Tag: United Kingdom

The United Kingdom Becomes Europe’s Top Destination for Investment

Despite much rancour regarding the Chancellor of the Exchequer’s budget on 30th October 2024, PWC’s annual CEO survey has shown that the United Kingdom has leapfrogged Germany to become Europe’s top investment spot, and has claimed second spot behind the United States in the global rankings. Indeed, the survey of circa 5,000 chief executive officers put the United Kingdom ahead of China, Germany, and India, with such news no doubt coming as a relief to the somewhat embattled chancellor Rachael Reeves, especially after recent turmoil in the UK government bond market.

The Chancellor has been quoted as saying “These latest results show global CEO’s are backing Britain as the UK is one of the most attractive destinations for international investment, and it’s this investment that will help economic growth and improve living standards across the UK”. The senior partner of PwC UK Marco Amitrano was also quoted as saying “ “a vote of confidence in the UK as a place for business and investment”. The cabinet is united in the fact that the government has a safe and secure majority which, unlike some of the larger EU economies that face both economic and political instability, will encourage investors to use the United Kingdom as a safe haven for investments.

However, experts suggest that this labour government should not become complacent, as putting the United Kingdom back at front and centre of the global stage requires a realisable path towards growth and a government that has an approach that is consistent towards investment and business. Currently, the Chancellor is attending the Davos summit in Switzerland where she will highlight the United Kingdom as a safe and politically stable investment partner. She will be emboldened by the fact that first data released by the IMF (International Monetary Fund) last week upgraded its forecast growth in the United Kingdom from 1.5% to 1.6%, and second figures released at the end of last week show lower than expected inflation figures paving the way for a rate reduction by the Bank of England.

Recent data released by the ONS (Office of National Statistics) showed inflation for December 2024 slowing to 2.5% down from the November figure of 2.6% a surprise for many analysts who had predicted inflation either holding steady or rising to 2.7%. The biggest drivers in December’s inflation figures were the easing of tobacco costs and the easing restaurant and hotel costs, and whilst still rising, they reflect the slowest pace since July 2021. Experts now suggest these latest inflation figures have opened the way to cut interest rates by 25 basis points to 4.75% in February. However, despite December’s drop in inflation, experts have warned it could rise again in the coming months fuelled by rising energy bills. Still, the Chancellor will be buoyed by the fact that inflation is down, rates could well come down, the United Kingdom is top of the investment tree in Europe and second in the world, a turnaround from the financial machinations of last week. 

Sterling Slides as UK Government Bonds in Turmoil

In the second week of January 2025, we have seen the sterling fall, whilst the United Kingdom’s long-term borrowing costs have gone through the roof. This is a rare occurrence, and such a combination is a signal from the financial markets that investors have lost faith in today’s labour government and their ability to control inflation and to keep national debt in check. Traders have been dumping Gilts (UK government bonds/UK debt) and indeed, some experts are drawing comparisons with the Liz Truss min-budget (a bit of a nightmare) in 2022, or even the debt crisis back in the 1970’s when the then labour government had to ask the IMF (International Monetary Fund) for a bailout*. 

*The 1976 debt crisis had the United Kingdom applying to the IMF for USD3.9 Billion after large trade and budget deficits plunged the nation into crisis. In return for the loan, the then Labour Government agreed to IMF imposed austerity programmes. Today, the United Kingdom is running twin deficits. 

However, Chancellor of the Exchequer Rachel Reeves issue a statement on the evening of Wednesday 8th January saying she has “an iron grip on the public finance”, which was a rare occurrence being the second statement on the same day. Strong words from the Chancellor, but on the following Thursday morning the interest rate/yield on the benchmark 10 year Gilts rose by 12 basis points to 4.921%, a figure not seen since 2008 which was during the Global Financial Crisis. The long-dated Gilt 30 years has also risen by 10 basis points to 5.474%, reflecting a 28 year high. 

Usually a currency would be supported by higher yields, but on 9th January 2025 the sterling sunk below USD1.23, having kicked off the new year above USD1.25: its lowest level since last November 2023. Some financial experts have espoused the theory that the government will have to revert to austerity in order to reassure financial markets while other experts have blamed the current crisis on lack of faith in the Chancellor’s promise to fund huge increases in spending with exceptionally quick growth. The backlash from the markets also follows weeks of bad data and economic news since labour’s general election victory in July 2024. Growth has stalled, GDP flatlined three months to September and business sentiment has soured on the back of the Chancellors increase in taxes. 


Despite the chancellor’s reassurances of her “iron grip” the rise in gilt yields/interest rates now means the governments cost of borrowing has radically increased by GDP9 Billion, which has just about wiped out the GDP9.9 Billion spending buffer that the chancellor has built into tax rises. The fact that the Chancellor left the smallest of margin of buffers against her to pay for day-to-day spending out of taxes, her credibility is now at stake. Some analysts advise that “Trading Signals’ suggest that markets remain highly sensitive to any policy decision from the government (and the Bank of England), which leaves the Chancellor in a predicament as her Spring forecast will take place on Wednesday 26th March 2025. She can only hope that the financial markets have regained some respect for her and the government by then.