Making sense of this crazy world
This week has felt like a pause for breath after what’s been going on in the build-up to the Budget. Rachel Reeves and the Office for Budget Responsibility (OBR) have got questions to answer, but you will be relieved to hear that I’m not going to get caught up with the nuances of that. This means I’m going to be brief, and we have our Post-Budget Webinar on Monday at 10am to cover all that. There is still time to register, just email ev****@**********co.uk.
Earlier in the week, the Organisation for Economic Co-operation and Development (OECD) suggested that the Bank of England’s monetary easing cycle will come to an end after the second quarter of 2026, with interest rates settling at 3.5% – 0.5% lower than the current 4%. They also predict UK inflation will end the year at 3.5% but revised its outlook down to a healthier 2.5% in 2026.
Yet more good news regarding the UK as a business indicator, the S&P Composite Purchaser Managers index came in better than expected for November.
The Bank of England (BoE) have also added to the upbeat sentiment as they are seeking to reduce how much capital UK banks need to hold. This should manifest in increased lending, whilst also being good for shareholders.
We’ve talked about the difference between quality stocks and growth stocks before, and, increasingly, enthusiasm is unfolding for companies which have strong cash flows and robust business models.
Weaker data in the US points to a faster downward trajectory for interest rates, and UK pension schemes are reducing their exposure to the US.
Finally, ‘buy while stocks last’ is the message from Venture Capital Companies (VCTs) as the initial tax relief will be lowered from 30% to 20% from April 2026.
This week’s content:
- OECD projections for the UK improve
- Business activity expands at a stronger rate than expected
- Bank of England deregulation will help lending
- The best time to buy quality stocks is now!
- VCT flows skyrocket by 538% in just one day after the Budget cut tax relief
- Weaker data in the US
- UK pension funds lower US equity exposure
- In conclusion
OECD projections for the UK improve
The UK had the highest inflation among developed countries in October 2002, at 11.1%. The new prediction for 2026 is lower than the G20 average of 2.8%. US inflation, interestingly, is expected to rise from 2.7% to 3% in 2026, before falling in 2027 to 2.3%.
The OECD stated that they believe renewed price pressures ‘are expected to be transitory’ and ‘slack will emerge’ in the labour markets as employment and vacancies fall.
The downside is that the real UK growth rate for 2025 is expected to be half the global average of 3.2%. They cite that continued fiscal consolidation will cause headwinds to the economy, with past tax and spending adjustments weighing on households’ disposable income and slowing consumption.
However, the UK ranked above the eurozone average of 1.3% GDP growth in 2025, with France, Germany and Italy all with projected growth of under 1%.
Continues…
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