Closing summary: Pound falls as the dollar moves to the tune of Trump's tariffs
The pound has fallen by 1% against the US dollar to below $1.24, its lowest since April.
Sterling was not helped by weak factory data, which suggests that the UK economy may have some way to go before it picks up the growth momentum for which the Labour government is aiming.
But as ever with currency movements, there are two sides: on the other, there is the rise in the value of the US dollar as investors position for the second Trump administration. The dollar index against a trade-weighted basket of currencies has risen as high as 108.9 – a 0.4% increase over the course of the day. The dollar is up by 0.5% against the euro.
Donald Trump’s policy programme, such as it is, is expected to include deregulation and lower taxes for businesses, which could give a boost to growth.
Tariffs are also an important part of the picture: tariffs usually act to push up the currency of the country imposing them, but they are also a crucial factor in the judgment of some economists that Trump’s policies could harm growth over the medium term.
Cullen Hendrix, a senior fellow at the Peterson Institute for International Economics, uses the example of musical instruments to illustrate the possible effects of tariffs:
If caught up in Trump’s promised tariffs, the musical instrument trade would be one illustration of how the Trump’s trade measures will affect Americans’ lives by raising prices and reducing supply.
And like other regressive aspects of Trump’s proposed tariffs, the hardest hit segment of the market will be the lower income households and school music programs that need a reliable supply of relatively inexpensive instruments.
You can continue to follow our live coverage from around the world:
In the US, authorities believe ‘multiple people are involved’ in New Orleans truck attack that killed 15
In our coverage of the Middle East crisis, at least 37 are killed by Israeli strikes on Gaza including in al-Mawasi ‘safe zone’
Thanks for joining us on the first working day of 2025. Happy new year! JJ
Tesla narrowly retains electric sales crown, but BYD overtakes it on production
Tesla sold 1.79m cars in 2024, narrowly retaining its position as the world’s largest maker of electric cars despite a stiff challenge from China’s BYD.
Elon Musk’s car company delivered 1.79m cars during 2024, it said on Thursday. That was the first annual decline in delivery volumes in the company’s history.
Tesla’s sales stayed marginally ahead of BYD, which delivered 1.76m.
However, BYD actually overtook Tesla in terms of the number of battery electric cars produced, even if did not quite sell all of them. Tesla made 1.77m against BYD’s 1.78m.
The boss of Brompton Bicycle has predicted another year of turmoil for the bike industry in 2025 after profits at the British folding cycle maker dived by more than 99% amid a wave of discounting by rivals.
Profits fell from £10.7m to only £4,602 in the year to the end of March 2024 – less than the cost of Brompton’s top-of-the-range T Line Explore bike – as riders sought cheaper options during a cost of living squeeze.
Sales at the company based in Greenford, Middlesex – whose cheapest model costs almost £1,000 – fell 5.3% to £122.6m as it sold 8.2% fewer bikes, according to accounts filed at Companies House this week.
Will Butler-Adams, the managing director of Brompton, said the dive in profits was primarily down to selling fewer bikes than planned amid “a really sad state of affairs” in the global bicycle market, which has been struggling worldwide with overstocks after overestimating demand since the coronavirus pandemic.
“The industry is still in turmoil and will not get better this year. It will not be as bad as 2024 but there is still excess stock,” he said.
You can read the full story here:
Sterling drops 1% against the US dollar
The British pound has fallen by nearly 1% against the US dollar to its lowest since April after weak UK factory data and the continued momentum behind the “Trump trade”.
A pound bought $1.24 on Thursday afternoon in London, its lowest level since 23 April 2024 (Shakespeare’s alleged birth- and death day).
It came after weak manufacturing data that suggested there is little sign of a pick-up in UK economic growth.
Meanwhile, investors have been piling into US assets in anticipation of a possible boost to companies if Donald Trump cuts taxes, and also expected higher inflation that could force the Federal Reserve to keep rates higher for longer.
US jobs figures published on Thursday came in line with economists’ expectations. Newly unemployed made 211,000 initial claims for benefits during the week ending 28 December, according to the Department of Labor. That was 9,000 down from the previous week, and slightly lower than the 222,000 expected.
BYD sells record 1.76m battery electric cars in 2024
Chinese manufacturer BYD sold 1.76m battery electric cars in 2024, a tally that underlines its position as the main rival to Elon Musk’s Tesla.
BYD, led by founder Wang Chuanfu, has built itself into the world’s largest producer of battery-driven cars – if hybrids are included. In 2024 it made 2.5m plug-in hybrids, which combine a petrol engine with a smaller battery that can be recharged from a plug.
