Susannah Streeter, Head of Money and Markets, Hargreaves Lansdown: ‘’The FTSE 100 has continued on its losing streak, with a Santa rally proving elusive, while European indices are also in less cheery shade red. There’s not much merriment around for the UK’s economic prospects as the latest assessment from the ONS paints a picture of stagnation. Instead of meagre growth of 0.1% the economy stood still between July and September, and that was before the Budget cast another chill, and caused output to shrink in October. The long period of speculation prior to Rachael Reeves announcements is unlikely to have helped, given the rumour mill was running on overdrive. With growth flagging even before the hike in National Insurance contributions comes into effect, it’s likely to make some companies that bit more hesitant about hiking wages or going on recruitment sprees. However, the increase in the minimum wage, and investment pledged by the government should still help to see expansion next year. Even so, given the concern bubbling up round the table at the Bank of England about fragility in the economy, with three members of the monetary policy committee voting for an interest rate cut last week, it does increase the chances of an early Spring rate reduction. Financial markets are pricing in two to three interest rates cuts next year, with bets rising on a move lower in February.
Retailers will be hoping two days of last-minute present buying will help revive fortunes after a distinct lack of lustre for the golden quarter. It’s been tough going for clothing stores in particular, in the UK, with sales falling in November. It’s hoped the cold turn in the weather and late dash for present ideas might finally see winter woollies piled high at counters. The last gasp of Christmas shopping is also likely to help cafes and restaurants which are intertwined with the retail trade.
Brent crude has moved higher, as interest rates speculation and supply fears amid trade rows collide. President-elect Trump has banged his ‘America first’ drum in the direction of Panama, accusing the country of charging exorbitant fees for using its famous canal. His demand that fees are either reduced or the canal returned to US control, is clearly unsettling, given how crucial the passage is for trade routes. With vessels continuing to avoid the Red Sea, another disrupted key route risks adding to supply chain chaos, potentially hurting growth and demand for energy, but also disrupting oil supplies. Oil prices also appear to have been pushed higher as hopes have been revived for monetary policy to be eased that much faster next year, after price rises showed signs of slowing down. The Federal Reserve’s preferred measure of the inflation – the personal consumption expenditures price index, rose 0.1% from October to 2.4% on an annual basis, lower than estimates. There are hopes that the drag effect on the economy, and on demand for energy would be less onerous of interest rates come down that bit more quickly. However, overall the Fed is expected to be on go slow next year.
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