The Weekly Briefing from Capital Economics The Rachel Reeves tax threat, the Supreme Court tariffs test and the fate of the AI boom
Nov 7, 2025
Neil Shearing, Group Chief Economist at Capital Economics, discusses Rachel Reeves' subtle tax hints and their dual audience of MPs and bond markets. He delves into potential fiscal risks from the Supreme Court's tariff decisions, exploring their implications on US revenues. John Higgins, Chief Markets Economist, argues that recent US equity sell-offs are mere corrections within a robust AI-driven rally, emphasizing the sustainability of earnings and market concentration among mega-cap firms as central to future forecasts.
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Episode notes
Central Banks Send Mixed Signals
- Major central banks have delivered mixed signals recently, with the ECB steady, the Fed resisting big loosening, and the BoE hinting cuts ahead.
- Markets still underprice UK easing while expecting more Fed cuts than Capital Economics forecasts.
Reeves Faces Tight Fiscal Choices
- Rachel Reeves must use the Autumn Budget to repair weak public finances with limited fiscal headroom.
- Politically she avoids 'austerity' so tax rises look likely to meet fiscal rules.
Manage Budget Messaging Carefully
- Manage communications to different audiences: reassure markets and Parliament separately.
- Use clear messaging to prevent bond market panic like the Truss episode.
