UK 30-year gilt yields hit 26-year high
As reported earlier, the UK’s long-term borrowing costs have risen to the highest level since 1998, as the government gears up for a number of bond sales this year.
The yield, or interest rate, on 30-year gilts, as UK government bonds are known, climbed by four basis points to 5.22% after a bond auction.
The rise in borrowing costs is increasing pressure on the chancellor, Rachel Reeves, to keep the market on side ahead of a raft of bond sales.
The Labour government plans to sell £297bn of bonds this fiscal year — the second-highest on record, Bloomberg News reported. This is keeping gilts under pressure, as investors worry about the outlook for the nation’s ballooning debt.
Sam Hill, head of market insights at Lloyds Banking Group, said:
Following a busy January, the burden of gilt issuance volume is unlikely to ease significantly, if at all, in cash or duration terms, for at least the remainder of the quarter.
The UK’s Debt Management Office sold £2.25bn of 30-year bonds today paying a yield of 5.198%. The bid-to-cover ratio was 2.75, the lowest demand since December 2023. However, the difference between the average and lowest yield accepted — known as tail — was just 0.3 basis points, indicating robust appetite for the notes.
There is another auction tomorrow, of £4.25bn of new five-year bonds.
Key events
Four of 10 projected bestselling drugs of 2025 are obesity treatments
The global biopharma market is expected to remain in recovery mode throughout the year, with more dealmaking, and obesity drugs making up nearly half of the expected top 10 bestselling drugs this year, according to data firm Evaluate Pharma.
Overall, the sector is expected to see more than 70 approvals of new drugs, and an $82bn increase in pharmaceutical product sales. This growth is manly driven by advancements in the obesity and oncology spaces, while there are also new treatments for cystic fibrosis and immunology therapies.
In oncology, Merck’s Keytruda, which is used to treat a variety of cancers, will retain the top spot in 2025 – possibly for the final time – with sales of over $30bn.
However, it is the incretin class that will lead the market overall this year (incretins are hormones that help regulate blood glucose levels and are released after eating). Out of the 10 projected bestselling drugs of 2025, four are GLP-1s. Novo Nordisk’s semaglutide, sold as Ozempic and Wegovy, and Eli Lilly’s tirzepatide, sold as Mounjaro and Zepbound, are on track to generate more than $70bn in combined sales in 2025.
Daniel Chancellor, vice president of thought leadership at Norstella, Evaluate’s parent company, said:
Over the last year, it has become clear that GLP-1s are one of the most impactful drug mechanisms ever discovered, for both patients and markets. The incretin space this year will be marked by increased dealmaking and pharma can’t afford to miss out on what is likely to be the most significant drug mechanism to be discovered.
The IPO market will begin to grow again, although slowly and cautiously, and most stock market flotations are likely to be in the US, as European markets continue to lack specialist investors, according to the report.
Private investors are reasonably optimistic as they enter 2025, with areas such as antibody drug conjugates, radiopharmaceuticals, and immunology and inflammation joining the GLP-1s as hot areas.
While the new US administration’s plans are unclear, more mergers and acquisitions are likely, as big pharma boardrooms come under pressure to deliver long term growth.
Chancellor added:
This industry has taken its time recuperating from the post-pandemic rock bottom of the last few years. But with more deal making, improved access to capital and the continued explosion of growth around GLP-1s and other key therapy areas, the outlook for 2025 is promising.
The breakdown showed services inflation in the eurozone ticked up to 4% in December from 3.9%; followed by food, alcohol & tobacco with an annual rate of 2.7%, stable compared with November; non-energy industrial goods (0.5% versus 0.6% in November) and energy (0.1% rise versus 2% decline in November).
Lale Akoner, global market analyst at investment platform eToro, said:
Eurozone inflation rose to 2.4% in November from 2.2% last month as expected, while services inflation and core CPI inflation remained strong, and will likely continue to be monitored closely in the next few months.
