The latest economic news and market highlights from the UK and abroad.
The key takeaways
📈 UK inflation battle continues – the Consumer Price Index (CPI) rose above estimates to 3% in January, boosted by increases to food prices and private school fees. Meanwhile the jobs market also held up better than expected, with strong wage growth of 5.9%, likely keeping the Bank of England (BoE) cautious on further interest rate cuts.
🪖 Defence spending on the rise – European government bonds slipped on the expectation of increased borrowing for military needs. Shares in defence companies soared after US President Trump signalled that Europe must take on a share of its own security costs.
👀 Seeking a settlement for Ukraine – the US and Russia hinted at removing sanctions imposed over the Ukraine invasion, after talks between the two countries’ foreign ministers in Saudi Arabia. Ukrainian President Volodymyr Zelenskiy also met with US General Kellogg, which could lead to a security agreement linked to mineral rights.
💰 Tariffs totting up – US President Trump told reporters that he plans to announce 25% tariffs on auto vehicles, pharmaceuticals, and semiconductor chips to stack on top of existing tariffs. These tariffs wouldn't apply to companies that produce in the US.
🍜 Japan's inflation pushes higher – inflation climbed to 4% in Japan, the highest rate in over 2 years. Food prices rose by almost 8%, the steepest pace in 15 months.
What does that mean for you and your clients?
With doubts over US military support, European leaders are rapidly repositioning to rearm defences. The prospect of increased defence spending has broadly boosted equity markets in the region - but put pressure on bonds as governments prepare for increased borrowing.
"Tariffs for tomorrow" has become a running theme for President Trump, allowing countries a window to negotiate and companies time to adapt. Whether these new tariffs materialise remains to be seen, but the market has already priced in some of that risk immediately.
None of this is helping the inflation picture, which is now beginning to creep up after stubbornly resisting the final decline to the 2% target for central banks - complicating the path forward for policymakers.
Chart of the week
Source: Columbia Threadneedle Investments as at 27 January 2025
Why’s this worth sharing?
Rising energy costs may be putting pressure on households and businesses today, but there’s reason for optimism about the future - especially in the UK. With a growing supply of liquefied natural gas (LNG) on the way, relief could be on the horizon.
The futures market anticipates UK natural gas prices will drop by 37% over the next four years, thanks to expanded transportation and storage infrastructure, as well as policy changes allowing more US exports. If this plays out, energy bills for homes and businesses could shrink by around 15%, providing a welcome boost to economic growth and easing inflationary pressures.
It’s easy to get caught up in today’s challenges, but history shows that change is constant. Looking ahead, the potential for lower energy costs is a reminder that the future doesn’t have to mirror the present - and can highlight the opportunity for investing in the anticipation of a brighter future.
The markets
FTSE mixed fortunes: defence shares like BAE Systems surged following Prime Minister Keir Starmer's call for increased military spending. While fears over US tariffs weighed on healthcare giants AstraZeneca and GSK.
S&P hits new heights: US stocks drove the index to another record this week, with chipmaker Intel reacting positively to speculation about a potential blockbuster breakup deal involving TSMC and Broadcom.
China tech boom: the Hang Seng Tech Index soared to a 3-year high after six straight weeks of gains. Tencent shares rose to their highest level since 2021 - boosted by its adoption of DeepSeek's AI for WeChat search.
Crudes strong recovery: supply interruptions from Kazakhstan, expectations of colder weather in the US, and increased industrial activity in China fueled oil price gains.
New York, paved with gold dreams: Wall Street firms are raising their gold price targets, with Goldman Sachs predicting $3,100 by year end and Citigroup expecting $3,000 within three months. A surge in demand has sent shipments of gold from Europe to New York, as futures trade there at a premium amid geopolitical uncertainty.
| | Weekly Change | YtD Change |
|---|---|---|
| FTSE 100 | -0.57% | 6.39% |
| FTSE 250 | -1.43% | 0.24% |
| S&P 500 | 0.29% | 3.59% |
| NASDAQ | -0.36% | 4.02% |
| Hang Seng | 0.09% | 12.23% |
| Nikkei 225 | -0.48% | 0.03% |
| Brent Crude | 2.06% | 1.10% |
| Gold Spot | 0.21% | 11.12% |
| UK 10yr Gilt yield | +11bps | +4bps |
| US 10yr Treasury yield | +3bps | -7bps |
Source: FE FundInfo, goldprice.org, exchangerates.org.uk, investing.com and finance.yahoo.com. GBP returns as at close Thursday 20th February 2025.
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