham, but on occasion it made sense to quote from Rotheram, although we have only done so where it is clear that Burnham holds the same view.

This plan clearly stay very relevant to Burnham’s policy focus, with points 2, 4, 6, and 7 in the headlines since he became the clear favourite to replace Starmer.

The Head North Plan:

1. A Written Constitution – This section puts a large portion of the political dysfunction of the UK (including its favouritism towards London and the South East) at the foot of the lack of a written constitution (“practically every other country in the world – over 190 of them – have a written constitution”). “Our unwritten and murky constitutional arrangements have had the effect of hoarding power in a small number of hands – in Whitehall and Westminster… making it all too easy for vested interests to hack the system and exploit grey areas for their own benefit”. The written constitution would aim to rebalance power away from the centre “towards the local and regional level”, naturally with a heavy emphasis on devolved power. Our take: While noble, it is not clear that this is politically possible (it would place huge limits on parliamentary sovereignty and it is unclear what would be needed to introduce it) and it is also unclear that this would fix the UK’s problems (the content of the constitution would matter more than the existence of a constitution itself). In terms of fixing the UK’s political problems, this does not appear a major priority, and the attempt to introduce a constitution would likely cause so much political discord that it would completely dominate all other policymaking.

2. A Basic Law – This point is heavily influenced by the German fiscal arrangements with its own devolution to the “Länder”, a political set up that the UK helped create after the second world war (Germany’s “Basic Law” is this point’s namesake). This would involve a much more equitable sharing of government investment, as opposed to the current method which prioritises investments which have higher economic return (thus mostly rest in London and the South East). “It means a requirement in a new UK constitution of equivalent living standards across the regions and nations… the constitution would need to contain a commitment to equal and fair funding for all places consistent with the Basic Law. The time has come to tear up the Green Book [the Treasury approach for determining fixed investment allocations based on economic returns] and the Barnett Formula [the current method to allocate funding to devolved regions based on spending in England] and replace them with a modern funding formula… Under the new formula, funding would be allocated to the region and nations based on social factors and levels of need. If we do [this], the dream of a Britain with equal living standards becomes a distinct possibility.” This would be incredibly consequential, and would result in huge scale reallocation of investment from London and the South East to the rest of the country. The argument against this is that this would be that it incorporates inefficient investment spending, which the country can ill afford especially at present. The argument in favour is that if the government leads this investment, it could create more economically vibrant local economies (which could even pass the muster of a hypothetical return of the Green Book test), and also would address regional inequality and populism. Our take: reforms to existing investment rules under the Green Book (which the government have tentatively started) to reduce regional inequality are long overdue, with the last decade and a half showing how politically fractious it is to have such an unequal country. However, linking this to an outright constitutional commitment seems like too much of a stretch to be politically possible. Rather, it would seem more feasible for the government in power to 1) change the Green Book rules; 2) rule long enough to see the success of this change; 3) have it established as a sensible enough rule that opposition parties do not reverse it when they return to power.

3. Reform of the Voting System – “In my view, 140 years of the first-past-the-post system cannot be said to have done anything to reduce regional inequalities… If anything, the first-past-the-post [FPTP] system has only strengthened the grip of the London-based establishment on the running of the country. London-centric policies proposed by successive governments have not been effectively challenged by Parliament and regional inequalities have seriously widened right under its nose. We need to correct this. Alongside the removal of the whip system, we should move to a system of proportional representation for the election of the Commons.” Burnham is heavily against the UK’s FPTP system, which awards constituency seats to the member who got the most votes, with those coming close behind getting nothing, regardless of their popular vote. This can lead to parties which win relatively small shares of the popular vote winning massive majorities in parliament. For example, Labour won 411 of 650 seats in the 2024 election, on a popular vote of just 33.7%. The Conservatives only got 121 seats with their 23.7% share, and Reform 5 seats with their 14.3% of the vote. Introducing proportional representation would make parliament better represent the political views of the country, but at the cost of less decisive elections and the frequent need for coalitions, reducing policymaking ability. Burnham argues that PR would mean politicians would need to make the country more equitable, which could be the result of such coalition building. Our take: PR would indeed increase representation; however, at the cost of policymaking ability. There are good points and bad points here. First, a good point of PR is that the votes of groups marginalised in the current system begin to matter, and the current system of people not wanting to “waste their vote” in voting for a smaller party disappears. This would clear the way for a wider variety of parties to emerge (as appears to be happening anyway at the moment), with voters no longer having to choose between a single centre-left and a single centre-right party that varies over time between being hard/soft left/right economically/socially. This would be good for the political debate and would increase engagement in policy. The bad here is that this would massively fragment parliament, meaning governments effectively always have to govern as part of coalitions (for an example of how this looks in practice, check out Portugal which has had to have elections in 2019, 2022, 2024, and 2025). This would massively strain policymaking ability, while increasing the chances of radical parties to influence the policy agenda.

