Unlocking Yield Through Currency-Based Arbitrage: Using Swiss CHF Lombard Loans to Buy UK 10-Year Gilts

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In an era where global interest rates have risen unevenly across jurisdictions, sophisticated investors are rediscovering the power of cross-currency arbitrage. Switzerland, with its uniquely low interest-rate environment and deep private-banking infrastructure, offers a particularly attractive mechanism: borrowing cheaply in CHF through a Lombard loan and reallocating the capital into higher-yielding GBP assets, such as UK 10-year gilts.

At its core, this is a classic carry trade enhanced by Swiss lending conditions, robust collateral rules, and the relative stability of CHF borrowing. When conducted properly, it can generate a reliable yield uplift with controlled risk, while utilising internationally held liquid assets as collateral.

Below, we explore the structure, the mechanics, and the financial logic behind this increasingly compelling strategy.

Context: The Divergence That Creates the Opportunity

Over the past decade, Switzerland has experienced prolonged periods of ultra-low interest rates, including negative base rates for several years. Even after the Swiss National Bank’s adjustments, the lending environment remains uniquely attractive. Private banks—particularly for high-net-worth individuals—continue to offer CHF Lombard loans at rates as low as 0.5%–1.0%, depending on collateral quality, relationship strength, and loan-to-value ratios.

Contrast this with the UK, where gilt yields have surged in response to inflation, fiscal pressure, and Bank of England tightening. As of December 2025, 10-year UK gilts yield approximately 4.57%,

This differential creates a spread of circa 3.50% 4.00%, which—if harvested through a correctly structured arbitrage—can produce attractive net returns with relatively low operational complexity.

On the commodities front, a CHF carry trade with gold transacting in January 2025 would have earned a spectacular return of in excess 50%. Elsewhere in the commodities world, a CHF carry trade again transacted in January 2025 with silver and copper would have returned as of 12th December 2025 in excess of 60% and 27% respectively.

What Is a CHF Lombard Loan?

A Lombard loan is a credit line issued against a pledged portfolio of liquid financial assets, such as:

  • Blue-chip equities
  • Investment-grade bonds
  • Actively Managed Certificates (AMCs)
  • ETF portfolios
  • Cash and near-cash instruments

Swiss banks excel in this type of lending. Their regulatory environment, relationship-driven approach and risk-based margining allow borrowers to leverage existing portfolios efficiently, with loan-to-value ratios typically between 50% and 80%.

Key attributes of a Swiss CHF Lombard loan include:

  • Ultra-low interest rates

CHF is one of the cheapest funding currencies globally.

  •  No purpose restriction

The borrower can deploy the drawn funds anywhere, including into other currencies and international assets.

  • Revolving structure

The loan can be drawn and repaid at will, allowing dynamic management of exposure.

  •  Attractive risk-adjusted borrowing

Because the collateral remains under custody, the bank views the credit as relatively safe, and thus, rates remain low.

This is the foundation on which the arbitrage is built.

The Strategy: Borrow CHF → Convert to GBP → Buy UK Gilts

The arbitrage process is relatively straightforward when broken down into its operational steps:

Step 1 — Establish or Leverage a Swiss Private Banking Relationship

To access Lombard rates at 0.5%–1.0%, the investor needs:

  • A custody account
  • A qualifying portfolio of assets
  • A lending agreement and minimum loan amounts (often CHF 1–5 million+)

Some banks require formal financial planning or wealth advisory processes, but high-net-worth individuals with existing portfolios can typically proceed quickly.

Step 2 — Secure the CHF Lombard Loan

The bank approves a loan facility based on portfolio value. For example:

  • Portfolio value: CHF 10 million
  • LTV allowed: 60%
  • Lombard facility available: CHF 6 million
  • Interest rate: 0.5%

Interest is calculated quarterly or semi-annually and debited automatically from the account.

Step 3 — Convert Borrowed CHF Into GBP

The facility is drawn in CHF and immediately converted into GBP via spot FX conversion.

FX considerations:

  • A competitive institutional spot rate
  • Optional hedging (forward contracts or options)
  • Assessment of CHF vs GBP strength

Some investors prefer to leave the position unhedged to benefit from relative GBP strength if expected.

Step 4 — Purchase 10-Year UK Gilts Yielding Approx 4.5%

The GBP proceeds are then deployed into UK government bonds—either directly or via a UK brokerage account or custodian.

Why gilts?

  • They are highly liquid
  • They carry near-zero credit risk
  • They provide a steady, predictable income
  • They benefit from potential price appreciation if UK rates fall

Thus, the CHF cost of funds is dramatically lower than the GBP return on capital.

The Financial Logic: Why the Spread Works

Let’s examine the mechanics of the spread in simple terms:

  • Cost of funds (CHF Lombard loan): ~0.5%
  • Yield on UK 10-year gilts: ~4.50%

This produces a gross spread of 4.00%.

On CHF 6 million borrowed and converted:

  • GBP equivalent at FX 1.06 = ~£5,640,000 (F/X rate as of 12.12.25)
  • Annual gilt income at 4.00% = £225,600
  • Annual CHF interest cost = ~CHF 30,000 (approx. £28,000)
  • Net annual gain ≈ £197,600

This is a clean carry return, before FX adjustments.

Why Switzerland Enables This Strategy Better Than Anywhere Else

  • Lowest funding currency in Europe

CHF consistently trades at low or even negative real yields.

  • Highly flexible lending against securities

London brokers, for example, often restrict or price Lombard lending far less attractively.

  • Private-banking operational efficiency

Swiss banks excel at cross-currency management, FX execution, and multi-asset settlement.

  • Stability of CHF

Even if CHF appreciates slightly against GBP, the yield pick-up can still outweigh FX movements.

  • Transparency and contractual freedom

Swiss credit agreements allow international deployment of borrowed capital with minimal restriction.

Key Benefits of the Arbitrage Strategy

  • Strong Yield Enhancement

The primary benefit is the high risk-adjusted net yield created by borrowing at 0.5% and earning 4.00%.

