24/05/2025 by Tony Redondo
PM Sir Keir Starmer announced details of a UK-EU Brexit “reset” deal: –
- EU fishing vessels will continue to have access to UK waters until 2038. Current reciprocal arrangements for fishing were due to end next year and the UK had been hoping to extend the agreement for four years, but the EU demanded and got a 12-year extension instead.
- The UK and EU will create a “Common Sanitary and Phytosanitary Area”. This means having shared rules on the movement of plants, plant products and animal products. It will make trade easier, but it means the UK accepting EU rules, which will be enforced by the European Court of Justice.
- A youth-mobility scheme will give younger people from the EU and UK, probably those 30 and under, the right to live and work in each other’s countries for a limited period, maybe three years.
- UK travellers going into Europe will be allowed to use e-gates at borders.
- A new defence and security pact means the EU and UK will work more closely together on information sharing and maritime and space security. UK firms will be allowed to bid for EU defence contracts, after the EU set up a £125billion defence fund.
What Starmer’s new UK-EU deal means for you
The BCC (British Chambers of Commerce) welcomed the new UK-EU reset deal saying that this “summit marks a new beginning” which is a turning point for British businesses.
The SFF (Scottish Fishermen’s Federation) warned Starmer’s new post-Brexit deal is a “horror show for Scottish fishermen.”, accused Starmer of selling out Scottish fishermen in the new UK-EU deal and labelled it ‘an absolute disaster’.
Currency Exchange Rates Update
The Pound closed the week close to a 7-week high against the Euro and hit its highest level against the US dollar for 39-months.
The main driver for the Pound remains interest rate differentials. It received a boost after Huw Pill, chief economist at the BoE (Bank of England) said interest rate cuts need to slow down as they are fuelling inflation.
This week, the key economic data releases include:
Tuesday USA Consumer Confidence Index
Wednesday NZ RBNZ interest rate decision
France GDP
Thursday USA GDP
Friday Germany CPI Inflation
Canada GDP
What’s in the news?
The ONS (Office for National Statistics) reported a 6.4% jump in UK house prices in March. The ONS also reported a 7.4% rise in average UK monthly private rents, highlighting ongoing challenges in the housing market.
UK
Good news
The UK’s composite PMI, a closely watched survey of private sector activity rose to 49.4 in May, up from 48.5 in April, beating expectations. The UK services sector, the economy’s largest saw its PMI rise to 50.2 from 49, beating an estimate of 50. However, manufacturing remains under pressure, with another contractionary reading of 45.1.
The ONS reported that April’s retail sales growth surpassed expectations with the warmer weather helping to drive stronger demand for food and drink.
Helen Dickinson, chief executive of the BRC (British Retail Consortium) said “The sunniest April on record brought with it a boost to retail sales. While the stronger performance was partially a result of Easter falling in April this year, the sunshine prompted strong consumer spending across the board”.
GfK’s long-running Consumer Confidence Index showed that consumer confidence improved this month in an early sign that ‘the worst has passed’.
Ofgem announced that UK energy bills are to fall as it cut the UK price cap by 7%.
Not so good news
The ONS reported that inflation bounced back up to 3.5% in April underlining the cost burden firms are taking on after Chancellor Reeves’ tax rises on employers and rise to the national living wage came into effect during ‘Awful April’. Consumer price inflation rose by 1.2% on a month-on-month basis, higher than the last monthly peak seen in October 2022. Services inflation, closely tracked by the BoE went back up to 5.7% in April from 4.7% in March.
The Insolvency Service reported that business insolvencies have soared to their highest levels in April compared to July 2024 and companies are being hit with higher taxes introduced in the Chancellor’s Autumn Budget.
S&P Global Market Intelligence reported that UK consumers remain ‘resolutely downbeat’ on the UK economy.
A Handelsbanken Wealth & Asset Management survey of business owners found nearly two out of five have either left the UK or are considering their imminent departure in the next two years. No other country except China is losing more millionaires and billionaires than the UK following last October’s budget that introduced: –
- An increase in CGT (capital gains tax) levied on entrepreneurs, up from 10% to 18% from April 2026.
- Entrepreneurs also face a 4% increase in the CGT main rate to 24% which makes it more difficult for companies to raise capital by increasing the cost of capital.
- The increase in business rates and other tax rises such as on stamp duty that are felt by entrepreneurs.
- The increase in employers’ National Insurance contributions.
- The increase in the National Minimum wage.
- The imposition of IHT (inheritance tax) on family firms, which means that if an entrepreneur is successful, he or she will have great difficulty in passing on the business to the next generation. There is evidence that family shareholders are exiting now to avoid IHT as the liability remains for 10 years (up from seven) after departure.