In a post on X, Musk’s social network, BYD said it was “proudly claiming the global sales champion” title for “new energy vehicles” – a category that includes hybrids. Its battery car sales rose 12% during the year, while plug-in hybrid sales rose by 72%.
Tesla should still just about retain its position as the biggest seller of battery cars, if it can live up to its previous expectation of “slight” vehicle delivery growth in 2024. Deliveries rose 38% to 1.81m in 2023.
However, BYD’s plans to rival Tesla in the US could be dealt a blow if Donald Trump, with Musk at his right hand, imposes further steep tariffs on car imports. BYD has been considering producing cars in Mexico to export to the US, but it has not made any announcement on whether it will go ahead since the US election in November.
With Europe firmly in the heating season, here’s an interesting nugget from Bloomberg News: German power prices dropped below zero on the first trading day of 2025.
Power prices can drop below zero if there is too much electricity as renewables kick in when demand is not there. A blustery Germany meant that applied across much of Thursday morning. Bloomberg News reported:
Intraday prices in Germany, the region’s biggest market, turned negative during four hours overnight as wind-energy output reached as much as 40 gigawatts, far outstripping demand.
The opposite situation can also happen: the dreaded Dunkelflaute, when the sun doesn’t shine and the wind doesn’t blow. Those situations underline the need for big systemic changes to energy systems to cope with renewables’ intermittency.
Data from Epex Spot cited by Bloomberg suggested there were 468 hours in which German power prices turned negative in 2024. There were 356 in France.
Labour came to power in the UK at July’s general election promising to fix the foundations of the economy and produce the strongest sustained growth among the G7 countries, writes the Guardian’s economics editor, Heather Stewart.
With little evidence of improvement, Keir Starmer has more recently switched the focus to improving consumers’ living standards. In his new year message, the prime minister said voters would see “more cash in your pocket”.
The latest evidence of industrial weakness – contained in the manufacturing PMI data from earlier – underlines the challenge facing Labour, as it hopes for an economic upturn.
S&P Global Market Intelligence, the data company that compiles the PMI, blamed government policy for the manufacturing squeeze.
You can read the full story here:
US dollar index rises to new two-year high
The US dollar index has risen to a new two-year high at the start of 2025, continuing its upward momentum since the election of Donald Trump.
The dollar index tracking its peformance against a trade-weighted basket of currencies rose by 0.3% on Thursday morning, the first trading day of the year. It rose as high as 108.8 on Thursday, from below 104 in the days before the US election.
Trump will take office on 20 January, with a policy platform that – although vague – is aimed at increasing growth, despite protectionism that many economists fear will hurt the global economy. Several policies such as tax cuts are also expected to be inflationary, making the Federal Reserve more likely to keep interest rates higher. Higher interest rates tend to strengthen a country’s currency, as they make assets in that currency more attractive relative to others.
Rania Gule, an analyst at XS.com, a currency trading website, said:
This strength comes at a time when the US continues to maintain relatively high interest rates compared to other economies, enhancing the dollar’s appeal as a safe-haven asset for investors. As a result, expectations for 2025 remain positive for the US dollar, given the ongoing interest rate differentials between the US and other major economies.
In my view, one of the key factors contributing to the dollar’s strength is the economic outlook for the U.S., as the Federal Reserve has indicated a more cautious approach to interest rate cuts in 2025, which helps stabilize the high yields on US Treasury bonds.
This supports market expectations that the dollar will remain strong, thanks to policies that continue to support economic growth and inflation in the US, particularly following the election of Donald Trump. Known for his growth-friendly policies, including more flexible regulation, tax cuts, and higher tariffs, these measures are seen as factors that bolster demand for the dollar, as they are perceived to support economic activity in the US.
Lidl made more than £1bn in sales in the run-up to Christmas for the first time in the three decades the discount grocer has been operating in the UK as cash-strapped shoppers cut costs.
The German-owned discounter, which is close to overtaking Morrisons to become the UK’s fifth biggest supermarket chain, said it made more than £1bn in sales in the four weeks leading up to Christmas Eve.
The company recorded a 7% increase in sales on the same period a year earlier as more than 2 million shoppers sought festive season deals. The supermarket chain experienced its busiest day of the year on 23 December.
Lidl said it sold more than 16m British pigs in blankets, 8m stuffing balls and 2m litres of gravy. Champagne sales grew by 25%.
You can read the full report here:
Electric cars made up nine in 10 new car sales in Norway in 2024
Nine out of ten new cars sold in Norway last year were powered by battery only, as the country approaches the feat of becoming the first to completely ditch petrol and diesel sales.
