UK markets were positive this week, with the FTSE 100 Index rising by 0.84% to trade at 8,540 points at the time of writing. UK employers cut staff numbers after the Labour government’s tax-rising budget, even as wage growth accelerated, official data showed on Tuesday.
Payrolled employment fell 0.1% between October and November, and was 11,000 lower in the three months to November than in the previous quarter, according to figures from the Office for National Statistics. Early estimates for December suggest a bigger month-on-month drop of 47,000 to 30.3 million in the payrolled workforce.
At the same time, average weekly earnings in the three months to November were 5.6% higher than a year earlier, both including and excluding bonuses, up from 5.2% in the previous period. The figures add to mounting evidence that economic growth has faltered and the jobs market weakened following Rachel Reeves’ October budget, in which businesses bore the brunt of £40 billion in tax increases.
An increase in employers’ national insurance contributions and a rise in the minimum wage have combined to leave some sectors facing a sharp jump in their cost of labour when the measures take effect in April. Surveys suggest businesses will try to offset higher costs by cutting jobs, squeezing wages or passing them on to consumers through higher prices. Despite stronger wage growth, the figures reinforce the case for the Bank of England to cut interest rates in February.
The UK government borrowed far more than expected in December, with the difference between public sector spending and income hitting £17.8 billion last month, £10.1 billion more than in December 2023, and the third highest in any December on record, data from the Office for National Statistics showed.
In the first nine months of the fiscal year, borrowing was £129.9 billion, which was £8.9 billion more than in the same period in the previous fiscal year, and the second-highest borrowing in the April to December period since monthly records began in January 1993. The figures intensify the pressure on Chancellor Rachel Reeves, who has sought to reassure investors after the UK’s borrowing costs climbed this month to the highest level since the global financial crisis, threatening her ability to meet a self-imposed fiscal rule in which spending is covered by tax receipts.
Elsewhere, UK consumer confidence, which provides a forward-looking measure of household spending, fell sharply in January to the lowest level in more than a year, as a rise in borrowing costs and warnings of job cuts took a toll on economic sentiment.
Commodity markets
In the commodity markets, Brent crude futures traded around $78 per barrel on Friday and are set for a weekly decline after US President, Donald Trump said he will ask Saudi Arabia and OPEC to reduce prices. Trump claims the Saudis and OPEC were responsible for fuelling the war in Ukraine through higher oil prices. He said the war would end if they slashed crude prices.
Saudi Arabia, Russia and six other members of OPEC+ have been holding 2.2 million barrels per day off the global market to keep prices from falling too much. The group decided in December to extend those production cuts through at least March 2025 before phasing them out over the course of a year. OPEC is under pressure as abundant oil production in the US and slowing demand in China weighs on prices.
Gold prices traded around $2,770 an ounce on Friday, soaring towards all-time highs as uncertainty about US President Donald Trump’s trade plans boosted the demand for safe haven bullion.
Equity markets
US equity futures were little changed on Friday after Donald Trump’s inauguration on Monday, as investors assessed a barrage of policy announcements from the new president’s administration. In Thursday’s regular trading session, the Dow Jones Industrial Average rose by 0.92%, the S&P 500 gained 0.53%, whilst the Nasdaq Composite advanced 0.22%.
The newly sworn in president has reiterated previous pledges of lower taxes, tariffs on trading partners and a higher energy output, whilst also calling for lower interest rates by the Federal Reserve and other major central banks. However, the Federal Reserve is poised to keep interest rates on hold “for the foreseeable future” and could even boost borrowing costs, as central banks await clarity on Donald Trump’s policies, said bond fund giant, Pimco.
The remarks come as a debate swirls around Wall Street about the future of the Federal Reserve’s rate cutting cycle over concerns that if Donald Trump follows through on his plans to enact sweeping tariffs, it could fuel higher inflation at a time when the US economy has proved to be more resilient than expected.
Trump’s plans for deregulation and tax reductions prompted a burst of enthusiasm from many US executives at the World Economic Forum in Davos this week but the mood regarding Europe was far darker with an executive at a major US bank warning of “peak pessimism” about the continent. The threat of US tariffs on Europe compounded the worries of executives and politicians at the Swiss gathering, and they warned that a rising US economic tide might fail to bolster sentiment on the other side of the Atlantic.
Forecasts from the International Monetary Fund sharply upgraded prospects for the US this year, predicting 2.7% growth, far above the Eurozone’s predicted 1% expansion. However, the IMF warned of the risk of rising prices, if Trump overstimulates the US economy while curbing the supply side of the economy through his immigration crackdown.
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