The Fiscal (Milk)shake-Up…

The much-awaited UK Budget arrived at the end of the month, bringing higher spending now and looming tax rises later. While the Chancellor took some heat for sounding overly gloomy ahead of her speech, markets (especially bonds) remained surprisingly calm. Meanwhile, in the US, the federal government shutdown has finally ended after 43 days, though not without dragging on economic growth.

Budget jitters (and milkshakes)

Budget day brought a mild case of nerves, not only because of potential tax rises, but because the run-up saw Labour float more proposals than Heathrow has runways.

In the end, a wide mix of changes emerged, including a new Mansion Tax, limits on pension salary sacrifice, and several tweaks across the tax landscape. Even milkshakes weren’t spared from the Chancellor’s adjustments.

Most changes will take effect gradually, making the long-term impact harder to judge. One thing seems certain: tax advisers will have plenty of work in the coming years.

While headline rates remained untouched, income tax thresholds were frozen for a further three years beyond 2028. This will push millions into higher tax bands as pay rises, though questions remain over how taxpayers may alter their behaviour in response.

A Budget framed around “fiscal headroom”

The Budget was positioned as necessary to create more fiscal breathing space for the government. Critics have since argued that the Chancellor overstated the constraints to justify higher welfare spending and calm party tensions.

Borrowing and spending will rise in the near term, supported by policies such as scrapping the two-child benefit cap from April 2026 and partly reinstating the Winter Fuel Allowance.

Markets stay calm

Despite the long list of tax changes, UK government bonds reacted calmly, helped by expectations of stronger future tax revenues.

One surprise to some has been the UK stock market’s strong performance so far in 2025, more on that in the Q&A below.

Overall, the Budget did not feel growth-focused, which is notable given Labour’s campaign emphasis on boosting the economy in 2024.

Shutdown ends in the US

In the US, the 43-day government shutdown, the longest in history, finally came to an end.

Consequences included:

• Delays to key inflation and employment data

• Reduced clarity for interest-rate decisions

• Millions of workers furloughed or unpaid

• Slower near-term economic output

Despite the disruption, markets took the news largely in stride.

Bottom line

This Budget delivered numerous tax rises but little market upheaval. More broadly, global markets remain resilient, though some, particularly the US, appear expensive and policy uncertainty remains. Technology is still firmly in the spotlight, but expectations are high, and some caution is warranted.

Q&A

Why are UK equities doing so well in 2025?

UK equities have surprised many by performing strongly this year. The FTSE 100 has hit multiple record highs, helped by standout performance in financials, energy, healthcare, and defence.

Key drivers include:

• Attractive valuations versus global peers

• High and reliable dividend income

• Renewed international investor interest

• Riversification away from expensive US markets

Despite political and fiscal uncertainty, 2025 has highlighted the resilience of UK equities.

Why are technology companies spending so much?

AI investment continues at a blistering pace. Industry giants such as Meta, Alphabet, Amazon, and Microsoft are estimated to spend between $350–$400 billion in 2025, largely on data centres and AI-related infrastructure.

Their goal is to secure long-term dominance by building barriers to entry and controlling the infrastructure that powers AI innovation. These companies can sustain such spending because of:

• Huge cash reserves

• Stable revenue streams

• Access to cheap financing

Investors remain watchful for signs of an “AI bubble” if future productivity gains fall short of expectations.

What is a “Santa Rally”?

A Santa Rally refers to a rise in stock markets during the last week of December and the first two trading days of January.

Historically:

• UK stocks have gained around 80% of the time (1995–2024)

• US stocks have gained around 73% of the time

While the pattern is well known, it is not a rule. For long-term investors, it is better viewed as a seasonal quirk than a basis for investment decisions.

Month by Numbers

As at 30 November 2025

Equities

UK: +0.54%

Europe: +0.93%

US: 0.00%

Emerging Markets: -1.60%

Japan: +0.59%

Bonds / Rates

UK Base Rate: 4.00%

Fed Funds Rate: 4.00%

UK 10-Year Yield: 4.44% (+0.03%)

US 10-Year Yield: 4.02% (-0.08%)

Currencies

GBP/USD: +0.86% ($1.33)

GBP/EUR: +0.29% (€1.14)

USD Index: -0.35%

Commodities

Gold: +5.71%

Oil (Brent): -2.87%

Noteworthy

Alphabet (Google): +19.26%