1 April 2025
The UK economy continued to display mixed signals, with improved business activity but lingering weaknesses. The composite Purchasing Managers' Index (“PMI”) hit a six-month high of 52 in March, led by a rebound in services (53.9), though manufacturing slumped to an 18-month low (44.6). Bank of England (“BoE”) Governor Andrew Bailey emphasised trade and artificial intelligence (“AI”) as key to future growth but warned of weak productivity. Inflation fell more than expected to 2.8% in February, though services inflation remained high at 5%. Consumers are cutting spending amid economic uncertainty, while small businesses plan to pass Chancellor Rachel Reeves' tax hikes onto customers. The Confederation of British Industry (“CBI”) reported a sharp drop in retail sales, highlighting weak consumer demand. Fiscal and trade uncertainties continue to weigh on the UK’s economic outlook.
Rachel Reeves faced significant fiscal challenges as the economic slowdown eroded her budgetary space. The UK is considering reducing or abolishing its digital services tax to avoid US tariffs, as part of ongoing trade negotiations. Amid downgraded growth forecasts, Reeves announced fresh spending cuts, including halving the health element of Universal Credit for new claimants. The Office for Budget Responsibility (“OBR”) rejected the government’s welfare savings estimates, prompting deeper cuts. To ease the backlash, Reeves pledged £2 billion for affordable housing and an additional £2.2 billion for defence. HMRC will also increase fines to recover £1 billion annually. Despite fiscal strains, the Debt Management Office’s strategy has helped lower borrowing costs. With economic uncertainty increasing, Reeves may be forced to implement tax hikes in the autumn to stabilise public finances.
The UK is set to announce its largest bond issuance since the Covid-19 pandemic, with a £302 billion target for 2025-26. Investors are unwinding sterling positions amid fiscal risks, with Bank of America reporting the sharpest outflow in two years. Banks including JP Morgan and BBVA recommend selling sterling, citing economic risks from spending cuts. UK bonds fell as fiscal concerns persisted, pushing 10-year gilt yields to a mid-January high of 4.80%.
In the US, equities declined, with the S&P 500 nearing correction territory. Trade tensions dominated sentiment ahead of tomorrow’s expected tariff announcement, with reports suggesting Trump could impose up to 50% tariffs. Analysts warned of inflationary risks, with auto prices potentially rising by $5,000-10,000. Consumer sentiment weakened, while economic data was mixed. Despite the negative tone, signs of resilience included a strong services sector and steady employment. Treasuries firmed, gold reached record highs and oil extended gains.
The UK housing market faces mounting challenges as households brace for a £7 billion stealth tax hit due to frozen income tax thresholds. Meanwhile, the government’s homebuilding ambitions remain under threat, with major developers forecasting just 65,000 new homes in 2025 - far below the 300,000 target. The persistent supply shortfall underscores the need for planning reforms to accelerate development and ease affordability concerns. Without policy shifts, housing shortages and financial pressures on households are likely to persist.
Ithaca Energy, the North Sea oil and gas exploration and production company, surged 19.1% after reporting a strong 2024 performance, driven by its merger with Eni’s UK upstream assets. The company’s pre-tax profit rose to $334.3 million from $302 million, despite lower gas prices and production earlier in the year. Investors welcomed a confirmed $500 million dividend payout and a 2025 production forecast of 105,000-115,000 barrels per day, reflecting Eni’s asset contribution. Shares also jumped after Ithaca announced a workforce restructuring to enhance efficiency, reinforcing optimism around its future profitability.
Ocado Group, the online grocery and retail-technology provider, climbed 12.5% following a bullish upgrade from JP Morgan. Analysts cited improving profit margins in the retail and solutions segments, which will boost free cash flow and reduce debt risks. Investors also responded positively to Ocado’s growth potential, with the company aiming for 150 customer fulfilment modules by 2027. JP Morgan upgraded the stock to “Overweight” and raised the price target, arguing the current valuation underestimates Ocado’s expansion prospects. Shares rose as sentiment around the online grocery sector turned increasingly positive.
Ferrexpo, the Ukraine-focused iron ore pellet producer, fell 7.9% as investors reacted to declining metal prices and geopolitical risks. The broader UK metals and miners index dropped amid fears of new US tariffs, with President Trump’s proposed trade measures expected to impact global demand. Additionally, Ukraine suspended VAT refunds for two Ferrexpo subsidiaries, worth $12.5 million, adding financial pressure and forcing the company to cut production and sales. The stock slid, ranking among the top mid-cap losers, with concerns growing over liquidity constraints and uncertainty surrounding its majority owner’s sanctions.
Market Commentary prepared by Walker Crips Investment Management Limited.
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No news or research content is a recommendation to deal. It is important to remember that the value of investments and the income from them can go down as well as up, so you could get back less than you invest. If you have any doubts about the suitability of any investment for your circumstances, you should contact your financial advisor.
The value of investments can fall as well as rise. Investors may get back less than invested. Past performance is not a reliable indicator of future results.
The value of investments can fall as well as rise. Investors may get back less than invested.