  • Portfolio Liquidity Retained

The investor keeps full exposure to their existing equity, bond, or AMC portfolio, which continues to grow independently.

  • Access to Government-backed Yield

UK gilts provide a secure, low-risk income stream with minimal credit concerns.

  • Potential for Capital Gains

If UK interest rates fall (which many economists expect), gilt prices could rise.
This gives the investor:

·       Yield carry plus

·       Bond capital appreciation

  • FX Optionality

Depending on macroeconomic positioning, the investor may:

  • Hedge the GBP exposure back to CHF
  • Partially hedge
  • Remain unhedged for speculative gain

Each approach has its own risk/return implications.

  • Tax Efficiency

In many jurisdictions, including Switzerland and the UK (depending on residency), interest expenses may be deductible or treated favourably—though tax advice is essential.

  • Leverage Without Selling Core Assets

The strategy avoids liquidation of existing holdings and instead monetises balance-sheet strength.

Risk Considerations (And Why They Are Manageable)

No arbitrage is entirely without risk, but in this case, risks are typically manageable:

  • FX Risk

If GBP weakens significantly relative to CHF, the converted capital may lose value.
Mitigation: FX forwards, call options, or partial hedging.

  • Margin Calls

A drop in the value of the pledged portfolio may reduce available collateral.
Mitigation: conservative LTV, diversified assets, or over-collateralisation.

  • Gilt Price Volatility

Gilt yields fluctuate with BOE policy.
Mitigation: holding to maturity eliminates mark-to-market risk.

  • Bank Relationship Terms

Interest rates may adjust if the SNB changes policy.
Mitigation: fixed-rate loan tranches or caps.

Overall, for high-net-worth clients with diversified portfolios and long-term horizons, these risks are typically well within acceptable parameters.

Why This Works Especially Well in 2025

  • UK yields remain elevated despite falling inflation
  • CHF remains structurally cheap
  • Swiss banks are competing aggressively for AUM
  • FX volatility has stabilised after post-pandemic disruptions
  • Investors seek income without unnecessary risk

This convergence of macro conditions makes the arbitrage one of the cleanest, lowest-risk carry trades available to private clients today.

A Strategic Opportunity for Sophisticated Investors

Borrowing in CHF at 0.5% through a Swiss Lombard facility and reallocating into UK 10-year gilts at 4.50% is not merely a financial trick—it’s a structural yield opportunity created by divergent monetary policies and Switzerland’s unparalleled lending environment.

For investors with substantial balance-sheet assets, this strategy:

  • Enhances yield
  • Maintains liquidity
  • Adds diversification
  • Provides optionality
  • Utilises low-risk government-backed instruments

When analysed on risk-adjusted terms, very few fixed-income opportunities offer anything close to this spread with such operational simplicity.

For those already working with Swiss lenders—or those considering relocating assets to Switzerland—this arbitrage represents a compelling, timely, and elegant strategy for capital efficiency and long-term income generation.

CONTACT US FOR MORE INFORMATION

Swiss National Bank Holds Interest Rates Steady

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Today, the SNB (Swiss National Bank) kept its benchmark interest rate on hold at 0.00%, as many market experts had already priced in a minimal chance of a rate reduction. This is the second straight meeting where the central bank has kept interest rates on hold, against a backdrop of zero inflation, which is at the lower end of the SNB’s target range of 0.00% – 2.00%. The bank signalled that they are open to further rate cuts if threatened with a sustained period of falling prices.

Reasons Behind the Decision

Following the rate decision, the Chairman of the SNB, Martin Schlegel, pointed out that there were bigger considerations than just reducing rates into negative territory, given the financial hits that pension funds, banks’ profits and savers would have to bear. Investors have always seen Switzerland as a haven for savings in times of strife and geopolitical tensions, which has presented the central bank with several problems. 

Under normal circumstances, with inflation at zero and the Swiss franc hitting recent highs against the euro, the case for cutting rates would have been far stronger. But the bank has set a much higher bar for moving into negative rates, making such a move far less likely now.

Inflation Outlook

The SNB has cut its inflation forecast for 2026 to 0.3% and 0.6% for 2027, and experts say that today’s rate cut decision is an indication that the bank is prepared for a fairly long period of low inflation. One market expert noted, “Leaving policy rates at 0.00% now also implies that these low inflation rates will not be sufficient to trigger another cut.” The SNB President Martin Schlegel also pointed out that “Inflation in recent months had been slightly lower than expected, but the outlook is basically unchanged. Our monetary policy is helping to ensure that inflation is likely to rise slowly in the coming quarters.”

Economic Growth and Trade Impact

There was a contraction in the Swiss economy in Q3 due to President Trump placing a tariff of 39% on many of Switzerland’s exports. This has since been replaced with a 15% tariff, which the President of SNB acknowledged was a positive development. 

New data show the Swiss economy is gaining momentum, prompting the central bank to upgrade its growth outlook. GDP growth for 2025 has been revised from 1.0% to just under 1.5%, with the 2026 forecast raised from just under 1.0% to just under 1.5% as well.

The Federal Reserve Cuts Interest Rates by a Quarter Point

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FOMC Announces Rate Cut Amidst Divisions

Today, the Federal Reserve’s FOMC (Federal Open Market Committee) cut interest rates by 25 basis points to 3.50% – 3.75% in a majority vote (9-3), which included three dissensions.  The divisions within the FOMC are between members who see stubborn inflation as the biggest risk and those who believe weakness in the labour market poses the greater threat to the U.S. economy. Indeed, Austan Goolsbee and Jeff Schmid, both regional Federal Reserve presidents from Chicago and Kansas City, voted against a rate cut, whilst Governor Stephen Miran (a President Trump appointee) dissented in favour of a larger cut of 50 basis points.  

Deep Divide Over Future Interest Rate Decisions

As details of the meeting were released, it became clear that the Federal Reserve is very much divided over interest rate cuts. Although Chairman Jerome Powell downplayed the dissenting voices over the decision to cut rates, several non-voting regional Federal Reserve presidents signalled their opposition by arguing that the year-end benchmark rate should be kept between 3.75% and 4.00%. Such divisions could make life difficult for the new Chairman (who will be picked by President Trump to get agreements on interest rate decisions). The President also commented that the interest rate cut could have been larger.  

