WeekWatch

• Oil prices jumped at the start of September and stayed high for the rest of the month. A barrel of Brent Crude oil finished the month above $100.
• Government bonds came under sustained pressure, with many long-term bond yields reaching multi-decade highs.
• Higher borrowing costs are causing headaches for central banks and governments alike. The Federal Reserve in the US and European Central Bank both increased interest rates, while the Bank of England kept rates level for now.

Burnham sets out his stall

Last week’s Labour party conference gave the new prime minister a platform to set out his vision for the country, including some ambitious changes to housing and social care. However, the details of how this will be paid for won’t be revealed until the Budget at the end of the month, at the earliest.

Questions around this are likely to grow louder in the coming weeks, as pressures mount on government finances. Rising energy prices and the resultant inflationary pressures are causing issues for most developed markets. This has also led to borrowing costs rising.

There was some good recent news, however, as GDP figures for Q2 were revised up slightly to 0.5%.

According to Hetal Mehta, Chief Economist at SJP: “Improved growth momentum and renewed inflation concerns are pushing up inflation expectations as well Bank of England hike predictions (markets are pricing in two hikes by the end of the year, and a further two to three in the first half of 2027). The Budget is a key focus for the UK in the coming weeks. The chancellor is keeping his cards close to his chest but tax increases are likely if funding for defence spending and social care is required without breaching the fiscal rules.”

Can France afford its election uncertainty?

Rising yields are proving particularly acute in France, which is due to have an election in six months to find President Emmanuel Macron’s successor.

Currently, bond markets suggest doubts about the leading names. Polls put far-right Marine Le Pen as a front runner, though left-wing rival Jean-Luc Mélenchon is also in the conversation. Le Pen has promised to reduce the pension age to 60 – an expensive electoral gambit. Though she has also promised to reduce the deficit, investors remain unconvinced. On the other hand, Mélenchon has called for bonds issued as part of the ECB’s quantitative easing programme to be thrown ‘into the fire.’ Naturally fixed income investors have been unsettled by such rhetoric.

Regardless of who wins, they’ll inherit an economy with a deficit above 5% (potentially 6%), and a debt-to-GDP ratio of over 120%. The president will still need a prime minister able to navigate a bitterly divided parliament – something that has proven troublesome in recent years.

The high deficit and debt levels, together with the political uncertainty, have pushed French government bonds up by more than those of its peers. By Friday, yields on 10-year French government bond (known as OATs) rose to 4.9%, having been as low as 3.2% in February this year.

Sentiment was not helped by fresh Eurozone inflation data for September. According to a Eurostat estimate, inflation across the bloc reached 3.8%, above expectations and the highest level since 2023. Energy prices were named as the key contributor.

US long-term bond yields hit 6%

With the mid-term elections rapidly approaching, sitting Republicans would not have welcomed news that 30-year Treasury yields hit 6% last week.

Like Britain and France, rising energy prices have led to pressures on government and household finances. With diesel prices hitting fresh highs, the White House has pressured European allies to release some of its strategic energy reserves, or face trade penalties. By Friday, Macron had announced G7 plans to work in a coordinated manner to release up to 100 million barrels of diesel and crude oil to try and bring prices down.

In this context, bond markets reacted well to weakening US payroll numbers for September. The number of new jobs came in below expectations and unemployment edged up slightly while wage growth slowed. With signs the job market is beginning to cool, market expectations around the number of interest rate rises this year also fell – though at least one hike is still expected.

The AI arms race

Finally, turning to AI, where investor appetite shows little sign of slowing down. Nvidia, the world’s largest company by market cap, announced a $150 billion share buyback on Monday.

With AI investment globally continuing at pace, Nvidia’s profits have continued to rise. As its share price growth has slowed in 2026, Jensen Huang, Nvidia’s chief executive said the buyback showed the company had “confidence in the long-term opportunity ahead.”

The AI arms race remains incredibly intense. Just a few days after Meta released its MUSE AI model, Alphabet released its Gemini 4 model. However, while the former resulted in a notable bounce in Meta’s share price, Gemini 4 failed to elicit such excitement from investors. Both companies are competing with Anthropic and OpenAI, currently planning their IPOs.

Pensioners to lose triple lock from 2030 under Labour

Pensioners will lose the triple lock guarantee on their state pension from 2030 if Labour wins a second term in government.

The prime minister Andy Burnham has said he will scrap the triple lock in the next parliament if Labour wins the next general election, which must happen by the summer of 2029. He said the money saved would go towards funding a national care system in England.

The state pension triple lock was introduced in 2011 under the Conservative and Liberal Democrat coalition government, led at the time by prime minister David Cameron. It guaranteed that the state pension would increase each year by the highest of inflation, wages growth, or 2.5%.

But when inflation and earnings both increased significantly – inflation peaked at 11.1% in 2022 – the cost to government of the triple lock started to rise dramatically.

Speaking at the Labour party conference in Liverpool last week, Burnham said the triple lock would be replaced by a double lock, which would see the state pension rise by the highest of either inflation or 2.5%, removing the link to average earnings growth.

Government figures show the state pension is the largest benefit in the UK, with public spending at £154 billion per year for 2026/27.¹

New scheme boost for first-time buyers

The government has said it will launch a new subsidised house purchase scheme to help cash-strapped first-time buyers.

The full details will be unveiled in the Autumn Budget on 28 October. But the scheme is expected to offer government-backed equity loans of 20% of a property’s value for FTBs buying new homes in England. The loans are likely to be interest free for a set period. Buyers will need to put down a 2.5% cash deposit.

Sources

1 Benefit expenditure and caseload tables 2026 - GOV.UK