Norway is aiming to completely phase out sales of cars with petrol and diesel engines by 2025. The latest data from the Norwegian Road Federation suggest that it is well on track.
Heavy subsidies – funded by Norway’s wealth from drilling oil – have incentivised Norway’s rapid transition to electric cars where other countries have lagged behind. Yet the country’s achievement has also shown what is possible in terms of providing the infrastructure to make the switch practical for millions of people. Electric cars outnumber petrol cars in the country.
Christina Bu, head of the Norwegian EV association, said:
Norway will be the first country in the world to pretty much erase petrol and diesel engine cars from the new car market.
It is a gloomy picture of the UK manufacturing sector, with most of the forward-looking indicators in the PMI showing less confidence in the future.
But 2025 should have something more positive in store, according to Pantheon Macroeconomics, a consultancy. Elliott Jordan-Doak, a senior UK economist at the company, said:
Despite the weakness in the manufacturing PMI in December, we think that it will steadily improve in 2025.
Businesses have been rocked by domestic policy changes in the form of NICs hikes, and external shocks in the form of the threat of a global trade war. But the budgetary plans are for more spending than taxation, which will mechanically lift the PMI.
What’s more, the focus on investment in the budget should help the manufacturing sector. The MPC will also cut rates in 2025, which will reduce borrowing costs for firms and should boost sentiment. We expect three cuts in 2025, one more than the market is currently priced for.
The UK manufacturing PMI does not paint a rosy picture of the sector. S&P Global has a litany of things holding it back: “subdued domestic market sentiment, customer destocking, efforts to prevent inventory building up at manufacturers’ own warehouses and the impact of weaker demand from European clients.”
It is not in the gift of the UK government to help with some of that, but S&P Global also reported that some companies have cut back on purchasing because of “the higher cost environment, sometimes linked to restructuring operations in advance of forthcoming rises in labour costs and payroll taxes.”
That comes after chancellor Rachel Reeves raised the minimum wage and employers’ national insurance contributions at the budget in October.
'Winter chill' for British manufacturers as output falls
And across the Channel: Britain’s manufacturing sector also reported declining output.
The UK manufacturing purchasing managers’ index (PMI) fell to an 11-month low of 47.0 in December, down from 48.0 in November and below the earlier flash estimate of 47.3, according to S&P Global. The PMI has remained below its neutral mark of 50.0 – signalling deterioration – in each of the past three months.
There was a downturn at big companies but – in a worrying sign for the government – it was deepest among small and mid-sized companies.
Rob Dobson, a director at S&P Global Market Intelligence, said:
Manufacturers are facing an increasingly downbeat backdrop. Business sentiment is now at its lowest for two years, as the new government’s rhetoric and announced policy changes dampen confidence and raise costs at UK factories and their clients alike. SMEs are being especially hard hit during the latest downturn.
This is sending a winter chill through the labour market. December saw the sharpest cuts to staffing levels since February. Some companies are acting now to restructure operations in advance of the rises in employer national insurance and minimum wage levels in 2025.
Europe’s manufacturers reported a further drop in activity in December, according to the final reading of the purchasing managers’ index (PMI).
The index dropped to 45.1 in December, down from 45.2 in November and a three-month low, according to data company S&P Global. That was well below the 50 mark that indicates growth in the sector.
There was significant regional variation. Here’s what S&P Global had to say:
Countries located in the south continued to outperform, with Spain and Greece showing stronger improvements in manufacturing sector conditions. Expansions here were more than offset, however, by the big-three of Germany, France and Italy, which all posted deteriorations once again. Most notable was France, which saw its manufacturing PMI sink to its lowest level since May 2020.
Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, which sponsors the survey, said:
Even in December, the manufacturing sector is not delivering any holiday cheer. It is the same old story – downward. New orders have dropped even more than in the previous two months, crushing any hopes for a quick recovery. This view is backed by the accelerated decline in order backlogs.
Coventry Building Society has completed the purchase of the Co-operative Bank, after a £780m deal agreed with its former hedge fund owners.
The new owners will hope to firmly end the era of turmoil for the Co-op Bank following an accounting scandal that left a £1.5bn black hole. Its reputation also suffered when the bank’s former chair Paul Flowers, a former Labour councillor and Methodist church minister nicknamed the “Crystal Methodist”, pleaded guilty to possession of cocaine, crystal meth and ketamine in 2014.
Coventry, the UK’s second-largest building society, has left the way open for the end of the Co-op Bank brand. The bank split off from the wider Co-op group after the accounting scandal.
European gas prices rise after Ukraine ends Russian pipeline deal
European gas prices have risen as traders wait to see if Ukraine’s move to cut off Russian gas will prompt a quicker drawdown of stores.
