# Three times faster than Europe; the AI news nobody noticed

_The UK grew more than three times as fast as the euro area in the latest comparable period, just as the Prime Minister blames Brexit for its ills. Plus a Budget of 98 measures and no substance, Alphabet’s worst day, Anthropic’s prospectus and Microsoft’s buyout offer to 60,000 staff._

Neil Woodford · 30 October 2026 · 8 min read

![The PM with his arm around his Chancellor](https://cdn.sanity.io/images/v3acfbvo/production/6c76e6b9a7b9f4e37af7f37874ae34b78f8e6f66-2000x1600.jpg?w=1600&fit=max&auto=format)

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This has been an interesting and busy week, albeit that the number one issue affecting the global economy right now, the war in the Middle East, has been very quiet.

## The Middle East: talking and preparing

I am led to believe that intense diplomatic engagement is going on behind the scenes, but some expert opinion I have read suggests that renewed intense conflict is quite likely after the US midterm elections, given the arrival of a third US carrier group in the region in a matter of weeks.

Despite this rather bearish view, shipments of crude and distillate from the region continue to build. According to Kpler, crude oil exports averaged 24.6 million barrels a day in the week to 18 October, although distillate and refined product exports continue to lag. Nevertheless, the crude volumes now exceed the average daily flows before the war started and, given Iranian volumes remain at zero, this is quite a remarkable achievement.

In summary, it appears as if the region is simultaneously negotiating a de-escalation and some kind of agreed peace deal whilst also preparing for what will happen if diplomacy fails. My guess is still that diplomacy wins, but this is a marginal call based on the view that the intense economic pain Iran is experiencing right now will eventually catalyse some kind of compromise, combined with the fact that the regime must know its leverage on the global energy market is significantly diminished and visibly reducing every week.

Away from this conflict, there have been further initiatives in the Russia–Ukraine war. Diplomacy appears to be re-energised here but, as ever, the level of optimism remains low. Just as with the conflict in the Middle East, if a deal is reached it will have an immediate impact on the energy market, albeit not as significant as the impact of a settlement in the war with Iran.

The other issues that caught my attention this week include the UK Budget on Wednesday, the Fed’s interest rate decision on the same day, some high-profile tech results, Anthropic’s IPO launch and a Microsoft announcement that attracted very little attention but which, for me, could be one of the most important of recent times.

## The Fed: less is more

First to the Fed’s rate decision which, as expected, was to hold rates. This was not the interesting bit of the announcement. With it came a very brief commentary on the economy which was pretty positive, despite the acknowledgement that inflation remains elevated. Of note were the words “[economic activity is expanding at a strong pace](https://federalreserve.gov/newsevents/pressreleases/monetary20261028a.htm)”, which I have not heard at all in relation to the UK economy, which grew faster than the US in the first seven months of the year.

Also of note was the announcement that [Warsh is going to reduce the number of policy-setting meetings](https://www.americanbanker.com/live-blog/federal-open-market-committee-press-conference-october-2026-live-coverage) next year and the year after, from eight to seven to six, in an acknowledgement of the paradox that less is more in relation to central bank statements. Warsh also reiterated his dislike of forward guidance and said that the central bank will prefer to evaluate incoming data rather than signal future intent based on old information. I think there is a very clear message here which the Bank of England and the OBR would do well to take on board. _(Neil in the margin: Forward guidance is a central bank telling markets in advance where it expects interest rates to go, so that expectations move before it does.)_

## The Budget: 98 measures, none of substance

It was also Budget day on Wednesday and the Chancellor, John Healey, duly did what I had expected, which was next to nothing. There were 98 individual measures in the Budget, which will further complicate the tax system and achieve the very opposite of his stated intention to reduce the regulatory and administrative burden confronting UK businesses, but none were of any meaningful substance to the economy as a whole.

_[Watch: The Budget was the topic of this week's Show — Britain Can Grow Its Way Out of This Budget](https://www.noisecancelling.co/the-show)_

The [additional £432mn for the 4,793 rough sleepers in England](https://www.lbc.co.uk/article/rough-sleeping-end-plan-andy-burnham-5HjdkQg_2/) was, however, noteworthy. As much as I admire this government’s commitment to end rough sleeping in the UK (on which it is already spending £442mn), the total now lavished on this social blight comes, on my numbers, to £71,000 per year per rough sleeper. That’s 73% more than the median salary in the UK for a full-time worker.

