21/06/2025 by Tony Redondo
On 4 July, Labour will have been in power for exactly a year. On reflection, is the UK in need of a factory reset?
The UBS’s (Union Bank of Switzerland) annual Wealth Report shows the UK has suffered the second highest fall in wealth of any major economy in 2024. Average household wealth in Britain fell 3.6% over the course of last year, reversing a trend of healthy growth of over 6% since the start of the decade. The only country that eclipsed the UK households’ wealth drop was crisis-ridden Turkey, which is in the grips of an economic crisis that in 2024 saw inflation top 75% and interest rates reach 50%.
The US comes out on top of the survey with the value of households’ assets growing by 11% in the US compared to 4.6% worldwide. The US gained more than 1,000 millionaires a day over the year with the S&P 500 stock market index in New York rising by over 25%. In contrast, the FTSE 100 index in London grew by just 5.7% in 2024.
Last December, a Henley and Partners study estimated that 10,800-dollar millionaires had left Britain in 2024, with departures expedited by the government’s decision to scrap the non-dom status along with other tax rises in its Autumn Budget.
An analysis by the CPS (Centre for Policy Studies) following the Chancellor’s Spending Review concluded that the public sector will spend nearly £1.5 trillion by 2028/9. The three biggest items are healthcare, welfare and servicing government debt. The size of the government is on course to grow by 23% from 2020 to the end of the decade, over which time the rate of economic growth is expected to be just 11%. In other words, the state gets bigger as the country gets poorer.
No wonder the FT reports that Chancellor Rachel Reeves is considering another U-turn, this time over inheritance tax after non-doms and entrepreneurs have fled the UK since her budget in October 2024 when she introduced a 40% inheritance tax on global assets. Before Labour came to power, the party claimed that the crackdown on non-dom trusts would bring in £430m each year. The OBR (Office for Budget Responsibility) estimates the tax would bring in half as much.
Meanwhile, Ed Miliband’s Energy Department has quietly admitted that renewables and other low-carbon technologies essential to the rapid drive to net zero are more expensive than using fossil fuels, making energy bills higher for British consumers. The CBI (Confederation of British Industry) has asked the government to end net zero levies, pointing out that UK industrial electricity bills are nearly 50% higher than in France and Germany and roughly four times higher than in the US. The UK is importing £40bn of gas and oil energy from Norway. New coal mining licences have been banned. The Energy department is spending £500m this year alone paying wind power companies to not generate power from wind farms, due to capacity issues plus £30bn of taxpayers’ money on carbon capture machines and solar panels are going up all over prime farmland at the same time as £50m is allocated on experiments to dim the sun. Miliband now faces his own U-Turn, forced to look again at North Sea oil and gas projects in a drive to lower energy bills. Even the union bosses have got in on the act, saying that Miliband’s net-zero plans risk causing blackouts.
In the education sector, the government has imposed VAT on private school fees. Schools have closed and thousands of pupils have moved into the crowded state sector, many thousands more than the government said would be the case. The policy will not raise the money that ministers claimed and the state sector will pay the price.
Whether it’s this Labour government’s policy on non-doms, the increase in employers National Insurance Contributions and the National Minimum Wage, the Miliband crackdown on the North Sea oil and gas sector or the imposition of VAT on private schools, all are ideological decisions that in real life have backfired. Some would argue that Britain is in dire need of a factory reset.
Currency Exchange Rates Update
The Pound has fallen to an eight-week low against the Euro.
Against the US Dollar, the Pound fell by over 0.8% last week. The more the war drums beat, the more investors will seek shelter in the ultimate safe haven currency, the US Dollar.
The US Dollar has had a rough ride in 2025. A key reason often gets overlooked. It’s the US NIIP (Net International Investment Position). The NIIP measures how much it owns abroad versus how much the world owns in the US. In 2025, the US is in the red to the tune of around $26 trillion or nearly 80% of GDP. That means foreign investors hold way more American assets than Americans hold abroad. This is fine when confidence is high. 2025 to date has been a textbook example of how a negative NIIP can lead to currency pain. Foreign investors, worried over the US debt and erratic US trade policy, have started easing off their US asset exposure leading to big capital outflows. When more Dollars are sold and fewer bought, the Dollar slides. Against the Pound, the Dollar is down nearly 12% in the first half of this year. Against the Euro, its down over 13%.
