In a week in which the UK’s latest inflation figures came in lower than expected for April, you would still be forgiven for thinking the biggest news this week was a man standing behind a tree in Middlesbrough or Thomas Tuchel’s England squad announcement!
According to data published by the Office for National Statistics on 20 May and reported in Portfolio Adviser, inflation fell by 50 basis points on a year-on-year basis between March and April, from 3.3% to 2.8%. This was partially driven by a fall in the energy price cap to 7% in April, as well as a fall in food inflation from 3.7% in March, to 3% last month. The biggest downward contributor, however, was services, with the CPI services annual rate falling by 130 basis points from 4.5% to 3.2%.
The greatest upward pressure last month came from petrol prices, which rose by an average of 16.6 pence over the course of the month, compared to a 3p fall over the same time frame last year
I know all of that seems as though it’s the most important thing to us here, but in fact it could be a move today in the US that has most impact (wasn’t it ever thus!!) Today, Kevin Warsh is expected to be sworn in as Chairman of the Federal Reserve. Will he succumb to the President’s pressure to cut interest rates, we wonder?
That pressure comes as Bloomberg reports that Americans have been struggling for months with high gas prices and persistent inflation, sending consumer sentiment to a record low. Now retailers like Walmart and Lowes are getting louder about their warnings that spiking fuel costs driven by the US-Israel war with Iran will soon be reflected in the prices of products on their shelves.
When that happens, it’s only going to make US affordability problems that much worse. “We are concerned that the consumers have less ability to spend” even now, said Joe Feldman, an analyst at Telsey Advisory Group. Looking ahead, “the lower-income consumer is going to become even more challenged.”
At Walmart, Chief Financial Officer John David Rainey said the company has seen some habits change: consumers bought fewer gallons per visit at Walmart pumps in the first quarter, with the average number falling below 10 for the first time since 2022. “That’s an indication of stress,” he said.
Despite that corporate earnings remain good pushing markets up. The FTSE100 index is up almost 3% on the week as is the Dow. Tech stocks have taken a breather this week as both the S&P 500 and Nasdaq are both green but only marginally up over the same time period.
Market Updates
To talk us through that and start my ever-growing frenzy of bullet points is the team at Tatton Investment with their Tatton Weekly, covering:
- Assuming growth will win – A positive week for stocks and bonds, although US tech pauses despite Nvidia’s stellar earnings as AI growth expectations shift.
- Long maturity bonds suffer from fiscal risk – Bond valuations have been volatile since last year, and the need for government borrowing to help households is adding long-term risk.
- China stalls again – Weak data across the board show lingering economic stagnation in China – can policy makers act to ensure this weakness is a blip?
While markets continue to be buoyed by investment in AI and strong growth in corporate earnings, Rathbones remain steadfast in their belief in diversified portfolios.
This week’s Weekly Digest concentrates on the fact that UK gilt yields have recently risen to levels last seen before the financial crisis, bringing renewed focus to inflation, public finances and borrowing costs. They discuss how:
- Higher gilt yields underline the challenges facing government finances and future policy decisions.
- Strong corporate earnings have so far absorbed the impact of higher interest rates, helping markets look through short term pressures.
- Patience and balance remain central to long term investment outcomes.
Rising gilt yields, falling confidence – the UK risk premium is back – but what does it mean for your money?
As yields on gilts (UK government bonds) have climbed to the highest levels in decades, sterling has weakened and markets are beginning to price in rising political and economic risk in the UK. Investors are demanding a higher return to lend and that shift can feed quickly into mortgages, borrowing costs and growth.
What level do yields need to reach before this becomes a real problem and what does that mean for your investments?
Jane Parry, Chief Marketing Officer at Canaccord, is again joined by Tom Hibbert, Chief Investment Strategist, in this week’s Coffee Break podcast to talk about:
- Why gilts are under pressure from political uncertainty and global bond market trends
- What rising yields mean for growth, inflation, and the wider UK economy
- Where risk levels begin to escalate and what higher yields could trigger
- Why today’s yield levels may also present a more attractive entry point for investors.
This week’s episode explains what’s driving the current pressure in UK markets and why higher gilt yields could be significant for your portfolio.
I’m also able to share an update from Charles Stanley’s Group Chief Investment Officer, Patrick Farrell outlining their current views on the situation in the Middle East and what it may mean for markets and investments.
In brief
- The Middle East situation remains uncertain, but recent ceasefire proposals have helped calm markets, with oil prices easing and equities improving. A broader framework outlines potential de-escalation steps, though key issues like Iran’s nuclear programme and US military presence remain unresolved.
- Energy disruption in the Strait of Hormuz continues, albeit with some limited transit resuming, keeping supply below normal levels. Overall, geopolitical risks still threaten global growth and inflation, with the most likely scenario being a prolonged period of disruption rather than a full escalation or swift resolution.
Paper attached.
AI Bobs Along
A couple of weeks ago, Ben Kumar at 7IM went on a tour round his local recycling centre (Southwark). Might not be for everyone on a Tuesday evening … but he loved it!
Best of all, he got to meet Bob:
Bob is the AI robotic arm, hired about 2 years ago to help sort aluminium alongside the existing (human) workers.
A really interesting example of how AI and humans interact – and it gave me a few things to think about.
- People don’t mind giving up horrible tasks …
Bob’s job isn’t pretty. He separates foil pouches from pure aluminium, picking out half full pet food packets from half empty beer cans, 24 hours a day. Mucky and boring.
