Morning Note: Market News and UK Spending Review
Market News
Markets: US Markets were softer on Wednesday but still within a narrow range. The S&P 500 closed 6022.24 -16.57 (-6022.24). Equity futures in the US and Europe slid along with the dollar as Trump weighed in on tariffs. Treasuries and gold rose while Asian stocks were mixed.
Trade latest: Donald Trump reiterated he’ll set unilateral tariff rates in a week or two. Howard Lutnick said a UK deal will be implemented as soon as possible, while an EU pact will probably be among the last ones completed. Scott Bessent said it’s “highly likely” the original 90-day pause would be extended for partners negotiating in good faith.
The UK economy shrank a more-than-expected 0.3% in April from the previous month. Traders added to BOE rate cut bets after the data, with odds implying a pause in June and 25bp cut in August. The Chancellor Rachael Reeves announced the 2025 spending review. (Details below).
The US is pulling some embassy staff in the Middle East as regional tensions rise. CBS reported America is preparing for a possible operation by Israel into Iran. Doubleline Chief Investment Officer, Jeffrey Gundlach said the US’s debt burden and interest expense have become “untenable,” with long-term Treasuries no longer viewed as legitimate flight-to-quality assets.
Corporate: Couche-Tard said it sees several clear paths to complete a takeover of Seven & i, including divestments of US stores. Oracle rose post market after the company forecast “dramatically higher” revenue growth in fiscal 2026. Airbus predicted the global commercial aircraft fleet will double in size over the next 20 years, led by India.
UK Spending Review 2025
On Wednesday 11th June 2025, Chancellor of the Exchequer Rachel Reeves unveiled the new government’s comprehensive Spending Review, outlining a multi-year fiscal strategy aimed at revitalising the UK economy, restoring public services, and addressing long-term regional and sectoral imbalances. Marking the first major economic statement by the incoming Labour government, the review sets out ambitious priorities across health, defence, housing, infrastructure, and science, while maintaining a stated commitment to fiscal responsibility.
At the heart of the review is a pledge to increase day-to-day departmental spending by an average of 2.3% per year in real terms over the next three years. Capital investment, meanwhile, will rise by approximately 3.6% annually through to the end of the decade. Reeves framed this as a break from the austerity-era mindset, positioning the government as an active agent in long-term economic renewal while keeping within updated fiscal rules that prohibit borrowing for current spending.
One of the most notable beneficiaries of the review is the National Health Service. The government has committed to annual real-terms increases of around 3%, equating to £29 billion more for frontline health services by 2028. This funding will support expanded staffing, new diagnostic technology, and greater digitisation. Similarly, defence spending will rise significantly, fulfilling the government’s promise to raise military expenditure to 2.5% of GDP by 2027. This includes an £11 billion uplift, with specific investments in munitions, nuclear submarines, and a new Border Security Command, funded partly by savings from the end of asylum hotel usage.
Housing also emerged as a top priority. The review allocates £39 billion over ten years for social and council housebuilding, effectively doubling current investment in affordable homes. An additional £10 billion will be channelled into Homes England to accelerate private sector housing projects. These moves reflect Labour’s aim to address the UK’s chronic housing shortage while boosting construction-led economic activity.
Infrastructure investment will be ramped up, with £113 billion committed over four years. Flagship transport projects include £3.5 billion for the Transpennine rail line connecting York, Leeds, and Manchester, and £2.5 billion for the East-West Rail project linking Oxford and Cambridge. Funds will also be directed towards regional mass transit systems in Birmingham, Bristol, and Manchester, underpinning the government’s broader goal of “levelling up” left-behind regions through connectivity.
In science and technology, Reeves announced a £86 billion package by 2029 to support innovation, clean energy, and artificial intelligence. Over £14 billion is earmarked for nuclear energy—including Sizewell C and small modular reactors—alongside major investments in carbon capture and regional R&D hubs. The announcement reinforces the government’s intent to position the UK as a leader in green and digital technologies.
Schools will receive an additional £4.5 billion annually by the end of the period, funding special educational needs provision, school meal expansion, and the rebuilding of 500 school sites. Social care, meanwhile, receives a £500 million transformation fund, with reforms expected to focus on workforce retention and service integration.
Justice and policing will see modest increases. Police forces will benefit from a real-terms uplift of 2.3% per year, with the goal of recruiting 13,000 new neighbourhood officers. The prison estate will receive £4.7 billion in capital funding to alleviate overcrowding, supported by policy changes aimed at reducing the number of offenders recalled to custody for minor breaches.
Despite these increases, the Chancellor insisted that fiscal rules will be respected. The government aims to avoid borrowing for current spending, relying instead on reallocations from lower-priority areas, improved efficiency, and asset sales. For example, foreign aid budgets and asylum-related accommodation costs are being cut or restructured. Reeves also hinted that while tax rises are not immediately planned, further revenue measures may be necessary if economic growth underperforms.
Initial reactions have been mixed. Public sector leaders in health, policing, and education welcomed the increased support but warned that it may not fully compensate for past underfunding or rising demand. Fiscal watchdogs praised the attempt at discipline but cautioned that the long-term sustainability of the plan hinges on optimistic growth assumptions. Bond markets reacted calmly, indicating investor confidence in the government’s approach, at least in