Cautionary Language in Post-Meeting Statement

The FOMC has now cut interest rates for the third time in a row, but the language emanating from the post-meeting rate statement was one of caution and reflected the contents of a post-meeting statement back in December 2024. The current statement read, “In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the committee will assess incoming data, the evolving outlook, and the balance of risks.” However, in December 2024, the same language was used, and as a result, the Federal Reserve did not cut rates for another nine months until September 2025.  

Market Uncertainty and the Dual Mandate

Experts suggest that the financial markets will face a degree of uncertainty regarding the Federal Reserve’s monetary policy for 2026, as labour market strength and inflation trends remain unclear. Due to the Federal Reserve’s dual mandate of price and employment stability, the debate within the central bank will continue unabated with one market expert saying, “It’s highly unknowable where we are headed in the next six to nine months, just given all the changes that are out there in this historically kind of odd period where you have tensions on both sides of the mandate.”  

Policy Decisions Amidst Data Gaps

Due to the 43-day government shutdown, recent official data on inflation and unemployment are for September and showed inflation rising from 2.70% to 2.80%, and unemployment rising from 4.30% to 4.40%. In the Federal Reserve statement, it was announced that, “Available indicators suggest that economic activity has been expanding at a moderate pace, job gains have slowed this year, and the unemployment rate has edged up through September.”   

The latest policy statement was, however, put together without the benefit of inflation and job data but relied on available indicators, which officials said included their own private data, community contacts and internal surveys. Inflation and job data for November are expected to be released next week, followed by a full report on economic growth for Q3. The rate cut outlook for 2026 is uncertain as policymakers remain deeply divided, with median projections pointing to a single cut in 2026 and a further cut in 2027. However, eight officials have signalled their support for two cuts in 2026, whilst seven officials have indicated their support for no rate cuts next year.

Outlook for Crude Oil 2026

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Many experts and observers in the crude oil arena are forecasting an oversupply in 2026, leading to an oil glut driven by rising supply and weaker demand. 

Price Forecast and Supply Glut

Analysts suggest that the price of Brent Crude will average US$58 bbl (1 barrel). In Q1 of 2026, as the glut gets larger, the price will gradually fall to US$52 bbl and end the year at US$50 bbl, giving an average price for the year of US$55 bbl. 

Indeed, the IEA (International Energy Authority) has estimated that there will be a record oil glut or surplus (estimated at 4 million b/pd – barrels per day) next year, with demand growth remaining subdued as OPEC+* continues to revive supplies.

*OPEC+ – is short for the Organisation of the Petroleum Exporting Nations and is a coalition of 23 oil-producing countries, of which the full members are Algeria, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Republic of the Congo, Saudi Arabia, United Arab Emirates and Venezuela. There are a further 10 non-OPEC Partner Countries that form the OPEC+ and make up the DoC (Declaration of Cooperation), consisting of Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia, Mexico, Oman, Russia, South Sudan and Sudan. The whole group’s modus operandi is to cooperate to influence the global oil market and stabilise prices.

The Market’s Muted Response to Geopolitical Risk

Several experts have voiced surprise at the lack of volatility in the crude oil market in 2025, despite the many supply and geopolitical risks. Key events such as Russian oil sanctions, plus Israeli and the United States strikes on Iran, had many analysts expecting major volatility given the potential to lose Iranian oil supplies. However, the market showed a complete lack of volatility, and Brent even had a small but brief rally, hitting US$80 bbl. Experts suggest that there is fatigue within the market, especially after Russia invaded Ukraine in February 2022, so volatile market reactions to explosive geopolitical tensions appear to have been muted. It is therefore being predicted that with a market glut continuing into 2026 and the large amount of spare capacity in Saudi Arabia, there will be little impact on oil supplies, with prices falling as mentioned above.

OPEC+’s Strategic Shift

In April, OPEC+ shifted its strategy from supporting high oil prices through production cuts to increasing output to regain market share from non-OPEC+ producers such as Brazil, Guyana, and the United States. Indeed, the market was taken by surprise when a series of production increases added a total increase of 2.9 billion b/pd, contributing to the downward pressure on prices, which, as stated above, is expected to keep going south well into 2026. 

Experts say the policy shift was driven by several external factors, including diplomatic pressure from the White House and unexpected geopolitical events such as the Iran–Israel war and sanctions on Russian oil. The later sanctioning of major Russian producers Lukoil* and Rosneft** also provided an unexpected buffer against a sharper price collapse.

*Lukoil – Engages in the exploration, production, refining, marketing and distribution of oil and gas in both Russian and international markets. Lukoil is owned by private shareholders, with its founder, Vagit Alekperov, holding circa 28.3%.

**Rosneft – A vertically integrated energy company specialising in the exploration, production, refining, transportation, and sale of petroleum, petroleum products and LNG. The Russian Government owns circa 40.4% of the company, with the QIA (Qatar Investment Authority) also owning a significant stake.

Demand and The Fiscal Breakeven Point

Analysts suggest that in 2026, there will be a modest increase in oil demand at circa 800 b/pd, which is expected to be driven by non-OECD (Organisation for Co-operation and Economic Development) countries, especially Asia, which is calculated to make up 50% of demand, whilst China’s demand is expected to be under 200 b/pd. 

In effect, many analysts and commentators agree that 2026 will be a challenging year for oil prices due to overwhelming supply, with large surpluses potentially building, unless OPEC+ makes significant production cuts or geopolitical events disrupt supply chains. Another factor to consider is how long OPEC+ nations are willing to tolerate low oil prices. With an average price of USD $55 per barrel forecast for 2026 and Saudi Arabia’s fiscal break-even at around USD $90 per barrel, any decision to cut production could put upward pressure on prices later in the year.

Outlook for Gold 2026

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There is a divergence amongst gold experts and analysts regarding the price of gold in 2026, where some predict a continuation of gold’s strength, and others suggest a potential correction or just a modest gain. 

