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17 Jun 2025 | 3 minutes to read
Chancellor Rachel Reeves unveiled the government’s Spending Review last week, setting the day-to-day budgets of government departments for the next three years and investment budgets to 2030. There was little to surprise, with much of the essential content pre-trailed, and some headline grabbing announcements made in the days prior. As expected, the Department of Health and Social Care was the major beneficiary, with real growth in average day-today spending of +2.8% per year over the three years to 2028-29. Education and Defence will each see an increase of +0.7% per year. The Department for Transport and the Ministry of Housing, Communities & Local Government on the other hand, were dealt -5% and -1.4% cuts respectively. However, capital expenditure for both departments is set to rise notably, meaning funding has been made available for longer-term infrastructure development.
The chancellor is restricted in how much she can spend due to her self-imposed fiscal rules – that day-to-day spending should not be funded through borrowing, and that government debt should fall as a percentage of GDP by 2029-30. The government has set its stall on generating sufficient economic growth to keep to these rules without hiking tax on earned income, however, just a day after the spending review, Reeves refused to rule out future tax rises after the UK economy was reported to have contracted -0.3% in April. Additionally, the Office for National Statistics revealed the unemployment rate had risen to 4.6% as payroll numbers continue to fall. Higher business tax, higher household bills and a large drop in the value of goods exported – particularly to the US - were cited as reasons behind the drop in output. However, monthly GDP figures are notoriously volatile, and the more stable three-month print to April showed growth of +0.7%. Nevertheless, with spending plans set, and evidence of a weakening economy emerging, many observers are increasingly of the opinion that additional tax hikes will be required at the next Budget in the autumn.
Global oil prices spiked last week after Israel’s targeted attack on Iran escalated tensions in the Middle East. Brent Crude surged +7% to $74.50 a barrel on Friday, its highest level since January. Over the week the oil price advanced almost +12% – though this still only takes it back to the level at which it began the year. If the conflict escalates, the Organisation of the Petroleum Exporting Countries’ (OPEC) planned production increase, and its substantial spare capacity, could help offset supply disruptions. However, Iran could have the capacity to disrupt global supply by targeting the Strait of Hormuz, a critical pinch point through which roughly 20%-30% of the world’s oil passes through.
Rising wholesale oil prices typically show up first at the petrol pump but can eventually ripple through the wider economy. This increases costs across numerous sectors, including agriculture, manufacturing and travel, and can add to inflationary pressures. While Middle East instability is not new, the extent of any energy price rises, and broader inflationary impact, will depend on how much further hostilities escalate. Only a major escalation or significant damage to the Gulf’s energy infrastructure is likely to drive oil prices higher for a prolonged period, but market participants and policy makers will monitor the situation closely.
Last week’s US inflation data suggested that global trade tensions, stemming from Donald Trump’s sweeping tariffs, have thus far only had a limited impact on the headline print. The annual Consumer Price Index (CPI) inflation rate rose to 2.4% in May - up from the 2.3% recorded in April, but below expectations of 2.5%. With inflation remaining relatively subdued, investors are increasingly focusing their attention on when the US Federal Reserve (Fed) are likely to resume cutting interest rates. The Central Bank has been on pause since the end of last year as far as monetary policy is concerned, with heightened uncertainty around the impact of the US administration’s trade policies on inflation to the fore. However, with a notable uptick in inflationary pressures yet to materialise, expectations of a rate cut at September’s meeting have risen. Nevertheless, policy makers will be watching closely for any evidence that recent figures reflect temporary effects, such as companies using old inventory, and whether prices might start to rise more significantly over the summer.
Gold has been the strongest of all major assets of late, rising some +49% in dollar terms over the past 12 months. This can largely be explained by the prevailing geopolitical tensions across the globe, but also by its use as a hedge against inflation and the US dollar. An ounce of Gold is now priced around $3,400. And the rise is all the more impressive when one considers that the price of an ounce of gold only passed the $1,000 mark during the financial crisis and only reached $2,000 for the first time during the Covid-19 pandemic.
Given this fairly meteoric rise, some investors have been tempted to look at alternatives or complements to the yellow metal, such as silver and platinum. Both are also considered precious metals with similar properties to gold. And both are on course to deliver strong returns this month, up approximately +10% and +15% respectively in dollar terms over the month of June to date (to 13 June). Unlike gold, silver and platinum both have significant industrial uses, such as in solar panels, batteries and automotive parts. The platinum market is experiencing its third consecutive year of structural deficit in 2025, meaning demand is exceeding supply. If such an imbalance persists and leads to a further depletion of stockpiles, it is possible that recent price appreciation could continue.
Disclaimer
Past performance is not a reliable indicator of future returns. Nothing herein should be construed as a recommendation to hold, buy or sell any security or encourage any investment decision. The mention of any particular asset class, sub-asset class or company does not imply that it is held, or may ever be held, in any product or service.
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