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UK Economy Faces Surprise Contraction Amid Global Turbulence

 UK Chancellor Rachel Reeves attributed an unexpected 0.1% GDP contraction in January to global political turbulence, notably Donald Trump’s tariff policies, as she prepares a fiscal update for March 26. Despite economists predicting a 0.1% rise, the economy shrank for the fourth time in seven months since Labour’s July election win. Reeves highlighted a changed global landscape, with early signs of Trump’s trade threats impacting manufacturing, though two-thirds of January preceded his inauguration.

The weak data continues a sluggish trend from late 2024, with GDP barely above July levels. Manufacturing and construction declines, worsened by a major storm, drove the drop, though services grew slightly. Inflationary pressures are rising, with household price expectations at a 1.5-year high. Ahead of next week’s Spring Budget, Reeve’s faces pressure to cut spending amid weaker growth forecasts and cabinet resistance to welfare reforms, as the Bank of England weighs interest rate decisions.

In contrast to Reeve’s commitment to strict fiscal limits, on Friday the incoming German Chancellor, Freidich Merz secured the backing of the Greens for a massive increase in state borrowing. With the ‘debt brake’ removed, Merz and the Social Democrats have proposed to spend €500bn on infrastructure and defence spending. The bill will go before the outgoing parliament for approval this week as Merz wants to obtain the funds before his new parliament convenes next Tuesday.

Japan’s Unions Secure Largest Pay Hike in Over 30 Years

Japan’s largest labour union group, Rengo, has achieved a 5.46% average pay increase in annual wage talks, the highest since 1991, surpassing last year’s 5.28%. Announced on March 13, 2025, this initial tally, representing seven million workers, also showed base pay rising 3.84%, up from 3.7%.

The outcome signals robust wage growth, fuelling speculation that the Bank of Japan (BOJ) might accelerate rate hikes, possibly by May or June, though most expect no change at the March 19 meeting. The data bolsters BOJ confidence in the wage-inflation cycle, supporting gradual tightening. For Prime Minister Shigeru Ishiba, the outcome could lift voter sentiment ahead of summer elections, despite challenges in outpacing 4% inflation and a weak yen.

Schumer Backs Down on Shutdown Threat, Boosting Bill’s Prospects

Senate Democratic Leader Chuck Schumer has withdrawn his threat to block a Republican spending bill, significantly increasing the chances of avoiding a government shutdown. Facing a critical funding deadline, Schumer chose a pragmatic approach after tense discussions among Democrats, who had hoped to leverage the spending package to impose limits on Elon Musk’s cost-cutting initiatives.

His decision, announced on the Senate floor, came amid fears of political fallout from a shutdown and a desire to focus on broader issues like Medicaid. While Schumer’s move ensures government operations continue, it has sparked backlash from some Democrats and progressive voters frustrated with the party’s perceived lack of resistance to President Trump’s agenda. Trump praised Schumer’s decision, potentially deepening divisions within the Democratic Party. The bill’s passage now hinges on securing enough Democratic votes to overcome a potential filibuster, with several senators’ positions still uncertain.

In the markets, a rally on Friday as investors started buying the dip couldn’t stop the S&P and NASDAQ suffering their fourth week of negative returns. Consumer morale plunged further over worries about how Trump’s tariffs will raise prices and hurt the economy. Trump himself refused to rule out a possible recession, as we approach the second wave of mass firings and government budget cuts. All these uncertainties have sent many investors looking for a safe haven in gold lifting gold prices above the $3,000 per ounce level for the first time.