Global leaders have said that escalating armed conflict is the most urgent threat in 2025 but the climate emergency is expected to cause the greatest concern over the next decade, according to the World Economic Forum (WEF).

Ahead of its yearly gathering in the Swiss ski resort of Davos next week, the WEF asked more than 900 leaders from business, politics and academia about the risks that most concern them.

Looking ahead to the coming 12 months, 23% of respondents feared “state-based armed conflict”, as Russia continues to wage war in Ukraine and a series of other deadly clashes continue, including in South Sudan and Gaza.

With devastating wildfires continuing to rage in Los Angeles, the second-most common risk highlighted for 2025 was “extreme weather events”, singled out by 14% of respondents.

Throughout last year, a series of dramatic floods, droughts and fires underlined the impact of the climate crisis on weather patterns, with scientists finding that global heating makes such events more likely and, in many cases, more extreme.

When global leaders were asked to look further ahead and identify the greatest risks facing the world over the next decade, four of their top 10 responses related to the climate crisis.

The Bank of Japan will debate whether to raise interest rates next week, its governor Kazuo Ueda said earlier today, signalling its intention to move borrowing costs higher barring a Trump-driven market shock.

The remarks, which mirror those made by the Japanese central bank’s deputy governor Ryozo Himino yesterday, pushed the yen higher as markets continued to price in the chance of a rate hike at the bank‘s next policy meeting on 23-24 January.

Speaking at a gathering of regional bank executives, Ueda said the central bank would raise borrowing costs if improvements in the economy and prices continue, Reuters reported.

Incoming US president Donald Trump’s economic policy and this year’s wage negotiations in Japan will be key when deciding on the timing of the rate hike, he said.

“There was a lot of positive talk on the wage outlook” when the BOJ’s regional branch managers met last week, Ueda said.

We are currently analysing data thoroughly and will compile the findings in our quarterly outlook report. Based on that, we will discuss whether to raise interest rates at next week’s policy meeting and would like to reach a decision.

The yen gained 0.5% against the dollar to hit 157.15 after Ueda’s remarks. The two-year Japanese government bond yield, which is sensitive to interest rate expectations, rose to 0.7%, the highest since October 2008.

House prices in the UK rose at their fastest annual rate in almost two years in November, amid other signs of a pickup in the housing market despite high mortgage rates.

The average house price was £290,000 in November, 3.3% higher year-on-year, the biggest increase since February 2023, according to the Office for National Statistics. this comes after a downwardly revised 3% annual gain in October.

Private-sector rents continued to rise strongly, up by 9% in December compared with 9.1% in November. Rents climbed the most in London, where they rose by 11.5%.

• Average rents increased to £1,369 (9.2%) in England, £777 (8.5%) in Wales and £991 (6.9%) in Scotland, in the 12 months to December

• In Northern Ireland, average rents increased by 8.6% in the 12 months to October

• In England, rents inflation was highest in London (11.5%) and lowest in Yorkshire and The Humber (5.4%), in the 12 months to December

Germany’s economy, the biggest in Europe, has shrunk for a second year in a row, underlining the challenges faced by the region’s manufacturing powerhouse.

GDP (gross domestic product) fell by 0.2% in 2024 than in the previous year. This came after a 0.3% decline in 2023, according to the federal statistics office, Destatis.

Ruth Brand, its president, said at a press conference held in Berlin:

Cyclical and structural pressures stood in the way of better economic development in 2024. These include increasing competition for the German export industry on key sales markets, high energy costs, an interest rate level that remains high, and an uncertain economic outlook. Against this backdrop, the German economy contracted once again in 2024.

German industry has been mired in decline while a debt brake constrains public spending.

The news comes six weeks before a snap election, scheduled for 23 February. Germany faces the rise of the far-right party AfD (Alternative für Deutschland), which is campaigning on a series of deeply controversial policies on everything from migration to education (its manifesto includes “re-migration”, threatening the mass deportation of migrants if it came to power).

The breakdown of the 2024 data showed that manufacturing output dropped by 3% last year, with a marked decline in machinery and equipment, and the automotive sector. Production also remained low in in energy-intensive industrial branches, including the chemical and metal-working industries.