While we still expect the ECB to cut rates further this month, the pace of future rate cuts will likely be less than originally anticipated, due to the recent dollar strength post-Trump election, higher energy prices, and tariffs to be implemented by the incoming US administration.
Overall, compared to the US, we think that the ECB will have a tougher time trying to keep inflationary pressures under control when the growth dynamics are weaker in the Eurozone. In my view, this increases the possibility of renewed stagflation concerns by investors in 2025.
Eurozone inflation rises to 2.4%, as expected
Inflation in the eurozone rose for the third month in a row in December, to an annual rate of 2.4%, as expected.
The figure compared with November’s rate of 2.2%, according to the statistics office Eurostat, and matched economists’ forecasts. Core inflation, which strips out volatile energy and food costs, was stable at 2.7%.
The rise in inflation comes as the European Central Bank seeks to revive the region’s flagging economy by reducing borrowing costs.
The ECB has cut interest rates four times since June and is widely expected to lower the benchmark deposit rate from 3% later this month.
Some investors have been hoping for a big (half point) cut, but the latest rise in inflation may make a smaller, quarter point reduction more likely.
Eurozone construction remains in decline, led by Germany and France
In the eurozone, the picture is worse.
The construction sector remained in decline at the end of 2024, as new orders fell markedly, and employment posted the biggest drop in seven months.
Housebuilding remained the weakest segment. Price pressures picked up slightly from November to reach a ten-month high but stayed well below the long-run average, while suppliers’ delivery times lengthened for the second successive month. Companies remained strongly pessimistic regarding the year ahead.
The eurozone construction PMI headline activity index from Hamburg Commercial Bank — a seasonally adjusted index tracking monthly changes in total industry activity — rose slightly from 42.7 in November to 42.9 in December, but remained firmly in contraction territory, well below the 50 mark that separates expansion from contraction. Activity has now fallen in each of the last 32 months.
The overall reduction in activity reflected stronger declines in both Germany and France, with the latter posting the steepest fall since April. Italy bucked the trend with the first rise in activity since March.
UK construction output growth at six-month low
Construction output in the UK grew at its slowest rate in six months in December, with a further decline in housebuilding, according to a closely-watched survey.
The headline business activity index from S&P Global fell to 53.3 from 55.2 in November, the lowest since June.
Commercial activity was the fastest-growing area of the construction sector in December (index at 55.0), followed by civil engineering (52.9). However, both areas registered saw a slowdown in the rate of business activity expansion since November.
House building remains the weakest-performing part of the construction sector, posting a further decline (47.6). Any reading below 50 indicates contraction.
On a brighter note, business optimism rebounded from the 13-month low seen in November.
Looking ahead, around 48% of firms surveyed predict a rise in output over the course of 2025, while only 15% forecast a decline. The degree of positive sentiment picked up sharply since November, but it was still much weaker than seen in the first half of 2024.
Tim Moore, economics director at S&P Global Market Intelligence, said:
December data highlighted a loss of momentum for construction output growth, with all three main categories of activity posting weaker performances than in the previous month.
Many firms reported worries about cutbacks to capital spending and gloomy projections for the UK economy.
UK long-term borrowing costs highest since 1998
The UK’s long-term borrowing costs touched the highest level since 1998 ahead of a bond auction of 30-year gilts.
The yield (or interest rate) on 30-year gilts, as UK government bonds are known, climbed by three basis points to 5.21% earlier this morning, and is now at 5.19%. The move came ahead of an auction for £2.25bn.
UK bonds have been under pressure since late last year, as investors worry about the outlook for the country’s rising debt. The Labour government, in power since July, has announced plans to sell a near record amount of bonds in the current fiscal year to plug holes in the public finances left by its predecessor.
The prospect for fewer interest rate cuts from the Bank of England than previously expected has also weighed on bonds. Traders are now betting the central bank will deliver two quarter-point reductions this year, rather than three expected in early December.