**£874mn** — Now committed to ending rough sleeping in England, against 4,793 people counted sleeping rough on a single night in autumn 2025

Quite why resolving this problem requires spending on this scale is certainly beyond me, and it reminds me once again of the profligacy of the public sector when it comes to spending other people’s money. It has all the hallmarks of the [HS2 bat tunnel, which cost £216mn](https://ccemagazine.com/news/hs2s-hidden-wildlife-costs-climb-to-216-with-new-bat-protection-tunnel/) – a bargain set against the £874mn earmarked for this problem.

I won’t go through all the measures in the Budget, nor its political and economic impacts, because I have attempted to cover these issues in a separate NC research piece which accompanies this week’s podcast. However, I will delve into the OBR’s 200-page updated forecast document over the next week or two because I expect to find some gems in there. I’ve already surfaced a couple of howlers, which I cover in the podcast, but there will be more, I have no doubt.

Suffice to say here that the whole OBR/Budget process is deeply flawed and not fit for purpose. It should be scrapped and reinvented so that it becomes more useful for the government, and fundamentally more reliable as a window on the future. As it is, it’s next to useless.

_The investment boom the OBR said wouldn’t happen:_ [The investment boom the OBR and the Bank of England said wouldn’t happen](https://www.noisecancelling.co/read/the-investment-boom-the-obr-said-wouldnt-happen) — The OBR forecast that business investment would fall 0.9% this year, and the Bank of England 1.5%. It is up 5.2% on a year ago. Burnham’s theory of growth, a hawk on the MPC, and institutions that never admit a mistake.

## Brexit harm? Look at the growth numbers

Just as the new Prime Minister, Andy Burnham, reignites the whole EU debate, the latest economic data make interesting reading. He appears to want Britain to rejoin, and [his message is that Brexit has done more harm than good](https://www.expressandstar.com/uk-news/andy-burnham-declines-to-rule-out-manifesto-bid-to-rejoin-eu-9236846). There is no proof of that at all – none.

This week we learned that the euro area economy grew by 0.2% in the third quarter. [France shrank](https://english.news.cn/20261030/0f036fa62f0c46e28e7d9779e0dc3588/c.html), Italy was flat, Germany barely grew and Spain did OK, albeit it will slow. In the three months to August, the nearest comparison, [the UK economy grew by 0.7%](https://www.ons.gov.uk/economy/grossdomesticproductgdp/bulletins/gdpmonthlyestimateuk/august2026), more than three times as fast. And that’s with interest rates much lower in the euro area than in the UK.

![UK growth outpaced every big euro area economy](https://r4at4qm6kmohrtvq.public.blob.vercel-storage.com/charts/chart-weekly-29oct26-uk-v-europe-growth-1f41489809f3-light.png)

_The UK figure compares June–August with March–May, the nearest match to the euro area’s July–September quarter. It was the eighth three-month gain in a row._

_Brexit: a convenient and popular scapegoat:_ [Brexit: A convenient and popular scapegoat](https://www.noisecancelling.co/read/brexit-a-convenient-and-popular-scapegoat) — Brexit remains the favourite excuse for Britain’s problems — but the evidence tells a different story. I argue that the UK’s economic performance since leaving the EU shows no sign of the supposed “Brexit damage” so often cited by politicians and the OBR.

## Big Tech: Alphabet’s bill arrives

This week is a big one for big tech, with Microsoft, Alphabet, Amazon and Intel all releasing their third-quarter results. At the time of writing only Alphabet’s and Microsoft’s numbers are out and, in both cases, the shares are down, the former by [nearly 13%](https://www.cnbc.com/2026/10/29/alphabet-google-microsoft-msft-shares-today-earnings.html) and the latter by 1.5%.

Clearly Alphabet’s numbers have disappointed, and the issue once again appears to be concerns over the capex bill, which grew to more than $50bn in the quarter and drove the group’s free cash flow into negative territory to the tune of $9.1bn. There was also some concern about [relatively weak search advertising revenue](https://cnbc.com/2026/10/29/alphabet-google-search-ai-earnings.html) in the quarter, caused by “AI Mode” queries which provide conversational text answers rather than a list of links. This apparently eats into traditional search and lowers monetisation via ads.

In effect, AI chatbots are cannibalising its key search franchise and, understandably, this causes some concern. The fall has wiped close to $500bn off the market value of the business, equivalent to 77% of Europe’s most valuable company, ASML.

In contrast, [Microsoft’s numbers](https://calcalistech.com/ctechnews/article/unsw46nof) have been well received. Strong growth in its cloud computing business was welcomed and helped revenue and profit beat expectations, albeit that capex also rose in the quarter, to $45.2bn. Positive free cash flow of $18.6bn despite this level of spend also pleased analysts and investors.

