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Weekly News 11th Nov
US election results to have ‘ripple effect’ on UK economy
As the dust settles on the 2024 U.S. election, Donald Trump has been confirmed as the 47th US president, making him the second in US history to serve non-consecutive terms. You might think the U.S. election wouldn’t impact the UK economy, but it will actually have a ripple effect.
Post-Brexit, the UK economy is more closely linked to the US than ever. With Trump’s return to office, speculation has already arisen that the currency markets may see a period of volatility.
Foreign investment plays a key role in the UK property market, especially in prime central London locations. Trump has long advocated for greater political influence over monetary decisions, which could affect foreign investment in the property sector, potentially hitting large commercial developments and US investment in the real estate market.
The US is the UK’s largest trading partner by far, surpassing Germany, the Netherlands, France, and China. While Trump has previously shown enthusiasm for a US-UK free trade agreement, his support for tariffs as high as 10% on all US imports could pose a significant challenge for UK and global trade.
The potential changes stemming from Trump’s win have led many analysts to suggest the UK consider rejoining the customs union, including rebuilding trade ties with the EU to protect itself from possible trade wars.
Since becoming Prime Minister, Keir Starmer has pushed for a new defence and security agreement with the EU, which he views as a critical step in ‘resetting’ EU relations. However, doubts remain about the degree of compromise both sides are willing to make. In a recent response, Prime Minister Starmer ruled out rejoining the single market and customs union or reinstating free movement with the EU. So far, his post-Brexit relationship plan has made little positive progress, with further talks expected later this year and into early 2025.
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Bank of England cuts interest rate to 4.75%
The Bank of England’s Monetary Policy Committee (MPC) has announced a 0.25-point cut in its base rate from 5% to 4.75%. The committee projects inflation will return to the 2% target by the first half of 2027, a year later than its previous forecast.
Interest rates affect millions of Britons’ mortgages, credit cards, and savings rates.
According to a survey, around 600,000 homeowners have mortgages affected by rate changes, meaning the rate cut will immediately reduce monthly payments. Although more than 80% of mortgage customers have fixed-rate deals, future rates will be impacted by this change. In general, the Bank considers inflation alongside other indicators, such as price increases in certain sectors (like services).
Autumn budget measures, including added VAT for private schools, increased bus fares, and raising employer National Insurance to 15%, are expected to have a slight upward impact on inflation. The Bank of England forecasts that price pressures will begin in the first half of next year and gradually show in market reactions.
Reports suggest the Autumn Budget’s overall impact is likely to peak UK GDP within a year, growing about 0.75% more than projected in August 2024. Rising employer National Insurance and the minimum living wage could increase overall employment costs, potentially driving prices and wages higher, though the balance remains uncertain.
In recent years, the UK’s interest rates have been among the highest in the G7.
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Retail brand Primark considers non-UK investments due to budget constraints
Primark’s owner, Associated British Foods (ABF), says that the Labour Party’s autumn budget has prompted the brand to consider more investments outside the UK to avoid rising tax expenses.
ABF CEO George Weston noted that the increased employer National Insurance alone will raise UK wage bills by tens of millions of pounds, stating that ‘…we’re an international business as well, we have choices about where we will invest…It’s quite clear to me that this a Budget where the weight of the tax rises are falling on business – within that, it’s fallen particularly on the high street’.
In its latest report, the fast-fashion brand announced a 43% rise in pre-tax profits, reaching £1.9 billion for the year ending 14 September 2024. Excluding the effects of new store openings, sales in the UK and Ireland grew by 0.7%, with activewear, sweaters, and pyjamas seeing particularly strong sales.
Despite potential cost increases, Primark has confirmed it will not raise prices for the remainder of the year.