Construction recorded a 3.8% slump in 2024 as build costs remained high, resulting in fewer residential buildings being built. By contrast, the modernisation and new construction of roads, railways and pipelines led to an increase in the civil engineering sector.

The service sector was the only bright spot, although it only grew by a modest 0.8%.

The difficult economic climate in 2024 was also reflected in foreign trade, as exports of goods and services were down by 0.8%, partly due to lower sales of electrical equipment, machinery and motor vehicles.

Britain’s banks are trying to resist hiking mortgage rates despite financial market turmoil in recent days, industry sources have told Reuters.

The cost for banks hedging their mortgage lending via ‘swaps’ has risen as a spike in UK government borrowing costs over the past two weeks to multi-decade highs triggered fears that Britain could struggle to meet its fiscal rules, forcing the chancellor to announce spending cuts or tax rises.

While investors are demanding bigger returns to hold UK government debt, major banks are accepting smaller profit margins to avoid passing on higher costs to their customers, at least for now. One source at a major UK lender told Reuters that the mortgage market remained highly competitive.

However, government bond yields have eased today following an unexpected dip in inflation to 2.5%, giving the Bank of England room to cut interest rates at its next meeting on 6 February, economists say.

Rachel Springall, finance expert at data firm Moneyfacts, said lenders are competing to attract customers.

There are millions of borrowers due to come off fixed deals, so remortgage activity will be booming in 2025.

According to Moneyfacts, the average two-year fixed residential mortgage rate is 5.49% today, unchanged from yesterday, while the average five-year fix is 5.27%, also unchanged.

Banks use swaps to manage the risks of their mortgage lending. The price of two-year swaps has risen to 4.6%, the highest since July, and five-year swap rates have climbed to 4.52%, the highest since November 2023.

British electricals retailer Currys shares jumped by as much as 12% after the company raised its annual profit outlook and resumed dividend payments.

Underlying sales rose by 2% in the UK and Ireland in the key Christmas period, with strong demand for mobiles phones, gaming and computing offsetting weaker sales of TVs. In the Nordics region, like-for-like sales were up 1% in the 10 weeks to 4 January.

Chief executive Alex Baldock said:

We’re pleased by our strong peak trading. We grew in both market, continuing the trend of Currys’ strengthening performance, and we believe this year’s profits will be ahead of market expectations.

He said AI laptops, where Currys has a 75% market share, and premium mobile phones were especially popular.

The company warned last month that price rises were “inevitable” as it expected to face £32m in extra costs due to policies from the budget.

On a call with journalists, Baldock said Currys will bring in more automation and a period of “depressed hiring” in light of changes to national insurance contributions, which will increase costs for employers, our retail correspondent Sarah Butler reports.

But he also said the consumer environment “perked up” over Christmas, with consumer confidence improving and people snapping up laptops, tablets, coffee machines and beauty gear, and Currys saw growth in both UK and its Nordic stores for the first time in a while.

The Hinkley Point C power plant in Somerset is gargantuan. The 176-hectare (435-acre) plant will provide 3.2 gigawatts of power, enough for 6m homes. It is not just the project that is huge: the cost is as well. With a price tag that has ballooned to a reported £48bn, and delayed by at least five years, it has become a symbol of the pitfalls of nuclear power.

But a clutch of companies argue they have a quicker, cheaper option than large Hinkley-sized plants in the form of small modular reactors (SMRs), which can be built in a factory and then slotted together on site.

Britain’s Rolls-Royce, which also makes reactors for submarines in Derby, is vying with three North American competitors to gain orders from the UK government.

Stephen Lovegrove, the chair for the last year of Rolls-Royce SMR, the joint venture undertaking the work, claimed the company is 18 months ahead of its rivals, in an interview at the FTSE 100 company’s London headquarters.

However, Lovegrove, formerly the top civil servant in the government’s energy department and the Ministry of Defence, expressed his frustration at another year’s delay in a UK government competition that has pushed Rolls-Royce’s earliest date for a new reactor to 2032 or 2033, beyond a target which had already slipped from 2029 to 2031.

