UK
Power plays: politics – including the US election and the ongoing fallout from October’s Budget – absorbed much of the limelight in the UK during November. The Bank of England (BoE) warned of mounting risks to the UK’s financial system, including geopolitical instability, pressure on government debt levels, and the prospect of trade wars. Nevertheless, UK equity indices rose over the month, partly boosted by corporate activity in the insurance sector. The FTSE 100 Index rose by 2.2%, while the FTSE 250 Index climbed by 1.9%.
Budget fallout: following a dip in October that was widely attributed to Budget-related uncertainty, consumer confidence strengthened in November, according to GfK. However, there are concerns that some of the measures in the Budget – including the increase in employers’ National Insurance contributions – could be undermining business sentiment. The Confederation of British Industry reported that almost two-thirds of UK companies that responded to its post-Budget survey believe the Budget will damage UK investment. Meanwhile, 82 UK retailers, alongside the British Retail Consortium, sent a letter to Chancellor Rachel Reeves warning that the “cumulative burden” of measures contained in October’s Budget will lead to higher prices, “inevitable” job losses, and shop closures.
Pension reforms: in the annual Mansion House speech, Rachel Reeves announced plans for major pension reforms. These focus on consolidating 86 Local Government Pension Schemes into eight “megafunds” in a move designed to boost for UK investment and deliver better outcomes for savers.
Inflation ticks up: as expected, BoE policymakers cut the base rate from 5% to 4.75% but warned that measures in the Budget were likely to stoke inflationary pressures. Higher energy prices pushed the annualised rate of inflation from 1.7% in September to 2.3% in October, reaching its highest level since April and dampening hopes of another imminent rate cut. Inflation in the services sector increased to 5% and core inflation rose from 3.2% to 3.3%.
Lacklustre growth: having expanded by 0.5% during the second quarter of 2024, the UK economy grew by only 0.1% in the third quarter as activity in the services sector lost pace against a backdrop of uncertainty ahead of the Budget. The rate of unemployment rose to 4.3% in the third quarter, and vacancies continued to fall. Average earnings (excluding bonuses) rose at an annualised rate of 4.8% during the period, representing their slowest growth since mid-2022.
Global
Politics dominate: news flow and sentiment in November were dominated by the US election and its outcome, as Donald Trump’s victory stoked expectations of deregulation, tax cuts, and fresh tariffs. While US markets rose to new all-time highs, the result also triggered speculation that his policies could fuel inflation and reduce the Federal Reserve’s (Fed’s) scope to cut interest rates. Over November, the Dow Jones Industrial Average Index rose by 7.5%, notching up seven new closing highs during the month, while the S&P 500 breached 6,000 points for the first time. The Fed cut its key interest rate by 25 basis points to a range of 4.5% to 5% early in November and Fed Chair Jerome Powell indicated that the Fed is likely to take a gradual approach to monetary easing.
New tariffs: towards the end of November, President-elect Trump announced that he intends to impose new tariffs on China, Canada and Mexico from the first day of his new administration, triggering concerns over the prospect of trade wars and possible supply chain disruptions. Trump also intends to impose tariffs of 10% to 20% on the rest of the world. The European Central Bank (ECB) warned that concerns over the outlook for global trade had added to geopolitical uncertainty; ECB President Christine Lagarde commented that an all-out trade war would be a “net negative for all”.
Above-target inflation in the eurozone: the rate of inflation in the eurozone rose from 2% year on year in October to 2.3% in November; however, the core inflation rate remained steady at 2.7% for a third consecutive month. Sentiment in Europe was also affected by political uncertainties amid the collapse of Germany’s governing coalition and concerns over the ability of France’s minority coalition to push through its budget. After a volatile month, the Dax Index ended November 2.9% higher, while the CAC 40 Index fell by 1.6%.
BoJ set to tighten again? Alongside the possible impact of Trump’s planned tariffs, inflationary pressures in Japan reinforced speculation that the Bank of Japan (BoJ) will implement another rate increase. Although the annualised rate of consumer price inflation moderated from 2.5% in September to 2.3% in October, it remained above the BoJ’s 2% target; meanwhile, services producer price inflation rose from 2.8% to 2.9% year on year. The Nikkei 225 Index fell by 2.2% over the month.
As ever, if you have any questions regarding your investments, please do not hesitate to contact us by calling +44 (0) 7917 390 344 or emailing me at richardbrazier@culverfinancial.co.uk and we will be happy to talk to you.