28 November 2025: If the government treats retail fairly, it can help drive the growth the UK economy so badly needs

It is becoming evident that Rachel Reeves faced significant pressure from her own backbenchers over measures she announced in the Budget on Wednesday, particularly the removal of the two-child benefit cap. It illustrates the turnaround in Sir Keir Starmer's fortunes since the election, when he could do no wrong, while currently it appears he can do nothing right.

The papers are saying that this was a budget designed to keep the “party faithful” onside and had very little to do with Labour’s manifesto promises.

Of those pledges, it is a simple truth that millions of workers will be paying more tax by 2029/30, while yesterday's announcement that an agreement had been reached over workers' rights, in which one of the Government’s three main principles has been abandoned, means that this Government is not prepared to fight for what its members believed in a little over a year ago.

The Institute for Fiscal Studies (IFS) has delivered a stark verdict: UK households are staring down a "truly dismal" uptick in their spending power, with average disposable incomes projected to crawl by just 0.5% annually over the next five years.

This feeble growth, equivalent to roughly £104 extra per person each year after inflation, stands in sharp contrast to the over 2% annual gains seen in every UK parliament from the mid-1980s to the mid-2000s, leaving families to grapple with stagnating living standards amid persistent economic headwinds.

IFS director Helen Miller pulled no punches in her critique, describing the projections from the Office for Budget Responsibility (OBR) as "underwhelming" and woefully inadequate relative to the "dizzying array of fiscal pressures" facing the nation.

"Before this Budget, the UK was faced with lacklustre economic growth, stagnating living standards," she noted, adding that the chancellor's measures, while dubbed a "big Budget" for their scale, fail to ignite meaningful ambition. Disposable income, the cash left after taxes for everyday spending, is set to inch forward at a pace that Miller likened to a "constant row-back" on prosperity, exacerbated by £26 billion in new tax hikes, including freezes on personal allowances and tweaks to pension salary sacrifices.

Growth, which was supposed to be at the centre of every decision that this Government makes, appears to have been abandoned, at least for now. When this point was made to the Prime Minister yesterday, he looked genuinely shocked, saying the OBR had increased its forecast for 2025 growth by 50% from 1% to 1.5% and conveniently forgetting that they had also reduced their projections for the next four years.

After weeks of speculation over how Chancellor Rachel Reeves would fill a gaping hole in the public finances, punctuated by an unprecedented warning from her along the way that everyone would need to pitch in, most of her measures simply leaked onto the internet in a mishap before she had even begun speaking.

The Office for Budget Responsibility duly apologised for the unprecedented error of publishing its analysis of the fiscal plan too early. But in a way, Britain’s finance minister could take heart when she stood up in Parliament in London on Wednesday, that the initial market reaction meant her job is safe for now.

Employers in the retail and hospitality sectors, however, were lukewarm about the measures Reeves announced, with spokespeople commenting that she appears to have done little more than pay them lip service in the run-up to the Budget.

The pound traded sideways yesterday as the U.S. market was closed for Thanksgiving. It traded between 1.3268 and 1.3210, but closed just two pips higher at 1.3237.

Thanksgiving, which has become more synonymous with the retail industry than the family occasion it is meant to be, was “celebrated” yesterday.

Markets paused as millions of Americans made the “pilgrimage” to visit relatives.

Federal Reserve Chair Jerome Powell left financial markets in suspense ahead of Halloween, warning that a data fog could prompt the Fed to pause its current easing cycle temporarily.

Heading into the pre-Christmas meeting, the Central Bank will continue to fly blind, as key economic reports will not be released until after the two-day meeting. Still, investors are betting that Santa Powell will deliver a third consecutive quarter-point interest rate cut for all the little boys and girls on Wall Street.

The Fed’s latest report describes a widening gap between America’s social classes, with “early signs of strain on middle-income consumers.”

On the lower end, households are cutting back on dining out, trading down to cheaper groceries, getting “sticker shock” from car prices, and responding more sharply to price increases. Retailers across several Fed districts reported that budget-conscious shoppers have become increasingly sensitive to minor price changes or promotions. Fast-food chains also saw a “notable decline in sales” as lower-income diners pulled back.

