Reeves’ Second Budget: Stability with Trade-Offs
The Autumn Statement, the second since Rachel Reeves became Chancellor, reinforced predictability.
Stability signals:
- No increases to capital gains or dividend taxes — easing a key concern for investors.
- Pensions and ISAs left unchanged, supporting existing tax-efficient wrappers.
- A new British Infrastructure Fund and renewed planning reforms, targeting housing, energy and transport — intended to draw private capital toward real assets and infrastructure.
Headwinds remain:
- Labour-intensive businesses face a rising wage floor (minimum wage), tightening margins.
- Costs — including labour and business rates — are increasing for many sectors, placing pressure on small/medium enterprises and potentially suppressing investment or hiring.
- Media and business-group commentary describes elements of the Budget as “anti-growth”, arguing that higher running costs may dampen expansion, profitability and consumer demand.
The Budget thus delivers policy stability — but does not eliminate uncertainty for many businesses and consumers.
Markets: Stable, but Still Sensitive to Headlines
UK equities are holding up, with the FTSE 100 trading around 7,700 — supported by easing inflation and a more settled interest-rate outlook. Global markets remain heavily influenced by US tech sentiment, which continues to inject volatility across asset-classes.
Recent developments:
- Alphabet surpassed a US$4 trillion market cap on continued AI, advertising and cloud-business strength.
- Nvidia flagged potential moderation in AI-hardware demand around 2026 — prompting a modest pullback in tech equities and a drop in bond yields.
Markets are calmer than during the inflation-rate surge — but remain reactive to macro and sentiment-driven headlines.
Inflation and Rates: Progress, but Not Yet There
The macro backdrop continues to improve, though risks remain.
- The 12-month headline UK Consumer Price Index (CPI) fell to 3.6% in October 2025 — down from 3.8% in September.
- Underlying or “core” inflation (excluding volatile items) is now around 3.4%.
- At its November meeting, the Bank of England’s Monetary Policy Committee (MPC) voted narrowly — 5–4 — to hold the Bank Rate at 4.0%, after five cuts since mid-2024.
The Bank judges that inflation has likely peaked and underlying price and wage pressures are easing. But CPI remains well above the 2% target. The tone suggests a gradual easing path, not a rush to zero — rate cuts will depend on further disinflation and stability in labour-market trends.
For investors, this translates into a “high-but-easing” interest-rate environment — better visibility than in recent years, but still with material inflation and rate risk.
Investor Behaviour: More Strategy, Less Reaction
Compared with 2022–23, clients and investors are behaving more strategically:
- Selective re-entry into equities with resilient earnings and pricing power — often dividend-payers or value-orientated companies.
- Renewed interest in fixed income, short-dated bonds and index-linked gilts — as real yields become more attractive.
- A growing focus on longer-term questions — retirement timing, estate planning, global exposure — rather than trying to “time the swings”.
The return isn’t exuberant, but it’s more purposeful.
Compass and Atlas: Pragmatic Positioning
Within our discretionary ranges, the approach remains cautious but constructive:
Compass: diversified exposure to global equities, bonds, real assets; emphasis on value, income, stability.
Atlas: tilt toward durable growth themes — healthcare, renewables, infrastructure — while avoiding over-concentration in high-valuation tech; actively rebalanced to reflect inflation, rate expectations, and client suitability.
This isn’t a moment for big macro bets — it’s a time for clarity, cost control, and risk management.
Planning Implications: Stability Opens Opportunities — with Caution
Now could be a good time to:
- Review asset allocation — especially for portfolios distorted by 2022-23 volatility.
- Reassess pension contributions and retirement timing — as inflation moderates and real returns begin to recover.
- Consider gifting or estate-planning — while tax wrappers remain stable and markets less volatile.
But it’s also important to stay alert: rising costs for businesses, wage pressures, and global economic uncertainty mean that the “calm” may be fragile for some sectors.
Sources (as at 28-11-2025):
- Bank of England — November 2025 Monetary Policy Summary & Minutes.
- Office for National Statistics — October 2025 CPI release.
- TradingEconomics / public data — UK core inflation and CPI trend.