4. Removal of the Whip – There are some policies which governments advocate, and then soon come to desperately regret. For instance, Tony Blair’s introduction of the Freedom of Information Act which he later chastised himself for in his autobiography, which I quote at length here because it is funny: “Freedom of Information. Three harmless words. I look at those words as I write them, and feel like shaking my head till it drops off my shoulders. You idiot. You naive, foolish, irresponsible nincompoop. There is really no description of stupidity, no matter how vivid, that is adequate. I quake at the imbecility of it.” The removal of the whip smacks of being another such policy. Burnham rightly points out that “the whip system disempowers MPs, diminishes their status, and over time, disconnects them from their constituents.” This comes as the centre dictates how MPs vote, meaning they often end up voting in support of legislation which they desperately disagree with, otherwise risk seeing their prospects of a job in the cabinet disappear. Our take: Removal of the whip is noble but dysfunctional. The problem of course is that the whip system is designed to improve the government’s ability to conduct policy. Removing the whip system inhibits the ability to conduct policy, especially given the wide range of views within political parties across a vast range of issues. Burnham mentioned the moderation of the whip system in his 29 June, but he may not go as far as calling for its complete removal when he may need it to govern.

5. A Senate of the Nations and Regions – “we are calling for the removal of the House of Lords in its current form. We would like to see it replaced by an elected Senate of the Nations and Regions of the UK, as recommended by Gordon Brown. It should remain as a revising chamber, scrutinising the work of the House of Commons, but it should be elected and representative of the whole country.” Reform of the House of Lords is a long pursued goal of the left in particular, and has progressed under the current Labour government. The current set up consistently stinks of being undemocratic, it being an unelected chamber, and having the ability to frustrate the policymaking process. For instance, the Assisted Dying Bill, which was passed in the Commons in June 2025, faced an insane number of amendments (over 1000) in the Lords and ultimately failed in a successful filibuster as an April 2026 deadline for its passage came and went. This saw a bill which is popular with the public and passed in the Commons by elected representatives be brought down by a chamber of unelected representatives. Our take: Major reform/replacement of the Lords would be appropriate to enhance UK democracy and policymaking and it feels appropriate to reform/replace rather than just abolition given the second chamber offers an important check on legislation. However, it is not clear what the best way to approach this would be. Burnham and Rotheram suggest that “Ideally, it would be as simple as asking the public to cast two votes at the General Election.” However, this approach would make the Lords just a second elected chamber, voting along party partisan lines, in the same manner as the US’ dysfunctional system. It is difficult to identify an appropriate way of appointing members, but it is quite easy to identify the attributes of the members that you want: thoughtful, intelligent, non-party political members who will approach the job with energy and serve longer terms than the commons. Five year election cycles alongside the Commons vote wouldn’t find this balance, but another system might.

6. Full Devolution – As we discussed above, a core strand of Burnham’s ideology is devolution, which the book suggests is centred on 1) a long held view that the North gets a rough deal; 2) his experience of the dysfunction and London-centric nature of Westminster; 3) his successes as mayor of Greater Manchester (most notably in transport). The drive for greater devolution is put into relatively lofty terms “If we can arrive at a point in 2034 where all parts of the UK have devolved arrangements, underpinned by a written constitution and a basic law… then it is possible to see how the course of the rest of the twenty-first century might be a more positive one for the UK than what it will be if we stick with the status quo.” Our take: Of all of the aspirations set out in the Head North Plan, this is perhaps the most easily practicable and one of the most likely to have a positive economic impact, while addressing regional inequality. It is a tad much to expect full devolution plus a written constitution plus a basic law by 2034, but there has been solid progress on devolution in the last couple decades and there is clear momentum behind the issue, emboldened by the successes of metro mayors such as Burnham. In particular, growth and skills policy which are attuned to the needs of the regions, as is discussed in point 7 and also our part 2, appear a key growth lever that has thus far been left largely unpulled.

