10 March 2025: Reeves may cut the ISA tax-free allowance

The current tax-free allowance for funds placed in an ISA account is expected to be cut from twenty thousand pounds to four thousand pounds in the Chancellor’s Spring Budget, which she will present in just over two weeks.

Savers, already hit by the lowering of interest rates over the past six months, will face further cuts in their return subject to Reeves’ demands for investments to encourage growth in the UK Economy.

Investment companies are said to be arguing the current system needs reform to boost economic growth, which the Chancellor has cited as being her primary goal.

The closer we get to the publication of Reeves’ spending plans, the more they are feeling like déjà vu.

The public is concerned about where she will find the savings, she has been forced to make, due to her slavish adherence to her self-imposed debt ceiling.

The government’s forthcoming green paper on welfare reform is likely to upset even the most loyal backbenchers.

Cuts to disability allowance are some of the most challenging measures that are likely to be introduced by the Chancellor, who has provided a veiled warning by already telling Parliament that the system is no longer fit for purpose.

The Department for Work and Pensions is about to publish its green paper on welfare reform ahead of the budget, with Reeves hoping to cut several billion pounds off the ballooning benefits bill. The Office for Budget Responsibility has forecast that the share of the working-age population in receipt of incapacity benefits will rise from 7% in 2023-24 to an all-time high of 7.9% during the life of this Parliament.

A state-of-the-nation poll reveals business confidence is in free fall and paints a bleak picture of the UK’s economic landscape under Labour.

Business confidence has plunged since Labour came to power, a damning report reveals. Less than 20% of engineering and manufacturing firms, the lifeblood of the UK economy, now have faith that the Government can solve a crippling skills shortage.

Shadow Business Secretary Andrew Griffith said: “Labour just don’t understand business; it’s no wonder they’ve sent confidence plummeting. With their extreme union charter, record tax rises and a tidal wave of red tape, it’s an all-out war on business.

“The best thing this Labour government could do to boost British businesses is to ditch the dreadful employment rights bill.”

MPC member Catherine Mann floated a major change to monetary policy last week. She believes that gradual cuts in interest are not in the country’s best longer-term interest, and feels that larger, but less frequent cuts would serve the economy better.

Sterling saw a significant rise in value last week, as the market became concerned about the effect of Donald Trump’s threat to impose tariffs.

It reached a high versus the dollar of 1.2945 and closed at 1.2924. Versus the Euro, it fell to a low of 1.1878 and closed at 1.1915 as the single currency witnessed significant buying interest.

Despite being largely ignored last week due to the President “stomping through the economy like an enraged Elephant, the employment data came in at a fairly uneventful level. The creation of 151k new jobs provided something akin to a “Goldilocks moment”. Not high enough to encourage thoughts of higher inflation, or low enough to feed fears of a recession.

Nevertheless, economists are still fearing that the economy may be headed for a significant slowdown. It seems that if they do not have a concern to broadcast to the nation, Wall Street Economists are not doing their job.

It is not long since they were fearing that the recent spate of interest rate increases were about to rekindle the level of inflation that was seen a couple of years ago, yet now they are braying for further cuts to ensure that the economy does not fall into recession.

It is hard to find a source of data that predicts an imminent fall into recession for the economy. I assume that is why the analysts are “paid the big bucks” since they can see events that others cannot. Either that, or they are taking a punt” to suit the books of their banks’ traders.

Of course, the President’s on-again, off-again imposition of tariffs on his country’s closest trading partners is not helping the economy to adjust to four years when the Federal Government was supporting almost the entire economy.

According to Trump, the economy is going through a “detox” period as it weans itself off excessive government support.

After promising during his election campaign to put tariffs back at the centre of U.S. economic policy, U.S. President Donald Trump moved swiftly once back in office, announcing significant new import taxes aimed at America’s trading partners.

His tactic, implementing new tariffs and threatening others to intimidate or gain leverage in other disputes, often with economically weaker countries, represents a dramatic shift in a global economy where most major players have looked to reduce trade barriers.

