UK markets have risen during this week, with the FTSE 100 Index rising around 1.3% to trade at 8,680 points at the time of writing.
The British economy grew by 1.3% year-on-year in the first quarter of 2025, slightly below the 1.5% expansion recorded in the previous quarter, but exceeding market expectations of 1.2%, according to preliminary estimates. The services sector expanded by 1.5%, down from 1.9% in Q4, while construction output rose by 0.9%, matching the previous quarter’s growth.
UK wage growth eased in the three months to March and employers cut jobs ahead of steep increases in payroll taxes and the minimum wage, in the starkest signs yet of the strains in the labour market. Annual growth in average weekly wages was 5.6%, excluding bonuses, in the three months to March according to figures from the Office for National Statistics.
The figure was in line with analysts’ expectations and down from 5.9% in the three months to February. Separate figures showed payroll employment fell by 47,000 or 0.2% between February and March. Preliminary figures for April showed a further drop of 33,000 or 0.1% on the month.
The measures introduced in Rachel Reeves’ October Budget and that took effect in April are hitting the retail and hospitality sectors hardest, which had the sharpest falls in employment in March and April. Figures based on the Office for National Statistics’ labour force survey also showed an increase in the headline measure of unemployment to 4.5% in the three months to March, from 4.4% in the previous three month period.
Despite the slowing jobs market, the relatively high wage growth leaves the Bank of England in a tricky position and is likely to reinforce its gradual approach to interest rate cuts. Pay growth is still running at almost double the rate the Monetary Policy Committee would be comfortable with.
Commodity markets
Brent crude futures traded around $65 per barrel on Friday and are set to end the week slightly higher as optimism over the potential of a US-China trade agreement helped to increase projected demand.
Gold prices traded around $3,170 an ounce on Friday, falling on the week as risk sentiment in financial markets improved and geopolitical risks also appeared to subside with the India-Pakistan truce holding steady. However, progress in negotiations between Russia and Ukraine showed signs of stalling.
Equity Markets
US equity futures were slightly higher on Friday as markets continued to positively react to the more encouraging tone in the US’s trade talks with various nations. In Thursday’s regular trading session, the Dow Jones Industrial Average rose 0.7%, the S&P 500 gained 0.47%, whilst the Nasdaq Composite advanced 0.07%.
The US and China agreed a ceasefire in their trade war this week, fuelling a global market rally over hopes the deal will contain the damage to the world’s largest economies. After talks in Geneva, the two countries said on Monday they would slash tariffs on each others goods for at least the next 90 days, with the extra levies the US imposed on China this year falling to 30% and China’s declining to 10%.
The moves amounted to a de-escalation from a confrontation that had threatened to fuel inflation and empty supermarket shelves in the US and stoke unemployment in China. China also agreed to “suspend or cancel” non-tariff measures against the US as part of the deal but did not provide any details. Donald Trump said he thought the two countries would reach a durable deal, but cautioned that if longer-term talks with Beijing failed, US tariffs on Chinese goods could return to substantially higher levels. However, he conceded they would not be at the previously high level of 145%. US consumer price inflation fell to 2.3% in April, figures from the Bureau of Labor Statistics showed, below the expectations of analysts surveyed by Bloomberg that inflation would remain at March’s 2.4% rate.
Although Donald Trump has cut back many of the tariffs he announced on April 2nd, economists cautioned that most of the impact of the import duties has yet to be felt, with Federal Reserve officials anticipating further increases in price pressures.
The Yale Budget Lab, a university research organisation, said on Monday that, because of the tariffs, the average US consumer would pay $2,800 more for products this year than in 2024. The core inflation rate, which excludes changes in the price of food and energy products, remained at 2.8% in April, the Bureau of Labor Statistics said.
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