Archived articles
More
Although the content of the article(s) archived were correct at the time of writing, the accuracy of the information should not be relied upon, as it may have been subject to subsequent tax, legislative or event changes.
Investing
WeekWatch
17 November 2025
6 minutes
Stock Take
November blues
It’s been a mixed week of economic ups and downs for markets and investors. In the UK, the unemployment rate rose to 5%, its highest level since Covid, according to figures from the Office for National Statistics. Meanwhile third quarter economic growth (GDP) was anaemic. This was blamed in part on the six-week shutdown at Jaguar Land Rover which began in September and followed a cyber attack.
Yet in the US, the longest government shutdown in history finally ended, after a group of Democrats struck a deal with Republicans. The government funding only runs to 30 January 2026, so there is still uncertainty ahead. However, markets have welcomed the positive news.
Despite a tough labour market in the US and stubborn inflation, the latest US corporate earnings season has been positive. Over 90% of companies have already released earnings and, of these, more than 75% delivered positive sales and earnings surprises.
Carlota Estragues Lopez, SJP’s equity strategist, points out that better-than-expected earnings were not confined to the US. “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.”
A bang, not a whimper
It began as a ‘business as usual’ week for UK investors but ended with a bang. After strongly indicating a hike in income tax would be announced in the forthcoming Budget, the chancellor was reported to have done a U-turn, ruling out breaking a manifesto pledge not to raise income tax. This U-turn raised investor uncertainty and caused weakness across UK assets. Shares fell and borrowing costs, reflected in gilt (government bond) yields, rose. The pound also weakened against the US dollar and fell to a two-year low against the euro.
Whether the reason was political (refusal to break an existing election pledge not to raise income taxes) or economic (things are not as bad as they seem), the news was viewed negatively by markets as shown above. Unpopular as income tax rises are, there are few analysts who deny that tax rises are needed as part of a package, including cuts to government spending, to reduce the UK’s budget deficit mismatch between what is being spent and what is being earned or collected. The government’s decision to pull back from such a move with only two weeks to go to the Budget has notably raised the level of investor uncertainty.
Hetal Mehta, chief economist at SJP noted that this is a case of “the government trying to find a way to balance growth prospects versus manifesto pledges on taxes versus borrowing levels.” She also notes that “UK inflation is still high and looks likely to moderate slowly and perhaps not as fast as the BoE would like, suggesting there may not be an aggressive rate-cutting cycle in the UK”.
UK borrowing costs rise as bond prices fall
Friday’s reaction saw the pound weaken to a two-year low against the euro and decline against the US dollar. UK shares also weakened, although the benchmark FTSE 100 managed to close the week slightly ahead. The price of UK government bonds also dropped on Friday and yields, which move in the opposite direction, rose. This uptick in bond yields increases the cost of future government borrowings. It also unwinds the more positive investor sentiment since September when expectations of a tough but necessary tax-raising Budget hardened.
Soaring AI investment causes unease
In the US, the AI sector stabilised after the sharp sell-off the week before, but concerns remain. There is a tremendous mismatch between the record levels of investment taking place across this sector and the relatively low levels of sales for individual companies and their long road until profitability.
Investors are now more concerned about the high levels of expenditure needed over many years before these types of companies will be able to generate a profit. One of the most high-profile companies in this space, OpenAI, is generating annual sales of US$ 20 billion. According to reports by data provider Bloomberg, OpenAI says it is planning to invest US$ 1.4 trillion over the next eight years in data centres and the chips necessary to support its services. The company is also forecasting it will not make a profit until 2030. The gulf between its investment plans and its internal resources suggest this and many other companies in the sector could be vulnerable if investors turn cautious. There have been share price falls for many household names in AI, including some of the ‘Magnificent Seven’ technology companies. Nvidia’s share price is now 10% lower than its peak reached at the end of October.
Hopes for a US rate cut shrink
Reports of a split within the US central bank (Federal Reserve) about the likelihood of an interest rate cut in December are also weighing on investors. Bankers’ assessment of the relative risks between slowing job creation and inflation has been made difficult by the lack of data during the shutdown. The result is that within a month, market expectations for a US interest rate cut have dropped markedly. A month ago, the decision to cut was seen as most likely, but consensus is now split between a cut and no change.
