economic Archives

Economy set for short term Budget boost

Posted on 4 November 202428 March 2025 by Sophie Soraf

Economic review October 2024

New economic projections produced by the Office for Budget Responsibility (OBR) suggest the Labour administration’s first Budget will provide only a ‘temporary boost’ to UK economic output.

Chancellor Rachel Reeves revealed the independent fiscal watchdog’s latest forecast during her Autumn Budget delivered to the House of Commons on 30 October. The updated figures predict the economy will expand by 1.1% this year and 2.0% in 2025, slightly higher than the OBR’s March forecast, with growth then falling back across the remainder of this Parliament. The OBR concludes that the Budget’s overall impact will leave ‘the level of output broadly unchanged at the forecast horizon.’

Before the Budget, the latest monthly gross domestic product (GDP) data released revealed that the UK economy returned to growth after two consecutive months of stagnation. The Office for National Statistics (ONS) figures showed the economy expanded by 0.2% in August, with all major sectors posting some growth. Despite August’s pick up, ONS warned that the broader picture in recent months was one of ‘slowing growth’ compared to the year’s first half.

This loss of momentum was also highlighted in the latest S&P Global/CIPS UK Purchasing Managers’ Index (PMI), with its preliminary headline growth indicator falling to 51.7 in October from 52.6 the previous month. While remaining above the 50 threshold that denotes expansion in private sector output, this latest reading was the lowest since last November.

Commenting on the survey, S&P Global Market Intelligence’s Chief Business Economist Chris Williamson said, “Business activity growth has slumped to its lowest for nearly a year in October as gloomy government rhetoric and uncertainty ahead of the Budget dampened business confidence and spending. The early PMI data are indicative of the economy growing at a meagre 0.1% quarterly rate in October.”

UK inflation falls sharply

Official consumer price statistics released last month revealed a larger-than-expected fall in inflation, potentially paving the way for further interest rate cuts in the coming months.

ONS data showed the annual headline rate of inflation dropped from 2.2% in August to 1.7% in September. The fall, which took the rate to its lowest level since April 2021, was primarily driven by lower airfares and petrol prices.

The decline was more significant than economists had anticipated, with the consensus forecast in a Reuters poll predicting a September reading of 1.9%. It also took the figure decisively below the Bank of England’s (BoE) 2% target, and further fuelled market expectations for more interest rate cuts this year.

Last month, however, two of the BoE’s nine-member rate-setting Monetary Policy Committee (MPC) advocated the continuation of a cautious approach to monetary easing. Megan Greene, for instance, suggested volatile components had driven September’s sharp inflation fall and again stated her preference for rate cuts to be gradual, while Catherine Mann said the cooling of price growth still had “a long way to go” for the Bank to hit its 2% target over the medium term.

In early October, though, BoE Governor Andrew Bailey (another MPC member) told the Guardian that, provided there was further welcome news on the inflation front, he felt the Bank could become “a bit more aggressive” in its rate-cutting approach. In a recent Reuters survey, 72 economists said they believe a quarter-point rate reduction would be announced after this month’s MPC meeting on 7 November.

Market expectations for the speed of monetary easing over the coming 12 months, however, eased back after the Budget, as the Chancellor’s big spending plans raised fears of a pick-up in inflationary pressures next year.

Markets (Data compiled by TOMD)

UK indices moved lower on the last day of October as markets continued to digest the Budget announcement, during which Chancellor Rachel Reeves unveiled £40bn of tax rises. On 31 October, the Institute for Fiscal Studies (IFS) warned about the likelihood of further tax rises following the Budget.

The FTSE 100 index closed October on 8,110.10, a loss of 1.54%, while the mid cap focused FTSE 250 closed the month 3.16% lower on 20,388.96. The FTSE AIM closed on 737.10, a loss of 0.45% in the month. The Euro Stoxx 50 closed the month on 4,827.63, down 3.46%. At month end, the Bank of Japan retained interest rates at their ultra-low level as it monitors global economic developments and potential risks to domestic recovery. The Nikkei 225 closed October on 39,081.25, a monthly gain of 3.06%.

With voters poised to take to polling stations stateside, robust economic data at month end confused the backdrop for imminent Federal Reserve rate cuts, as US stocks and government bonds fell. The Dow Jones closed the month down 1.34% on 41,763.46. The tech-orientated NASDAQ closed the month down 0.52% on 18,095.15.