The Remarkable Performance of 2025

2025 was a remarkable year for gold, returning over 60% whilst also achieving over 50 record highs. This outstanding performance was underpinned by various factors such as heightened geopolitical uncertainty, global economic uncertainty, central banks increasing their gold purchases (especially China), positive price momentum and a weaker U.S. Dollar.

Core Factors Shaping 2026

However, looking forward to 2026, many experts, analysts and financial commentators believe that gold will be defined by ongoing global economic uncertainty and geopolitical unrest. They suggest that if the prevailing conditions currently affecting gold remain the same moving into 2026, then gold is likely to remain rangebound. However, if interest rates fall and economic growth slows, then gold could enjoy a moderate increase in value. 

Gold could perform at heightened levels in the event of a severe economic downturn driven by growing global risks. Conversely, if geopolitical tensions ease and White House policies boost economic growth, strengthening the dollar and pushing interest rates higher, the price of gold would likely fall.

Analysts suggest that as we move into 2026, financial markets expect the status quo to continue. However, uncertainty will persist due to geo-economic pressures on financial data, questions over whether inflation can finally be brought under control, and the outcome of political negotiations aimed at easing geopolitical unrest. 

Gold as a Strategic Diversifier

Another key aspect of gold is its role as a portfolio diversifier and a source of stability in times of political unrest and market volatility. This is especially prevalent as to whether we see a risk-on or risk-off sentiment, which will shape not only gold but all asset classes, and will affect gold’s status as a strategic diversifier*.

*Gold as a Strategic Diversifier – In investment terms, gold is included as a core, long-term asset within a multi-asset portfolio to enhance stability and improve risk-adjusted returns, rather than using the metal for short-term speculation. Some of the main characteristics of gold are an inflation and deflation hedge, and a historical record of preserving purchasing power. Other characteristics are no counterparty or credit risks (such as bonds or shares), as well as the market being highly liquid, meaning that the metal can be easily traded even in times of volatile and turbulent market conditions.

Bullish Price Targets and Downward Risks

Some market experts remain extremely bullish and are suggesting that in 2026, the yellow metal could go as high as USD 5,000, propelled by a cocktail of central bank buying, concerns over Donald Trump’s tariffs, a widening United States deficit and stubborn inflation. Some experts predict that the Federal Reserve will cut interest rates by 75 basis points in the coming year and expect strong investor demand to continue. Many believe the bull market is far from over and that gold’s long-term rally will extend well into 2026. But bulls beware, as mentioned above, there are many twists and turns expected in 2026, some of which might put downward pressure on the yellow metal.

The Autumn Budget 2025 – Navigating the £26 Billion “Stealth Squeeze”

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The Chancellor has delivered one of the most significant tax-raising packages in recent history. Rather than dramatic headline rate hikes, the strategy relies on a “stealth squeeze” designed to generate an additional £26 billion in revenue by 2029/30.

As the UK tax burden rises to a historic high of 38% of GDP by the end of the decade, the fiscal landscape for investors, property owners, and high-income earners is undergoing a fundamental shift.

The Engine of the Squeeze: Fiscal Drag

Projected Treasury Impact: +£8.3 billion

The primary lever of this autumn budget is “fiscal drag.” By freezing personal tax thresholds while wages and inflation rise, the government is effectively pulling more income into higher tax bands without officially raising tax rates.

This freeze, now extended until April 2031, ensures that:

*780,000 people will be dragged into paying Income Tax for the first time.

*924,000 will be pulled into the higher rate band.

By 2030, nearly one in four employees (24%) will be higher-rate taxpayers—a status historically reserved for the top 10% of earners.

A New Era for Asset Taxation

Projected Treasury Impact: +£2.1 billion

In a move to narrow the gap between taxes on earned income and taxes on assets, the budget introduces a 2 percentage point increase on dividends, savings interest, and property income.

This is a tiered rollout that directly impacts portfolio returns:

*Dividend Income (Effective April 2026):

     **Basic Rate rises to 10.75%

     **Higher Rate rises to 35.75%

*Savings & Property Income (Effective April 2027):

     **Basic Rate rises to 22%

     **Higher Rate rises to 42%

     **Additional Rate rises to 47%

The Cash ISA Shake-Up

Effective April 2027

To encourage investment over cash savings, the government is slashing the tax-free cash savings allowance.

*New Limit: The Annual Cash ISA allowance for under-65s is cut from £20,000 to £12,000.

*The “Investment” Nudge: The remaining £8,000 of the overall £20,000 ISA allowance can still be used, but only for Stocks & Shares ISAs.

*Note: Savers aged 65 and over retain the full £20,000 Cash ISA limit.

Property & Inheritance: The Double Hit

The “Mansion Tax” Surcharge

Projected Treasury Impact: +£0.4 billion A new “High Value Council Tax Surcharge” will apply annually to properties valued over £2 million, effective from April 2028. Unlike stamp duty, this is a recurring annual cost:

*£2m – £2.5m Value: +£2,500 annual surcharge.

*>£5m Value: +£7,500 annual surcharge.

Inheritance Tax Freeze

Projected Treasury Impact: Rising to £14.5bn For those concerned with wealth preservation, the changes to inheritance tax UK thresholds are critical. The new inheritance tax rules confirm that the “nil-rate band” will remain frozen at £325,000 until at least April 2031.

Rising asset values mean that what was once a tax on the wealthiest will increasingly impact modest estates. Under these new inheritance tax rules, receipts are expected to nearly double by 2030/31.

Pensions: The Salary Sacrifice Cap

Projected Treasury Impact: +£4.7 billion

The budget curbs a major tax planning tool for high earners. From April 2029, the National Insurance exemption for salary sacrifice pension contributions will be capped at £2,000 per year. Contributions above this amount will now attract NI charges, increasing the cost of retirement saving for both employees and employers.

The Future of Mobility: EV Mileage Charge

As fuel duty revenue declines, the government is introducing a new mileage-based charge starting April 2028.

*Battery Electric Vehicles (BEVs): 3.0p per mile.