It’s been a mixed week of economic ups and downs for markets and investors. In the UK, the unemployment rate rose to 5%, its highest level since Covid, according to figures from the Office for National Statistics. Meanwhile third quarter economic growth (GDP) was anaemic. This was blamed in part on the six-week shutdown at Jaguar Land Rover which began in September and followed a cyber attack.
Yet in the US, the longest government shutdown in history finally ended, after a group of Democrats struck a deal with Republicans. The government funding only runs to 30 January 2026, so there is still uncertainty ahead. However, markets have welcomed the positive news.
Despite a tough labour market in the US and stubborn inflation, the latest US corporate earnings season has been positive. Over 90% of companies have already released earnings and, of these, more than 75% delivered positive sales and earnings surprises.
Carlota Estragues Lopez, SJP’s equity strategist, points out that better-than-expected earnings were not confined to the US. “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.”
A bang, not a whimper
It began as a ‘business as usual’ week for UK investors but ended with a bang. After strongly indicating a hike in income tax would be announced in the forthcoming Budget, the chancellor was reported to have done a U-turn, ruling out breaking a manifesto pledge not to raise income tax. This U-turn raised investor uncertainty and caused weakness across UK assets. Shares fell and borrowing costs, reflected in gilt (government bond) yields, rose. The pound also weakened against the US dollar and fell to a two-year low against the euro.
Whether the reason was political (refusal to break an existing election pledge not to raise income taxes) or economic (things are not as bad as they seem), the news was viewed negatively by markets as shown above. Unpopular as income tax rises are, there are few analysts who deny that tax rises are needed as part of a package, including cuts to government spending, to reduce the UK’s budget deficit mismatch between what is being spent and what is being earned or collected. The government’s decision to pull back from such a move with only two weeks to go to the Budget has notably raised the level of investor uncertainty.
Hetal Mehta, chief economist at SJP noted that this is a case of “the government trying to find a way to balance growth prospects versus manifesto pledges on taxes versus borrowing levels.” She also notes that “UK inflation is still high and looks likely to moderate slowly and perhaps not as fast as the BoE would like, suggesting there may not be an aggressive rate-cutting cycle in the UK”.
UK borrowing costs rise as bond prices fall
Friday’s reaction saw the pound weaken to a two-year low against the euro and decline against the US dollar. UK shares also weakened, although the benchmark FTSE 100 managed to close the week slightly ahead. The price of UK government bonds also dropped on Friday and yields, which move in the opposite direction, rose. This uptick in bond yields increases the cost of future government borrowings. It also unwinds the more positive investor sentiment since September when expectations of a tough but necessary tax-raising Budget hardened.
Soaring AI investment causes unease
In the US, the AI sector stabilised after the sharp sell-off the week before, but concerns remain. There is a tremendous mismatch between the record levels of investment taking place across this sector and the relatively low levels of sales for individual companies and their long road until profitability.
Investors are now more concerned about the high levels of expenditure needed over many years before these types of companies will be able to generate a profit. One of the most high-profile companies in this space, OpenAI, is generating annual sales of US$ 20 billion. According to reports by data provider Bloomberg, OpenAI says it is planning to invest US$ 1.4 trillion over the next eight years in data centres and the chips necessary to support its services. The company is also forecasting it will not make a profit until 2030. The gulf between its investment plans and its internal resources suggest this and many other companies in the sector could be vulnerable if investors turn cautious. There have been share price falls for many household names in AI, including some of the ‘Magnificent Seven’ technology companies. Nvidia’s share price is now 10% lower than its peak reached at the end of October.
Hopes for a US rate cut shrink
Reports of a split within the US central bank (Federal Reserve) about the likelihood of an interest rate cut in December are also weighing on investors. Bankers’ assessment of the relative risks between slowing job creation and inflation has been made difficult by the lack of data during the shutdown. The result is that within a month, market expectations for a US interest rate cut have dropped markedly. A month ago, the decision to cut was seen as most likely, but consensus is now split between a cut and no change.
Wealth Check
More Budget backdowns?
Chancellor Rachel Reeves has dropped controversial plans to raise income tax in the forthcoming Autumn Budget, it was reported last week. The move is believed to be at least in part due to improved economic forecasts from the Office for Budget Responsibility.
Any increase in income tax would have broken Labour’s manifesto pledges and have likely caused widespread anger from her own MPs as well as the wider public.
