Stock Take
New prime minister, same old struggles
Andy Burnham topped the British political landscape last week, becoming the country’s seventh prime minister in ten years.
As part of his government reshuffle, Burnham brought former defence minister John Healey in to replace Rachel Reeves as chancellor. Healey’s political career goes back to the 90s, including posts in the Treasury. Earlier this year, his resignation from the Cabinet over perceived insufficient funding for the defence ministry was seen as speeding up Sir Keir Starmer’s downfall.
The reality is Burnham and Healey face the same issues as their predecessors, including high levels of national debt, sticky inflation and low productivity growth going back years. Burnham has confirmed his government will stick to existing fiscal rules, which currently offer little wiggle room for a chancellor to exploit. After a few relatively low level ‘giveaways’ in the first week, all eyes will be on the Autumn Budget for a more concrete feel of the direction of the government may now take.
Burnham’s first week in the role was greeted with some unexpectedly good news. UK inflation dropped to 2.6% in June, according to figures released by the Office for National Statistics. This was below both the 2.8% recorded in May, and the 2.7% generally expected by economists.
Rising oil prices
This relief is likely to be shortlived, however, as oil prices are becoming volatile. At the start of last week, the price of a barrel of Brent crude oil was $90 – up from near $70 at the start of July. By Thursday, it had broken the $100 mark, before falling to $90, as the two sides temporarily paused strikes at the end of the week.
These price fluctuations are driven entirely by events in Iran, where the US and Iran recently started firing drones and missiles at one another again. Importantly, the Strait of Hormuz remains shut for the time being. Despite an apparent pause towards the end of the week, rhetoric from both sides suggests the conflict has some way to go before another ceasefire is reached. Reports from the US suggested Trump was in ‘revenge’ mode on Friday.
Higher oil prices mean higher inflation, and less money for consumers to spend on other goods. In other words, this will likely prove an additional headache for Burnham and Healey.
For international markets, this poses a bigger worry than a change of UK government. 10-year gilt yields jumped to above 5% last week, peaking at above 5.1% for a period on Thursday, as investors assessed what these developments meant for the British economy.
Weaker yen, stronger governance in Japan
The relentless slide of the Japanese yen saw it break a 40-year barrier. For the first time since 1986, the exchange rate hit 163 yen to the dollar. To give that number more perspective, a year ago it was under 150 yen to the dollar.
There have been a number of issues for the currency. Japan is perceived as more vulnerable to the rising oil prices from the Iran shock. On top of this, Japan’s interest rates are notably below those of other developed nations, leading investors to sell the currency in search of better yields.
While a weaker currency can cause problems for a country, so far Japan’s stock market has benefited from the shifting situation, with the Nikkei up 25% so far this year. A weaker currency makes exports cheaper, boosting revenue for exporters.
The Japanese stock market is also benefitting from other trends. Compared to other Asian economies like Korea and Taiwan, its index is less dominated by AI giants. The Nikkei sits in a middle ground between those economies (which are dominated by one or two giant semiconductor manufacturer) and the UK’s FTSE 100, which lacks almost any exposure.
However, according to Carlota Estragues Lopez, equity strategist at SJP, a key reason Japanese shares have been doing so well this year is due to governance reforms. She notes: “Japan has seen increased dividend yields, which has attracted income investors, and increased buybacks. The Tokyo Stock Exchange really wants to focus on higher returns to shareholders when it comes to companies that have excess cash. In my view, that is the main reason we have seen a re-rating. This is also likely a more sustainable reason for the re-rating than what we’re seeing in emerging markets, which have been driven by three AI stocks.”
Wealth Check
Burnham’s first week as prime minister
Andy Burnham’s first few days as UK prime minister began with a series of announcements aimed at reducing the cost of living.
These included pledging to exempt those whose only income is the state pension from income tax, a forthcoming cut to VAT on energy bills and introducing a £2 cap on bus fares.
Anyone whose sole income is the basic or new state pension will not have to pay income tax, the Treasury has confirmed. Due to the freeze on the personal allowance, which has remained at £12,570 since 2021, many pensioners had been expected to be pulled into the tax net for the first time as state pension payments rose.
The newly appointed prime minister also announced a 20% reduction in business rates for pubs, clubs and live music venues, starting next year. This measure could save around £1,100 for 32,000 venues in the 2027-28 tax year, according to government figures.
Given Burnham has pledged to stick to Labour’s existing fiscal rules, as well as the promise not to raise income tax, his scope to make big spending commitments looks limited at present.
Time is running short for the government. With the OBR requiring at least 10 weeks’ notice of a Budget, ministers have little time left to decide how they will balance the books.
Inheritance tax take reaches record high in June
Stagnant tax-free thresholds are leading to record numbers of inheritance tax (IHT) payments.
According to HM Revenue & Customs (HMRC), June saw the highest level of IHT paid in a single month on record.1
From April to June, taxpayers paid £2.3 billion in IHT, an increase of £96 million compared with the same period last year.
HMRC expects these figures to increase over time because of a combination of factors, including recent rises in asset values.
IHT is charged at a flat rate of 40% on the value of an estate above the relevant nil rate band (NRB) threshold and any other allowances which may be available. The NRB has remained at £325,000 since the 2009/10 tax year, and the residence nil rate band has been fixed at £175,000 since the 2020/21 tax year.
Combined with the increase in asset values, these thresholds have been pushing more people over the NRB threshold, HMRC said.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.
Source
1HMRC tax receipts and National Insurance contributions for the UK (monthly bulletin) – July 2026
In The Picture
The number of people above state pension age who pay income tax is set to rise by more than half between 2019/20 and 2026/27.
The narrow gap between the two lines indicates that most taxpaying over-65s are also above state pension age. In other words, the rise is being driven largely by pensioners rather than people in the narrow band between age 65 and state pension age (66).
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