Rolls-Royce has stuck with it, despite the closure of other speculative ventures by the group chief executive Tufan Erginbilgiç in his turnaround plan.

Meta, the owner of Facebook, WhatsApp and Instagram, is to cut about 5% of its global workforce, with its poorest-performing employees most likely to leave.

In a memo to staff, chief executive Mark Zuckerberg said he had decided to “move out low-performers faster”, ahead of what he said would be an “intense year”, and would be accelerating the company’s usual performance management system.

Meta employed 72,000 people globally at the end of September, according to its latest financial report, meaning that 3,600 workers could be affected by the planned cuts. The company plans to hire new people to fill the roles later in the year.

The announcement came just days after Meta said it would get rid of third-party factcheckers and would prioritise free speech as Donald Trump prepares to return to the White House. It is also terminating its diversity, equity and inclusion (DEI) programs.

Meta employees in the US who are affected by the job cuts are expected to be notified by 10 February, while those in other countries will be told at a later date.

“I’ve decided to raise the bar on performance management,” Zuckerberg wrote in the memo, which was first reported by Bloomberg.

“We typically manage out people who aren’t meeting expectations over the course of a year, but now we’re going to do more extensive performance-based cuts during this cycle.”

The 40-year-old billionaire added: “This is going to be an intense year, and I want to make sure we have the best people on our teams.”

The terminations will only include staff who have been at Meta long enough to qualify for a performance review.

December’s unexpected decline in the inflation rate, to 2.5%, is a fillip for the chancellor, Rachel Reeves, opening the way for an interest rate cut next month, writes our economics editor Heather Stewart.

While much of the bond market sell-off in recent days has been driven by global concerns, part of it related to fears that the UK was sliding towards “stagflation” – a nasty combination of slow growth and sticky prices.

December’s consumer price index (CPI) reading of 2.5%, down from 2.6% in November, suggests inflation is moving in the right direction.

That should help to calm the fears of policymakers on the Bank of England’s nine-member monetary policy committee that, with wages growing relatively strongly, inflation could prove difficult to wrestle back to its 2% target.

In particular, core inflation, which strips out the volatile elements of energy, food, alcohol and tobacco, declined to 3.2% in December, down from 3.5% a month earlier.

These domestically generated price increases are the ones the Bank tends to fret about the most.

The cost of a night out or a weekend away in December seems to have been a key part of the picture: the Office for National Statistics singled out hotels and restaurants as a driver of the slide in the CPI.

Retailers have warned that they may increase food prices in the months ahead, as changes announced in Reeves’s budget push up costs from April.

But for the moment, CPI inflation appears to be heading calmly in the right direction, which should help to alleviate some of the alarm in financial markets. Shortly after Wednesday’s figures were released, markets were putting a 73% probability on a rate cut on 6 February.

Government bond yields are easing across the UK, eurozone and United States, ahead of US inflation data, out at lunchtime.

Traders in the UK breathed a sigh of relief as inflation here unexpectedly dipped to 2.5%, giving the Bank of England room to cut interest rates next month.

The yield (or interest rate) on the 30-year gilt, as UK government bonds are known, has fallen by nearly 5 basis points to 5.399% – after soaring to to 5.472% on Monday, the highest since 1998.

The 10-year bond yield dropped by 8 basis points to 4.806% after hitting 4.925% last week, the highest since 2008.

The yield on Germany’s 10-year bond, the benchmark for the eurozone, dropped by 2 basis points to 2.597%, after touching a fresh seven-month high of 2.63%.

The pound has just reversed earlier losses and gained 0.1% against the dollar, to $1.2228.

Financial markets now see a 74% chance of an interest rate cut from the Bank of England at its next meeting in February, up from 62% before the inflation data.

They briefly priced in an 81% chance, as traders digested the news.

In her response to the inflation figures, Rachel Reeves, the chancellor, vowed to “fight every day” to deliver economic growth and “put more money in the pockets of working people”. She said:

There is still work to be done to help families across the country with the cost of living. That’s why the government has taken action to protect working people’s payslips from higher taxes, frozen fuel duty and boosted the national minimum wage.