Bloomberg News reported that benchmark front-month European gas prices rose as much as 4.3% to €51 a megawatt-hour, the highest since October 2023.
A deal to pipe Russian gas through a Ukrainian pipeline had survived through three years of war between the two countries. However, Ukraine’s president, Volodymyr Zelenskyy, said in a post on social media that the country had inflicted “one of Moscow’s biggest defeats” by finally cutting off sales.
Russia’s Gazprom said it had stopped sending gas at 5am GMT on Wednesday.
The effects of the cut-off on prices are not immediately clear because Europe has scrambled to replace its supply of gas, including via imports from the US. Since Russia’s invasion of Ukraine in February 2022, the share of Russian gas on the European market has dropped from about 35% to about 8%, as European countries sought to diversify supplies.
Henry Allen, a strategist at Deutsche Bank, said:
Now it’s worth bearing in mind that prices are still well beneath their levels seen throughout the entirety of 2022, but European gas storage ended 2024 at its lowest year-end level in three years, and the recent increase in prices is set to add further to inflationary pressures.
UK house prices rise at fastest rate in two years
House prices rose for a fourth consecutive month in December, ending 2024 on a “strong footing” with the cost of an average home hitting £269,426, according to Nationwide.
The building society’s monthly tracker found prices rose 0.7% in December on the previous month, with the annual increase in the value of a typical UK home up 4.7%.
Robert Gardner, Nationwide’s chief economist, said that despite the strong end to the year, the price of an average home still remained below the all-time high set in summer 2022. He said:
Mortgage market activity and house prices proved surprisingly resilient in 2024 given the ongoing affordability challenges facing potential buyers.
It was encouraging that activity levels in the housing market increased over the course of 2024 with the number of mortgages approved for house purchase each month rising above pre-pandemic levels towards the end of the year.
It’s a more positive start to the new year on Europe’s stock markets than in Asia.
Here are the opening snaps via Reuters:
EUROPE’S STOXX 600 UP 0.1%
BRITAIN’S FTSE 100 FLAT, GERMAN DAX UP 0.2%
FRANCE’S CAC 40 FLAT; SPAIN’S IBEX UP 0.3%
EURO STOXX INDEX UP 0.1%; EURO ZONE BLUE CHIPS UP 0.1%
Trump tariff threat to trade overshadows new year in Chinese factories
Good morning and happy new year! Welcome to our first business live blog of 2025, covering business, economics and financial markets as ever.
It’s a new year, but likely a familiar feeling for many as investors and executives around the world contemplate the impending start of another term in the White House for Donald Trump.
Chinese factory data published on Thursday suggest that the prospect of a renewed trade war will harm them. Factory activity in the world’s second-largest economy continued to expand during December, according to data company Caixin’s purchasing managers’ index (PMI). However, the index, at 50.5 points, came in lower than the 51.7 expected by economists polled by Reuters.
The weak manufacturing data appeared to contribute to a sell-off on Chinese stock markets. The Shanghai Stock Exchange composite index dropped by 2.7% on Thursday, while Hong Kong’s Hang Seng index fell by 2.1%. Japan’s Nikkei also fell by 1%.
China’s yuan also hit its lowest in more than a year against the US dollar in offshore trading. The yuan fell to a 14-month low of 7.31 for every dollar.
The trade outlook played a role in the drop in the manufacturing PMI. Business confidence dropped to the lowest since September amid “concerns about the outlooks for growth and trade, especially amidst the US tariffs threat”, according to Caixin.
Wang Zhe, senior economist at Caixin Insight Group, said:
Exports dragged on demand amid mounting uncertainties stemming from the overseas economic environment and global trade. The corresponding indicator was in contractionary territory for the fourth time in the past five months.
Business optimism weakened. Concerns among surveyed companies focused on the economic recovery outlook and the trade conflict between China and the US. Future output expectations continued to grow, but the gauge dropped by more than three points from November.
Meanwhile, the Financial Times’s annual survey of economists around the world has also flagged concerns that Trump’s protectionism will dent growth. The survey of 220 economists found that the president-elect’s policies are expected to slow growth and spur inflation.
The agenda
9am GMT: Eurozone manufacturing purchasing managers’ index (PMI) (December final reading; previous: 45.2 points; consensus: 45.2 points)
9:30am GMT: UK manufacturing PMI (December final reading; prev.: 48; consensus: 47.3)
1:30pm GMT: US initial jobless claims (week ending 28 December; prev.: 219,000; cons.: 224,000)
2:45pm GMT: US manufacturing PMI (December final reading; prev.: 49.7; consensus: 48.3)