*Plug-in Hybrid Vehicles (PHEVs): 1.5p per mile.

The average electric vehicle driver can expect to pay approximately £240 per year, ensuring road usage is taxed even as the combustion engine is phased out.

The Final Analysis: Winners and Losers

While the budget focuses on revenue, there are targeted beneficiaries:

*Pensioners (Up): The State Pension will rise by 4.8% (£241.30/wk) under the Triple Lock.

*Families (Up): The scrapping of the two-child benefit cap offers relief to larger households.

*Minimum Wage Earners (Up): A 4.1% increase brings the National Minimum Wage to £12.71/hr.

Conversely, the “losers” are clearly defined as workers facing fiscal drag, higher-earning pension savers, and investors facing diminished net returns.

Strategic Actions for the New Tax Reality

*Re-evaluate Asset Allocation: With the 2% tax hike on dividends and savings, holding assets inside tax-efficient wrappers is critical.

*Maximise Cash ISAs Now: Under-65s have a window until 2027 to utilise the full £20,000 Cash ISA allowance before the cap drops to £12,000.

*Property Holding Structures: Owners of £2m+ homes should factor the new annual surcharge into their long-term costs.

*Review Pension Strategy: Assess the impact of the £2,000 salary sacrifice cap on your net pay and consider front-loading contributions.

Ready to find out if IntaCapital Swiss can help? Use our fast-track form to get an answer within 48 hours, or request a callback from one of our experts. 

Bond Investors Edging Towards Emerging Markets

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Investors in global bonds are eyeing a number of better-performing emerging markets, as they are currently a safer bet than their peers in the richer developed world, and some countries, such as South Korea, are delivering stronger returns. The strong performances seen in several emerging economies are due, according to experts, to governments cutting debt, improving their current account balances and getting to grips with inflation. Analysts also note that these economies have become attractive to bond investors due to a reversal of fiscal fortunes in industrial nations such as the Group of Seven* (aka the G7), where safe-haven status is eroding amid rising debt-to-output ratios.

*Group of Seven / G7 – This is an informal political forum for the leaders of seven advanced democratic economies, including Canada, France, Germany, Italy, Japan, the United Kingdom and the United States. Originally, it was known as the G8 until Russia was suspended in 2014 for the annexation of Crimea. The group meets annually to discuss and coordinate policy on major global issues such as economic governance, international security and climate change. The leader of the European Union (currently Ursula von der Leyen) has an unofficial seat at the table, enjoys all the privileges and is often dubbed the 8th member.

Analysts predict that at the close of business in 2025, and in terms of annual bond gains this year, it is set to be the strongest for emerging markets since the Covid-19 pandemic. Investors have become really impressed with a number of emerging market economies as they are now, for the first time in seven years, demanding the smallest premium over treasuries in the sovereign dollar-debt market. Indeed, for several AA-rated issuers, the spread has declined to an impressive 31 basis points, which in today’s world is a record and data released shows that, since the end of last year, average local currency debt yields have been below that of treasuries.

Experts advise that the ‘Carry Trade’ ** has become an influential tool in investing in local currency emerging market bonds, where low-interest rate volatility has favoured investment in this asset class. Sovereign and local bonds are not the only beneficiaries of the carry trade; currencies have also benefited, such as the Egyptian pound and the Nigerian Naira, both delivering 20% returns year-to-date when funded out of US Dollars. However, as one moves along the emerging market credit curve, the risk-to-reward ratio increases exponentially. Emerging market experts advise that political instability and debt distress are constant threats in a number of these economies and can be found mainly in Africa and Latin America. Also, for serious capital to be deployed, investors look to those countries with a sovereign risk of AA.

**Carry Trade – This is a financial strategy whereby an investor will borrow money at a low interest rate and invest in an asset with a higher interest rate with a view to profiting from the difference (known as the interest rate differential). Whilst this is mostly done in the foreign exchange markets, it is also applied to commodities, bonds and other assets.

However, according to analysts, there has been a palpable change in investment strategy in the emerging markets arena, with investors looking to commit directly to these economies without using the carry trade due to key macro fundamentals moving into favourable positions. It has also been noted that in the face of global trade and geopolitical dislocations, emerging markets have been resilient and have preserved fiscal governance, including balance of payments sustainability, resulting in inflows into the fixed income market, all of which is expected to continue into 2026.

UK Chancellor Raises Taxes by £26 Billion in November Budget

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Yesterday, the 25th of November, was a very chaotic day for the Chancellor of the Exchequer, Rachel Reeves, as the OBR (Office for Budget Responsibility) released in error details of the budget that had not already been pre-briefed to the media. As the chancellor rose from her seat, the house was filled with cheers from the Labour benches, but the enthusiasm quickly faded, returning only when she announced the end of the two-child benefit cap.

However, there was no hiding place for the chancellor as the brutal facts of this budget hit home. Despite promising no more increases in taxes after the 2024 autumn budget, where taxes were raised by £40 billion, she raised taxes by a further £26 billion.

On top of that, data released by the OBR showed declining growth, therefore undermining one of the chancellor’s main priorities of tackling the cost of living. Also, further data showed that the budget will have no significant impact on output by 2030. 

In the budget, Chancellor Reeves announced in excess of 80 policies, which included tax rises, allowing her to double her “Fiscal Buffer” to £22 billion, which, in doing so, kept her manifesto pledge on not raising the rate of income tax. However, the OBR announced that the latest Labour budget has taken the overall tax intake to the highest on record. Observers have noted that this budget has straddled the line between keeping the Labour backbenchers happy and not upsetting the bond markets, but the so-called smorgasbord approach (a large number of small measures) will create a significant gap between the winners and losers.

Winners 

*The Bond Market – Markets were surprised by the chancellor as she announced a higher-than-expected buffer of £22 billion. In response to the signal that the government was going to be borrowing less than was originally suspected, sterling rallied against the US Dollar to $1.32, and the FTSE 100, led by the banks, was up by 1%. The gilt market rallied to this news, with bonds climbing, pushing down the 10-year yield for the fifth day in a row to 4.42%, and the 30-year yield dropped 11 basis points on the news from the DBO (Debt Management Office) that it would sell fewer long-dated bonds.

