UK Businesses Brace for Tax Hikes as Economic Reforms and Social Challenges Take Center Stage:

Image Source : Krish Capital Pty Ltd

Index Update: The FTSE 100 index, a key benchmark index for the London stock exchange, went down around 0.30% on 27 January 2025. HealthCare, Utilities & Real Estate sector has witnessed a substantial growth. Moreover, Basic Materials, Industrials & Financials sector has faced a major decline. 

Macro Update:  A significant majority of British businesses are preparing to cut staff pay awards in response to upcoming tax hikes, with 69% of employers surveyed indicating they are likely to reduce pay increases to offset the payroll tax rise announced by Finance Minister Rachel Reeves in October. Meanwhile, Reeves is set to announce plans to release corporate pension scheme surpluses worth billions of pounds for reinvestment. This initiative aims to boost the stagnant economy and fund Prime Minister Keir Starmer’s vision of improving living standards and overhauling Britain’s aging infrastructure. Separately, Ben & Jerry’s has intensified its legal battle with Unilever, accusing the parent company of censoring a social policy statement mentioning former U.S. President Donald Trump, as well as silencing its support for Palestinian refugees and its stance against military aid to Israel. Lastly, Beatles icon Paul McCartney has voiced concerns over artificial intelligence's potential to exploit artists, urging the British government to ensure upcoming copyright reforms adequately protect the creative industries. 

Top Market Movers: Among top gainers on FTSE 100 index, British American Tobacco PLC (LSE: BATS) witnessed a rise of 4.26% followed by Airtel Africa PLC (LSE: AAF) which gained around 2.62%. 

Commodity Update: The dollar strengthened on Monday as traders assessed the potential impact of U.S. President Donald Trump's tariff plans, with the Federal Reserve expected to keep interest rates steady this week. Last week, the dollar saw its weakest performance since November 2023, as concerns about tariffs eased, but those fears resurfaced after Trump announced plans to impose tariffs on Colombia. In commodities, gold fell 0.48% to $2,793.40, silver dropped 1.33% to $30.76, and copper declined 0.35% to $9,249.00. Meanwhile, Brent crude dropped 1.11% to $77.63 a barrel after Trump urged OPEC to cut prices amid measures to boost U.S. oil production. 

Our Stance: The global landscape showcases a mix of economic, political, and corporate developments. In the UK, businesses are poised to cut staff pay awards due to payroll tax hikes, with 69% of employers signalling reductions. Finance Minister Rachel Reeves plans to unlock corporate pension scheme surpluses to boost the economy and improve infrastructure. Meanwhile, Paul McCartney has urged stronger copyright reforms to protect creative industries from AI exploitation. In the U.S., trade tensions with Colombia eased after an agreement on deportee flights, while Republicans face internal conflicts over funding Trump’s expansive tax cuts and spending agenda. Federal Reserve policymakers are expected to hold rates but face pressure from Trump to cut borrowing costs further. Lastly, Nasdaq futures dropped as the popularity of a Chinese AI model raised doubts about AI profitability, impacting technology shares globally. These developments highlight ongoing challenges and policy decisions shaping the global economic and corporate environment. 

FTSE 100 

The FTSE 100 closed at 8,502.35 on Friday, down 0.73%, forming a bearish candlestick pattern. Despite the slight dip, the overall bullish trend remains intact as the index stays above its 21-period Simple Moving Average (SMA), signalling potential short-term gains. The 50-period SMA provides additional support, enhancing the likelihood of continued upward movement. The Relative Strength Index (RSI) stands at 64.35, indicating sustained bullish momentum. With these technical indicators, the FTSE 100 is poised to maintain its upward trajectory if key support levels hold, suggesting a positive near-term outlook. On the weekly chart, the FTSE 100 remained steady, closing down 0.03% at 8,502.35, comfortably above the 50-period SMA at 8,167.15. Key support is at 7,932, with resistance at 8,400. A break above 8,400 could signal stronger bullish momentum, potentially targeting the next resistance level at 8,700. Conversely, a drop below 8,020 could signal further downside risk. Monitoring these levels will be essential for predicting future price movements. 

Data Source - Refinitiv