At the top of the earnings pyramid, the picture looks very different. High-income households, those who benefit most directly from asset appreciation, continue to spend robustly.

Travel bookings remain strong, discretionary purchases are holding up, and “higher-end retail spending remained resilient.”

Anecdotal evidence from industry leaders echoes what the data clearly shows. Mark Zandi, chief economist at Moody’s Analytics, found that the top 10% of households now account for roughly half of all U.S. consumer spending, an unprecedented concentration that makes the economy look healthier in the aggregate than it feels to most people living in it.

However, much of the resilience among high-income consumers is being supported, indirectly but powerfully, by the explosive run-up in AI-related stocks; Nvidia, Microsoft, Amazon, and the broader data-centre ecosystem have driven a market rally so strong that it’s materially lifting household balance sheets for the wealthiest Americans.

“What’s more worrying about the AI bubble is how much more dependent the economy is on this theme, not just for the business investments, which are driving growth, but also the fact that consumption is being dominated so much by the wealthiest cohort. The wealth of this cohort, “inflated by the stock market,” is a major concern, and in the case of a big stock-market correction, this wealth and therefore the economy would be “hit very, very badly indeed.”

There have rarely been years when the Federal Reserve has been so carefully watched by the White House, investors, analysts, and the media as this one. This year, the Federal Open Market Committee has found itself in a one-sided battle with the Oval Office, as President Trump aggressively lobbied for a lower base rate. This, of course, came after aggressive lobbying by Trump before the election to keep the base rate from being lowered.

Today is Black Friday, the most productive and profitable day of the year for retailers. It is unclear whether today's results for retailers will be available to the FOMC before its December 9/10 meeting.

The dollar index snoozed through most of yesterday’s session. It traded below its short-term support, but recovered to close at 99.55.

French Central Bank Governor and ECB Governing Council member, Francois Villeroy de Galhau, told reporters yesterday that he has been pleasantly surprised by the resilience of his country’s economy.

However, France's political debate over its 2026 budget is "worrying and divergent", Galhau repeated to France Info broadcaster. "France needs a budget, but not just any budget". He added that France's economy is resisting and remains in good shape, but it risks a "gradual suffocation" if budget talks are not constructive.

An uptick in services offset ongoing manufacturing weakness, but concerns over government finances and political tensions cast doubt on the recovery’s staying power. France’s economy showed fresh signs of stabilising in November, with an unexpected lift in the services sector offsetting ongoing woes in manufacturing, according to new data from Hamburg Commercial Bank.

France’s flash services purchasing managers’ index (PMI) jumped to 50.8 last month, the first reading above the key growth threshold in over a year and stronger than analysts expected. This helped offset a steeper drop in manufacturing, as the PMI slid to 47.8, its weakest since February.

The European Central Bank (ECB) is still saying it’s in a “good place” on interest rates. Still, new forecasts, delayed green policies, and softer inflation outlooks could quietly reopen the door to rate cuts.

ECB chief economist Philip Lane said overnight that while headline inflation has hovered near target for most of the year, the picture is still flattered by energy deflation. Non-energy inflation remains “well above 2%,” and Lane stressed that a further slowdown is required to ensure inflation is sustainably anchored at the target.

Nevertheless, he added, “We’re confident that’s going to happen because everything we look at tells us wage dynamics are set to decelerate further.”

Lane also addressed concerns around U.S. tariffs and Europe’s export exposure. He argued the hit may be less severe than feared, as AI-driven expansion and high U.S. government spending are supporting American demand. Under these conditions, firms still have room to pass through tariff-related costs to importers and consumers. While the U.S. is an important partner, Lane underlined that it is “not the predominant driver of the European economy.”

However, he warned that tariffs are reshaping global trade flows in meaningful ways, particularly in Asia. China is exporting more to Southeast Asia, Southeast Asia is exporting more to the U.S., and China is simultaneously increasing its footprint in Europe and other markets. Lane called this a “massive reconfiguration” of the global system, intensifying competitive pressure on European firms, even at home.

Official inflation data for the eurozone and several of its members will be published next Tuesday. This will be a barometer of whether Lane’s fears are justified.

The Euro also took the day off yesterday, trading between 1.1613 and 1.1576, closing at 1.1595.

Have a great day!