The Big Three (November 2025)

Reeves signals tough choices ahead

Chancellor Rachel Reeves has signalled that the upcoming UK Autumn Budget may include a politically sensitive income tax rise, as she prioritises fiscal sustainability over manifesto commitments. In a Downing Street speech, Reeves said the “national interest” would outweigh “political expediency”, underscoring her intent to stabilise debt and rebuild fiscal credibility.

The government faces a £30 billion fiscal shortfall, leaving limited room to protect public services without raising additional revenue. Reeves ruled out deep spending cuts, instead hinting at broad-based tax measures, including potential increases across income tax bands, to meet her rule of having debt fall by the end of the decade. She argued that taming borrowing costs would eventually create space for lower taxes and stronger investment. 

Financial markets reacted calmly, with gilt yields easing slightly and sterling weakening 0.5%. Still, investors and voters alike are bracing for a tough Budget balancing Labour’s growth agenda with fiscal realism. Reeves’ challenge will be delivering fiscal discipline without undermining confidence in Labour’s promise of economic renewal. 

US government shuts down 

The Federal Reserve has delivered an interest rate cut and announced the formal end of its quantitative tightening programme, signalling a decisive shift toward supporting a slowing US economy. The Fed lowered its benchmark rate by 25 basis points, citing softer labour market data and easing inflation pressures, while confirming that balance sheet runoff will cease in December.

Chair Jerome Powell said the combination of weaker job creation and tightening credit conditions justified a recalibration of policy, though he stopped short of committing to a rapid cutting cycle. The end of quantitative tightening, through halting the roll-off of Treasuries, aims to preserve market liquidity and reduce volatility in funding markets. 

The decision marks the start of a gradual pivot from inflation control to growth support, reflecting the confidence of decision-makers that price stability is now largely restored. Despite the cut, US Treasury yields rose, due to lower expectations of future rate cuts this year, whilst the dollar also gained, and equities were broadly stable. 

Corporate America indicating strength 

The Q3 US earnings season has delivered a clear upside surprise, with S&P 500 companies reporting year-on-year earnings growth of 13.1%, the strongest increase in over four years. This marks the fourth consecutive quarter of double-digit earnings expansion, signalling that corporate America remains strong despite softer economic data and elevated borrowing costs. 

So far, 82% of S&P 500 companies have beaten earnings per share expectations, which is above the long-term average. The technology sector has led performance, indicating that the historic AI-driven rally is being supported by tangible profit growth. 

The continued strength in corporate earnings suggests that the US economy retains significant underlying momentum, even as the Federal Reserve begins easing policy and inflation pressures moderate. Investors view the results as evidence that growth can slow without tipping into recession, helping sustain equity valuations near record highs. However, with margins plateauing and valuations stretched, markets may need further confirmation of durable demand to extend gains into 2026.  

Source: FactSet Earnings Insight, 07/11/25