Following some upbeat UK data last week, we’ve now had November’s unemployment and wage growth figures, along with December’s inflation print. Starting with inflation, it rose for the first time since July 2025 to 3.4%, driven largely by higher travel costs (airline fares) and increased tobacco prices. However, once markets looked through the details, the consensus was that there wasn’t much cause for concern.
An increase in duty on tobacco products, along with the seasonal rise in flight costs around December, pushed inflation higher. Inflation was never likely to fall in a straight line, and markets remain confident that it will continue to ease in the coming months as last year’s increases in duties and other one‑off factors drop out of the annual comparison. Markets are still pricing in two interest rate cuts this year, and that number could well increase if inflation returns to a downward trend.
November’s unemployment rate held at 5.1%, the highest level since early 2021 reflecting the “no hiring, no firing” dynamic that has characterised the UK labour market, with businesses cautious in the buildup to the autumn budget and remaining so in its aftermath. Average earnings, both including and excluding bonuses, slowed by 0.1% in the September‑to‑November period. The Bank of England has been consistent in its view that a cooling labour market is necessary to help ease inflationary pressures.
The Bank of England Governor Bailey spoke this week and highlighted that his biggest concern to markets and the broader economy remains ongoing geopolitical risks. He stated investors would have to get comfortable discounting Trump’s unpredictable public statements as many threats were not carried out.
Crossing the English Channel into France, a country we covered extensively last year due to parliamentary turmoil this week brought another notable development. Prime Minister Sébastien Lecornu announced he would invoke special constitutional powers to push the budget through parliament. Fully aware that this meant reversing his previous commitment to avoid using such powers, Mr Lecornu acknowledged that he had little choice in order to deliver a deficit‑taming budget that all parties could tolerate. He also unveiled several measures aimed at broadening support, including scrapping a planned cut to a pension tax rebate and raising a monthly income benefit for lower‑income workers by €50 for around three million households.
It is rarely a dull week with President Donald Trump, and this one was no exception. He stepped back from earlier threats to seize Greenland and impose tariffs on eight European countries which led to a relief rally in equity markets. Instead, Trump struck a more pacifying tone, suggesting that a deal could be reached regarding Greenland, where he is seeking to implement a missile‑defence system and gain access to critical minerals. Danish officials, however, reiterated that Greenland is not for sale.
Around 400 senior political leaders from across the world gathered in Davos, Switzerland, for the World Economic Forum this week. President Donald Trump used the event as an opportunity to air a range of grievances, spending more than an hour criticising Britain for not extracting oil from the North Sea, Switzerland for its trade surplus with the US, France over its pharmaceutical policies, and Canada for what he described as “ingratitude.”
These remarks coincided with his push for nations to join a US‑led “Board of Peace,” an initiative he claims is aimed at resolving global conflicts. This week has seen renewed hope for progress in a peace deal between Ukraine and Russia, with trilateral talks (including the US) currently taking place in Abu Dhabi.
The week ended on a positive footing for the UK, with strong retail sales data, alongside expectation-beating manufacturing and services PMI data.
It’s been another exceptional week for precious metals, with the gold price approaching $5,000 an ounce, while silver is just shy of $100 an ounce. These commodities continue to benefit from geopolitical risks with investors seeking real assets as an alternative to fiat currencies. Our portfolios have been positioned accordingly and have benefitted from these moves. At a portfolio level it has also been pleasing to see small and mid-cap equities begin to catch a bid – another area where we have a constructive outlook.
Nathan Amaning, Investment Analyst
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