Valerie Tytel of Bloomberg TV and radio said on X:
Rise in long-end Treasury yields goes global. JGB 30y yields rise to highest since 2010. UK 30y gilt yields approach 5.20% – levels not seen in 25 years. UK gov’ts fiscal headroom eroded further as Labor gov’t attempts a near record sale of borrowing this fiscal year pic.twitter.com/OqLwWYp9KT
— Valerie Tytel (@ValerieTytel) January 7, 2025
And our full story on UK house prices:
UK annual house price growth slowed last month, with experts warning that mortgage affordability could counter some demand from house hunters in the year ahead.
Data released by Halifax, Britain’s biggest mortgage lender, showed that the price of the average home climbed by 3.3% in December compared with the same period a year earlier – down from an annual rate of 4.7% in November.
On a monthly basis, the slowdown was more pronounced, with prices falling by 0.2% compared with November, the first month-on-month drop since March.
House prices gathered steam in the latter half of 2024because of a drop in mortgage rates, rising wages and easing of price inflation, which put less pressure on consumer finances.
Here’s our full story on Next, which said it will increase prices by 1% this year to help offset a £67m rise in wage costs driven by tax changes announced in the government’s autumn budget.
The fashion and homewares retailer also said UK sales growth was likely to slow as the tax increases for employers and their potential impact on prices and the job market “begin to filter through into the economy”.
The group said it planned to use more mechanisation in its warehouses to offset the rising costs from the increase in employers’ national insurance contributions and the rise in the legal minimum wage, while it expected no increase in the factory gate prices of its goods.
The 1% increase comes after Next raised prices by more than 7% in spring 2023 and 2% that autumn. However, it said last year that prices were coming down as product and distribution costs reduced.
The group upped its profit forecasts by £5m after better than expected sales in the key festive trading period.
In a detailed report, the Next chief executive, Lord Wolfson, said a trend for shoppers to buy fewer, marginally more expensive items was also expected to continue through 2025, helping offset higher costs.
European shares pull back after Monday’s gains; French inflation rises less than expected
On the stock markets, European share pulled back in early trading after chunky gains yesterday, and are now flat to slightly lower.
Europe’s premier index, the Stoxx 600, edged down after hitting a two-week high yesterday following a newspaper report suggesting that US president-elect Donald Trump, who takes office in a couple of weeks, may opt for less aggressive tariffs on US imports than threatened in November. He later denied the report.
Asian shares rose, with Japan’s Nikkei finishing nearly 2% higher while China’s CSI 300 benchmark index gained by 0.7%.
Healthcare and financial stocks are among the biggest fallers in Europe today. Investors await a flash reading for eurozone inflation later this morning. French consumer prices rose by less than expected in December, to an annual rate of 1.8% from 1.7% in November.
However, inflation in Germany was higher than expected, rising to 2.9% in figures reported yesterday.
UK government launches new steel council
The government has launched a new steel council whose members include Tata Steel and British Steel following thousands of job losses in the UK last year.
The Steel Council will help steer plans for the industry which will be backed by up to £2.5bn of investment, as the Labour government pledged “to rebuild the steel industry”. There is a separate £500m package for Tata Steel to part-fund new, greener steel production at Port Talbot.
Business Secretary Jonathan Reynolds, who will chair the council’s first meeting on Tuesday, said steel communities have “had enough of lurching from crisis to crisis”.
The chief executives of Tata Steel and British Steel, along with the GMB Trade Union and devolved government ministers, will be among the members set to meet regularly.
Last year, Tata Steel said it was replacing traditional blast furnaces with an electric arc furnace at its biggest UK site in Port Talbot, Wales. Traditional steelmaking ceased in September, with thousands of workers losing their jobs.
British Steel said it would close blast furnaces in Scunthorpe in 2023, and unveiled plans to roll out a less polluting electric arc furnace.
While greener, the plans require fewer workers to keep them going, raising fears over potentially thousands of job losses.
Apple to update AI feature that issued false news alerts on iPhones
Kalyeena Makortoff
Apple has said it will update an AI feature that has issued inaccurate news alerts on its latest iPhones, including that a man accused of killing a US insurance boss had shot himself and that tennis star Rafael Nadal had come out as gay.