- It’s not just the tax rises that Labour has introduced. There’s also Angela Rayner’s Employment Rights Bill too, bringing changes around gig workers, redundancy costs and compensation that could raise the cost of hiring and slow down growth.
An FSB (Federation of Small Businesses) survey showed the increase in minimum wage, new workers’ rights and employers’ National Insurance contributions caused a third of companies to expect they would cut back on staff while only one in 10 said they planned to take more people on.
The exodus of non-doms is estimated to cost the Treasury up to £12.2bn by 2030, as the average non-dom pays up to 21 times more income tax than the median earner in the UK.
ONS data showed that Government borrowing spiked in April, marking the fourth-highest figure for the month on record.
Ruth Gregory from Capital Economics, suggested that “further tax rises are starting to feel inevitable” due to increased spending pressures and a need to balance the budget.
Maxwell Marlow of the Adam Smith Institute pointed out that over 8% of public spending is spent on debt repayment.
The CBI (Confederation of British Industry) reported that British manufacturers are experiencing a significant decline in orders and output with new manufacturing orders falling in May to their lowest since January. Ben Jones, lead economist at the CBI said, “Sentiment among UK manufacturers seems poor, reflecting a combination of rising domestic business costs and US tariff uncertainty.”
According to an FCA survey, one in four in the UK have low financial resilience, and one in 10 people have no cash savings at all whilst another 21% have less than £1,000 to draw on in an emergency.
What does the buy now pay later crackdown mean for UK fintech?
USA
30-year Treasury bond yields passed the important 5% mark for the first time since 2023 after credit ratings agency Moody’s downgraded the US credit rating, citing fiscal concerns.
Moody’s cut the US credit rating by one notch from Aaa, the highest score to Aa1.
Moody’s has assigned a “country ceiling rating” of Aaa to the US since 1949. It’s now in line with all the major credit rating agencies which have continued to give the US their second-highest available rating.
President Trump called for a 50% tariff on the European Union starting 1 June after complaining that trade negotiations have stalled.
The announcement came after Trump also threatened to impose a tariff of at least 25% on Apple if the company does not start manufacturing iPhones in the United States.
The EU
European stock markets fell sharply on Friday following Trump’s 50% tariff announcement.
Linsday James, investment strategist at Quilter, said “The fact that the EU will now face a considerably higher tariff rate than China [is] an almost unthinkable scenario just a matter of weeks ago”.
Eurozone services sector PMI data disappointingly fell from 50.1 (expansion) in April to 48.9 (contraction) in May. However, a manufacturing recovery continues. Despite the manufacturing recovery, it is the composite PMI measure that the ECB (European Central Bank) will watch, and it might be inclined to cut interest rates further to support economic activity.
Germany’s Producer Price Index showed that producer prices fell by 0.9% in April compared to the previous month. This decline marks one of the sharpest monthly drops since October 2024. The year-on-year Producer Price Index also decreased by 0.9%.
Others
The RBA (Reserve Bank of Australia) cut its key policy rate to a 2-year low of 3.85% as inflation concerns continue to recede. The move takes the RBA’s policy rate to its lowest level since May 2023.
China’s economic growth slowed in April following a strong performance in the first quarter of 2025. Retail sales growth eased to 5.1% year-on-year, down from previous levels. Both infrastructure and manufacturing fixed asset investment (FAI) experienced slight slowdowns. The property sector also weakened, with declines in both property sales and new project starts compared to the previous year. Export growth decelerated less than anticipated, though shipments to the US dropped by 21% year-on-year, while exports to ASEAN countries surged by 21%, reflecting the impact of US tariffs. Meanwhile, both the CPI (Consumer Price Index) and PPI (Producer Price Index) remain in deflation.
The New Zealand economy jumped from NZD 12 million deficit to an April trade surplus of NZD 1.4 billion, exceeding consensus estimates of $670 million with export growth outperforming import growth. Exports to the US increased by 25%, China by 30%, and the EU by 34%.
Russia could face a run on the rouble, leading to higher inflation and adding to the country’s economic woes. Last year, Russia’s Central Bank was forced to raise its key interest rate to 21%, the highest level in some 20 years in a response to growing inflation, which in April hit 10.2%. Experts believe that the most likely cause for a run on the national currency would be a failure of the upcoming peace talks to secure a lasting ceasefire in Ukraine.
Quote
President John F. Kennedy, “The cost of freedom is always high, but Americans have always paid it. And one path we shall never choose, and that is the path of surrender, or submission”
