# Roundup of the week: 29 August 2025 _Debunking the UK’s £51 billion ‘black hole’ myth, plus France’s budget crisis, gilt yields surge and Nvidia’s latest results._ Neil Woodford · 29 August 2025 · 7 min read ![Roundup of the week: 29 August 2025](https://cdn.sanity.io/images/v3acfbvo/production/bf2235a768fb22f08ea7beddc0b6e1db7f3153db-2700x1800.jpg?w=1600&fit=max&auto=format) --- If you think I have missed something you would like to discuss, [please let me know](mailto:hello@noisecancelling.co), and I will give you my view. ## Politics ### UK In what has been a generally quieter week, the political story that caught my attention was the increasing media hysteria ahead of this year's budget and the rumoured tax increases required to fill the much-reported black hole in the nation's finances. One might have thought that a discussion about something like this would belong in an economic commentary, not a political one. However, the truth is that this so-called black hole, which some commentators have said is as big as £51bn, is a myth, and as such, those in the media who have been writing about it and the tax rises that will be required to fill it are, to my mind, making political rather than economic points. The level of this hysteria reached epic proportions in the middle of the week when the Daily Telegraph claimed that the UK will need an IMF bailout in the not-too-distant future to head off a 1970s-style debt crisis that will envelop the country as a result of the government's tax-and-spend strategy. As inept and wrong-headed as the government's economic policy is and as challenging as its leadership's position confronting backbench intransigence on spending cuts is, this media diagnosis is not only hysterical but also wrong. The so-called black hole in the nation's finances narrative was initially triggered by analysis authored by the NIESR, which based its calculations and conclusions on assumptions that looked completely unrealistic and excessively bearish to my mind. In summary, the black hole emerges over a five-year period to the end of the decade only when, like the NIESR, you assume that the UK economy grows at under half its long-term average over the next five years. (1.2% rather than 2.3%) I have not seen one comment acknowledging this critical fact, nor did I see anything in the NIESR report explaining why this gloomy outlook was likely to occur. As with most things, if you change the assumptions or inputs in a model, the answer the model spews out will also change. Based on what I believe is a more rational analysis of the outlook for the UK economy over the next five years, where I assume growth averages 2% pa, there is no black hole in the nation's finances, and Rachael Reeves is not required to raise any additional taxes. For the record, borrowing was in line with the OBR's forecast in the first four months of this fiscal year. Looking forward, based on the assumptions embedded in the OBR's Spring Statement, the current budget (which excludes publicly funded investment) will move into surplus in 2027/28, and the overall deficit will fall to 2% in 2029/30. The Chancellor will get a new forecast from the OBR in the next few weeks on which she will have to base her calculations for the Autumn budget, but I do not see why the OBR's underlying assumptions should change at all from those embedded in its statement from just a few months ago. If anything, given the exaggerated concerns in the spring about the global economic impact of Trump's tariffs, which have now abated, the OBR might have good reason to be a little more bullish. If I were to speculate about what the OBR will say, my guess is that it will downgrade its GDP growth forecast a bit but increase its medium-term inflation forecast, too. The net result is that there should be minimal impact on the public finance forecasts, given that tax revenues are a product of the nominal economy, not the real economy. As for what Rachael Reeves might do in the budget, it all depends on what the OBR will be forecasting. Based on what I believe is likely to unfold, I am pretty confident that the nonsense that the media is currently obsessing about, namely, drastic increases in taxes to plug mythical black holes, will not come to pass. Having said that, I do think there will be other measures announced, such as new taxes on betting, fast food and unhealthy drinks, some changes to the current 344 different tax reliefs currently in place and the customary non-indexation of income tax allowances. The current pre-budget kite flying that causes much speculation should also be ignored. The latest genius ideas about new property or wealth taxes, NI on rents and a windfall tax on banks might have been the subject of discussions in the Treasury in recent weeks, but all are profoundly stupid, not required and would be very damaging. If I were the Chancellor, I would put an end to this seasonal nonsense and concentrate on thinking long and hard about what's going on now in the economy and doing all I can within the constraints which the government has partly created for itself, to foster more growth. Maybe the best place to start would be to stop the pointless speculation and kite flying that serves little purpose but does undermine consumer and business confidence. ### France Unsurprisingly, the crisis confronting the French minority government has re-emerged this week. Following elections last year (called by Macron), the resulting loss of the centre and right-wing alliance's majority in parliament, and the subsequent failure of Michel Barnier's three-month government to pass a budget, Francois Bayrou's government is facing a similar fate. His budget proposals will be put to a confidence vote on September 8th. The consensus view is that he will lose the confidence vote, and the budgetary mess confronting France, whose deficit last year was 5.8% of GDP, will remain unresolved. It appears that both left and right political factions will not support spending cuts, nor the loss of two public holidays, and are using their political leverage to try to get fresh elections, and maybe even presidential elections too. Quite how this tangled mess is resolved is not at all clear, but in the meantime, the failure to address an unsustainably high deficit (the EU limit is 3% of GDP) against a backdrop of 114% debt to GDP is creating some concern in financial markets. Clearly, the French minority government is in a very weak position, and I imagine that until new elections are called, there will be no immediate resolution. What they may lead to is also unclear, given the challenges confronting the French economy, where the tax share of GDP at 46% is the highest amongst OECD economies. Sooner or later, the electorate in France will have to confront the inevitability of cuts in public spending, something that it appears ill-prepared for at the moment. ## Economics ### UK bond yields Gilt yields were once again in the news this week, with the 30-year yield reaching 5.6%, the highest since the late 1990s. This story contributed to the hysteria I referred to earlier in this update. Based on my understanding of the rather technical issues that affect the demand and supply of these very long gilts, the increase in the 30-year yield appears to be the product of a decline in the demand for these long gilts from their traditional buyers, namely, defined benefit pension schemes, and not any systemic buyers strike or wider concerns about the volume of gilt issuance. The ten-year gilt yield is a far more important and more widely referenced rate, and indeed, the volume of issuance at ten years dwarfs longer maturities. Helpfully, the Government's Debt Management Office provides a lot of information about planned gilt sales and their maturities. Only 10% of the planned gilt sales in 2025/26 are long gilts, with nearly 70% at short- or medium-term maturities. These rates and those on index-linked gilts will dictate the government's funding costs going forward, not the peculiarities of the 30-year yield. ## Markets ### Nvidia Nvidia, the biggest company in the world by some margin, with a market value of $4.4 trillion, announced its Q2 results earlier this week. Naturally, these results attract a lot of attention not just because of the company's size but also because of the insights they might give to the speed and scale of the AI industrial revolution. In summary, the results were very good and showed an astonishing rate of growth year on year of 56%. However, the simple laws of maths dictate that the rate of incremental growth is slowing and guidance of "only 17%" revenue growth in Q3 appeared to marginally disappoint. Clearly, the company's very high rating also creates a level of expectation that will be hard for it to match. Perhaps of greater significance to the broader industry were comments from the CEO who said he believed $3-4 _trillion_ would be spent globally over the next five years on AI infrastructure. ## What to look out for next week The corporate calendar next week is not especially busy, although both Oxford Nanopore and Ashmore, two companies in the W4 strategies, will announce numbers. As for the economic calendar, the UK's delayed retail sales numbers are due to be announced, and at the end of the week, we will get more US labour market data, which will be closely scrutinised given its proximity to the next Fed decision on what to do with interest rates.