Trying to Keep Calm and Carry On in Choppy Economic Conditions

The British Government borrowed £20.2bn in April 2025, up £1bn from the same time last year with pressure now on the Chancellor to either break own fiscal rules on not borrowing more to spend more, so it looks like it is a ‘toss up’ between spending less or taxing more.  Our ‘money’ is on taxing us more.

• Weak business growth after businesses were hit with massive employers’ national insurance increases on top of huge minimum wage increases from April, have tempered business appetite for growth and recruitment. 
• Recruitment is down and unemployment is up.
• This will mean lower tax revenues for HMRC.
• The Chancellor has already hit business and farmers with reduced agricultural and business property relief to a combined £1m and IHT, that was nil, now to be 20% from April 2026.
• The Chancellor and her predecessors have already hit property owners with lower capital gains tax thresholds, higher stamp duty rates.  We think she could raise capital gains tax for higher rate taxpayers to income tax rates.
• We also think the doubling of Council Tax for holiday homeowners is not the last of it.  We can see ‘holiday let’ landlords also getting hit with council tax bills rather than the current zero business rates for ‘small’ business.
• The inheritance tax nil rate band threshold has been frozen sine 2009 and remains frozen until 2028. 
• We can see the 7-year gifting rule being extended to 10 years to catch more gifts for IHT and raise more revenue.
• We can see the tapered relief offered for gifts made over and above IHT nil rate bands being abolished to raise more revenue.
• The cost of borrowing for the government (gilt yields) looks set to remain higher as interest rates are higher in general and unlikely to be cut for a while after inflation bounced back up to 3.5% for April.  So, government spending on existing debt interest is not falling.
• The government has made a U-turn on winter fuel payments, but we can see, and we suggest, they should be means testing to cut costs.
• Defence spending needs to go up urgently.  There is little point looking after people on benefits if there is going to be no country left, benefits system is in dire need of better policing to get more economically inactive people back to work or contributing to society in some way to save the government money.

Donald Trump Tariffs

We know that the UK has negotiated a deal on reduced tariffs but just today, he is threatening the EU with 50% tariffs, pushing the German stock market down 1.55% (at the time of writing), so tariff pressure is going to push the costs of all goods and services up across the globe.

• Higher costs = higher inflation = nigher interest rates = weaker government bonds = higher government debt interest repayments.

Comment

Whatever happens, the Chancellor is in a very difficult unless she is truthful with the voting public in that income taxes should be raised by 1-2% for all rather than sticking to the manifesto promise of not increasing income taxes for working people.  If she does not increase income tax rates for all, then it smacks of incompetence and putting ‘the Party’ and power before ‘the People’.

We have warned you many times in our weekly market updates that stock market volatility has not gone away.  Remember, 90-day tariff suspensions are only temporary, higher inflation and higher government borrowing versus a slowdown economically and therefore lower taxes means that we should all be mindful of the risks and spread our risk by drip feeding into or out of markets. 

Keep calm and carry on, it could be ‘choppy’.