But the execution of Trump’s signature policy has sent mixed signals, as the combination of ultimatums, delays and exemptions leaves many struggling to decipher what exactly he’s trying to achieve.

The early focus has been on imports from Canada, Mexico and China, the three largest trading partners of the U.S., which together accounted for about 40% of all merchandise trade last year.

When it comes to China, Trump has been more consistent in following through on his threats. As promised, a blanket 10% tax on all Chinese goods imported to the U.S. was introduced in early February, and this was doubled to 20% a month later.

He did delay an end to tariff exemptions for “de minimis” items from China and Hong Kong, which covers packages valued at less than $800. The move would have blocked off a tariff-free shipping route, mainly involving air freight, used by Chinese e-commerce companies that are popular with American consumers.

It will be interesting to see how the appointment of ex-Bank of England Governor, Mark Carney, as Prime Minister of Canada affects that Nation’s relationship with the U.S. administration since Trump will be faced with an individual who understands the global economy better than he does, and will likely stand up for his country.

As expected, the dollar’s correction became a rout last week as it fell to a low of 103.46 and closed at 103.81. Depending on this week’s events, it could test the 100 level, although there is significant support around the 102.60 level.

There is a feeling that the ECB may have “missed the boat” since it changed the focus of monetary policy from fighting inflation to nurturing economic growth.

There are genuine concerns among the more hawkish members of the Bank’s Governing Council that inflation will not fall to reach the 2% target during this cycle.

If the ECB continues to cut rates, possibly even overshooting its neutral point, inflation is unlikely to fall very much even in the longer term.

The bank’s “arch hawk”, Isabel Schnabel, said last week following the latest rate cut that Euro-zone inflation is more likely to get stuck above the European Central Bank’s target than to durably slow.

In an article published on Saturday, the institution’s official in charge of markets shared concerns about prospects for consumer prices in her opening salvo before a pivotal decision in April on whether to pause interest-rate cuts.

“The risk that inflation will remain above 2% longer than expected is higher than the risk that it falls sustainably below 2%,” Schnabel said, according to a German newspaper.

Those remarks may signal her likely opposition to another reduction in April after the ECB’s decision on Thursday to lower its deposit rate by a quarter point. According to people familiar with their thinking, officials deferred judgment on their next move and are already preparing for a tough debate on that decision, taking time would help policymakers digest a rapidly changing backdrop for the 20-nation economy that could reverberate for years to come. European governments are readying hundreds of billions of euros worth of investments in defence spending, with Germany also planning to bolster spending on infrastructure.

That massive fiscal boost will bolster the region’s cyclical growth outlook and probably see its output potential and the neutral interest rate rise.

“There is a strong case for the ECB to begin raising interest rates as the effects start to materialize, most likely in the second half of 2026. Economists still expect two more cuts in April and June, taking the deposit rate down from 2.5% to 2% as the ECB possibly waves a final goodbye to thoughts of a 2% inflation rate.

At the first cabinet meeting of his second term, US President Donald Trump declared his intention to impose a sweeping 25% tariff on all imports from the European Union.

But before opening a European front in his trade war, Trump might want to consider the continent’s economic malaise, the German economy has been experiencing a prolonged downturn, while Italy and France are struggling with serious public-debt problems. Maybe then Trump will grasp that his tariff actions, part of his “America First” agenda, risk triggering a European-wide recession and another eurozone debt crisis.

Some might argue that Trump has no interest in Europe’s fate. But given how badly the 2010 Greek debt implosion shook US and world financial markets, similar crises in France and Italy, the European Union’s second and third-largest economies would have truly catastrophic consequences for markets and the global economy. That is the last thing Trump needs on his watch.

Parity for the euro to the dollar appears to be off the table, at least for a few months, as Trump’s tariff threats have unsettled those who saw the dollar as “the only game in town.

The single currency rallied to a high of 1.0888 last week and closed at 1.0847.

Have a great day!