In our Plan for Change, we were clear that growth is our number one priority to put more money in the pockets of working people. I will fight every day to deliver that growth and improve living standards in every part of the UK.

UK inflation unexpectedly dipped last month, while the closely watched core rate, which strips out volatile energy and food costs, fell more than expected.

The consumer prices index rose by 2.5% in the 12 months to December, down from 2.6% in November, according to the Office for National Statistics. Economists had expected inflation to stay steady at 2.6%.

This is welcome news for the Bank of England, whose target is to keep inflation at 2% “over the medium term” – the next two years.

Core inflation fell to 3.2% from 3.5%, a bigger drop expected. City analysts had expected the rate to edge lower to 3.4%.

Thames Water has reportedly threatened to raise executives’ base salaries if the UK government pushes ahead with plans to limit bonuses.

Britain’s largest water company, which intends to raise bills by at least a third for the 16m customers it serves in and around London, has warned the water regulator of its plans to raise base pay, according to a report by the company’s regulatory strategy committee to the board of Thames, the Financial Times reported.

The report dated 3 December, by Jon Haskins, chief risk and compliance officer at Thames, said, according to the paper:

We have made it very clear to Ofwat that, if it proceeds with its proposals, it is highly likely that base pay will need to be increased to compensate for the loss of performance-related pay plans.

We also highlight the impact the proposals will have on attracting, retaining and motivating critically needed talent across the sector, and the importance of this for attracting investment.

The plan to clamp down executive pay at badly performing water companies is part of the government’s water (special measures) bill, which is making its way through parliament and is expected to be ratified this year.

In November, the regulator determined that the sector had awarded “undeserved” extra payments, worth £6.8m, forcing investors at Thames, Yorkshire Water and Dŵr Cymru Welsh Water to pick up the tab for executive bonuses.

Ofwat said it had used new powers to ensure that bonuses at the three companies were paid by shareholders and bondholders – rather than through customer bills – because the payments had not “adequately reflected overall company performance issues”.

Water companies have faced public anger and political backlash in recent years over leaks and sewage overflows as they have also come under increasing financial strain.

Nine water companies will not be allowed to use customer funds to pay bonuses worth £6.8m. Six voluntarily said that shareholders would pay, but Ofwat had to use its powers directly in the cases of bonuses worth £1.5m from Thames, Yorkshire and Welsh.

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

It’s inflation day! We’ll be getting inflation figures for the UK first thing, followed by US data later in the day.

UK inflation is expected to have stayed at an annual rate of 2.6% in December, while the core rate, which strips out volatile energy and food costs, is forecast to have edged lower.

The figures will be released by the Office for National Statistics at 7am GMT. The Bank of England’s target is to keep inflation at 2% over “the medium term,” i.e. the next two years.

Core inflation is expected to have dipped to 3.4% from 3.5% in November, still uncomfortably high for the central bank.

Michael Field, European equity strategist at Morningstar, said:

UK inflation is expected to remain steady at 2.6% for December. While the word steady usually sounds like a good thing, investors and central bankers will be relatively unhappy with the current level, which sits significantly above the Bank of England’s 2% targeted level. We believe it’s too early to be talking about the prospect of Stagflation, but it’s certainly something already concerning many investors.

The one positive in the mix is that core inflation, which strips out volatile components such as food and energy, is expected to decline slightly to 3.4%. But once again, this number sits far above the targeted level for inflation.

Some investors have been vocally critical about the seemingly slow pace at which the Bank of England is cutting rates. Ultimately, we do not believe that inflation will ramp up any further, but getting inflation consistently closer to the key 2% level might be difficult from here. So perhaps we should already be adjusting our expectations for interest rate cuts in 2025.

Markets are on tenterhooks ahead of the US inflation figures for December. They are expected to show an increase to 2.9% in the annual rate in December, from 2.7% in November.

Traders have already scaled back their bets on US interest rate cuts, and are only expecting one quarter-point reduction by December.

The Agenda

• 9am GMT: International Energy Agency releases monthly oil report

• 9am GMT: Germany 2024 GDP

• 1.30pm GMT: US inflation for December (previous: 2.7%; forecast: 2.9%)