WeeklyWatch – U for uncertainty and U-turns

18^th November 2025

Stock Take

A blue November

A week of inconsistency was in store for markets and investors as they endured many economic ups and downs. According to figures from the Office for National Statistics, the UK’s unemployment rate hit 5% – its highest level since Covid. And to rub more salt into the wound, third quarter economic growth (GDP) was disappointingly minimal. Jaguar Land Rover’s six-week shutdown that started in September – caused by a cyber-attack – was partially to blame.

Over in the US, a deal was made between a group of Democrats and the Republicans, ending the longest government shutdown in history. Despite this, the uncertainty still isn’t over; the government funding only runs until 30^th January 2026. Nevertheless, the end of the deadlock has been welcomed by the markets.

The US has faced challenging conditions in their labour market as well as stubborn inflation, but despite this, the latest corporate earnings season has been positive. Over 90% of companies have already released earnings. Out of these, over 75% delivered positive sales and earnings surprises.

The Equity Strategist at St. James’s Place, Carlota Estragues Lopez, highlights that the better-than-expected earnings weren’t just the case for the US. She states:

“As well as the US, we have noted that earnings upside surprises rose across other regions. They were particularly strong in Europe and Japan, although there were fewer in emerging markets, held back by some modest misses in China.”

Ending the week with a bang

The week started with a ‘business as usual’ approach for UK investors, but the end was a bit more explosive. Despite her strong indication that there would be an increase in Income Tax, Chancellor Rachel Reeves was reported to have done a U-turn, saying that the upcoming Autumn Budget wouldn’t break the manifesto promise of not raising Income Tax. This resulted in more investor uncertainty and a weakening of UK assets. There was also a fall in shares, and borrowing costs, which are reflected in gilt (government bond) yields, increased. Additionally, the pound weakened against the US dollar and fell to a two-year low against the euro.

Regardless of whether Reeves’ reasoning was politically focused – not wanting to break election pledges – or economic, where things may not be as bad as anticipated, her stance wasn’t well received by markets. Even though Income Tax rises are unpopular, there aren’t many analysts who disagree that tax rises are necessary to reduce the UK’s budget deficit mismatch between what’s spent and what’s earned or collected – alongside cuts to government spending. With only days to go until the Budget is announced, the government’s pullback has increased investor uncertainty further.

The Chief Economist at St. James’s Place, Hetal Mehta, noted:

“The government [is] trying to find a way to balance growth prospects versus manifesto pledges on taxes versus borrowing levels.

“UK inflation is still high and looks likely to moderate slowly and perhaps not as fast as the BoE (Bank of England) would like, suggesting there may not be an aggressive rate-cutting cycle in the UK.”

UK borrowing costs rise as bond prices fall

The reaction on Friday saw the pound weaken to a two-year low against the euro and decline against the US dollar. UK shares weakened too, but the benchmark FTSE 100 ended the week slightly ahead.

The price of UK government bonds also dropped, and yields (which move in the opposite direction) rose. The rise in bond yields makes the cost of future government borrowings even higher. Additionally, it unwinds positive sentiment that had been building since September, when investor expectations of a tough but necessary tax-raising Budget hardened.

Rising AI investment causes unease

There was a stabilisation in the US AI sector following the previous week’s sharp sell-off, but concerns remain despite this. There’s a large gap between the record levels of investment happening in the sector and the lower levels of sales for individual companies and the long path to profitability.

Investor concern is focused on the high levels of expenditure required over several years before they turn a profit. One of the most notable companies affected by this is OpenAI, which generates annual sales of $20 billion. Data provider Bloomberg reports that OpenAI are planning to invest $1.4 trillion in the next eight years in data centres and the chips needed to support their services. Moreover, they’ve forecasted no profit until 2030. This is strongly indicated by the gulf between investment plans and internal resources, and if investors become cautious, other companies in the sector are likely to be vulnerable. Share prices have fallen for many big names in AI, which includes some of the ‘Magnificent Seven’ tech companies. For example, Nvidia’s share price is now 10% lower than the peak they achieved at the end of October.

Waning anticipation for another US rate cut

Reports have arisen regarding a split within the US central bank (Federal Reserve) regarding a potential interest cut in December – an issue that has captured investors’ attention. The lack of data made available during the government shutdown impacted bankers’ ability to assess the relative risks between slowing job creation and inflation. Last month, the decision to make an interest rate cut was regarded as most likely. Within a month, however, market anticipation for a US interest rate cut has significantly decreased. Now, opinion is split: to cut or not to cut?

Wealth Check 

Budget backdowns – how many more?

Markets may have reacted negatively following Chancellor Rachel Reeves’ decision not to raise Income Tax in the upcoming Autumn Budget, but was the decision made as a result of an improved economic outlook? It’s believed the move came about (at least in part) due to forecasts from the Office for Budget Responsibility.

Increasing Income Tax would have betrayed one of Labour’s manifesto promises and likely caused hostility from both the public and Reeves’ own party members.

Additionally, it’s been reported that Reeves has scrapped plans to increase taxes for lawyers and accountants in limited liability partnerships (LLPs), which could have created an estimated £2 billion in additional revenues. Reeves was warned by the Treasury that LLP members would be against this increase and take action to avoid the new charges, which could cost the government more than it might raise over the long term.

The Chancellor will need to rely on other methods to plug the estimated £30 billion hole in public finances. As new figures reflect low economic growth and increased unemployment, Reeves’ challenge looks even tougher.

After numerous rumours that there would be cuts to the tax-free lump sum allowance on pensions, reports now say that the Treasury has confirmed that no plans are in place to make changes to the tax-free cash rules.

Savers can currently withdraw up to 25% of their pension tax-free, up to a maximum of £268,275. A lot of financial advisers have noticed increased interest from clients to access the tax-free cash lump sum in 2025. There were rumours that the cash-free lump sum allowance would be slashed last year too, which also saw people requesting withdrawals in unprecedented volumes. In an effort to reassure savers, it’s been reportedly confirmed by the Treasury that it won’t feature in the Budget.

There have also been widespread warnings about the risks of withdrawing cash from pensions in expectation of a cut. Once a saver takes out their tax-free cash, the funds can’t be returned to the pension – there’s no undoing any action already taken if they have a change of mind. In recent weeks, HMRC has confirmed that payments of tax-free cash aren’t subject to cooling-off rules, and payment back to the scheme could have large tax consequences.

Last week also gave rise to rumours that there would be a possible removal of National Insurance savings on salary sacrifice pension contributions above £2,000, which would be extremely costly for higher-rate taxpayers. Because the move is so complex, it’s unlikely that anything will come into force with immediate effect.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

In the Picture 

Tax and spend? The independent Office for Budget Responsibility reports that the UK tax take is on course to reach its highest levels since records began. This is also boosted by the increase in employer National Insurance and the freeze in tax thresholds.

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SJP Approved 17/11/2025