UK markets rose this week with the FTSE 100 Index gaining 2.85% to trade at 8, 210 points at the time of writing.
The UK labour market weakened in February and March, ahead of higher taxes on employers from April, even as wage growth remained strong, underscoring the challenges facing the Bank of England as the economy braces itself for the impact of US tariffs.
Payrolled employment fell by 8,000 between January and February, according to tax data published by the Office for National Statistics. The figure was revised from early estimates of a 21,000 gain. Preliminary figures for March indicated a larger fall of 78,000, or 0.3% of those in payrolled employment, ahead of the introduction this month of higher employers’ national insurance contributions laid out in the October Budget. If confirmed, this would be the biggest fall since May 2020.
Vacancies fell below pre-pandemic levels for the first time since the spring of 2021.
Separate data from the Office for National Statistics showed annual growth in average weekly earnings, excluding bonuses, was 5.9% in the three months to February, up from 5.8% in the three months to January. Economists had forecast a rise of 6%. Adjusted for inflation, regular wage growth was 2.1% in the three months to February, marking the 21st month of earnings growth outpacing inflation, in a boost to household finances.
UK inflation fell more than expected to 2.6% in March, bolstering the case for the Bank of England to cut interest rates next month as it braces for the economic impact of Donald Trump’s tariffs. The annual increase in consumer prices was below the 2.7% forecast by economists in a Reuters poll and down from 2.8% in February. The biggest factors in the drop were lower prices for petrol and for games, toys and hobbies, in particular computer games.
Services inflation, a key measure of underlying price pressures for rate setters, slowed more than expected, to 4.7% in March from 5% in February. Food inflation also eased, from 3.3% to 3%.
In the commodity markets, Brent crude futures traded around $66 per barrel on Thursday and are set for a weekly rise, on the prospect of tighter supply after Washington imposed further sanctions to curb the Iranian oil trade and as some OPEC producers pledged further output cuts to compensate for pumping above agreed quotas.
President Donald Trump’s administration issued new sanctions targeting Iran’s oil exports on Wednesday, including a China-based oil refinery, ramping up pressure on Theran amid talks on the country’s escalating nuclear programme. Adding to supply concerns, OPEC said on Wednesday it has received updated plans for Iraq, Kazakhstan and other countries to make further output cuts to compensate for pumping above quotas. Large draws on US gasoline and distillates stocks and a smaller than expected gain in weekly crude inventories also bolstered markets.
Nevertheless, OPEC, the International Energy Agency and several banks, including Goldman Sachs and JP Morgan, cut forecasts on oil prices and demand growth this week as US tariffs and retaliation from other countries threw global trade into disarray.
The World Trade Organization said it expected trade in goods to fall by 0.2% this year, down from its expectation in October of a 3.0% expansion.
Gold prices traded around $3,320 an ounce on Thursday, after hitting an all-time highs again this week, as escalating trade tensions and concerns over global economic growth increased demand for safe-haven bullion.
US equity futures rose on Thursday after a sharp tech-led selloff in the previous session, as rising trade tensions and cautious comments from Federal Reserve Chair, Jerome Powell rattled investors. In Wednesday’s regular trading session, the Dow Jones Industrial Average fell 1.73%, the S&P 500 declined 2.24%, whilst the Nasdaq Composite dropped 3.07%. The selloff was sparked after chipmaker Nvidia revealed that new US controls on sales of its H20 chip to China would wipe billions of dollars from its earnings and dragged its peers sharply lower.
Wednesday’s declines accelerated after Powell warned that Donald Trump’s tariffs are likely to put at risk the central bank’s goals of keeping prices and unemployment in check. Powell also said that the President’s tariffs announced so far had been “significantly larger than anticipated”, adding that “the same was likely to be true of the economic effects, which will include higher inflation and slower growth”.
Several Federal Reserve officials, including John Williams, Head of the New York Fed and Governor, Christopher Waller, have said inflation is likely to surge in the coming months on the back of the administration’s proposed tariffs. Trump has repeatedly called on the Federal Reserve to cut interest rates. However, the US central Bank has kept its benchmark federal funds target range on hold at 4.25%-4.5% this year, with officials saying they are well-placed to respond once the economic data shows the effects of the President’s policies on American businesses and households.
Meanwhile, investors awaited signs of potential trade negotiations between the US and China, with Beijing reportedly open to talks under certain conditions.
Elsewhere, US retail sales rose by 1.4% in March, the largest gain since 2023, after an unrevised 0.2% rise in February, the Commerce Department’s Census Bureau said. The increase came as households stepped up purchases of motor vehicles and a range of other goods to avoid high prices from tariffs, likely keeping the economy afloat in the first quarter.
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