On the foreign exchanges, the euro closed the month at €1.18 against sterling. The US dollar closed at $1.28 against sterling and at $1.08 against the euro.

Gold closed October trading at $2,734.15 a troy ounce, a monthly gain of 3.96%. Towards the end of the month, the precious metal traded higher as demand surged ahead of Diwali and the US election; uncertainty over the election outcome has made investors focus on the safe haven asset. Brent crude closed the month trading at $72.62 a barrel, a gain over the month of 1.35%. Oil prices stabilised at month end after rallying due to robust fuel demand in the US and reports that OPEC+ may delay an increase in output.

Index	Value (31/10/24)	Movement since 30/09/24
FTSE 100	8,110.10	-1.54%
FTSE 250	20,388.96	-3.16%
FTSE AIM	737.10	-0.45%
Euro Stoxx 50	4,827.63	-3.46%
NASDAQ Composite	18,095.15	-0.52%
Dow Jones	41,763.46	-1.34%
Nikkei 225	39,081.25	+3.06%

Retail sales rise for third successive month

Recently published ONS statistics showed that retail sales rose for the third month in a row in September, although more up-to-date survey data does point to a recent slowdown as consumers paused spending ahead of the Budget.

The latest official retail sales figures revealed that total sales volumes rose by 0.3% in September, with ONS saying tech stores were the main driver of growth, reflecting a sales boost from the new iPhone launch. September’s growth defied economists’ expectations for a monthly 0.3% decline and, combined with July and August’s strong gains, resulted in sales volumes rising by 1.9% across the whole of the third quarter, the joint largest increase since mid-2021.

More recent survey evidence, however, does suggest consumers became more cautious in the run-up to the Budget. The latest GfK Consumer Confidence index, for instance, found that sentiment fell to a seven-month low in October as concerns over possible tax hikes hit confidence.

Data from last month’s CBI Distributive Trades Survey also points to a recent dip in consumer spending. The CBI noted that retail sales volumes ‘slipped back slightly in October,’ adding that some retailers had highlighted ‘increased consumer caution’ ahead of the Autumn Budget.

More signs of a cooling jobs market

The latest batch of labour market numbers revealed fresh evidence of a softening in the UK jobs market with both an easing in pay growth and a further fall in the overall level of vacancies.

Statistics released by ONS last month showed that average weekly earnings excluding bonuses rose at an annual rate of 4.9% in the three months to the end of August. This figure was down from 5.1% in the previous three-month period and represents the slowest rate of pay growth for over two years.

Adding to signs of a cooling jobs market, the release also revealed another decline in the level of vacancies. In total, ONS said there were 34,000 fewer job vacancies reported between July and September 2024 compared to the previous three-month period; this represents the 27th consecutive monthly fall in the number of vacancies.

Last month also saw a number of recruitment firms report a more recent slowdown. Robert Walters, for instance, noted a pause in jobs market activity in the run-up to the Autumn Budget, while James Reed, CEO of recruitment consultancy Reed, said the UK labour market was experiencing “a slow-motion car crash” with firms lacking the confidence to hire new staff.

All details are correct at the time of writing (1 November 2024)

It is important to take professional advice before making any decision relating to your personal finances. Information within this document is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor. No part of this document may be reproduced in any manner without prior permission.

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UK economic growth forecast upgraded

Posted on 3 October 202428 March 2025 by Sophie Soraf

Economic review September 2024

On markets at the end of September, with investors and traders closely monitoring regional developments.

At month end, stocks retreated following implications from Federal Reserve Chairman Jerome Powell that further interest rate cuts are likely to occur at a more measured pace.

Across the pond, the Dow Jones closed the month up 1.85% on 42,330.15. The tech-orientated NASDAQ closed the month up 2.68% on 18,189.17.

On home shores, the FTSE 100 index closed the month on 8,236.95, a loss of 1.67%, while the FTSE 250 closed the month 0.16% lower on 21,053.19. The FTSE AIM closed on 740.43, a loss of 4.15% in the month. The Euro Stoxx 50 closed the month on 5,000.45, up 0.86%. In Japan, the Nikkei 225 closed September on 37,919.55, a monthly loss of 1.88%.

