30 November 2024
by Tony Redondo
Economists have sounded the alarm over the possibility of a UK recession in 2025 after data showed Britain’s economy was reeling from the effects of Rachel Reeves’s tax-raising Budget.
A closely watched survey, the PMI (Purchasing Managers Index) showed activity among the UK’s private sector companies shrank for the first time in more than a year in November.
At the CBI (Confederation of Business Industry) conference, business leaders turned on Reeves as a string of executives warned Britain risked becoming uninvestable and Rupert Soames, the CBI President, said the Chancellor had just six months to turn things around after “milking” corporate Britain.
Currency Exchange Rates Update
The Pound Sterling to Euro exchange rate remains at the very top end of its trading range since March 2020 due to widening interest rate differentials in favour of the Pound. The exchange rate has traded within a narrow 5.5% band throughout 2024, its joint second smallest range in over a decade. With the UK-German 2-year bond yield spread hovering near its highest level since 2005, adding to the upside risk for the Pound against the Euro with the money markets pricing in almost double the amount of rate cuts by the ECB (European Central Bank) compared to the BoE (Bank of England) in 2025.
The Euro endured its worst month in over a year this month.
What’s in the news?
UK
The BoE released its half yearly financial stability report warning that rising global trade barriers threaten to drag on global economic growth and unsettle the stability of the UK’s financial system.
According to the Bank’s stability report, UK households, businesses and banks are in good shape, but the country’s financial sector faced risks that were “particularly relevant” given the openness of the UK economy.
Good news
UK mortgage approvals rose to more than two-year high before the Budget.
A giant oil discovery in the Falkland Islands is even bigger than originally thought and twice the annual North Sea output. The government of the Falkland Islands has approved production despite Labour blocking new oil and gas licences shortly after coming into office. The ban does not apply to the Falklands, which governs itself apart from foreign affairs and defence, which the British Government handles. The Falklands has declined to sign the Paris Agreement on climate change and islanders are believed to have widely supported exploration plans in a consultation held over the summer.
Not so good news
Any UK resident looking to retire to Europe faces losing 25% of their savings after Rachel Reeves changed the rules with immediate effect on moving money abroad.
Savers could previously transfer up to £1,073,100 of pension funds to most European countries tax-free. Thousands of people rushed to make the switch. But in her maiden Budget speech on 30 October, the Chancellor slammed the door shut overnight. People now have to be resident in the same country as the QROPS (Qualifying Recognised Overseas Pension Scheme) they’re transferring to if they want to escape the charge. The change does not apply to transfers that were made before 30 October.
The government’s employers’ national insurance rise could cost as many as 130,000 jobs, equivalent to a 0.4% increase in the UK unemployment rate, according to new research by Bloomberg Economics.
New data from the ONS (Office for National Statistics) shows a net 906,000 people came to the UK in the year to June 2023, a sharp upward revision from the previous estimate of 740,000. In the latest year (to June 2024) it fell but hit a still substantial 728,000.
Louise Haigh resigned as Transport Secretary after evidence came to light that she received a criminal conviction for fraud at Camberwell Green magistrates’ court in late 2014, six months before she was elected as an MP.
Given Sir Keir Starmer is a former Director of Public Prosecutions, a senior KC who, even before becoming an MP at the same election as Haigh, understood the political consequences of criminal convictions for politicians as he authorised the prosecution of a number of MPs whose careers and freedom were ended by their exploitation of the House of Commons expenses system, it is a little surprising that he knew of Haigh’s conviction back in 2020 but still selected her into his shadow cabinet and then the cabinet following Labour election win on 4 July.
Workers in Britain are worse off than they were in 2008 as the country lags behind the rest of the top economies according to the ILO (International Labour Organisation). The financial crisis, Covid pandemic and the cost of-living squeeze have combined with dire productivity and weak economic growth to give British workers one of the worst blows to living standards.
Consumer confidence in the health of the economy dipped in November according to the BRC (British Retail Consortium) sentiment monitor.
Vauxhall owner Stellantis puts over 1,100 jobs at risk with plans to close its van manufacturing plant in Luton. USA
US inflation edged higher to 2.3% in October suggesting the Federal Reserve will keep US interest rates unchanged when they next meet on 18 December.
President-elect Donald Trump said he would sign an executive order immediately after his inauguration on 20 January 2025 imposing a 25% tariff on all goods coming from Canada and Mexico. Trump, who has previously called tariff “the most beautiful word in the dictionary”, also said he plans to raise tariffs by an additional 10% on all Chinese products coming into the USA.
The EU
France’s Prime Minister, Michel Barnier, is struggling to convince markets he can get much-needed budget reform past a parliamentary vote due on 12 December. Barnier has warned that “mayhem” could erupt in financial markets if the French parliament does not support the budget bill adding that his French Government could fall. With the National Rally’s Marine Le Pen vowing to bring down his administration if her demands to better protect household purchasing power are not met, a measure of French bond risk rose to levels last seen during the euro-area debt crisis in 2012.
France’s deficit is projected to reach 6.1% of its GDP by the end of this year versus the maximum EU limit of 3%. The ratio of France’s debt to GDP is predicted to reach 112.4% by the end of 2024.
The German IFO business climate index fell again in November. The deteriorating trend has alarmed policymakers, and the financial markets now expect the ECB to cut eurozone interest rates faster and deeper in an attempt to shore up the current economic activity across Europe. This could keep the Euro under pressure as we move toward year end and into 2025.
EU Natural Gas prices have risen by 16% in November to a one year high on a mix of supply side concerns, cold weather and geopolitical tensions. The EU has vulnerability to gas supplies. Also of concern is the depleted levels of the EU reserves with stocks falling below the 5-year average.
Others
Sweden re-issued for the 5th time since WW2 a pamphlet entitled ‘In Case of Crisis or War’ this week to its 5 million citizens. Finland, Denmark and Norway have all taken similar steps in recent months.
Lombard Odier, one of Switzerland’s oldest private banks has been indicted by Swiss prosecutors for “aggravated money laundering.” It is allegedly it helped conceal the proceeds of a criminal organization set up by Gulnara Karimova, the daughter of Islam Karimov, the authoritarian president of Uzbekistan.
Societe Generale and Goldman Sachs are among the banks arguing that South Africa could outperform their emerging-market peers in 2025 because the country is relatively sheltered from the likely shocks of Trump’s policies.
The Russian authorities are trying to stem panic over the Rouble’s sharp fall this week, with the central bank stepping in to suspend the currency at one point. The Rouble weakened against the Dollar to its lowest level since March 2022, shortly after Russia invaded Ukraine.
Quote
Robert Solow, Nobel Laureate, “Why does a public discussion of economic policy so often show the abysmal ignorance of the participants?”
