Monday Morning Update

On Friday, UK PMIs contracted for the first time in 12 months, indicative of the economic headwinds facing the private sector.

Against expectations of a 52.1 print, UK services PMI came in at 50 marking an 13-month low, while manufacturing posted a figure of 48.6 marking a 9-month low and missing forecasts of 49.9.

Here, the report said that “Survey respondents typically commented on subdued customer demand. Some firms noted delayed investment decisions, as well as cutbacks to new projects in response to worsening domestic business conditions and geopolitical uncertainty.” Uncertainty around the budget was also cited as key headwind for businesses.

Following the release, the Chief Business Economist at S&P said that companies were “The first survey on the health of the economy after the Budget makes for gloomy reading. Businesses have reported falling output for the first time in just over a year while employment has now been cut for two consecutive months. Although only marginal, the downturns in output and hiring represent marked contrasts to the robust growth rates seen back in the summer and are accompanied by deepening concern about prospects for the year ahead.

In relation to the labour market, the report indicated that there was a marginal reduction in private sector employment, in part due to the non-replacement of staff leaving and concerns around increasing costs associated with labour.

President Elect Donald Trump has nominated hedge fund manager Scott Bessent as Treasury Secretary in a roll that oversees polices concerning tax, debt, sanctions and international finance for the world largest economy. The position also comes with considerable weight at international institutions including the IMF and World Bank.

Following the announcement, Trump said that the founder of Key Square Capital Management, would “reinvigorate the private sector, and help curb the unsustainable path of federal debt”.

Its widely expected that Bessent will look to push forward with Trump’s MAGA policies including increasing tariffs on US imports alongside deregulation and tax cuts. Bessent has also been a proponent of looking to increase domestic energy production in an effort to boost growth. On the campaign trail for example, Bessent said that Trump would enable a “new golden age with de-regulation, low-cost energy, [and] low taxes”.

Some commentators however understand that Bessent will take a steadier approach when it comes to emplacing tariffs – a view held by Hugh Chung speaking on Bloomberg and Ryan Sweet of Oxford Economics.

Discussing Bessent’s appointment, The Economist writes that “The president-elect has made a sensible choice. Mr Bessent is a sharp observer of markets and has a deep grasp of macroeconomics”.

Such a grasp will of course be vital, not least with US debt-to-GDP standing at $33.17tn or 121% of GDP during the 2023 fiscal year.