11/10/2025 by Tony Redondo
The Budget may still be over six weeks away but there seems no end to the anxiety and speculation as to what Chancellor Rachel Reeves will announce on the 26th of November.
The respected NIESR (National Institute of Economic and Social Research) have warned Reeves that raising VAT would have a ‘serious negative impact’ on the UK economy as the chancellor weighs which taxes to put up at next month’s Budget to plug a shortfall that some estimate as high as £50bn. The analysis by the NIESR shows an increase in VAT would have the biggest negative impact of any major tax rise, leading to a 0.9% fall in GDP in the first year after the tax is applied and also push up the level of inflation, interest rates and unemployment far more than other tax rises. A corporation tax rise would be the second-worst damaging option and would likely lead to a 0.2% fall in UK GDP.
Researchers at Oxford Economics suggest another major NIC (National Insurance) tax raid is on the cards.
The left-wing IPPR (Institute for Public Policy Research) has called for the government to introduce a windfall tax on the banks.
David Postings, chief executive of UK Finance, said “The tax environment has an important bearing on investment decisions and growth. To make the UK’s approach to bank taxation globally competitive, we think the government should phase out the bank corporation tax surcharge and the bank levy over time.” HSBC boss Georges Elhedery argues that “Additional taxation on banks runs the risk of eroding our continued investment capacity in the business and in supporting our customers, and ultimately in delivering growth for the UK”. Paul Thwaite, NatWest’s chief executive, said “strong economies need strong banks” as he argued he would rather use the bank’s capital for loans to boost growth “for the good of the country”.
Currency Exchange Rates Update
Currency trading volumes surged to a record $10tn a day in April on heightened volatility following Trump’s “liberation day” tariffs announcement on 2 April. The BIS (Bank for International Settlements – the central bank’s central bank) report highlights the dollar’s dominance in 89% of trades with the UK’s continued lead as the top currency exchange trading hub in the world.
The Pound endured its worst week since January, down nearly 1% on the week against the US Dollar to at one point hit its lowest level since the beginning of August. Heading into the Budget, the markets are quietly bracing for potential trouble for the Pound.
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For now, it’s a case of Dollar strength as the markets focus has shifted from concern over the US budget deficit and government shutdown to fiscal concerns in the UK, France and Japanand the latest tariff flare up between the US and China.
Against the Euro, the Pound traded within a one cent range and finished little changed on the week.
This week, the key economic data releases include:
Monday China Trade Balance
Tuesday UK Unemployment & Wages Data
Germany CPI Inflation & ZEW Business Confidence
Wednesday China CPI & PPI Inflation
Thursday UK GDP & Industrial Production
US PPI Inflation & Retail Sales
Friday EU CPI Inflation
What’s in the news?
UK
Post Labour Party Conference, the latest polling from Opinium shows Labour leader Keir Starmer’s approval rating continuing to slide as Reform leader Nigel Farage extends his lead over Starmer to five points, up three points over the Labour Conference week. Across a range of metrics, perceptions of Labour worsened over its Conference week.
More in Common’s new poll, released last Wednesday, shows Reform up to a new high of 33%, gaining three points in just over a week in a fresh blow for both Labour and the Tories.
The number of Liberal Democrat party members has almost halved in the last five years, with membership plunging from just under 118,000 in 2020, when Sir Ed Davey became leader, to 60,000, despite the Lib Dems having their most successful general election ever last year with 72 seats won.
Good news
The ONS (Office for National Statistics) has revised down UK government borrowing for the current fiscal year by £2bn after HMRC alerted the agency to inaccuracies in VAT receipts. The ONS also reduced its estimate for borrowing in the previous financial year by a further £1bn. The admission deals another blow to the credibility of the ONS but will provide relief for Reeves ahead of her second Budget.
Nearly 7,000 jobs in the UK will be created as a result of more than £1billion of investment in Britain by Indian firms following the UK’s giant trade deal with India agreed three months ago with sixty-four investors pumping £1.3billion into dynamic British businesses. Shevaun Haviland, the director-general of the BCC (British Chambers of Commerce), said that while business confidence was “fragile” events such as the trade mission to India were “crucial” to helping growth. PM Keir Starmer on a two-day visit to Mumbai last week signed two major defence agreement with India in a combined £600 million deal.
Not so good news
The latest forecasts from the OBR (Office for Budget Responsibility) spell more trouble for Reeves with the Treasury expressing concerns over stagnant productivity.
Business activity in the UK services sector fell to a five-month low in September. Tim Moore, economics director at S&P Global Market Intelligence, noted that “elevated political and economic uncertainty” is hindering performance. The report highlighted sluggish demand and rising staff costs as key issues. Many businesses are deferring spending decisions until after the Budget, while households were also hesitant about major purchases.
Business activity expectations in the UK construction industry have dropped to their lowest since late 2022, according to the latest Purchasing Managers Index (PMI) from S&P Global.
Reeves’ tax agenda has dragged business confidence to a three-year low, according to a new survey by the ICAEW (The Institute of Chartered Accountants in England and Wales). The drop in confidence was blamed on squeezed profits, low recruitment and investment levels, and rising tax fears ahead of the Budget.
New monthly findings by the REC (Recruitment and Employment Confederation) and KPMG have pointed to another rise in people out of work and looking to be hired. The ONS revealed last month that the number of job postings available in the labour market in August had reached 728,000, one of the lowest recorded figures since spring 2021.
