Originally published at: This week in charts: US and UK politics make waves – InvestEngine Insights
Despite Trump rattling markets with news of 25% tariffs on carmakers on Wednesday, the biggest event of the week for us in the UK was the Spring Statement (not officially a “budget” anymore, as Rachel Reeves has said she wants just one of those per year).
One of the hot topics ahead of the statement was the possibility of changes to the cash ISA limit. In the end, no changes were made, although the government did say it’s still looking at ways to reform tax-free ISA savings.
The main announcements were a big package of spending cuts covering both welfare benefits and government departmental spending, as well as cracking down on tax evasion, and increasing the amount spent on defense. The OBR also revised their growth forecast down for the UK from 2% to 1% for 2025.
You can find our full roundup here.
Despite all the announcements, markets stayed fairly calm—which likely came as a relief to the chancellor. The shadow of Liz Truss’s mini-budget still looms large, so a quiet market reaction is probably seen as a win.
Sterling weakened by approximately 0.3% from its peak, but the timing suggests that this was more a reaction to the UK inflation figures released at 7am, rather than the Spring Statement itself.
Source: Bloomberg. Past performance is not indicative of future results.
Buoyed by a weaker sterling, which benefits the export-heavy FTSE 100, the UK market finished the day up around 0.30%. The market dipped slightly during the chancellor’s speech, but quickly rebounded in the half-hour following to reach its previous levels.
Source: Bloomberg. Past performance is not indicative of future results.
UK government bond yields also moved a little, particularly the 2-year ones, which dropped by around 0.04%—a sign that investors are now more confident that rate cuts could be on the way. Yields spiked briefly during the statement, but settled back soon after.
Source: Bloomberg. Past performance is not indicative of future results.
The news which had a bigger UK-market impact on Wednesday was the inflation figure.
Inflation fell to 2.8% in February, down from 3% in January. This was below economists’ forecasts of 2.9%, and in line with the 2.8% forecast by the Bank of England. Despite the dip, inflation is still expected to peak at around 3.7% later this year, above the Bank’s target of 2%, mainly driven by rising energy and utility prices.
Core inflation, which strips out the more volatile food and energy components, fell from 3.7% to 3.5%. Services inflation was unchanged at 5%.
Source: Bloomberg. Past performance is not indicative of future results.
The fall in headline CPI was almost entirely down to the fall in clothing prices, which experienced the largest drop in four years, from 2.1% in January to -0.7% in February.
Markets reacted with not only a weaker sterling and falling bond yields, but also in changes to interest rate expectations. Looking at the market-implied chances of a rate cut at the next Bank of England meeting in May, the falling inflation figures boosted the chances of a rate cut from around 60% earlier in the week to about 75% following the release:
Source: Bloomberg. Past performance is not indicative of future results.
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