7. Two Equal Paths in Education – “I want as many people as possible to go to university. But I don’t believe it is inherently better than a technical path.” Education in the UK sees students funnelled into the university pathway, regardless of whether they are likely to succeed in making it into a university or improve their career prospects via completion of their course-uni combo, resulting in a huge swathe of students whose needs are neglected, and are making inappropriate decisions at a pivotal point in their life for their career. Our take: it makes sense economically and socially to offer an equal technical training track, with Burnham’s suggestion that this should join devolved powers in education to allow technical education to focus in the sectors that the region specialises in an added bonus. This combined with devolution and broader industrial strategy could prove a powerful growth engine over a multi-decade time horizon.

8. A Grenfell Law – “That ideology of deregulation discussed at the Grenfell Inquiry is one that has dogged Britain and put people at risk. We have heard Conservative politicians boasting about a bonfire of red tape, referring to the reduction and removal of regulations. This is about making it easier for developers to build properties and for others to make money from it. Whether we are referring to the deregulation of housing, transport, health and care services or banking, it is all about making money – if it puts people at risk, well to hell with them, basically.” Our take: Grenfell was a national tragedy and a stark example of the ills of untampered capitalism. However, it did result in 2022’s Building Safety Act, legislation created with the angst of tragedy behind it. That being said, the legislation is naturally very onerous on developers and it is unclear that there is much more left to be done here. Otherwise, the so called “bonfire of red tape” seems quite necessary in the main, with both sides of the political divide recognising just how difficult it is to build in the UK, not because of crazy health and safety laws, but for things like the vast number of interest groups who get an effective veto on development. Policy which moves toward more regulation (as Labour have done in the labour market and house rental markets) and away from deregulatory surges (as Labour have done in planning) will be a net bad.

9. A Hillsborough Law – “The Hillsborough Law is a considered attempt to rebalance the scales of justice by using the experiences of the Hillsborough families to stop others going through the same nightmare; to correct some of the massive flaws in our legal system and offer a fairer process… We believe this pattern of injustice can only be broken by the passing of a comprehensive Hillsborough Law. We will never level up the scales of justice in favour of ordinary families unless we change the balance of power. There are two core elements to the proposed law: first, a legal duty of candour on police and public servants to tell the truth at the first time of asking; second, parity of legal funding for bereaved families at inquests where the state is involved.” Our take: It is quite difficult to put a solid argument up against this law, which is currently progressing through parliament under Labour as the Public Office (Accountability) Bill. Big questions remain surrounding where legal funding will come from given the tight fiscal backdrop, and limits to the duty of candour (e.g. for intelligence staff).

10. Net Zero to Reindustrialise the North – “The change to a more localised approach is the way energy is generated and distributed. It would allow an opportunity to change the business model. It would allow new forms of ownership to be introduced into the mix, such as cooperatives and social enterprises, which would keep more of the wealth generated in the North West. Public ownership of infrastructure, like the Mersey tidal barrier, present the same opportunity to recycle the benefits through our communities in the form of lower bills and better homes. Someone has to lead the green energy revolution in Britain so why can’t it be us? After all, we’ve led an industrial revolution before.” Our take: This sounds remarkably like Labour’s National Wealth Fund, which is focussing on investment in the energy transition as a means to spread investment and jobs around the country. This feels like a welcome focus on industrial strategy, which has largely not existed for decades. Time will tell how successful this effort will be.

To Close

Andy Burnham clearly is a remarkable politician. He appears set to become Labour Leader (and PM) on his third attempt, having had a go in 2010 and 2015. He has the charisma that Starmer always lacked, but he also has other skills which should not go unnoticed. His “business-friendly socialism” likely leads people astray, with undue focus on “socialism” and not enough on “business-friendly”. He also likely has received unfair treatment in assessments of his likely fiscal policy, although the negative narrative has fallen away in recent weeks as he committed to keeping the Labour fiscal rules. Elsewhere, expect to see devolution and industrial strategy as key overlapping strands of Burnham policymaking. A major criticism of government involvement in the economy is that government is too far away and detached to make decisions. That issue could be circumvented with devolved powers, leaving local leaders in charge of local interventions. This could create a powerful growth engine over the coming decades.

And we’ll leave you with that, Andy Burnham in 6000 words (ish).

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This newsletter is for informational purposes only. It does not constitute investment advice or an offer to invest. The views expressed herein are the opinions of JB Macro exclusively. Readers should conduct their own research and consult with professional advisors before making any investment decisions.