The UK’s ailing steel sector is facing the “biggest crisis in its history” with 80,000 UK jobs under threat after the EU unveiled plans to double tariffs on all steel imports in a bid to revive its moribund steelmaking capacity. The move, an attempt to shore up domestic production and protect its steelmakers from a flood of cheap Asian imports amounts to one of the most radical shake-ups of European trade policy in recent history and has left British steel producers reeling just months after Donald Trump targeted the sector with his own set of tariffs. In May, Starmer announced a new deal with the EU claiming the Brexit reset will “get the best for the British people”. Today, Starmer stands accused of ‘totally failing’ the British steel industry.
USA
In the past 50 years the US Government has shut down 21 times. The longest was in 2018 and lasted 5 weeks. The latest started on 1 October with no end in sight.
The US manufacturing sector contracted for a seventh consecutive month in September while the services index fell 2 points to 50, a level that signals stagnation. The prices paid component in services rose to 69.4, one of the highest readings in three years.
President Donald Trump said the US will impose a new 100% tariff on imports from China “over and above any Tariff that they are currently paying,” starting on 1 November. Trump also said that the US will also impose export controls on “any and all critical software” in a move seen as retaliation for new export controls that China imposed on rare earths mineral exports. Around 70% of the global supply of rare earths minerals comes from China. The minerals are essential for high-tech industries, including automobiles, defence and semiconductors.
The US stock markets plunged on the announcement, with the Dow dropping almost 900 points and the S&P 500 declined the most since April. Prior to Trump’s announcement, the Nasdaq hit a new all-time intraday high.
The US stock market bull run is three years old on Sunday and according to giant Swiss investment bank, UBS could have even more room to run. Burkhard Varnholt, senior financial market adviser at UBS Switzerland AG said “Three years ago, the current bull market emerged from the preceding bear market. In 2022, soaring electricity prices in Europe, Russia’s invasion of Ukraine, global supply chain inflation, and recession fears caused markets to plunge by more than 20 percent. On 12 October 2022, the S&P 500 stood at 3,591 points. Today, three years later, it trades at nearly twice that level.” Looking ahead, Burkhard added that he doesn’t believe that the market’s rally is already in a bubble, taking the position that it actually isn’t due to tire out, saying “We believe the current bull market remains intact and the present AI rally is not a market bubble. Rather, we expect that this decade’s technological surge will trigger irreversible socioeconomic developments.”
The EU
GDP in the second quarter of 2025 rose by only 0.1% quarter-on-quarter, while PMI surveys in Germany and France continue to show weakness in the manufacturing sector. Although headline inflation across EU eased close to 2%, weak consumer demand, slowing credit growth all point to a possible technical recession. If growth fails to improve soon, the ECB may be forced to consider more interest rate cuts in early 2026, a move that could exert downward pressure on the euro.
Political and fiscal tensions within Europe continue to weigh on investor sentiment. Disputes over national budget plans, particularly in Germany and Italy raise concerns about the EU’s ability to enforce common fiscal discipline.
German industrial production figures fall well short of expectations, adding to worries about the EUs biggest economy stalling. Germany’s manufacturing output dropped unexpectedly in August, falling to its lowest level in 20 years. German factory orders disappointed with a fall of 0.8% month-on-month.
French President Emanuel Macron reappointed former Prime Minister Lecornu as France’s PM, his ninth PM in the last ten years and only four days after Lecornu resigned, making him the shortest-serving Prime Minister in the history of the French Fifth Republic. In naming Lecornu, Macron, risks the wrath of his political rivals, who have argued that the best way out of the country’s deepest political crisis in decades was for Macron to either hold snap parliamentary elections or resign. Lecornu’s immediate task will be to deliver a budget to parliament by the end of Monday. France’s political turmoil, which has dented growth and spooked financial markets, was in large part triggered by Macron’s decision last year to hold a legislative election, a gamble that delivered a hung parliament split between three ideologically opposed groups.
The French German 10-year government bond yield spread widened to 86 basis points, its highest level since January.
Others
China responded to Trump’s latest tariff salvo by announcing new port fees on American ships docking at Chinese ports, starting on 14 October. The US accounts for 0.1% of global shipbuilding, versus 53.3% for China.
The World Bank downgraded Russia’s growth outlook last week, saying Russia is heading toward stagnation rather than a “managed slowdown.” Russian oil output is set to decline with output projected to decline by 10% by 2030.
Australia’s inflation rose in September with the Melbourne Institute’s index rising 0.4% after a 0.3% drop in August. Annual inflation edged up to 3%, with a third quarter average of 2.7%. The odds on a November interest rate cut by the RBA (Reserve Bank of Australia) have dropped to 40%, down from 76% two weeks ago.
The RBNZ (Reserve Bank of New Zealand) cut NZ interest rates by a bigger than expected 0.5% to 2.5% last week and retained an easing bias as economic pressures extend. NZ business confidence fell to its lowest level since December and the NZIER quarterly survey showed rising inflation pressures. Hiring and investment plans also weakened.
Gold price reached $4,000 an ounce for the first time ever last Tuesday. Gold prices have soared this year as investors seek a safe haven from a weaker dollar and geopolitical and economic uncertainty. This year, silver prices have also rallied strongly, up by circa 59%, not only as a safe-haven asset alongside gold, but also due to silver’s industrial applications.
Quote
T S Eliot, Poet, essayist and playwright, “Anxiety is the hand maiden of creativity”
