30 April 2025: Reeves plans a major pension shake-up

The Chancellor of the Exchequer is planning a major change in how pension providers invest their clients' money. Rachel Reeves wants firms to invest more in the UK to drive infrastructure and other sectors of the economy.

The proposed scheme, first mentioned last year, is expected to be voluntary, but Reeves will likely make her feelings known about what she hopes the industry to do.

Pension funds will be expected to allocate 10 per cent of their assets to private funds, half of them in the UK, the Financial Times reports. The aim is to use tens of billions of pounds of pension fund assets to invest in UK businesses and help to grow the economy.

But one industry executive told the newspaper that the Treasury has warned it would make the scheme compulsory if the pension industry failed to make the change voluntarily. They said: “We are having our arms twisted by the Treasury.”

Bank of England Deputy Governor Clare Lombardelli said yesterday that it was still too soon to judge the inflation impact for Britain of U.S. President Donald Trump's tariffs, amid ongoing responses from other countries.

Growth was likely to be hurt by tariffs, while the BoE would look more closely at the inflation impact in the run-up to its May 8 interest rate decision, Lombardelli told a panel discussion hosted by the Resolution Foundation think tank.

She went on to say that the Bank of England is midway through its work in responding to a major review of its forecasting and communication processes. The review was undertaken by former Fed Chairman Ben Bernanke after criticism that the Bank's forecasting methods had become outmoded by advances, particularly in predicting the employment market.

"On inflation, it depends a lot more on the circumstances of actually how other countries respond, and how that feeds through to the UK," she said. "But we'll think about all that together for our next decision in May. I'll not take a position on that now."

Financial markets think a quarter-point rate cut is a near certainty for the BoE in May and expect three rate cuts between now and the end of 2025, about one more than before last week's tariff announcements.

Given a historical tendency for gilt yields to go up when US interest rates rise, the UK authorities must respond to the threat of contagion from Trump’s actions.

Higher gilt yields are likely to slow corporate investment, hit the housing market, and put pressure on the government to either cut spending or raise taxes.

One of Britain’s oldest department stores is holding a “Rachel Reeves closing down sale”.

Beales, which has been trading for more than 140 years, is closing its remaining store in Poole, Dorset, at the end of May.

Tony Brown, its chief executive, has blamed the Chancellor’s “punitive” tax rises in October’s Budget for bringing an end to the business. Mr Brown has had posters printed, featuring Ms Reeves’s photo and the tagline: “Rachel Reeves’ closing down sale, up to 80 per cent off, everything must go”.

He said the increases in National Insurance costs and the minimum wage, which were brought in on April 1, combined with the reduction in rates relief, had cost the firm £200,000 and made the business “unviable”.

The markets have calmed down considerably since Trump announced a pause to the introduction of tariffs on U.S. imports. The pound traded in a less volatile manner yesterday, between 1.3398 and 1.3415, and closed at 1.3410.

President Trump has found an unlikely ally in the U.S. manufacturing sector, although its motives for calling for rates to be cut differ from the President’s.

Although most evidence of a pending slowdown in the economy is anecdotal, Trump’s major, abrupt policy shifts have likely slowed the US economy sharply at the beginning of the year, perhaps for the worst quarter since the COVID-19 pandemic, as consumers and businesses fretted about massive new tariffs.

The acid test will come as the April employment report is published on Friday. The sum of first-quarter job creation did not set alarm bells ringing at the Federal Reserve, with the FOMC still considering itself able to remain cautious about cutting rates, given the likely inflationary result of the new tariff regime and trade policies.

However, the Commerce Department is set to release its initial estimate of first-quarter gross domestic product, the broadest measure of economic output, today at 1.30 BST. It will give the clearest picture yet of how the US economy is responding to Trump’s sweeping economic agenda, just one day after the administration’s 100th day in power.

Economists estimate that GDP expanded at an annualised rate of 0.8% in the first quarter, adjusting for inflation and seasonal swings, according to financial data firm FactSet, which would be the weakest rate since the second quarter of 2022. However, the Federal Reserve Bank of Atlanta is forecasting a sharp decline of 2.5%, which would mark the worst quarter since mid-2020.

GDP likely slowed due to higher imports as American consumers and businesses rushed to beat Trump’s tariffs, weaker spending early in the quarter as unusually harsh cold weather kept shoppers indoors and companies pausing investments over uncertainty stemming from Trump’s rhetoric before April 2nd, among other factors.

Concerns about the NFP data have been exacerbated as the fallout from President Donald Trump's trade war reverberated further through the corporate world on Tuesday. Delivery giant UPS said it would cut 20,000 jobs to lower costs, while General Motors pulled its outlook and pushed its investor call to Thursday pending possible changes to trade policy.

The Detroit carmaker, along with foodstuffs manufacturer Heinz and, Swedish appliances maker Electrolux, airline JetBlue Airways, and other blue-chip names, on Tuesday joined the diverse list of companies that have pulled forecasts for 2025 or slashed outlooks, further evidence that Trump's see-sawing trade policy is taking a major toll on companies' ability to plan beyond the immediate term.

The dollar index is still unable to gain the necessary traction to enable it to break the 100 barrier. Yesterday, it reached a high of 99.40 and closed at 99.23.

It has been said for some considerable time that growth in the Eurozone was growing at a two-tier rate. In the past, the split has been along a “north/south” line with Germany, France and Benelux the driving force.

Since the huge increases in energy prices hit Germany hard, and political issues affected both France and the Netherlands, a new two-tier revolution has begun.

If any economist had said that Greece would become one of the shining lights of the Eurozone economy, as recently as five years ago, they would have been considered to have “lost the plot”,

However, Greece, along with Spain, Portugal and Ireland, the so-called “PIGS”, have begun to not only actively contribute to growth but have become its main driver.

It is expected that the established order will be resumed as Germany begins to benefit from the establishment of its five-hundred-billion-euro growth fund and French politics begins to calm down as the country’s budgetary issues are solved, but the “lesser” economies will continue to make a significant contribution going forward.

Overall, the recent tariff and trade tensions have taken a predictable toll on the eurozone economy, driving economic sentiment to its lowest point since December.

Looking at some of the components, the sentiment weakening is broadly spread across all major sectors, but not so equally across countries. Smaller economies like Belgium, but also the Netherlands, saw a relatively significant drop in sentiment, while France and Germany have been holding up relatively well.

However, too much comfort cannot be taken in the fact that the two largest eurozone economies remained relatively stable. Instead, expect a delayed reaction in the coming months.

At the same time, yesterday’s report also shows that some improvement in the eurozone industry had been in the offing, before ‘Liberation Day’. The assessment of order books continued its very gradual bottoming out, and inventories started to come down. Normally, this would be a combination that would tentatively bode well for future production, if it weren’t for the new trade tensions and uncertainty.

Ireland’s economy surged in the three months through March as U.S. pharmaceutical giants based in the country boosted production to build stockpiles back home ahead of threatened tariffs.

Ireland’s strong start to the year supported eurozone growth as 2025 got underway, with figures for the region to be released later today. Spain, which also released figures Tuesday, recorded a slight slowdown, while continuing to grow at a robust pace.

However, high levels of production to build reserves of drugs in the U.S. suggest activity may slow as the year advances and the need to add to stocks diminishes, while the higher tariffs that took effect this month will hit Ireland and other parts of Europe.

The Euro is still consolidating at higher levels as uncertainty continues. Yesterday it traded between 1,1370 and 1.1410, before closing at 1.1390.

Have a great day!