UK markets advanced this week, with the FTSE 100 Index rising by 0.45% to trade at 8,800 points at the time of writing.
UK household disposable income fell at its fastest rate in two years in Q1 2025, with real household disposable income per head, the inflation adjusted amount of income available for a household after taxes and subsidies, decreasing by 1%, according to figures from the Office for National Statistics published on Monday. The decline compared with a 1.8% expansion in the fourth quarter, the Office for National Statistics said.
The figure comes as a blow to Prime Minister Sir Keir Starmer, who last year said the government would target household disposable income as a milestone for rating the success of his economic policies. The squeeze on incomes comes as economic growth is expected to slow from the first quarter’s 0.7% pace amid still-high inflation, the impact of US President Donald Trump’s tariffs and a weakening jobs market.
The Office for National Statistics confirmed on Monday that in the first quarter, the UK economy grew by 0.7%, the fastest rate since the same period in 2024. However, the detailed figures showed that rising wages were offset by an increase in taxes and a jump in inflation. The proportion of disposable income that households save, the household savings ratio, decreased to 10.9% in the first three months of the year, down from 12% in the previous three-month period, marking the first decline in two years. However, the ratio remains relatively strong, as it compares with an average of 5.5% in the three years to 2019.
UK Chancellor Rachel Reeves was under pressure this week after the UK government’s decision not to pass welfare reforms, which had been intended to save £5 billion. Ministers warned that there would be financial consequences to confront in the wake of Labour’s costly retreat on welfare, paving the way for potentially significant tax rises in the 2025 autumn budget. The government’s u-turns on welfare, combined with the potential for weaker growth forecasts, could deliver a fiscal hit as much as £25 billion, according to estimates by Capital Economics analysts.
Commodity markets
In the commodity markets, Brent crude futures traded around $68 per barrel on Friday and are set to end the week little changed, as the possibility of US tariffs being reinstated raised demand concerns ahead of an expected supply boost by major producers.
Oil prices hit one-week highs on Wednesday as Iran suspended cooperation with the UN nuclear watchdog, raising concerns that the lingering dispute over its nuclear programme could again devolve into armed conflict.
A preliminary trade deal between the US and Vietnam also boosted prices. Meanwhile, the OPEC+ group of oil producers is expected to agree to raise output by 411,000 barrels per day at its policy meeting this weekend.
Adding to negative sentiment, a private-sector survey showed that service activity in China, the world’s biggest oil importer, expanded at its slowest pace in nine months in June as demand weakened and new export orders decline.
A surprise build in US crude inventories also highlighted demand concerns. The US Energy Information Administration said on Wednesday that domestic crude inventories rose by 3.8 million barrels to 419 million barrels last week. Analysts in a Reuters poll had expected a drawdown of 1.8 million barrels.
Gold prices traded around $3,340 an ounce on Friday and are set for a weekly rise, as Donald Trump’s tax-cut and spending bill passed in congress, raising fiscal concerns.
Equity markets
US equity futures fell on Friday as renewed concerns over trade policy weighed on sentiment. In Thursday’s regular trading session, the Dow Jones Industrial Average gained 0.77%, the S&P 500 rose 0.83%, whilst the Nasdaq Composite advanced 1.02%.
Donald Trump secured his flagship tax and spending legislation this week after the House of Representatives approved the bill. The 218-214 vote by the House on Thursday came hours after the President quashed a rebellion among republican lawmakers who threatened to hold up what Trump calls his “big beautiful bill”. The President is set to sign the bill into law on Friday afternoon in Washington, meeting his self-imposed deadline of July 4th. The legislation extends vast tax cuts from Trump’s first administration, paid for in part by steep cuts to Medicaid, the public health insurance scheme for low-income and disabled Americans, and other social welfare programmes. The bill will also roll back Biden-era tax credits for clean energy, while scaling up investment in the military and funds for Trump’s crackdown on immigration. It has been projected to add more than $3 trillion to the US debt over the long term, raising concerns among economists.
The US economy added 147,000 jobs in June, beating expectations and leading investors to scale back their bets on interest rate cuts. Despite uncertainty over Donald Trump’s trade and immigration policies, the figure from the Bureau of Labor Statistics surpassed both the upwardly revised 144,000 jobs added in May and the 110,000 predicted by economists polled by Bloomberg. The unemployment rate fell slightly to 4.1% and the April jobs increase was revised higher to 158,000. The unexpectedly strong figures will ease pressure on the Federal Reserve to cut interest rates, despite the US President’s repeated calls for the central bank to do so. Investors are now betting that there is a roughly 5% chance of the US central bank lowering borrowing costs this month, compared with about 25% before the jobs data.
Elsewhere, tariff uncertainty remains, with the 90-day pause on the implementation of higher US tariffs ending on July 9th, and several large trading partners yet to clinch trade deals, including the European Union and Japan, reviving market concerns.
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