Market Commentary 17th February 2025 – from Charlie Hancock

Official data from the Office for National Statistics (ONS) showed that the UK economy performed better than expected during the final quarter of 2024, with Gross Domestic Product (GDP) rising by 0.1%. Economists had expected the data to show that the economy shrank, however, growth of 0.4% during December helped to offset weaker conditions in November and October.

The Bank of England (BoE)’s chief economist, Huw Pill, stated during a media interview last week that the central bank needs to move “cautiously” regarding rate cuts. Pill added that there is more work to do in order to bring down inflation and so restrictive monetary policy “cannot be removed overnight”.

Official data from the European Union’s statistics office, Eurostat, showed that the Eurozone economy expanded by 0.1% in the final quarter of 2024. For 2024 as a whole, the Eurozone grew by 0.7%. Germany and France both saw their economies shrink during the year, while Spain and Greece saw relatively strong growth of 3.5% and 2.4% respectively.

The Eurozone’s manufacturing sector weighed on economic growth in December, with data showing that industrial production fell by 2.0% year-on-year. The decline was bigger than expected and production was notably weak in Germany and Italy. Economists believe the manufacturing sector is unlikely to see any sharp recovery in the current quarter, given the uncertainty resulting from global trade tensions.

The recent tensions regarding global trade agreements continued to prompt volatility in stock markets and investors paid close attention to comments from President Donald Trump last week. Trump ordered his administration to examine the current agreements with major trading partners, with a view to implementing reciprocal tariffs by 1^st April. Trump has previously stated that a number of trading partners have been taking advantage of the US and he appears keen to negotiate new trade agreements with better terms.

US inflation data released on Wednesday showed that headline consumer price increases during January were higher than expected. Year-on-year inflation came in at 3.0% and the month-on-month increase from December was 0.5%. Analysts cited rising housing costs as one of the major drivers, with price rises in this category accounting for almost 30% of the monthly increase in inflation.

Inflation data in China showed that prices increased in January at the strongest pace seen since August 2024. Headline year-on-year consumer price inflation (CPI) was 0.5%, with price increases accelerating from the 0.1% recorded for December. Analysts cited stronger spending in the build up to the Chinese New Year Holiday period. Tensions between China and the US continued to generate headlines during the week, with President Trump stating during a news conference that the Covid pandemic ruined his relationship with China and President Xi.

Food prices made headlines in Japan after the government announced that it would release rice from its reserves to try and slow price increases. The Bank of Japan (BoJ)’s governor, Kazuo Ueda, stated that the central bank would have to consider food price inflation closely when setting monetary policy in the future. Ueda said that high food prices could impact inflation expectations amongst the population.

Comments from the BoE’s chief economist urging caution on the speed of rate cuts appeared to contribute to gilt yields moving slightly higher.

The chair of the Federal Reserve, Jerome Powell, stated last week that the hotter than expected inflation data for January showed the Fed are “not quite there yet” with regard to bringing down inflation. Powell added that the central bank’s policymakers “want to keep policy restrictive for now”.

GBP / EUR – Current 1.1996 Previous 1.2010

The Pound gained 1.48% against the US Dollar last week. Against the Eurozone currency, the Pound declined by 0.12%.

Rising demand for Gold from the BoE’s reserves has reportedly caused a number of logistical issues, which may have contributed to the precious metal’s recent price increases. Against the backdrop of escalating trade tensions between the US and the rest of the world, holders of large gold reserves have reportedly been moving significant amounts of bullion from London to New York.

Growing speculation around a potential peace deal between Russia and Ukraine is likely to continue impacting sentiment in commodity markets, with traders assessing the prospect of softer restrictions on Russian oil supply.