The people who used to do that job have moved to catching the odd exception Bob missed. They are much happier – working in an area that’s cleaner and quieter, and the quality of the output has soared. Win-win.
- … because the task is not the job
Since Bob joined, more people work in the recycling plant than before. Southwark only recycles 30% of its waste. The “job” is to get that higher – so there’s plenty of work to go around.
“Work” changes
150 years ago, councils didn’t collect waste.
50 years ago, they shovelled it into holes in the ground.
Today, there’s a recycling centre and all of the jobs that come with it (from sorting to logistics to bin collection to tour guides).
Thinking about all of this this reminded me of a study from a few years ago, which found that 60% of the US population in 2018 were doing jobs which didn’t exist in 1940.
Source: https://www.nber.org/system/files/working_papers/w30389/w30389.pdf
The best bit is at the back, where they give examples of the new jobs added, by decade …
I’m no clearer, even after meeting Bob, on what those entries for 2030 or 2050 will look like.
But they won’t be blank.
Defeat from the Jaws of ViCTory
Investments in Venture Capital Trusts rose slightly in 2025, the latest data from HMRC showed, so says FT Adviser.
VCT investments rose to £881mn in the 2024-25 tax year, up from £872mn the previous year and more than double the figure recorded 10 years ago.
It came ahead of a change in income tax relief which took effect on April 6 and has seen income tax relief on VCTs drop from 30 per cent to 20 per cent.
MQ Wei, lead tax advantaged analyst [Ed – !!] at St. James’s Place, said: “As the latest data captures behaviour prior to these reforms, it provides a useful baseline for what comes next.
“We expect increased competition and an earlier start to the VCT fundraising cycle this year, while over time the direction of travel is likely to be towards further consolidation, with larger managers gaining share. Despite this, demand for tax‑efficient investing remains structurally resilient, with both schemes continuing to play an important role for investors.”
The number of VCT schemes raising capital remained unchanged at 45 in the tax year, with the figure remaining the same since 2021-22. The government data shows that in the 2024 to 2025 tax year, there was a significant decrease in the number of VCT investors compared to the previous year.
It showed most investors invest under £50,000 into VCT funds.
It’s a useful investment and tax tool, but you need to understand the potential risks so if you are interested, please speak to your usual JB Wealth advisor.
Policy Watch
I’m hoping this won’t become a regular feature but this in CityWire caught my eye:
Wes Streeting has said capital gains should be taxed the same way as income as he sets out his pitch to become the next prime minister. Streeting described the current system as unfair and said his proposal would deliver a ‘wealth tax that works’ in an interview with the BBC’s Political Thinking podcast. This would involve bringing capital gains tax (CGT) rates in line with income tax bands of 20%, 40% and 45%. Currently CGT is calculated by combining an individual’s taxable income with any gains they have made. Everyone has a £3,000 tax-free allowance for capital gains. Above this they face an 18% tax rate on gains and income up to the basic rate band of £37,700, and a 24% rate of tax on gains above that.
Streeting said that the plan could raise up to £12bn a year. ‘The wealth gap in this country has widened, the opportunity gap in the country is widening and the gap between earned income and unearned income has also widened,’ he added.
Successive governments have cut CGT relief over recent years. Last November chancellor Rachel Reeves halves CGT relief on disposals on employee ownership trusts. The year before she increased the lower rate from 10% to 18%, with the higher rate rising from 20% to 24%. The annual exemption allowance was also cut down from £6,000 to £3,000. In 2022 Conservative chancellor Jeremy Hunt halved the CGT allowance from £12,300. The tax-free allowance for trusts has also been cut down from £3,000 to £1,500 over the same time.
Meanwhile in 2020 the Office for Tax Simplification (OTS) called for CGT to be set against the same rate as income tax. At the time, the OTS also said the government should remove the capital gains uplift on death and should see the interior as acquiring the assets at the historic base cost of the person who has died.
Anna Warren, tax director at global wealth manager Bentley Reid, cautioned against the idea that equalising CGT with income tax would raise more money. ‘In fact, the increases in the last few years have resulted in the amount collected from CGT fell by 8%,’ she said.
Let’s hope this isn’t another case where a great political soundbite ends up costing the country money!
Miscellaneous
Ian Dyall, head of estate planning at wealth management firm Evelyn Partners, says that inheritance tax is hated by the many and paid by the few. But the few have been growing in number and facing bigger bills. This trend will accelerate following the inclusion of unspent pension assets in estates from April next year. That significant change is expected to catch about 31,200 more estates by 2030, while about 121,500 estates will face an increase in their inheritance tax liabilities. More people are therefore becoming concerned about the inheritance tax risk hanging over the carefully saved assets they hope to leave to their loved ones. But the danger is that in trying to side-step this, they come a bit of a cropper, as he outlines in the attached document ‘Six IHT Mistakes’.
Shakira’s rendition of Waka Waka is the most successful World Cup theme in history according to Jeremy Griffin in the Times. As he says, when the Columbian Superstar [Ed – big fan then, is he?] released it in 2010 the world was “a happier place”, but now she says algorithms manipulate, divide and pit people against each other [Ed – that’s football in a nutshell, surely!] so the royalties from her second football anthem will be going to FIFA’s education fund! I wonder what she makes of the video released to accompany Thomas’s announcement. That it is accompanied by a song written only a few years after we won the world cup somehow seems appropriate. With apologies to our other home nations readers, see here if you are interested:
https://www.youtube.com/watch?v=2umUvkWzzxw
I feel it’s going to be a long summer!
Enjoy your bank holiday weekend and I hope to catch you next time.