This week, the key economic data releases include:
Monday UK Nationwide House Prices & PMI Manufacturing
EU PMI Composite
Tuesday Canada CPI Inflation
Wednesday Spain GDP
Thursday US GDP
Friday EU Consumer Confidence
Canada GDP
US Consumer Confidence
What’s in the news?
Last week was a busy one for central bank interest rate decisions. The Bank of England, Federal Reserve and Bank of Japan all held rates unchanged, but Switzerland, Sweden and Norway all cut.
Six members of the interest rate setting MPC (Monetary Policy Committee) voted to keep rates unchanged at 4.25% and three voted for another 0.25% cut to 4%. Add in the recent soft UK economic data and the markets have priced in not one but two further interest rates before the end of 2025.
Leading industry figures were left disappointed by the BoE decision and warned that the UK economy will suffer from high borrowing costs. Suren Thiru, economist at the Institute of Chartered Accountants in England and Wales, said the decision to hold interest rates is a “big blow” to UK businesses.
UK
In pollster More in Common’s latest voting intention poll, Labour on 21 points has slumped to third place behind Reform UK on 29 points and the Conservatives on 22 points.
A poll in Wales suggests Reform UK would take power in Wales if there was an election tomorrow. Nigel Farage’s insurgent party is in the lead on 29% in the Welsh Parliament voting intention tracker by Find Out Now. Welsh nationalist party Plaid Cymru is second with 27%. Labour, which has governed Wales for more than a century trails behind in third place on 18%. The Tories are fourth on 11% with both the Liberal Democrats and the Greens on 7%. The poll comes ahead of the next Senedd election which will take place in May 2026.
Labour whip Vicky Foxcroft has resigned over Labour slashing the benefits bill in a blow to PM Keir Starmer. Dozens of Labour rebels last month warned that the proposals were “impossible to support”.
Rightmove reported an unusual dip in the average price of a home coming to the market for sale of 0.3% this month. This compares to an average increase in June of 0.4% over the last ten years.
Good news
Banking industry body UK Finance reported that High Street banks are scaling up their lending to small businesses, with the first quarter of 2024 hitting the highest amount since 2022. Lenders issued £4.6bn worth of loans in the first three months of the year marking a 14% year-on-year jump. The rise was driven by a surge of lending to agriculture, manufacturing, wholesale and retail sectors.
British Steel won a £500m contract with Network Rail in a deal that helps secure the future of its Scunthorpe steelworks. The agreement will see British Steel supply up to 80,000 tonnes of rail per year to the body which manages the UK’s railway infrastructure, around 80% of the track it needs.
US President Donald Trump signed an executive order lowering tariffs on UK car imports, activating parts of the trade deal agreed with Britain last month. Speaking at the G7 summit in Canada, UK PM Sir Keir Starmer called it a “very important day” for both nations with the order reducing the tariff on up to 100,000 UK cars entering the US from 25% to 10%. The deal stopped short of scrapping tariffs on steel.
US private capital giant Apollo is lending £4.5 billion to fund the UK’s Hinkley Point nuclear power station. The deal is among the biggest private capital investments in a project of UK national interest.
Not so good news
The ONS (Office for National Statistics) reported that UK Government borrowing in May surged to £17.7bn, the second-highest May borrowing figure since records began more than 30 years ago and higher than the OBR (Office for Budget Responsibility) forecast. The failure to close the deficit in day-to-day spending has led to national debt rising by 0.5% compared to last year to hit 95.5% of GDP. This despite the government taking an extra £10bn from taxpayers in May compared to a year ago.
