23 November 2024
by Tony Redondo
We have our first economic data indicators on how Rachel Reeves’ budget impacted on the UK economy and it’s not looking good. Growth in the private sector is falling, and the verdict is a clear thumbs down.
Chris Williamson, chief business economist at S&P Global Market Intelligence said “The first survey on the health of the economy after the Budget makes for gloomy reading. Businesses have reported falling output for the first time in just over a year while employment has now been cut for two consecutive months. Business optimism has slumped sharply since the general election, dropping further in November to hit the lowest since late 2022.”
Currency Exchange Rates Update
The Pound remains at the top end of its trading range since March 2022 against the Euro, otherwise it’s all downhill.
Against the US Dollar, the Pound has fallen to a 6-month low. Against the Canadian Dollar, it’s a 14-week low. Against the Australian Dollar, it’s a 7-week low.
The euro slid to a two year low on Friday against the US Dollar.
What’s in the news?
The currency markets are betting big that Donald Trump’s policy agenda is about to jumpstart volatility in the $7.5 trillion-a-day foreign exchange market with hedge funds scooping up options contracts that pay out if currency swings increase and strategists are dramatically revising their currency forecasts for 2025.
UK
Good news
Downing Street announced the UK is to relaunch trade talks with India and form a new economic partnership with Japan.
Trade discussions with India will reopen at the start of 2025 following a bilateral meeting between Sir Keir Starmer and Indian leader Narendra Modi at the G20 summit in Brazil.
Starmer also met the Japanese Prime Minister, Shigeru Ishiba with the two leaders discussing the UK-Japan relationship across trade, climate and security.
Not so good news
The Governor of the BoE (Bank of England) Andrew Bailey said a group of retailers were “right” to warn of sweeping job cuts as a result of Labour’s punishing £40bn tax raid announced in the 30 October Budget.
A group of Britain’s biggest supermarkets and retail chains, including Tesco, M&S, Boots and B&Q, wrote to the Chancellor Rachel Reeves warning that job losses and price rises were “inevitable” due to Labour’s decision to land business with a £25bn national insurance tax bill and lift the minimum wage.
The letter was signed by over 70 companies and coordinated by the BRC (British Retail Consortium) and warned the Budget would cause £7bn in extra costs and no retailers would be able to “absorb such significant cost increases over such a short timescale”.
The ONS (Office for National Statistics) reported that government borrowing hit £17.4bn in October, £1.6bn more than in October 2023 and the second-highest figure for the month in more than 30 years.
The ONS also said central government debt interest payable was £9.1bn, the highest figure for any October since records began.
The ONS also reported that inflation has risen to 2.3% in October, all but cancelling any hope of a Christmas BoE interest rate cut.
The latest UK PMI survey confirmed the UK economy is under pressure, heading into recessionary territory, and revealed a significant deterioration in sentiment owing to the Labour government’s anti-business budget of 30 October.
The S&P Global survey showed the UK composite PMI fell whilst market analysts were expecting no change. The UK manufacturing sector has now fallen into contraction mode.
The all-important services sector, the biggest in the UK economy is now coming under strain, with a PMI at the make-or-break level.
The ONS said that retail sales volumes lost 0.7% month-on-month in October, well below economists’ expectations.
USA
New York City issued a drought warning for the first time since 2002.
The EU
Germany, the eurozone’s largest economy, underperformed in the third quarter of 2024 with GDP growing by just 0.1% quarter-on-quarter, revised down from an initial estimate of 0.2%. On an annual basis, the economy contracted by 0.3%, worse than the preliminary figure of a 0.2% decline.
Germany accounts for over 30% of eurozone GDP, making its struggles a significant drag on the region’s overall performance.
Chancellor Scholz has reportedly been urged by senior SDP party members to stand aside for popular defence secretary, Boris Pistorius ahead of the Federal elections scheduled for 23 February 2025.
France has launched a UK advertising campaign as it tries to lure away disillusioned businesses following the 30 October UK budget tax raid. Adverts promoting the “Choose France” campaign have appeared in UK newspapers in the weeks since Labour’s controversial Budget.
Irish Prime Minister Simon Harris is hoping to capitalize on a strong economy to secure another five years in power in a general election due on 29 November. Harris brought the vote forward from a March 2025 deadline after opinion polls showed a bump in support for the main parties in his centrist coalition.
Others
Gold is enjoying its best weekly performance since October 2023. The precious metal has surged around 30% so far this year, supported by healthy central bank buying, increasing safe-haven demand and the Fed’s cycle of cutting interest rates. Adding to the bullishness, there’s widespread expectations for more records in 2025, with Goldman Sachs and UBS both issuing positive outlooks.
Almost one year into office, Argentine President Javier Milei keeps racking up victories. Inflation is tumbling from a peak of almost 300%; a long-running budget deficit has turned into a surplus; government bonds, once seen as almost certain to sink back into default, are rallying; and the long-moribund economy has started to rebound.
Quote
Economist Ludwig von Mises, “He who is unfit to serve his fellow citizens wants to rule them.”