*Low-Paid Workers and Pensioners – State pensioners will gain an increase of up to £575 per year, the equivalent of 4.8% pa, whilst those on a minimum wage will get an increase of 4.1%.

*Investment/Fund Managers and Advisers/Consultants – The chancellor is encouraging more savers to invest in stocks and shares from April 2027 by cutting the annual cash limit for ISAs from £20,000 to £12,000.        

*Household Heating – The chancellor has provided relief to households by reducing the average energy bills by £150, though she did not cut VAT. This measure included removing a scheme that funds efficiency upgrades for homes, and abolishing a number of green levies that support renewable electricity.

*High Street Retailers – The chancellor announced that lower business rates (permanent) will be enjoyed by shops, hospitality and leisure companies who have properties valued at under £500,000. The savings will be funded by an increase in rates on properties valued in excess of £500,000.

*The Young Generation – For those classified as young people who have been out of work for over 18 months, the government will provide training, education and guaranteed work in a bid to tackle long-term youth unemployment.

Losers

*Mansion Tax – The chancellor has raised a levy on houses worth £2,000,000 and over, and experts suggest that 60% of taxable homes are in London. The levy, due to come into effect in 2028, consists of a surcharge of £ 2,500 pa rising to £ 7,500 on homes worth more than £5,000,000. Reaction from professionals inside the property market was one of relief as they felt it could have been much worse, as trial balloons floated before the budget suggested that the chancellor might force homes in the two highest bands of council tax to pay more, drawing in many more homes than the new mansion tax.

*Online Casinos – The chancellor announced a doubling of duties from 20% to 40% for remote gaming companies, prompting a fall in the share price for many British gaming companies. Online casinos have been growing rapidly, with data showing that in 2024, the sector made £12.6 billion, and the treasury expects to earn an extra £1.1 billion a year from increases in taxes by 2029 – 2030. Three major gambling companies, including the Rank Group, have already warned of job losses and have revised profit forecasts downwards.

*Owners of Electric Vehicles – The chancellor has slapped electric vehicle owners in the face by announcing a pay-per-mile tax on electric vehicles and some hybrid vehicles. Starting in April 2028, electric car owners will pay a road charge of 3p per mile, and hybrid plug-in owners will pay 1.5p per mile. In order to collect the tax, mileage will be checked once a year, typically via the MOT, or for new cars around their first and second anniversary.

*Salary Sacrificed Pensions – Currently, employees can use salary sacrifice to pay up to £60,000 of contributions into their pension scheme, with NICs and income tax relief available on the full amount of the contribution. However, under the chancellor’s new threshold of £2,000, any amounts above this figure will incur NICs at standard rates.

*Landlords – Under the November budget, the chancellor has targeted property income through an increase in tax of 2% starting in April 2027, plus new separate Property Tax Bands of 22% (basic rate was 20%), 42% (higher rate was 40%) and 47% (additional rate was 45%). Rumours of National Insurance charges on rental income did not come to fruition in this budget, with landlords breathing a sigh of relief.

*Student Loans – Sadly for students, the chancellor announced that from April 2027, the salary at which they must repay their student debt will be frozen at £29,385 for three years. The new measure applies to graduates with plan 2 loans** and the vice-president of the NUS (National Union of Students) for higher education has said that when repayments begin, the salary being earned by a graduate could be dangerously close to the minimum wage.

**Plan 2 Student Loans – This is a type of UK government income-contingent repayment student loan for undergraduate courses, primarily for students from England and Wales who started their courses between September 2012 – July 2023 (England) and September 2012 onwards (Wales).

The chancellor said her autumn budget is “a budget for fair taxes, strong public services and a stable economy, and in the face of challenges on our productivity, I will grow our economy through stability, investment and reform.” Welfare spending was £16 billion higher than forecasted back in March this year, including a £3 billion decision to remove the cap on child benefits, all of which was loudly cheered by left-wing MPs.

The government’s number 1 ambition is to grow the economy; however, the OBR (Office for Budget Responsibility), the budget watchdog, has announced that this budget has not moved the needle on growth and will have “no significant impact on output by 2030”. The leader of the opposition, Kemi Badenoch, strongly criticised the chancellor, and in a fiery speech labelled it a “smorgasbord of misery”. She accused Reeves of breaking promises and implementing tax hikes that punish hard-working people and reward welfare.

Overview of the Eurozone Economy 2026

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Based on forecasts from experts and analysts this month, the eurozone economy is expected to see modest, stable growth in 2026. Such growth will be driven by domestic demand, with inflation close to the ECB (European Central Bank) target of 2%, with various models showing an inflation rate of between 1.8% to 1.9%. It is expected that the zone will continue to enjoy low unemployment; however, the outlook is clouded by persistent global trade tensions, persistently high government debt levels, and heightened geopolitical risks.

Germany

Analysts suggest that over the next ten years, Germany will run an annual budget deficit of circa 4% of GDP, increasing its debt-to-GDP ratio by between 20 and 30 percentage points. However, Germany has a current debt ratio of under 65% and it is felt that in 2026, there is little to worry about regarding the country’s fiscal health, with an estimated growth in GDP of 1.2% – 1.4% due to increased spending on defence and infrastructure. This is higher than predictions made earlier in 2025, where the figure was circa 0.8% in potential growth. Experts predict that the government will use part of its fiscal package to invest in technology-related growth areas (less susceptible to trade tensions), rather than relying on traditional industries such as auto manufacturing.

France

Experts predict that the French economy will grow modestly at about 0.9% (below the eurozone average), against a backdrop of rising unemployment, political instability, and fiscal uncertainty, reflecting a government budget that has already failed to pass through parliament four times this year. Inflation has been forecasted to rise to circa 1.30% – 1.60%, which analysts have attributed to higher energy and food prices. Public debt is set to increase to 120% of GDP by the end of 2026, whilst the government deficit is expected to decline to circa 4.9% of GDP.

