Boost for Rishi Sunak as ‘Santa rally’ increases hopes of tax cuts in Spring Budget providing dose of optimism for struggling families


  • Unemployment at lowest since 70s & housing market remains relatively robust
  • Flagship S&P stock market index in US has risen by nearly 24 per cent in 2023

Stock markets are enjoying a ‘Santa rally’ as traders grow confident that interest rates will fall sharply in the New Year.

Rising share values are a signal of optimism on markets and will bring a dose of Christmas cheer to millions of British savers – including those with pension plans – and business leaders.

But they also offer a shaft of political light for Rishi Sunak, who is banking on an economic upturn to help close the polling lead opened up by Sir Keir Starmer.

Last month’s drop in inflation from 4.6 per cent to 3.9 per cent, the lowest for two years, has raised hopes in No 10 that interest rates could start to be cut by the Bank of England in May – allowing nearly six months of ‘feel-good factor’ to bed in before the most likely timing for the General Election.

It also gives Chancellor Jeremy Hunt scope for tax cuts in the Spring Budget, with changes to income tax rates and Stamp Duty currently top of the list.

The flagship S&P stock market index in the US has risen by nearly 24 per cent in 2023. 

Rishi Sunak is banking on an economic upturn to help close the polling lead opened up by Sir Keir Starmer
Bank of England Governor Andrew Bailey has suggested he is in no hurry to cut borrowing costs from their 15-year high

It closed for the Christmas weekend within a whisker of its all-time high, after new figures showed US inflation has cooled by more than expected.

In the UK, the FTSE 100 index of leading shares has risen by around three per cent in the past month.

READ MORE: Falling inflation and rising sales fuel hope for a brighter 2024 as experts predict the UK will avoid a recession despite grim figures showing the economy shrank by 0.1% this summer 

Although the FTSE overall had a quiet year in 2023, some stalwart British brands put in brilliant performances. Shares in Rolls-Royce, the UK’s flagship engineering company, had a remarkable rise of more than 200 per cent after the firm’s new boss embarked on a recovery plan.

Marks & Spencer shares are up by more than 110 per cent thanks to a revival in its fortunes.

Other big-name businesses whose shares have shone include Centrica, the parent company of British Gas, which have also risen by around 50 per cent. 

Sage, which makes accounting software, has seen its shares increase nearly 60 per cent. The stock market value of ABF, the owner of Primark, is up by around 50 per cent.

Many British savers will directly benefit from the surge on Wall Street because they have holdings in US shares through their pension or investment funds.

The exuberance in New York is also heartening because the US economy is the biggest in the world. 

As such, it has a major impact on other developed countries, such as the UK. New figures out just before the Christmas weekend showed core inflation in the US has been running at 1.9 per cent, just below its two per cent target.

The UK data last week revealing another fall in inflation, which had peaked at 11 per cent last year, has prompted hopes the Bank of England will begin cutting interest rates from their current level of 5.25 per cent faster than expected.

Mortgage rates are already falling in anticipation of rate cuts

‘This clearly raises the prospect of the Bank being in a position to ease policy in the first half of the year, rather than later,’ said Neil Wilson, chief markets analyst at Finalto. 

Bank of England Governor Andrew Bailey has suggested he is in no hurry to cut borrowing costs from their 15-year high but is coming under pressure to change his tune. Mortgage rates are already falling in anticipation of rate cuts.

Some in the City are speculating that, with inflation waning, the Bank may cut rates multiple times to lower than four per cent.

Markets around the world have been cheered by statements from Jerome Powell, the head of the US central bank the Federal Reserve. 

He suggested earlier this month that interest rate rises are probably over and a discussion of cuts is ‘coming into view’.

The UK economy has had a tough year with slow growth and the highest tax burden for decades.

On the plus side, unemployment is at its lowest since the 1970s and the housing market remains relatively robust.



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