Deutsche Bank is forecasting that Chancellor Rachel Reeves may have to find an extra £10bn to fund her spending splurge on the NHS and schools while KPMG believe she could be forced into finding an extra £20bn from the taxpayer.
The CBI (Confederation of British Industry) cut its UK economic growth forecasts for 2025 and 2026 due to rising labour costs, US tariffs, and weakening business sentiment. The CBI now predicts growth of 1.2% for 2025, down from 1.6%, and 1% for 2026, down from 1.5%. The CBI report says that higher payroll taxes, minimum wage increases, and social security contributions are raising business costs, affecting hiring, investment, profits, and prices.
Official data from the IS (Insolvency Service) shows an 8% increase in companies going bust after the ‘Awful April’ tax rises announced in the 2024 budget. In May, there was 2,238 company insolvencies, an 8% rise compared to April and 15% higher compared to the same period in 2024. In addition, there were 1,734 creditor’s involuntary liquidations, 354 compulsory liquidations, 136 company administration and 14 company voluntary arrangements.
The ONS reported inflation hit 3.4% in the year to May and services price growth, closely monitored by the BoE, slowed to 4.7% compared to 5.4% in April.
Accountancy firm S&W reported that as many as one in three businesses across Britain are planning another round of job cuts to deal with the pain of Rachel Reeves’ national insurance raid. In addition, many firms are planning on hiring freezes and reducing hours worked by staff.
The ONS reported the largest month-on-month drop in retail sales since December 2023.
The world’s largest hydrogen producer, Air Products of the USA has abandoned its plans to open a £2bn British factory in Humberside that would have employed around 3,000 people after Ed Miliband’s energy department refused to support any ammonia-based hydrogen projects.
The UK’s largest fibre glass factory is to close after rescue talks collapsed, smashing an industry worth more than £2bn to the UK economy according to sector group British Glass. The Wigan site of Nippon Electric Glass made fibreglass that is used to reinforce plastic for composites found in wind turbine blades and electric cars.
Official statistics from the Ministry of Housing, Communities and Local Government reviewing planning applications in England for January to March 2025 showed that planning approvals fell by 9% despite a 6% rise in applications.
USA
The Federal Reserve cut its outlook for the US economy but held interest rates steady for the fourth consecutive meeting in a row with policymakers split on whether they would be able to reduce interest rates at all this year as Donald Trump’s tariffs bring risks of higher inflation.
The Fed’s average estimate for inflation at the end of 2025 was raised from 2.7% to 3% while forecast for economic growth in 2025 was marked down from 1.7% to 1.4%.
The EU
The Leibniz Centre for European Economic Research released its economic sentiment indicator which showed a big improvement in the mood of German companies between April and May.
April’s power outages in Spain and Portugal were caused by a glut of solar power sent prices plunging, triggering a mass switch-off according to the official report. The blackouts left more than 60m people across the Iberian Peninsula without power. The mass switch-off sent voltage and frequency fluctuations cascading across the national grids of both Spain and Portugal and the back-up systems meant to guard against such fluctuations were not in effect.
Others
China’s May retail sales grew at their fastest pace since December 2023 with government subsidies boosting domestic consumption but growth in industrial output slowed to 5.8% year-on-year in May. The urban survey-based unemployment rate in May came in at 5%, the lowest level since November.
After four consecutive months of growth, New Zealand’s BusinessNZ Manufacturing PMI fell sharply between April and May, signalling a return to contraction. Weak business confidence, rising costs, and sluggish demand have stalled the sector’s recovery.
Stranger than fiction
A new satellite was launched from India this week that can detect changes on Earth’s surface down to the centimetre. Weighing almost three tonnes, the US$1.5 billion NISAR satellite will track the ground under our feet and the water that flows through it, providing valuable information for farmers, climate scientists and natural disaster response teams.
Quote
Rodrigo Roa Duterte, Filipino lawyer and politician who served as the 16th president of the Philippines from 2016 to 2022, “It is easier to build from scratch than to dismantle the rotten and rebuild upon its rubbles.”