## Anthropic: big numbers, bigger commitments

Elsewhere in the sector, Anthropic [filed its S-1 registration statement](https://bernama.com/en/world/news.php?id=2626193) with the SEC, which launches its IPO on Nasdaq. What surprised me were some of the numbers in the information pack. For example, so far Anthropic has spent just $10bn on building its business, which posted revenues of $16bn in the first half of this year alone. It also has just over $131bn of cash on its balance sheet.

Before passing judgement on these impressive numbers, it’s also important to remember that it has committed to largely uncancellable cloud infrastructure contracts totalling between $417bn and $637bn over the next ten to twenty years. What I think this highlights more than anything else is how immature the business is in relation to its commitments and future aspirations, despite its $1trn-plus valuation.

## Microsoft’s quiet revolution

Finally, to the Microsoft announcement that no one seems to have paid attention to, but which I think could turn out to be the most significant news of the week. On Monday it emerged that [Microsoft had in effect offered redundancy payments (buyouts) to 60,000 of its employees](https://www.fox5vegas.com/2026/10/26/microsoft-offers-60000-employees-voluntary-buyouts-ai-spending-accelerates/), which is 27% of its global workforce. This initiative is a direct result of its increasing use of AI and the way in which the technology is completely reshaping how the company is structured.

I think this is very significant and shines an early light on how AI is going to transform productivity across economies. I think it also reveals how little is yet understood about the scale and speed of deployment of AI, particularly at organisations like the OBR and the Bank of England, and the effects it is already having on the UK economy. (Microsoft employs about 6,000 people in the UK.)

_The great UK productivity myth:_ [The great UK productivity myth](https://www.noisecancelling.co/read/the-great-uk-productivity-myth) — The ONS now admits its own labour survey understated Britain's productivity by half. The full story: how the establishment got it wrong, what it means for interest rates and tax – and the dated record of every time we said so.

## What to look out for next week

Next week is an important one for data and for UK economic decisions. There is a lot of US economic data, including on the labour market, but the highlight in the UK is the [Bank of England’s rate decision and Monetary Policy Report on Thursday](https://www.bankofengland.co.uk/monetary-policy/upcoming-mpc-dates). For what it’s worth, the consensus is that the MPC will capitulate and vote to increase rates by a quarter of a point.

I really cannot see what this would achieve other than burnishing the inflation-fighting credentials of individual members of the committee. It will have absolutely no impact on the path of inflation, the oil price or the gas price, or on the wars that have created the inflation in the first place. It will raise the cost of capital in the UK but would not undermine the momentum in the economy, which I believe is considerably less sensitive to interest rates than many think. What the economy actually needs is lower rates but, not surprisingly, a cut will not be on the agenda at the meeting on Thursday.

My guess is that, despite the dissenters, the committee will vote for a rise. That will be a mistake, but it won’t change my view on where the economy is going at all.

The US results season continues and the UK one starts to get going, with many more announcements scheduled across the week.

## Four charts to finish

### Earnings expectations are off the chart

The market may be expensively rated, but long-term earnings expectations are off the chart. I wonder which might be the chicken and which the egg.

_[Embedded media](https://x.com/MichaelKantro/status/2114349678829707759?a=-H-6rnSor36_1kScvpQ&s=20)_

### The tax burden keeps climbing

I’ve shown this chart before, and it demonstrates clearly the extent to which taxes on the UK economy have increased since the pandemic. With this kind of headwind, it is little wonder that growth has been sluggish over the last six years. Of course, the economy has also had to contend with two wars and their consequences for energy prices.

![Britain’s tax burden is on course to reach its highest level since the second world war](https://r4at4qm6kmohrtvq.public.blob.vercel-storage.com/charts/chart-weekly-29oct26-uk-tax-burden-50334b967478-light.png)

_Tax receipts were 32.9% of GDP before the pandemic. The OBR now forecasts 38.6% in 2031–32, above the 37.2% recorded in 1948–49._

### France outspends the Soviet Union

This chart speaks for itself. Quite a legacy for France’s next president.

![In France, public spending takes a bigger share of GDP than it did in the Soviet Union](https://r4at4qm6kmohrtvq.public.blob.vercel-storage.com/charts/chart-weekly-29oct26-france-spending-3237333140fb-light.png)

_France spent 57.3% of GDP in 2025, according to INSEE, the highest share in the EU. The historical comparisons are Daniel Lacalle’s._

### AI adoption at speed

Last week I reproduced a chart that showed how early we are in the adoption cycle of AI. This next chart gives a sense of how quickly that adoption is rolling out across the global economy.

![ChatGPT reached a billion users faster than any social network did](https://cdn.sanity.io/images/v3acfbvo/production/abcb4bbbff4b743a8dcf6e8c5c2f3dfaf31c9f88-1400x1102.png?w=1600&fit=max&auto=format)