Production in British factories has seen its steepest decline since the early COVID-19 pandemic, with the CBI manufacturing output volume index falling to -25%. Ben Jones, lead economist at the CBI, said: “Manufacturing output appears to have contracted during the fourth quarter, with conditions across the sector looking more challenging than at any time since the pandemic in 2020.” Factors contributing to this downturn include weakened external demand, political instability in Europe, and a collapse in domestic business confidence following a £40bn tax increase announced by Chancellor Rachel Reeves. Despite the grim outlook, some experts caution against overreacting to sentiment indices, suggesting they may exaggerate the situation.

PATRIZIA, a leading partner for global real assets, has unveiled the rankings of its European Living Cities Index 2024, with London rising above Paris to reclaim the number one spot as the most attractive European city for residential investors. Zurich claimed third place, up from fourth in 2022, with Stockholm also performing well rising from ninth to seventh. The biannual index analyse 142 capitals and larger cities throughout Europe to determine which are the most attractive and liquid, helping institutional investors develop a diversified European living portfolio.

The Financial Stability Board (FSB) has issued recommendations aimed at mitigating risks associated with hedge funds and other non-bank financial intermediaries, which now represent nearly half of global financial assets. The FSB highlighted a significant growth of approximately 130% in non-bank financial intermediation from 2009 to 2023, leading to increased complexity and interconnectedness in the financial system. FSB Secretary General John Schindler said: “This growth comes with an increase in complexity and interconnectedness in the financial system, which, if not properly managed, can pose substantial risks to financial stability.” The FSB’s consultation report suggests that governments enhance their focus on non-banks, improve credit risk management, and establish frameworks to monitor financial stability risks. A final report is expected in mid-2025.

The Financial Conduct Authority (FCA) has charged John Dance, a former principal partner at WealthTek, with fraud and laundering over £64m from client accounts. Allegations state that between 2014 and 2023, Dance exploited his position to fund a lavish lifestyle, including horse-racing and a nightclub. The FCA has been investigating WealthTek and Dance since 2023 for potential breaches affecting client money. The firm was placed under special administration in April 2023, with plans to return assets to affected clients. The FCA remarked: “This is one of the most serious and largest frauds we have ever investigated.” Dance faces nine criminal offences related to fraud and laundering, alongside three additional offences for false representations regarding WealthTek’s regulatory permissions.

The Financial Conduct Authority (FCA) has proposed a new private stock market system, PISCES, aimed at encouraging businesses to list in the UK and reversing a £100bn exodus from the London Stock Exchange. Richard Wilson, chief executive of interactive investor, welcomed the move but said the Government’s tax policies, particularly the 0.5% stamp duty reserve tax, make the London market “untradable,” pushing growth businesses to list elsewhere. Wilson stressed the need for the Government to act decisively to support financial markets, stating: “If the market dies, then growth and with it ultimately our standard of living are sacrificed.”

The impact of Labour’s “tractor tax” on farmers has been significantly underestimated, according to Jeremy Moody, secretary and adviser to the Central Association of Agricultural Valuers. He warns that the number of farmers affected by the inheritance tax (IHT) could be five times higher than the Treasury’s estimates due to historical undervaluation of farm assets. Moody explained that farmers have relied on cost-based valuations for their assets, which do not reflect the “market value” required by IHT laws. With Labour’s cuts to tax breaks for assets over £1m, many farmers will now face increased tax liabilities. Moody predicts that around 75,000 farmers will be impacted by these changes, contrasting sharply with the Government’s claim that fewer than 500 estates will be affected annually.

Ineos Energy’s chair, Brian Gilvary, has expressed frustration over the UK’s “punitive” tax policies, stating that they have left oil and gas explorers with “hands tied behind” their backs.

The London School of Economics (LSE) has conducted a comprehensive study revealing that while Brexit resulted in a £27bn loss to UK trade with the EU in its first two years, the overall impact was less severe than initially projected by the Office for Budget Responsibility (OBR). The research, which analysed over 100,000 firms, found that British goods exports fell by 6.4% and imports by 3.1%. Thomas Sampson, an associate professor at LSE, said: “We find that, through the end of 2022, the TCA reduced goods trade by less than half as much as the OBR projected.” The study highlighted that smaller businesses were disproportionately affected, with over 14,000 ceasing trade with the EU. The findings suggest that while larger firms adapted to new trade barriers, small exporters faced significant challenges.

Since the Brexit referendum in 2016, the European Union has undergone significant regulatory changes, writes Rohan Silva in the Times. The UK’s departure has allowed more protectionist groups to flourish, he contends, resulting in a less liberal, statist environment. The result has been legislation such as the Digital Markets Act, the Digital Services Act and the EU AI Act, which Silva says “ are so astonishingly bureaucratic that even gigantic corporations with reams of lawyers such as Meta and Apple have said they can’t comply with them.” These new rules will be economically damaging and risk leaving Europe to fall even further behind in the AI era.

Saba Capital, a US hedge fund, has initiated a campaign to replace the boards of seven UK investment trusts after acquiring significant stakes in them. In an open letter, Saba stated it aims to “elect new directors with a concrete plan to deliver shareholder value” due to the current boards’ underperformance against benchmarks. The hedge fund holds between 19% to 29% stakes in each trust, making it the largest investor. Saba’s campaign, dubbed ‘mind the gap’, highlights the disparity between the trusts’ share prices and their underlying asset values. Notably, the Baillie Gifford US Growth Trust has underperformed its benchmark by over 50% in the last three years. Saba plans to hold meetings by February to vote on removing existing directors and appointing its candidates, including Boaz Weinstein and Paul Kazarian.

UK inflation has surged to its highest level in eight months, reaching 2.6% in November, up from 2.3% in October. This increase, driven by higher petrol and grocery prices, adds pressure on the Bank of England to maintain interest rates at 4.75%. Sanjay Raja at Deutsche Bank said: “Price pressures are resurfacing again – with employers likely to start ramping up prices at the start of the year to account for the employer NICs increase. Put bluntly, the Monetary Policy Committee is some way away from declaring victory on inflation.”