UK markets sustained their recent momentum this week, with the FTSE 100 Index rising by 0.4% to trade at 8,745 points at the time of writing. The UK economy unexpectedly grew 0.1% in the fourth quarter of 2024, in a modest boost for the Labour government as it seeks to fulfil its pledges to re-energise the economy.
The GDP figure for the final three months of the year from the Office for National Statistics marked an increase on the zero growth in the quarter that ended in September, but is still consistent with an economy that is struggling to gain momentum. Economists had forecast a 0.1% contraction for the fourth quarter, according to a poll from Reuters.
The UK economy was boosted by a strong performance in December, when GDP expanded 0.4% from the previous month, driven by the UK’s dominant services sector. Over the whole of 2024, the economy expanded 0.9%, the Office for National Statistics said, a modest improvement on an expansion of 0.4% the previous year.
However, the first half of the year was stronger than the second, and the annual figure fell short of predictions in October by the Office for Budget Responsibility, the UK fiscal watchdog. Annual growth was also far below that recorded in the US, where GDP expanded 2.8% in 2024.
UK chancellor Rachel Reeves is braced for a tough fiscal outlook from the Office for Budget Responsibility next month, in part because of the poor performance of the economy. The watchdog is expected to cut its growth forecasts in the upcoming Spring Statement, hitting tax revenues and adding to the fiscal pressures facing the chancellor.
Economists said the relatively weak fourth-quarter performance may partly reflect downbeat corporate sentiment following Reeve’s first Budget, in which she announced higher employer national insurance contributions. Thursday’s figures showed a 3.2% drop in business investment in the fourth quarter, as well as a drag from weak trade performance.
Commodity markets
In the commodity markets, Brent crude futures traded around $75 per barrel on Friday and are set to end the week little changed, amid rising fuel demand, whilst a potential peace deal between Russia and Ukraine exerted downward pressure. Global oil demand has surged to 103.4 million barrels per day, a 1.4 million barrel per day increase year-on-year, analysts at JP Morgan said in a report on Friday.
Brent lost more than 2% on Wednesday after US president Donald Trump said that Russian President Vladimir Putin and Ukrainian President Volodymyr Zelenskiy expressed a desire for peace in separate phone calls with him, and Trump ordered US officials to begin talks on ending the war in Ukraine. The steady oil price appears to be driven by a change from supply concerns to sufficient supply, as some market participants expect an increase in Russian energy exports.
Russian oil exports could be sustained if workarounds to the latest US sanctions package are found, after Russian crude production rose slightly last month, the International Energy Agency said in its latest oil market report. Russia is the world’s third largest oil producer and sanctions imposed on its crude exports after its invasion of Ukraine nearly three years ago have supported higher prices.
Gold prices traded around $2,935 an ounce on Friday and are set for another weekly gain, as US President Donald Trump’s plans to impose reciprocal tariffs on every country taxing US imports fuelled concerns of a global trade war.
Equity markets
US equity futures were little changed on Friday after President Trump signed a memorandum to review reciprocal tariffs but delayed immediate action while hinting at possible auto tariffs.
In Thursday’s regular trading session, the Dow Jones Industrial Average rose 0.77%, the S&P 500 gained 1.04%, whilst the Nasdaq Composite advanced 1.50%. US inflation unexpectedly increased to 3% in January, strengthening the case for the Federal Reserve to proceed slowly with interest rate cuts.
The Bureau of Labor Statistics’ figure exceeded economists’ expectations, who had predicted inflation would remain at December’s 2.9%. January’s month-on-month increase also surpassed forecasts, at 0.5% versus the expected 0.3%. Investors now anticipate just one US interest rate cut this year, whereas futures markets previously saw a first cut by September with a 40% chance of a second. Core inflation, excluding food and energy, rose to 3.3% in January from 3.2% in December.
Inflation data has raised concerns that the U.S. economy is overheating, as Trump pushes for tariffs, an immigration crackdown, and tax cuts that economists fear could drive inflation higher. Trump has directed trade advisors to draft country-specific tariffs in response to what Washington deems unfair levies, regulations and subsidies.
The White House warned that Brazil, India, Japan, Canada and the EU could face new tariffs, while Mexico and China – nations with the largest U.S. trade deficits – will be prioritised. Reciprocal tariffs could take effect as early as 2nd April, prompting global capitals to seek negotiations to avert them.
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