It is expected that a rebound in the services sector will offer some relief, whilst currently the industrial sector is on the wane, especially in the aeronautical market. On the domestic front, budget uncertainty and political instability have had a negative impact on business and consumer confidence; however, the economy on the whole is shielded from many global trade issues due to a more diverse export profile.

Spain

Predictions for growth in the Spanish economy are somewhat at variance with analysts and experts who predict growth from anywhere between 1.9% (OECD – Organisation for Economic Co-operation and Development) to 2.3% (European Commission). Growth will be primarily driven by strong investment and private consumption supported by purchasing power gains and employment growth. Experts suggest that inflation is expected to be moderate and hit an average of 2.0%, with drivers being a reduction in energy inflation as well as a moderate decrease in the price of food. The housing market is expected to continue enjoying the current upward trend, which is being driven by a fall in interest rates, population growth, improved purchasing power, and buyers from overseas.

The government budget deficit is expected to decrease to 2.1% of GDP, and the debt-to-GDP ratio is expected to fall below 100% for the first time since 2019. According to several analysts, negative impacts on growth are expected from global uncertainty, which may be driven by weaker economic activity among some of Spain’s key trading partners in the eurozone and tensions in the global trading arena. However, the continued implementation of the NGEU (Next Generation EU Funds) will help boost investment, particularly in construction and urban renewal.

The Netherlands

Experts suggest that in 2026 the Dutch economy will experience a decline in growth with predictions of a circa 1.00% – 1. 30% increase, primarily driven by strong domestic demand from household consumption and government investment and spending. On the domestic front, household consumption and government spending are expected to be the main drivers of economic growth, supported by rising real wages and public investment programmes. Inflation is expected to gradually recede but will remain above the eurozone average of 1.8% – 1.9%, mainly due to prices in the services industry and potential tax changes. The government deficit is predicted to widen to around 2.70% of GDP, whilst public debt is expected to remain below 50% of GDP.

On the unemployment front, the labour market is expected to remain tight with unemployment only marginally rising between 4.0% – 4.2%. Negative impacts on growth are expected from exports and business investments, which are projected to be suppressed by ongoing global uncertainties, including trade tensions and a political landscape with the potential to impact long-term investments in defence, energy, and housing. Indeed, geopolitical uncertainty and potential US tariffs on imports of EU goods pose a significant downside risk to the Dutch economy, which is highly export-oriented, and any escalation could lead to a reduction in export growth and reduced business investment.

Italy

Analysts predict that in 2026, the Italian economy will enjoy a modest growth in GDP of circa 0.80%, driven by public investment from the NRRP (National Recovery and Resilience Plan), with growth also being driven by domestic demand rather than by net exports. Predictions for inflation in 2026 vary, with the European Commission anticipating a figure of 1.30% whilst the OECD and the IMF (International Monetary Fund) predict figures of 1.80% and 2.00% respectively. The government deficit is projected to recede to an estimated figure of 28% of GDP, whilst estimates vary for gross public debt, with the IMF and the European coming in at 137.90% and 138.30% respectively of GDP.

Experts suggest that a negative impact on growth may come from the employment sector, where declining labour productivity is a persistent issue for the Italian economy. Global factors such as geopolitical tensions, potential trade tariffs from the United States, and weaker demand in key European markets will also pose risks to Italy’s growth and export performance. Analysts expect Italy’s net external trade to have a slight negative impact on growth, as imports are likely to outpace exports in 2026.

Greece

Analysts predict the Greek economy is projected to continue its GDP growth in 2026, with the European Commission expecting a figure of circa 2.20%, whilst the Greek Fiscal Council estimates a growth figure of 2.40%. Growth is expected to be driven by domestic consumption and government investment supported by European Union funds. Inflation is expected to decrease to circa 2.30% to 2.40% whilst unemployment is predicted to fall to approximately 8.6%. Also, the debt-to-GDP ratio is expected to continue its downward path, falling below 140% by year-end 2026. The European Commission has predicted that the government’s general balance is expected to be a surplus of 0.3% of GDP.

Positive factors that may influence growth are EU funds, including RRF (Recovery and Resilience Facility), that are expected to support investment and consumption, and the government’s final budget for 2026 includes a focus on tax reform and social support to boost growth and household incomes. Several analysts have suggested that tourism will continue its strong performance into 2026 and is expected to be a significant driver of the Greek economy. It should be noted that under the EU RRF, the Greek government is under pressure to complete projects by the August 2026 deadline, or else funds may be withdrawn.

Belgium

Experts suggest that the outlook for the Belgian economy in 2026 is one of moderate growth with estimates around the 1.10% – 1.20% mark. This marks a gradual recovery from 2025, where growth, according to data released, is currently at 1.00% and growth is expected to be supported by a rebound in exports, moderating wage growth and a pick-up in import demand. However, this is dependent on political stability and the effective implementation of structural reforms to address fiscal challenges, plus a potential risk from a slower-than-expected recovery in demand from the European Union.

Inflation is expected to reduce to circa 1.60% – 1.80% due to lower prices of goods and energy, whilst the unemployment rate has been projected as a small increase to 6.20% due to a short-term consequence of reforms in both the labour market and pension arena. Analysts advise that the budget deficit is expected to rise to 5.5% GDP, mostly due to increased spending in the defence sector and rising interest payments on the public debt, which is predicted to continue upward to circa 109.80% of GDP.

Key economic drivers for 2026 are increased investment, where analysts advise that gross fixed capital formation is expected to rebound, supported by improved financial conditions. Further boosts to investment will come in the form of significant public expenditure on infrastructure projects financed by the European Union’s RRF, plus increased spending on the defence sector. Increased export growth is predicted for 2026, helped by improving cost competitiveness; however, as with other countries, U.S. tariffs and continuing trade uncertainty could dampen the outlook for exports to the United States and key eurozone partners.