On the foreign exchanges, the euro closed the month at €1.20 against sterling. The US dollar closed at $1.33 against sterling and at $1.11 against the euro.

Brent crude closed September trading at $71.65 a barrel, a loss over the month of 6.74%. The conflict in the Middle East is causing some price volatility. OPEC+ plans to begin increasing production in December is pressurising prices, while weak demand in China also weighs. Gold closed the month trading at $2,629.95 a troy ounce, a monthly gain of 4.64%. Prices retreated at month end, reversing recent strong gains as increased safe-haven demand prompted a rally in the precious metal.

Index	Value (30/09/24)	Movement since 30/08/24
FTSE 100	8,236.95	-1.67%
FTSE 250	21,053.19	-0.16%
FTSE AIM	740.43	-4.15%
Euro Stoxx 50	5,000.45	+0.86%
NASDAQ Composite	18,189.17	+2.68%
Dow Jones	42,330.15	+1.85%
Nikkei 225	37,919.55	-1.88%

Retail sales stronger than expected

The latest official retail sales statistics revealed a healthy growth in sales volumes during August, while more recent survey data points to further modest improvement both last month and in October.

Figures released by ONS showed that total retail sales volumes rose by 1.0% in August, following upwardly revised monthly growth of 0.7% in July. ONS reported that August’s rise, which was higher than economists had predicted, was boosted by warmer weather and end-of-season sales.

Evidence from last month’s CBI Distributive Trades Survey also suggests retailers expect the summer sales improvement to have continued into the autumn period, with its annual retail sales gauge rising to +4 in September from -27 in August. In addition, retailers’ expectations for sales in the month ahead (October) rose to +5; this represents the strongest response to this question since April 2023.

CBI Principal Economist Martin Sartorius said retailers would “welcome” the modest sales growth reported in the latest survey. He also added a note of caution saying, “While some firms within the retail sector are beginning to see tailwinds from rising household incomes, others report that consumer spending habits are still being affected by the increase in prices over the last few years.”

National debt looks set to soar

Analysis published last month by the Office for Budget Responsibility (OBR) suggests national debt could triple over the coming decades if future governments take no action.

In its latest Fiscal Risks and Sustainability Report, the OBR said debt is currently on course to rise from almost 100% of annual GDP to 274% of GDP over the next 50 years due to pressures including an ageing population, climate change and geopolitical risks. It also warned that, without any change in policy or a return to post-war productivity levels, the public finances were unsustainable over the long term, and that ‘something’s got to give.’

The OBR is also tasked with producing a more detailed five-year outlook for the country’s finances that will be published alongside Chancellor Rachel Reeves’ first Budget, due to be delivered on 30 October. The Chancellor has previously warned the Budget will involve “difficult decisions” on tax, spending and welfare.

Data released last month by ONS showed that government borrowing in August totalled £13.7bn, the highest figure for that month since 2021. This took borrowing in the first five months of the financial year to £64.1bn, £6bn higher than the OBR forecast at the last Budget.

All details are correct at the time of writing (1 October 2024)

This material is intended for information purposes only and is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Tees is a trading name of Tees Financial Limited, which is regulated and authorised by the Financial Conduct Authority. Registered number 211314.

Tees Financial Limited is registered in England and Wales. Registered number 4342506.

Investing for the long term – lessons from the past

Posted on 27 September 202228 March 2025 by Sophie Soraf

The emergence of COVID-19 brought a rapid end to the drawn-out recovery of major stock markets from the share price lows associated with the financial crisis a decade ago. When the scale of the threat to lives and livelihoods became apparent, market analysts and investors reassessed the global economic outlook and corporate prospects; they didn’t like what they saw and a wave of selling followed, with inevitable consequences. Most share prices, and thus stock indices, were impacted, with market volatility continuing throughout 2020.

Market analysts and investors aren’t infallible, but when something like COVID-19 strikes they get nervous because closed borders, flight bans and lockdowns can pose a threat even to large companies, especially in exposed sectors. Axed dividends and distressed rights issues are anathema to the jittery; and the largest blue-chip companies aren’t immune. Little wonder then that the 100 shares comprising the UK’s blue-chip share index, the FTSE 100, rapidly lost about one-third of their combined value in late Februaryv and March 2020.

