29 Sept 2025
The latest macroeconomic update covers significant developments in the US housing market, the escalating fiscal pressures in the UK, and recent inflation data from the Eurozone. Key discussions include potential emergency declarations for housing affordability, rising UK bond yields amidst a looming 'doom loop,' and the implications of Eurozone inflation figures for future ECB policy.
The Trump administration might declare a national housing emergency by winter, exploring actions to standardize local regulations, construction, land use, and reduce final home purchase costs without necessarily interfering with states.
Trump's tactic of using emergency declarations to bypass congressional approval, despite facing opposition in federal courts for past actions, is evident in his approach to the housing issue.
Housing affordability is a cornerstone of the Republican 2026 midterm election platform, with Trump campaigning on improving housing access, and Kamala Harris previously proposing tax credits and down payment assistance.
The COVID-19 crisis created significant financial gaps in housing, leading to higher costs for renters and new buyers, exacerbated by high interest rates that Trump blames on the Federal Reserve for increasing government financing costs.
UK 10-year and 30-year bond yields have reached their highest levels since 1998, alarming investors about the country's financial outlook and coinciding with a global government bond sell-off.
The UK economy is approaching a "doom loop" characterized by increasing borrowing costs, growing budget deficits, and government reliance on tax increases to boost revenue, creating a cycle of escalating financial strain.
The Chancellor of the Exchequer faces immense pressure to either increase savings or raise taxes to stabilize the UK's precarious financial position, as high budget deficits limit government maneuverability, making both options politically challenging.
Reduced demand from traditional long-term bond buyers, coupled with concerns about higher structural inflation, decreases investor willingness to purchase UK bonds.
While current bond yield increases are a slow, continuous trend, not the sudden, sharp jump seen during the Liz Truss mini-budget crisis, the potential for a similar crisis remains if investor confidence is not restored.
Global long-term bond yields are rising, but the UK's limited financial capacity means this increase is significantly more expensive and painful compared to the US and Germany.
The UK faces higher government borrowing costs, tighter budget space, and probable tax increases, which are already pressuring consumers and businesses, potentially leading to layoffs and further economic strain.
Eurozone inflation exceeded the European Central Bank's (ECB) target but aligned with market expectations, signaling that the ECB will likely maintain current interest rates at its upcoming meeting.
The report reinforces the central bank's stance, indicating a probable pause in rate cuts due to slowing inflation and the economy's sufficient resilience against tariffs, with investors uncertain about further rate reductions this year.
The Eurozone data presented mixed results, with inflation figures lower than predicted in France, Italy, and Spain, but higher than expected in Germany, contributing to a somewhat uncertain outlook influenced by tariffs and domestic price pressures.
Services inflation remains a key focus, holding steady at 3.1%, and the overall report did not significantly surprise the market or alter expectations for the ECB.
The US ISM Manufacturing PMI for August, a crucial economic indicator, is expected later today, providing insights into growth, manufacturing activity, employment trends, and pricing pressures.
If the government cannot regain investor confidence, there is a risk of a crisis similar to the Liz Truss period.
| Area | Concern | Observation | Outlook |
|---|---|---|---|
| US Housing Market | Affordability Crisis | The Trump administration considers declaring a national housing emergency, potentially bypassing Congress. | Housing affordability is a key Republican promise for the 2026 midterm elections, with measures to standardize regulations and reduce costs. |
| US Economic Policy | Federal Reserve's Role | Trump criticizes the Fed's high interest rates for increasing government financing costs and harming housing. | The political rhetoric highlights the ongoing debate between fiscal and monetary policy impacts on the economy. |
| UK Economy | Soaring Bond Yields & Fiscal Strain | UK 10-year and 30-year bond yields reached record highs since 1998, indicating a 'doom loop' risk. | The government faces immense pressure to raise taxes or cut spending, with potential for a crisis if investor confidence is not restored. |
| UK Investor Confidence | Decreased Demand & Structural Inflation | Traditional buyers are reducing long-term bond purchases, driven by structural inflation concerns. | High borrowing costs, tight budget space, and probable tax increases are pressuring consumers and businesses. |
| Eurozone Inflation | ECB Policy Response | Eurozone inflation exceeded target but met expectations, suggesting the ECB will pause rate hikes. | A pause in rate adjustments is expected, but the economic outlook remains somewhat uncertain due to mixed country data and tariff impacts. |
| Eurozone Economic Indicators | Services Inflation & Tariffs | Services inflation remains high at 3.1%; tariffs pose an additional inflationary risk. | The ECB views medium-term price outlook risks as balanced, despite persistent services inflation and tariff uncertainties. |
| US Economic Data | Manufacturing Sector Health | The US ISM Manufacturing PMI for August is a key upcoming data point. | This report will provide crucial insights into growth, employment, and pricing in the US manufacturing sector. |
