Credit card delinquencies reach highest level in two years as families face financial challenges

UK Economic Update: Key Developments and Market Reactions

Credit Card Defaults and Household Financial Strain

Recent data reveals a significant surge in credit card defaults, marking the highest increase in nearly two years. This trend highlights the mounting financial challenges faced by many UK households. Banks reported that more people fell behind on their credit card payments during the last quarter of the previous year, coinciding with a notable drop in mortgage demand—the sharpest in two years, according to the Bank of England.

Experts caution that these figures reflect growing financial stress among families, exacerbated by a weakening job market and unemployment reaching a five-year peak. Karim Haji, KPMG’s head of financial services, noted that rising unsecured borrowing and reduced mortgage activity point to ongoing affordability issues, with many turning to credit to manage holiday expenses. The uptick in short-term borrowing has directly contributed to the rise in defaults, signaling increased pressure on consumers.

Despite a modest 0.3% economic growth in November, analysts warn that persistent high interest rates, elevated taxes, and subdued global demand may prevent this momentum from continuing. Ruth Gregory of Capital Economics emphasized that the current pace of growth is unlikely to be maintained under these conditions.

Market Overview and Closing Remarks

2:40pm

Thank you for following our coverage as the UK’s GDP exceeded expectations with a 0.3% rise in November. As trading closes, the FTSE 100 is up by 0.4%, while the FTSE 250 has advanced 1.2%. However, UK borrowing costs have increased, diverging from most European government bonds, as traders scale back expectations for Bank of England rate cuts this year.

On Wall Street, major indices opened higher, buoyed by strong earnings from TSMC, Goldman Sachs, and Morgan Stanley. The Dow Jones is up 0.4%, the S&P 500 has gained 0.6%, and the Nasdaq Composite is ahead by 0.7%.

Oil Prices Retreat After US De-escalation

2:01pm

Oil Markets Respond to US Policy Shift

Oil prices dropped sharply after Donald Trump stepped back from threats of military action against Iran. Brent crude fell to $63.89 per barrel in early Thursday trading, a 3.9% decrease from the previous day’s three-month high of nearly $67. The decline followed Trump’s comments that he would “watch and see” regarding potential intervention, and his assurance that protester deaths in Iran had ceased.

US Jobless Claims Decline

1:44pm

Fewer Americans File for Unemployment

In the United States, applications for unemployment benefits fell by 9,000 to 198,000 for the week ending January 10, outperforming analyst expectations of 215,000. The four-week average also declined, and the total number of Americans receiving jobless benefits dropped by 19,000 to 1.88 million. These figures suggest that layoffs remain low, even as concerns about the labor market persist.

UK Economic Growth Forecasts and Market Sentiment

1:20pm

Economists Predict Modest Expansion

The National Institute of Economic and Social Research (NIESR) estimates that the UK economy grew by 0.3% in the first quarter, with GDP rising 1.4% last year. Improvements in private sector activity signal a tentative increase in business confidence ahead of the 2025 Budget. Senior economist Ben Caswell noted that the Chancellor’s recent fiscal measures have helped ease uncertainty around future tax policy.

Wall Street Eyes Gains Amid AI Optimism

1:04pm

US stock markets are poised for gains, driven by renewed enthusiasm for artificial intelligence. TSMC, a leading AI chip manufacturer, forecasts strong annual growth and plans up to $56 billion in capital investments this year. The Nasdaq 100 rose 0.8% in premarket trading, with the S&P 500 and Dow Jones also posting gains. However, financial stocks faced pressure due to concerns over potential caps on credit card interest rates proposed by Donald Trump.

Concerns Over Street Crime and Investment in London

12:08pm

Investor Confidence Impacted by Safety Perceptions

The Lord Mayor of London, Dame Susan Langley, warned that exaggerated fears about street crime could deter foreign investment. She highlighted that some international businesses are increasingly worried about safety in the capital, a concern amplified by misleading statements about crime rates.

Business Investment Remains Muted

11:53am

Despite better-than-expected economic growth in November, business investment in the UK is expected to stay subdued. Ben Jones of the CBI attributes this to ongoing weak demand, high labor and energy costs, and persistent supply chain issues. While moderate growth is anticipated through 2026, these challenges are likely to limit investment activity.

FTSE 100 Reaches Record Levels

11:41am

The FTSE 100 achieved a new record high, buoyed by strong financial sector results and the UK’s return to economic growth. The FTSE 250 also hit a four-year peak. However, sterling slipped slightly against the dollar, and some sectors, such as homeware retail, faced headwinds due to cautious consumer spending.

Mixed Economic Signals as Year Ends

11:14am

Economists suggest that the UK economy ended 2025 with only modest momentum, despite a November rebound driven by increased consumer spending ahead of Christmas. Elevated household savings could support future growth if confidence improves and spending increases.

Government Borrowing and Fiscal Policy

10:50am

Government borrowing costs remained stable following the positive economic data. The yield on 10-year gilts edged up slightly as traders adjusted expectations for future interest rate decisions by the Bank of England. Experts note that a period of stability has benefited the gilt market after a turbulent lead-up to the Budget.

Calls for Expanded Support to Hospitality Sector

10:37am

Chancellor Rachel Reeves is being urged to extend business rates relief beyond pubs to include hotels and restaurants, following a significant reduction in government borrowing costs. Economists believe this fiscal windfall could be used to support the broader hospitality industry as it faces rising taxes.