Turkey

According to a number of financial commentators, the outlook for the Turkish economy is a continuation of the disinflation process, along with a moderate and resilient GDP growth, which is expected to grow by 3.80% rising to USD 1.84 trillion. Inflation forecasts suggest a figure of 23% by the end of 2026, with the central bank setting a target of 20% for the same period. The economy of Turkey is expected to maintain its monetary easing cycle throughout 2026; however, the government must guard against key risks, which are domestic political uncertainty and persistent inflationary pressures. The budget deficit is expected to narrow, with the World Bank advising a figure of 3.60% of GDP, with other projections suggesting that the labour market will remain stable.

Positive signs for the economy are the continued implementation of orthodox economic policies by the government, which is seen as crucial for restoring fiscal discipline and reducing inflation. Furthermore, the government’s medium-term economic programme outlines structural reforms aimed at transitioning towards high-value-added industries and a green economy.

Poland

Experts are predicting that in 2026, the Polish economy will continue its strong growth, forecasting a growth rate of 3.50% of GDP, supported by public investments and European Union funds. The forecast for inflation is expected to be in the region of a decrease of 2.90% – 3.80%, whilst wages are expected to rise by circa 7.60%. However, due to persistent government spending, the public debt-to-GDP ratio is expected to increase in 2026, whilst rising further to 70% in 2027.

There are several risk factors to be considered, and whilst the absorption of EU funds is critical for growth, the successful implementation depends on meeting certain reform requirements. On the fiscal front, excessive government spending, especially on social and defence programmes, is increasing debt levels and putting pressure on the budget, despite fiscal consolidation plans by the government. As already advised, inflation is expected to fall, but persistent wage growth and other price pressures could have a negative impact on reducing inflation.

In 2026, the Polish economy is expected to outperform the European Union average, with primary drivers being strong domestic demand based on rising wage growth and significant public investment financed by EU funds, especially RRF (Recovery and Resilience Facility). However, as mentioned above, the government cannot afford to miss the deadline.  The national currency (Zloty) is expected to remain stable, benefiting from prospects of strong growth. However, predictions may well be subject to external pressures such as geopolitical tensions and global trade policy, where U.S. tariffs could potentially affect demand from Germany.

On the equities front, analysts suggest that the outlook for the Eurozone in 2026 is one of cautious optimism, with modest gains being driven by strategic spending and attractive valuations, but caution is advised due to a strong euro and political uncertainty. European equities are trading at a significant discount compared to their counterparts in the United States, making them an attractive option for investors. The ECB (European Central Bank) has finished (or just about finished) its quantitative easing or rate-cutting cycle, with many analysts predicting that rates will remain stable at 2% throughout 2026, and an environment containing stable rates is usually conducive and supportive of equity markets.

What Happens if the U.S. Supreme Court Rules President Trump’s Tariffs Illegal?

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President Donald Trump’s tariffs are now subject to a ruling by the U.S. Supreme Court (SCOTUS). On 5th November, the Court heard consolidated oral arguments in Learning Resources Inc v Trump and V.O.S. Selections Inc v Trump, two high-profile cases challenging President Trump’s use of the IEEPA*** (International Emergency Economic Powers Act) to impose global tariffs, specifically the Trafficking Tariffs* and Reciprocal Tariffs**. SCOTUS has agreed to fast-track its decision, expected in late 2025 or early 2026. A ruling against the administration would severely restrict the President’s ability to impose global tariffs and would significantly weaken the White House’s bargaining position in ongoing trade negotiations.

*Trafficking Tariffs – these are recent U.S. import taxes imposed by the Trump administration to address what it declared a national emergency relating to illegal immigration and drug trafficking, particularly fentanyl. The tariffs target goods imported from Mexico, China, and Canada, countries identified as key points in the drug supply chain into the United States.

**Reciprocal Tariffs – these tariffs are designed as a retaliatory or “tit-for-tat” measure, imposing import taxes that match tariffs charged by trading partners. Their main objectives are to correct trade imbalances, level the playing field, and pressure other countries to reduce their tariffs. Earlier this year, President Trump argued that the trade imbalance between the U.S. and many partners was excessive, and therefore imposed punitive tariffs that far exceeded those used by other countries exporting to America.

***IEEPA – the International Emergency Economic Powers Act (1977) gives the President authority to declare a national emergency and regulate international economic transactions in response to external threats. This may include imposing sanctions, freezing assets, or other restrictive measures. Historically, it has been used to counter threats such as terrorism and cybercrime. Under President Trump, however, IEEPA was invoked to justify the imposition of import tariffs, a use now being legally contested.

President Trump has warned that it would be “devastating for our country” if SCOTUS rules against his tariffs, calling the cases “two of the most important in our history”. Experts suggest that an adverse ruling could force the government to pay more than $100 billion in refunds. It would also eliminate much of the leverage the administration currently uses in trade negotiations and could create significant uncertainty in geopolitical discussions with the EU, China, and other trading partners.

If SCOTUS rules for the plaintiffs and strikes down Trump’s use of IEEPA to impose blanket tariffs, the President does retain several alternative legal mechanisms to reintroduce similar measures. These include:

Section 338 of the Tariff Act of 1930, which authorises the President to impose tariffs of up to 50% (or more in certain cases) on countries that take discriminatory trade measures against the U.S. However, there are limitations, including a 50% tariff cap unless discrimination persists and a mandatory 30-day delay in tariff collection.

Section 122 of the Trade Act of 1974 allows tariffs to address a large balance-of-payments deficit. However, there are limitations in which the President can only impose a global tariff of 15% and for a maximum duration of 150 days. This may be less appealing to the current administration.

Section 232 of the Trade Expansion Act empowers the President to impose tariffs on national security grounds targeting specific sectors. There is a no tariff cap imposition or time limit, but it does require an extensive investigation process by the Department of Commerce. This must also be sector-specific, giving the President far less latitude than IEEPA.

While the President has additional legal avenues available, he will be hoping that SCOTUS dismisses the cases and rules in favour of the administration. Analysts note that the Court will need to weigh the increased costs borne by U.S. companies, the impact on America’s global reputation, and whether ruling against the President would diminish U.S. leverage in trade negotiations, geopolitical affairs (including the Russia–Ukraine war and Gaza), and international economic relations.

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