Lessons from history

Created in 1984 with a starting level of 1,000 points to provide a wider index of leading shares quoted in London, the FTSE 100 largely superseded the narrower Financial Times 30-share index launched in 1935. As a barometer of economic outlook and corporate prospects, the FTSE 100 has gauged a few storms over the past 36 years. A chart of its progress reveals a plethora of spikes and dips, the starkest of which can be associated with key events in recent financial history.

Chart: FTSE 100 since inception to 1 September 2021, source Yahoo and Trading Economics

Not the first FTSE 100 dip

After its launch on 3 January 1984, the FT’s new share index only slipped very briefly below 1,000 points that year. It then made progress, sometimes faltering, to hit 2,000 points by March 1987, by then buoyed by the effect of the previous October’s ‘Big Bang’ modernisation of the London Stock Exchange’s trading structure. Six months of further upticks followed and the index broke through 2,350 in early October 1987. It would be two years before that level was attained again.

On 19 October 1987, the Monday after The Great Storm ravaged Southern England, global stock markets suffered a crash so severe that the day became known as Black Monday. A tsunami of selling, much of it blamed on new-fangled computer-program trading, rapidly took the FTSE 100 down to around 1,600, starting with an 11% drop on the Monday and 12% the next day.

A 1,000-point drop

High interest rates and other threats to UK economic growth and even talk of an impending recession brought a 1,000-point drop in the FTSE 100 in the autumn of 1998, almost all of it recovered by the year-end. General bullishness continued through 1999, which ended with the index nudging 7,000. As the year 2000 unfolded, a combination of overvaluation, epitomised by the rapidly inflating ‘dotcom bubble’, and a global economic slowdown brought further investor jitters.

The bull market had marched the FTSE 100 up the hill; the ensuing three-year bear market marched it back down again to around 3,600 in the spring of 2003. The index would take another five years to climb back above 6,500, where it was delicately poised for the next big shock: the 2008 collapse of US investment bank Lehman Brothers and the cascade of failures prompting what became known simply as ‘the global financial crisis’. By March 2009, the index was down around 3,500 again.

Long term trend

It was a long haul back from there for the FTSE 100 but, after gyrations associated with various stages of the Brexit process, the start of 2020 saw it comfortably above 7,000. News of a new virus outbreak in an unfamiliar Chinese city seemed at first like a distant threat. As the outbreak turned into a pandemic, global markets faltered again and the FTSE 100 headed below 5,000 before recovering some of the loss. COVID-19 has brought a reset of the blue- chip barometer, the FTSE 100 index.

Despite a variety of market shocks and rebounds, the index still has a long term growth trend. It is important to remember that some market volatility is inevitable; markets will always move up and down. As an investor, putting any short-term market volatility into historical context is useful.

Financial advice and regular reviews are essential to help position your portfolio in line with your objectives and attitude to risk, and to develop a well-defined investment plan, tailored to your objectives and risk profile.

The ascent of the 1990s

Share-price recovery was slow, hampered by a short UK recession in 1991-92 caused in part by high interest rates and an over-valued pound associated with efforts to keep sterling within Europe’s exchange rate mechanism. After Chancellor Norman Lamont took sterling out of the ERM in September 1992, having spent billions and upped base rate to 15% trying to stay in, the index gained about 14% in six months.

As 1994 dawned, a decade on from its launch, the FTSE 100 stood at around 3,400; although then, as now, changes had been made to its constituent shares as companies’ respective market capitalisations waxed and waned. Concerns about the economy and tax plans dampened sentiment and the index fell below 3,000 during the first half of 1994 before starting a five-year ascent to break the 6,000 barrier in the summer of 1998. After a 500% rise in 14 years, what came next for the FTSE 100?

The value of investments can go down as well as up and you may not get back the full amount you invested.
The past is not a guide to future performance and past performance may not necessarily be repeated.

This material is intended to be for information purposes only and is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Past performance is not a reliable indicator of future returns and all investments involve risks. Some information quoted was obtained from external sources we consider to be reliable.

Tees is a trading name of Tees Financial Limited which is authorised and regulated by the Financial Conduct Authority. Registered number 211314. Tees Financial Limited is registered in England and Wales. Registered number 4342506.