The US tech giant said it was developing a software update that would “further clarify” when news notifications were actually summaries generated by the company’s Apple Intelligence system. It said the update would be rolled out in the coming weeks.
It follows a formal complaint by the BBC last month, when news alerts branded with the corporation’s logo told some iPhone users that Luigi Mangione, who is accused of killing UnitedHealthcare chief executive Brian Thompson, had shot himself. Mangione is alive and being held at a prison in Brookyln.
False news alerts were issued again last week, when Apple’s AI system summarised BBC app notifications to wrongly say that Spanish tennis star Rafael Nadal had come out as gay. The summaries also claimed that Luke Littler had won the PDC World Darts Championship hours before the competition even began.
“These AI summarisations by Apple do not reflect – and in some cases completely contradict – the original BBC content,” the BBC said. “It is critical that Apple urgently addresses these issues as the accuracy of our news is essential in maintaining trust.”
The faulty feature was part of a host of AI tools released to users of some newer iPhones in December, including iPhone 16, iPhone 15 Pro and Pro Max handsets, as well as on some iPads and Macs.
UK retailers may have to cut thousands of jobs after bleak Christmas
In a sign of how tough things are in the retail sector, Britain’s largest retailers are warning they could be forced to cut thousands of jobs this year as the industry braces for higher taxes and employment costs after a bleak Christmas shopping season.
Reflecting tough trading conditions on the high street, figures from the British Retail Consortium (BRC) show sales growth over the “golden quarter” between October and December came close to flatlining.
For the three months to December – when many retailers make the bulk of their annual profits – the BRC said total UK retail sales growth was 0.4% year on year as shoppers prioritised spending on food and drink over the festive season. Once inflation was factored in, retail sales by volume slid over the year.
For 2024 overall, total sales increased by 0.7% from 2023, highlighting a cautious approach to consumer spending as households continue to grapple with higher prices after the worst inflation shock in decades.
Separate figures from Barclays show zero growth in consumer card spending in December, as households cut back on essential items and pub and restaurant meals in favour of spending on experiences.
Helen Dickinson, the chief executive of the BRC, said retailers were poised for a challenging year as they faced £7bn of additional costs from tax increases and new regulations planned by the government.
McKevitt added:
We’ve all got our own festive favourites, but it seems that age differences come into play too. Under 45s are far more likely to pick up a sausage roll, and they also go for a slightly more mediterranean spin, being the most likely to reach for panettone as well as antipasti and party food as part of their Christmas shopping. Meanwhile over 45s account for the majority of Christmas cake and fortified wine sales. The seasonal biscuit, however, knows no bounds appealing across the generations.
More people did some of their Christmas grocery shopping online, with 5.6 million households opting for delivery or click and collect services on at least one occasion. Online spending for the month reached a record £1.6bn.
As a result, the online grocer Ocado boosted its sales by 9.6% over the 12 weeks to 29 December, taking its overall market share to 1.8%.
Discount retailers Lidl and Aldi achieved their highest ever Christmas market shares at 7.3% and 10% respectively. Lidl secured the fastest footfall growth of any retailer as spending through its tills climbed by 6.6%. Aldi’s sales were up 2.9%, as it attracted an additional 315,000 customers to its stores.
Britain’s largest grocer Tesco enjoyed a 5% increase in sales and gained the most market share, now at 28.5%.
Sainsbury’s also did well, achieving its highest share since December 2019 at 16% thanks to sales growth which outpaced the market at 3.5%. Morrisons sales rose by 0.4% with its share at 8.6%, while Asda now holds 12.5% of the market.
Waitrose’s market share remained at 4.6% with spending increasing by 2.1%. Iceland’s sales rose by 1%, giving the frozen food specialist a 2.3% share. Convenience retailer Co-op’s portion of the market is now 5.3%.
