12 August 2025: It appears that Reeves is targeting non-doms

The Chancellor may have found a sector of the economy where she can increase taxes without any fear of her actions causing her Party to slide any further in opinion polls. The Non-domiciled sector may be small, but it “punches well above its weight”.

The term "non-dom" or "non-domiciled" typically refers to individuals who are residents of a country for tax purposes but are not considered domiciled there. This status can have significant taxation implications.

In the UK, non-doms can benefit from a favourable tax regime. They are typically only taxed on their UK income and gains, and they can choose to be taxed on their foreign income and gains only if they bring that money into the UK (the "remittance basis"). This can result in substantial tax savings for wealthy individuals. This is a loophole that Rachel Reeves is considering closing. The additional tax revenue could be used to fund public investments in areas such as education, healthcare, and infrastructure, thereby stimulating economic growth and enhancing overall productivity.

Abolishing the non-domiciled tax status in the UK could have several potential financial benefits for the government and the economy. Removing the non-dom tax break would mean that individuals who currently benefit from this status would be taxed on their worldwide income and gains. This could significantly increase tax revenue, particularly from high-net-worth individuals who have substantial foreign income and assets.

Some wealthy individuals may choose to leave the UK if the non-dom status is abolished, which could lead to a loss of investment and economic activity. Non-doms often contribute to the economy through investments and entrepreneurship. A sudden change in tax status could impact their willingness to invest in the UK.

The level of uncertainty within the country has “been ramped up” even though the Bank of England chose to cut the base rate of interest at its latest meeting. The fact that it took two votes, the first time this has happened in the history of UK Central Bank independence, means that markets are unclear about the future path of interest rates.

Uncertainty is also swirling around Reeves’ intentions in her budget, which, although still nearly ten weeks away, is being considered as the last major event of the year.

The Office for National Statistics is expected to post UK growth of 0.2 percent for June when the figures are released on Thursday, according to a poll of economists. While not “pulling up any trees”, at least it will bring to an end a spring and early summer in which any sort of growth was hard to come by.

The ONS will simultaneously deliver an assessment for second-quarter growth, with analysts suggesting expansion will reach merely 0.1 percent for the April to June period.

British goods exports to the US plummeted by £2bn in April, marking the steepest monthly drop on record. Tensions have subsequently eased after leading economies extended certain concessions to President Trump, with trade agreements reducing the effective tariff rate to approximately 14 percent, the Bank of England stated.

The pound faced steady selling pressure yesterday as it approached the top of its short-term trading range. It fell to a low of 1.3399 but recovered to close at 1.3433.

Monthly U.S. inflation data is under increased scrutiny after President Donald Trump removed the head of the U.S. Bureau of Labor Statistics, a move that could undermine confidence in the $2.1-trillion market for Treasury debt designed to protect against inflation.

The Consumer Price Index, which will be released later today, will test investors' trust in the integrity of U.S. economic data after Trump fired the BLS head this month, accusing her of manipulating jobs numbers.

It is unclear who will replace former BLS Commissioner Erika McEntarfer. Still, any signs that lead investors to suspect data is being politicised could exacerbate concerns about CPI data collection.

In that case, investors are likely to demand higher compensation to hold TIPS, or Treasury Inflation-Protected Securities, whose value is linked to the CPI, and raise the Federal Government's cost of funding itself, analysts said.

Rises in TIPS yields could be exacerbated by poorer liquidity compared to the much larger market for nominal Treasuries.

Trump ordered McEntarfer's removal on August 1 after data showed a surprise weakening in the U.S. labour market last month. The employment report revealed meaningful revisions to job figures for the prior two months that raised investor worries that the Federal Reserve may need to play catch-up with interest rate cuts.

The latest Fed dot plot, released in June, indicates that policymakers anticipate two interest rate cuts by the end of the year. However, the projections are more divided than in previous months, with some members believing rates should remain unchanged in 2025.

The "dot plot" is a graphical representation used primarily by the Federal Reserve to convey the expectations of its policymakers regarding future interest rates. It is a tool that provides insight into the outlook for monetary policy and helps market participants understand the Fed's views on economic conditions.

It plays a significant role in shaping market expectations and providing transparency in the Fed's decision-making process.

The market is considering what factors will be in play in the last four months of the year, which may allow, or even demand, that the Fed loosen monetary policy further before year-end.

The dollar index is in something of a recovery mode as traders disseminate the information that has become available over the past couple of weeks. The partial resolution of the “tariff situation” is considered an overall positive for the economy, but rate cuts and a weakening jobs market are having a negative effect.

Yesterday, the index rallied to a high of 98.67 and closed at 98.51.

Just under 100 days after taking office, Germany’s new conservative-led coalition government faces a sobering assessment of the economy and the role the new administration is playing in it.

Germany’s economy is still ranked a poor third or, by some measures, fourth, in the league table of the major economies of the largest Eurozone economies.

Spain continues to be the shining light, while Italy and now France vie to be the next most successful, followed by Germany.

Having led the region for so long and being the state that the European Union looks to for inspiration and guidance, investors hanker after the certainty that the Merkel era gave them as the German economy garnered the huge advantage that was offered by unification.

Those days are sadly long gone. Now Germany has to scrap with the rest of the region, hamstrung by an outmoded economic model that relies on high energy use heavy industry, as the rest of the world bows to China’s newfound industrial might.

China has a singular advantage over Germany. It does not feel the need for making green adjustments to its industrial output, and the rest of the world, America included, simply goes along with it. Even the rumours about COVID-19 being created in a laboratory have gone away.

The European Central Bank warned on the consequences of trade tensions: "The broader implications might extend to almost a third of euro area employment. Companies must adapt"

“Sectors facing greater competition from China have experienced larger declines in published job vacancies, a signal of weaker labour demand,” the ECB economists warn. Between 2019 and 2024, they point out by way of example, labour demand in the vehicle sector fell by 55%, while the decline in the chemical industry is estimated at 95%.

Looking ahead, this is a troubling trend, since the ECB itself warns of the risk that the tariff war triggered by the Trump administration could push the People’s Republic even further towards the EU and the eurozone. This can be a good thing, of course, insofar as it can compensate for some of the trade that has become more expensive and challenging. At the same time, there is a risk of stressing the labour market.

“All in all, the rising competitiveness of Chinese exports poses significant challenges for euro area labour markets,” the European Central Bank’s analysis insists. “While at the moment the impact is concentrated in sectors such as vehicles and chemicals, the broader implications might extend to nearly one-third of euro area employment.”

The common currency declined but stayed within its recent range yesterday. It fell to a low of 1.1628 but recovered to close at 1.1641.

Have a great day!