Reeves is also reported to have abandoned plans to raise taxes for lawyers and accountants in limited liability partnerships (LLPs). This could have seen an estimated £2 billion in additional revenues for the government.
The Treasury warned Reeves that LLP members would take action to avoid the new charges, which could cost the government more money than it might raise over the long term.
The chancellor will now have to pull other levers to plug the estimated £30 billion hole in the public finances. And, with new figures indicating lower economic growth and rising unemployment (see Stock Take above), the situation for Reeves looks tougher than ever.
Meanwhile, the Treasury has confirmed there are no plans to change the tax-free cash rules on pensions, according to reports last week. It follows widespread rumours that Reeves was planning to cut the tax-free lump sum allowance in this month’s Autumn Budget.
Currently savers can withdraw up to 25% of their pension tax-free, up to a maximum of £268,275. Many advisers have seen increased interest from clients in accessing the tax-free cash lump sum this year. Last year there were also rumours the cash-free lump sum allowance would be slashed, driving requests for withdrawals. In a bid to reassure savers, the Treasury has reportedly confirmed this will not form part of the Budget.
There have also been widespread warnings to savers about the risks of withdrawing cash from their pension in expectation that the allowance would be cut. Once a saver has taken out their tax-free cash, it is not possible to return the funds to the pension and unwind any actions already taken if they change their mind. HMRC has confirmed in recent weeks that payments of tax-free cash are not subject to cooling off rules and payment back to the scheme could have significant tax consequences.
Last week also saw rumours of the potential removal of national insurance savings on salary sacrifice pension contributions above £2,000. This could cost higher-rate taxpayers dear. However, given the significant complexity of such a move, it seems unlikely anything would 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.
Chancellor Rachel Reeves has dropped controversial plans to raise income tax in the forthcoming Autumn Budget, it was reported last week. The move is believed to be at least in part due to improved economic forecasts from the Office for Budget Responsibility.
Any increase in income tax would have broken Labour’s manifesto pledges and have likely caused widespread anger from her own MPs as well as the wider public.
Reeves is also reported to have abandoned plans to raise taxes for lawyers and accountants in limited liability partnerships (LLPs). This could have seen an estimated £2 billion in additional revenues for the government.
The Treasury warned Reeves that LLP members would take action to avoid the new charges, which could cost the government more money than it might raise over the long term.
The chancellor will now have to pull other levers to plug the estimated £30 billion hole in the public finances. And, with new figures indicating lower economic growth and rising unemployment (see Stock Take above), the situation for Reeves looks tougher than ever.
Meanwhile, the Treasury has confirmed there are no plans to change the tax-free cash rules on pensions, according to reports last week. It follows widespread rumours that Reeves was planning to cut the tax-free lump sum allowance in this month’s Autumn Budget.
Currently savers can withdraw up to 25% of their pension tax-free, up to a maximum of £268,275. Many advisers have seen increased interest from clients in accessing the tax-free cash lump sum this year. Last year there were also rumours the cash-free lump sum allowance would be slashed, driving requests for withdrawals. In a bid to reassure savers, the Treasury has reportedly confirmed this will not form part of the Budget.
There have also been widespread warnings to savers about the risks of withdrawing cash from their pension in expectation that the allowance would be cut. Once a saver has taken out their tax-free cash, it is not possible to return the funds to the pension and unwind any actions already taken if they change their mind. HMRC has confirmed in recent weeks that payments of tax-free cash are not subject to cooling off rules and payment back to the scheme could have significant tax consequences.
Last week also saw rumours of the potential removal of national insurance savings on salary sacrifice pension contributions above £2,000. This could cost higher-rate taxpayers dear. However, given the significant complexity of such a move, it seems unlikely anything would 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? According to the independent Office for Budget Responsibility, the UK tax take is on track to reach its highest levels since records began. This is being fuelled by the hike in employer national insurance and the freeze in tax thresholds.
Some of the products and investment structures documented within this article will not be available to our clients in Asia. For information on the funds that are available please get in touch.
The information contained is correct as at the date of the article. The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James's Place.
Source: London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group 2024. FTSE Russell is a trading name of certain of the LSE Group companies. “FTSE Russell®” is a trade mark of the relevant LSE Group companies and is used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication.”"
© S&P Dow Jones LLC 2025; all rights reservedSJP Approved 17/11/2025