Grocery price inflation in Britain rises to highest since March – Kantar
Grocery price inflation in Great Britain rose to 3.7% in December, the highest since March but this did not stop people splashing out on festive fare, according to retail analysts Kantar.
The average household spent £460 on take-home groceries this Christmas, a record high. Overall take-home sales at the grocers rose by 2.1% over the four weeks to 29 December compared with the previous year.
Fraser McKevitt, head of retail and consumer insight at Kantar, said:
It was a solid Christmas at the supermarkets with sales surpassing £13 billion during the four weeks of December for the first time ever, showing people were clearly in the mood to celebrate and spend. However, despite the festive cheer, grocery price inflation has ticked up to 3.7%, its highest level since March 2024.
In contrast to reports of disappointing footfall across the rest of the high street, it was a very different story in the world of grocery. The average household made nearly 17 separate shopping trips this December, delivering the busiest month for the retailers since the pre-lockdown rush in March 2020. As anticipated, Monday 23 December was the most popular shopping day of the year, with sales a whopping 30% higher than any other day during 2024.
People were willing to splash out that little bit more than usual, as sales growth for branded goods accelerated to 4.2%, while premium own-label lines jumped by 14.6%. The latter now account for a record 7% of all sales, as nine in 10 households bought at least one of these products in December.
Sparkling wine and champagne were the stars of the festive drinks trolley, with sales up by 4%, but 11% of the population bought a no or low alcohol drink, up from under 10% last year.
Despite the warning of slowing sales growth in the coming year, shares in Next have jumped by more than 4%, after the UK fashion and homeware retailer upped its annual profit forecast for the year to January by £5m.
It is the biggest riser on the FTSE 100 index.
Charlie Huggins of the investment service Wealth Club, said:
Next has enjoyed a strong Christmas with its online business seeing an acceleration in sales growth in the fourth quarter, both in the UK and overseas. The year ahead is forecast to be more challenging, but Next still expects to grow sales and profit. It is a classic example of a strong business getting stronger.
Next has pulled another rabbit out of the hat this Christmas, beating its sales forecasts once again. More important for investors is the guidance for the coming year.
Calendar year 2025 is likely to be a bloodbath for the UK retail sector. The autumn budget means retailers will face a significant increase in employee costs and many will not be able to offset this. Next stands apart for its ability to do so, with its high margins, strong overseas growth and efficiency initiatives all helping it to preserve profitability.
Next has also warned it will need to put up prices in the year ahead. Many other retailers are likely to follow suit. This is likely to add to inflationary pressures and could encourage consumers to tighten their belts in 2025.
Overall, the UK retail sector sits between a rock and a hard place. Costs are going up, margins are likely to come down and consumers face an inflationary squeeze. Next though is well placed to weather the storm. If any retailer can thrive in this environment, it’s probably them.
Here’s some instant reaction to the Halifax house price data.
Tom Bill, head of UK residential research at Knight Frank, said:
The current rate of house price growth will come under more pressure as higher borrowing costs triggered by the budget start to bite. A number of buyers are still sitting on sub-4% mortgage offers made before October, which has supported demand in recent months.
Activity has also been temporarily boosted ahead of April’s stamp duty increase but a recent dip in mortgage approvals is a sign that cracks from the Budget are starting to show. We recently revised down our UK house price forecast for 2025 to 2.5% to reflect the tougher lending landscape and the fact economic growth is struggling to gain momentum.
Anthony Codling, housing analyst at RBC Capital Markets, noted that house prices rose by nearly £10,000 over 2024.
The fall in December ended a run of five consecutive monthly increases, but with wages expected to rise and mortgage rates to reduce in 2025 we expect house prices to rise in 2025.
The Stamp Duty stampede is likely to underpin prices in the first three months of the year, before the house price baton will be passed onto mortgage rates. There remains uncertainty around the broader macroeconomic outlook, but demand for homes continues to outstrip supply and our love affair with homeownership has not been dented by rising costs of living, higher for longer mortgage rates or the budget.