Stock Market Reactions to Economic Growth

10:18am

The FTSE 100 and FTSE 250 both rose after the UK’s GDP growth exceeded expectations in November. Financial companies led the gains, while some sectors, such as housebuilding and energy, experienced declines due to sector-specific challenges and falling oil prices.

Political Debate Over Economic Policy

9:54am

Shadow Chancellor Sir Mel Stride criticized Rachel Reeves’s Budget, arguing that it is failing to deliver for working people and is contributing to weak economic growth. He contends that higher taxes and policy reversals are undermining confidence and stifling recovery.

Germany Emerges from Recession

9:43am

Germany’s economy returned to growth in 2025 after two years of recession, supported by increased household and government spending. However, exports and investment remained subdued due to global trade tensions and competition.

Slower Growth Expected in 2026

9:26am

Analysts at ING forecast that the UK’s economic growth will slow in 2026, citing ongoing weakness in construction and declining wage growth. While inflation is expected to fall, stagnant disposable incomes and restrained government spending may limit overall expansion.

Conservative Critique of Growth Performance

9:01am

Shadow Business Secretary Andrew Griffith described the UK’s growth as “scraping along the bottom,” pointing to declines in both construction and production sectors. He emphasized the need for stronger leadership and policy direction to restore business confidence.

Interest Rate Cut Expectations Adjusted

8:51am

Following the better-than-anticipated growth figures, money markets now see a slightly reduced probability of a Bank of England rate cut in February. Analysts expect that ongoing economic softness could eventually lead to more rate reductions later in the year.

Investment and Government Spending to Drive Growth

8:33am

KPMG’s chief economist, Yael Selfin, predicts that business investment and government spending will be the main drivers of growth at the start of the year. While recent data shows the economy stabilizing, concerns remain about potential tax increases and geopolitical risks.

Economic Rebound Driven by One-Off Factors

8:17am

Despite a return to growth in November, economists warn that the improvement may be temporary, fueled by the resumption of production at Jaguar Land Rover and a surge in IT and professional services activity. These gains may not be sustained in the coming months.

Mixed Performance for UK Stocks

8:05am

London’s stock indexes opened without clear direction, even as official figures confirmed stronger-than-expected economic growth in November. The FTSE 100 remained steady, while the FTSE 250 saw a slight increase.

November Growth Seen as Temporary Bounce

7:56am

Economists believe the November rebound in UK GDP is more likely a short-term recovery rather than a sign of underlying strength, with much of the improvement attributed to specific sectors and one-off events.

Deutsche Bank: Economic Outlook Improving

7:48am

Deutsche Bank’s chief UK economist, Sanjay Raja, noted that the latest data has improved the economic outlook, with inflation expected to fall and easier financial conditions supporting growth. However, challenges remain, and the path ahead may still be bumpy.

Pound Weakens Despite Growth

7:33am

The pound slipped slightly against the dollar, even as the UK economy posted stronger-than-expected growth. Analysts suggest that the November figures may reflect activity pulled forward ahead of anticipated tougher times.

Interest Rate Cut Less Likely in February

7:28am

Stronger economic data has reduced the likelihood of an interest rate cut by the Bank of England next month. Analysts believe that while growth has improved, ongoing inflation concerns may delay policy easing.

Car Manufacturing Recovers After JLR Cyber Attack

7:20am

The UK’s automotive sector nearly returned to pre-crisis production levels in November, following a cyber attack that disrupted Jaguar Land Rover’s operations. Manufacturing of motor vehicles surged by 25.5% in November, helping to drive overall economic growth.

Government Highlights Infrastructure and Cost-of-Living Measures

7:14am

The government emphasized its efforts to reverse years of underinvestment and reduce living costs, citing record infrastructure spending, planning reforms, and targeted support for energy bills and public services.

Manufacturing Bounces Back, Construction Lags

7:10am

Official figures show that the UK economy expanded in November, led by a strong recovery in manufacturing after the JLR cyber incident. However, construction activity continued to contract, marking its largest three-month decline in nearly three years.

Morning Brief: Economic Growth Returns

7:01am

Welcome to our morning update. The UK economy returned to growth for the first time since June, ahead of Rachel Reeves’s Budget. Here are the key developments you need to know:

• Calls for expanded support to hospitality sector: Business leaders urge the Chancellor to use savings from lower government debt interest to help the hospitality industry.
• Potential tariff cuts on Chinese electric vehicles: The Canadian Prime Minister visits Beijing to rebuild trade relations.
• US official warns Labour over trophy hunting ban: Concerns raised about the unintended consequences of proposed restrictions on importing hunting trophies.
• AI controversy involving Labour ministers: Elon Musk’s AI platform generates controversial images of UK politicians.
• Water shortages spark concern among major investors: NatWest’s pension fund expresses alarm over recent supply disruptions.

Overnight Market Developments

Oil and gold prices retreated after Donald Trump eased tensions over potential US military action against Iran. Brent crude dropped over 3% to near $64 a barrel. Tech stocks continued to slide in Asia, following declines on Wall Street, while currency markets stabilized after recent volatility in the yen.

Japanese bond yields fell from record highs amid speculation of upcoming elections and potential fiscal stimulus. Asian stock markets were mixed, with technology shares facing further selling pressure. On Wall Street, disappointing bank earnings led to declines in major indices, with the Nasdaq Composite down 1%, the S&P 500 falling 0.5%, and the Dow Jones off by 0.1%.