UK markets pulled back this week, with the FTSE 100 Index falling by 0.7% to trade at 8,065 points at the time of writing. The UK economy grew 0.1% in the third quarter, figures from the Office for National Statistics showed on Friday, compared with an expansion of 0.5% in the second quarter and below economists’ expectations of 0.2%.
The services sector, making up 80% of the economy, grew by 0.1%, overshadowing a 0.8% rise in construction, highlighting challenges for the Labour government focused on growth. The economy shrank by 0.1% in September due to declining manufacturing output. Chancellor Rachel Reeves’ recent budget raised taxes and borrowing to repair public finances and enhance public services. However, businesses warn that higher employers’ national insurance contributions could hinder job creation and reduce investment plans.
Annual growth in average weekly earnings in the UK private sector was 4.8% in the three months to September, unchanged from the three-month period to August, according to figures from the Office for National Statistics. The data confirms the view of the Bank of England that pressures in the labour market are slowly easing. The figure was the lowest since the winter of 2021-2022 and was in line with the forecasts the central bank published last week, when it cut interest rates to 4.75% and said that further easing would be gradual. Economists still believe pay growth has slowed enough for the Bank of England to cut interest rates again next year, after a likely pause at its December meeting.
Public sector wage growth, excluding bonuses, was running above the private sector rate at 4.7% in the three months to September, down from 5.2% a month earlier. The Office for National Statistics also published figures drawn from tax records showing payroll employment fell by 9,000 between August and September, with provisional figures for October pointing to a further decline of 5,000.
Meanwhile, vacancies fell by 35,000 on the quarter to 831,000 in August to October. Separate figures showed a rise in unemployment to 4.3% in the three months to September, from 4% just a month earlier. The claimant count, which reflects claims for unemployment benefits, also rose by 27,600 in October, following a smaller increase in the previous month, to stand at 1.806 million.
Commodity markets
In the commodity markets, Brent crude futures traded around $72 per barrel on Friday and are set for a weekly fall, as oversupply concerns and demand worries stemming from a stronger dollar outweighed a steep draw in US fuel stocks. Global crude supplies are expected to outstrip demand by more than 1 million barrels per day next year, led by robust growth in the US, according to the International Energy Agency’s monthly market report.
UBS slashed its price forecast for Brent crude to $80 per barrel, from $87 previously, on weakening demand in China, the world’s largest crude importer. OPEC also cut its forecast for global oil demand growth for this year and 2025, highlighting weakness in China, India and other regions, marking the producer group’s fourth-consecutive downward revision to its 2024 outlook. Oil prices are down approximately 5% since Donald Trump won the US presidential election as the dollar has surged, depressing demand among buyers that hold other currencies.
Gold Prices traded around $2,570 an ounce on Friday, falling to a two-month low, pressured by a strong dollar rally and reduced expectations for Federal Reserve rate cuts, which weakened the appeal of non-yielding bullion.
Equity markets
US equity futures fell on Friday as the market heads for a losing week, paring gains from the post-election rally. In Thursday’s regular session, the Dow Jones Industrial Average dropped 0.47%, the S&P 500 lost 0.6%, while the Nasdaq Composite declined 0.64%. US inflation rose to 2.6% in October, as the Federal Reserve debates whether to cut interest rates at its last meeting before US President-elect Donald Trump takes office.
The figure from the Bureau of Labor Statistics was in line with economists’ expectations and above September’s 2.4%. Once volatile food and energy prices were stripped out, core consumer price inflation held steady at 3.3% on an annual basis. However, monthly core prices rose by 0.3% for a third month in a row, indicating that underlying inflation has yet to be fully tamed. The inflation data will be closely watched by the US central bank, which has already lowered its benchmark rate by 0.75% over two successive meetings to a new target range of 4.5-4.75%.
Federal Reserve officials are trying to reach a neutral rate setting that keeps inflation in check without squashing demand, in a bid to pull off a soft landing that would avoid a recession. Federal Reserve Chair Jerome Powell has backed a gradual approach to lowering interest rates, saying that the US central bank does not need to be in a hurry, during a strong economy and a bumpy path down for inflation. Futures markets are now pricing a roughly 60% probability of a 0.25% rate cut in December.
The US dollar touched its strongest level in six months while Treasury yields jumped sharply higher this week as investors focused the risk of a resurgence in inflation during a second Donald Trump presidency. Investors have scaled back their expectations for how quickly the Federal Reserve will cut interest rates since Trump’s decisive victory because of fears aggressive tariffs could drive up prices or that tax cuts and other pro-growth policies could cause the economy to overheat. Trump has threatened 60% tariffs on Chinese imports to the US, and blanket 10% to 20% duties on all other trading partners.
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