Amanda Bryden, head of mortgages at Halifax, said:
The housing market was broadly steady at the start of 2024, with house price growth taking off from the summer onwards. In the latter half of the year, house prices grew in response to the falls in mortgage rates, alongside income growth, both leading to financial pressures somewhat easing for buyers. Impending changes to Stamp Duty thresholds have also given prospective first-time buyers even greater motivation to get on the housing ladder and bring any home-buying plans forward. Together, these elements meant mortgage demand picked up, hitting the highest level in over two years and back to levels seen pre-pandemic.
In many areas across the country, house prices were also buoyed by demand outstripping supply, possibly further amplified by homeowners holding off putting their property on the market – perhaps in anticipation of mortgage rates reducing further.
Where does that leave the housing market for 2025? She went on to say:
While the housing market has been supported in recent months by falling mortgage rates, income growth and the announcement on upcoming Stamp Duty policy changes, mortgage affordability will remain a challenge for many, especially as the Bank Rate is likely to come down more slowly than previously predicted. However, providing employment conditions don’t deteriorate markedly from a more recent softening, buyer demand should hold up relatively well and, taking all this into account, we’re continuing to anticipate modest house price growth this year.
Introduction: UK house prices dip for first time since March; Next warns of slowing sales growth in 2025
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
UK house prices finished 2024 up 3.3% over the year, with the average property value falling slightly in December, according to a major mortgage lender.
The average house cost £297,166, down by 0.2% in December from November, following five consecutive monthly increases, according to Halifax. The annual rate slowed from 4.7% in November.
Northern Ireland showed the strongest annual house price growth in the UK, up 7.4%, to an average of £205,895.
House prices in Wales were up 4.6% year on year, with properties costing £226,646, on average. In Scotland, the annual rate was lower than in the rest of the UK, 2.4% to an average £209,959.
London retains the highest average house price across the country, at £547,614, up 3.3% year on year.
Despite the slowdown, Matt Thompson, head of sales at the estate agent Chestertons, said:
December 2024 was one of the busiest Decembers in years in terms of buyer demand. This was driven by first-time buyers who were keen to get on the property ladder before this year’s changes to Stamp Duty but also by second-steppers, including young families, wanting to upsize.
Next has upped its annual profit forecast by £5m after stronger than expected sales online, particularly overseas. However, it also warned that sales growth will slow this year, and said it will need to raise prices due to the impact of recent budget measures.
The UK fashion and homewares retailer faces a £67m increase in its wage costs in the year to January 2026, and said it will need to push through an “unwelcome” 1% rise in prices as well as operational efficiencies and other cost savings to offset the hit. This will affect sales, it said.
We believe that UK growth is likely to slow, as employer tax increases, and their potential impact on prices and employment, begin to filter through into the economy.
Next reported a 5.7% rise in sales for the nine weeks to 28 December, excluding the impact of a change in timing of its annual discount event, our retail correspondent Sarah Butler reports. It now expects profits for the year to the end of January to rise by 10% to just over £1bn for the first time.
Sales online, including Next branded items and its Label selection of other well-know brands, rose by 6.1% and overseas online sales were up by more than 30% but sales in stores fell by 2.1%.
Next is expected to be among the festive winners as fashion retailers had been expected to have endured a tough end to the year as a mild autumn led to widespread discounting across the high street. The retailer is known for holding out on discounting until late in the season and so may have benefited more from the late arrival of colder weather as well as its strong online service.
We are expecting a flurry of economic data today.
The Agenda
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8.30am GMT: Eurozone, France, Germany, Italy HCOB Construction PMI for December
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9am GMT: Italy Unemployment rate for November (previous: 5.8%)
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10am GMT: Eurozone inflation for December flash (previous: 2.2%, forecast: 2.4%)
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10am GMT: Eurozone unemployment rate for November (previous: 6.3%)
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1.30pm GMT: US Trade for November
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3pm GMT: US ISM Services PMI for December
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3pm GMT: US JOLTs Job Openings for November
