RATINGS: Stable Outlooks Set For Review After Close

As noted earlier (see UK: Streeting says he is not planning leadership challenge), Secretary of State for Health Wes Streeting has reiterated that he "hopes the prime minister [Sir Keir Starmer] leads Labour into the next general election." Doing the morning media rounds, Streeting issues a non-binding commitment not to launch a leadership challenger, saying to the BBC, “I cannot see the circumstances in which I would do that [mount a leadership challenge] to our prime minister". 

• Speaking to Sky, Streeting calls the briefings against him from unnamed Downing St. figures "self-defeating and self-destructive behaviour.” While Streeting is a prominent minister with strong communication skills, he is not particularly popular with grassroots Labour members (viewed as too centrist), and his constituency majority is extremely narrow (528 votes in 2024), making him vulnerable to defeat in the next election, given Labour's poor polling.
• Even if there is no credence to the rumours of Streeting launching a challenge, the furore will nevertheless raise speculation about the PM's position as the budget approaches in two weeks. With expectations rising of manifesto-breaching tax hikes, Chancellor of the Exchequer Rachel Reeves has been viewed as the minister most likely to be forced out in the event of a significant market or public backlash.
• With the overnight stories, the focus may now fall onto the PM himself. We view the more likely trigger for a leadership challenge to come after the May 2026 English local and devolved parliamentary elections, with Labour expected to endure significant losses at the hands of the right-wing populist Reform UK. 

The ESTR 1y1y rate is back in line with the overnight rate, with improving regional growth signals and cautious ECB speak further raising the bar to another cut. Judging by median Governing Council member commentary in recent weeks, an undershooting of the 2028 inflation projection in December looks to be a necessary, but not sufficient, condition for more easing.

• ESTR ECB-dated OIS markets price 10bps of easing through September 2026, after which the implied curve starts to rise again.
• German October HICP confirmed flash estimates,  with HICP at 2.3% Y/Y vs 2.4% prior.
• Today’s regional calendar includes comments from Schnabel and de Guindos, alongside Italian September IP data.

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