Stock Take
AI earnings help fuel record S&P 500
The S&P 500 reached a record high this week buoyed by low US producer and consumer inflation readings in July indicating inflationary pressures are being contained. A stream of strong AI earnings releases reinforced bullish sentiment.Although markets are indicating a near 70% chance that the US central bank will keep interest rates at their current level next month, SJP’s Chief Economist Hetal Mehta notes the recent inflation breakdown shows “quite a big jump in the price of computers and other AI-related equipment. This AI buildout isn’t necessarily all positive for the economy.” A further cloud was that US retail sales data for July was weaker than expected but the S&P 500 and Nasdaq still managed to end the week in positive territory on receding rate hike expectations.
Zuckerberg on AI – open is best
Is AI already too advanced? Should the most powerful models be kept under lock and key, only accessible to governments and selected scientists? Mark Zuckerberg, founder and chief executive officer of Meta has just published an essay on AI which is a high-profile addition to the debate about whether AI benefits mankind.
In the essay, he says he believes AI can be a force for good by increasing humans’ capabilities, while improving their daily lives. However, Zuckerberg states that concentrating AI’s power in a few hands is dangerous. This could result in totalitarianism, the threat of a rogue super-computer and mass unemployment.
Zuckerberg claims Meta’s approach will be to distribute AI as widely as possible rather than keep its development in-house. The company is set to launch a new AI model with “open weights” called Muse Glimmer. Users will be able to download the numerical values that determine its behaviour.
Countdown to the world’s largest stock listing?
Anthropic, the company behind Claude AI, may list as a public company this October, according to press reports. Estimates suggest Anthropic could be the largest ever initial public offering (IPO) with an initial valuation of $2 trillion. By comparison, SpaceX was valued at $1.78 trillion when it listed in June.
While aided by tremendous market interest and backed by Google and Amazon, Anthropic’s listing could prove a major test for investors. Its success with Claude Code has contributed to a backlash against the company in the US. Competition from lower-cost Chinese rivals has also unnerved investors, as has the limited visibility on when/if the trillions of dollars to be invested will generate a worthwhile return.
Anthropic’s recent models have outperformed competitors, allowing it to charge clients more than rivals such as OpenAI and Google. This could work against Anthropic should clients seek out cheaper solutions to Claude. Rival OpenAI is expected to launch its IPO later this year or in 2027.
The UK economy – fastest growth in the G7
Buoyed by the good weather and England’s progress in the World Cup boosting food and beverage sales (as well as alcohol manufacturing), the UK economy (GDP) grew by an unexpected 0.3% in June. This contributed to second quarter GDP growth of 0.6%, ahead of analysts’ expectations. The combined 1% growth in the first half of this year means the UK is the fastest-growing economy in the G7 group of advanced economies (US, Canada, UK, France, Germany, Italy, Japan).
Will it last? Over the past few years, the UK economy has delivered its strongest performance in the first half, before fading. In 2026, a weak labour market may weigh on household incomes and consumption. SJP’s Hetal comments that “John Healey’s first Budget as chancellor may contribute to some caution when it comes to business spending decisions.”
A major unknown factor remains the Iran war. In worst-case scenario planning by the Treasury, if the Strait of Hormuz remains closed until the end of the year UK GDP growth in 2026 may slow to 0.9%, compared with the 1.4% achieved in 2025.
Iran war stalemate
The price of Brent crude oil rose almost 6% last week. Hopes Iran and Oman were close to agreeing a shipping route through the Strait of Hormuz failed to materialise.
Despite this, the VIX indicator of market volatility is back to pre-war levels and near its 52-week lows. Investors seem somewhat relaxed about the current low-intensity conflict between the US and Iran. Perhaps they are taking their cue from the protagonists. Neither side can deliver a sharp, decisive blow to finalise the outcome. Yet they both have their strengths. While Iran’s control of the Strait of Hormuz is not in doubt, neither is the US Navy’s blockade of Iran.
The US and Iran are now adopting a lower intensity but longer-term strategy. Both sides assume they have time on their side. The Iranians seem to hope the approaching mid-term US elections and Trump’s desire for a “deal” will tip the balance in their favour. The US has stated that it will announce a further set of economic measures against Iran.
While the latest on-off tensions have caused a run-up in the oil price, they remain more than $30 below the $126 per barrel level reached earlier this year. One of the reasons for this is lower demand from China. Before the war, this was the largest market for Iranian oil. The International Energy Agency (IEA) has estimated the widening use of electric vehicles (EVs) in China has reduced daily oil demand in the country by 1.5 million barrels per day. Longer term, it also sees the current disruption in the Middle East leading to a permanent 4% annual decline in Chinese oil demand by 2027.
Wealth Check
Burnham urged to dispel rumours of pension lump sum changes
Financial services firms are urging prime minister Andy Burnham to quash rumours of changes to the pension tax-free lump sum ahead of the Budget on 28 October.
In the run up to last year’s Autumn Budget there was similar speculation the government would scrap or amend the tax-free lump sum. Currently, most pension savers can take 25% of their pension tax free, up to £268,275, at the age of 55 (this rises to 57 from April 2028).
The rumours led many pension savers to withdraw their tax-free lump sum early. Once money has been withdrawn, it can’t later be reinvested in a pension.
Pension companies fear that allowing such speculation to grow again could result in lower confidence in pensions and a rise in early withdrawals. This may ultimately affect retirement savings and reduce trust in the system.
Government urged to make pensions and IHT rules fairer
The Chartered Institute of Taxation (CIOT) is urging the government to review some of the rules around how inheritance tax (IHT) on pensions will be handled next year.
From 6 April 2027, most unused pension funds and pension death benefits will count towards the value of an estate for IHT purposes.
But the CIOT has warned that some of the rules for pensions after death, in cases where IHT will apply on an estate, run the risk of creating unfairness, disputes and delays between personal representatives, pension scheme administrators and beneficiaries.
The CIOT has written to the Treasury to ask for the following changes:
- Making the rules simpler for IHT on pensions found after an estate has been wound up.
- Making loss relief available to qualifying pension funds for IHT calculations.
- Allowing IHT payments on pensions to be made in instalments.
- Separating pension assets from other assets when calculating entitlement to the reduced IHT rate.
- Reassessing the six-month deadline for paying IHT.
The CIOT’s letter to the government can be found here.
HMRC to sign up taxpayers to Making Tax Digital
HM Revenue & Customs (HMRC) will begin signing up landlords and sole traders to its quarterly tax reporting system if they have not submitted their taxes.
More than 436,000 sole traders and landlords have successfully submitted their Making Tax Digital (MTD) update. HMRC previously said it expected around 864,000 taxpayers to join MTD from April 2026.1
The MTD system replaces the annual self-assessment tax return. The rules currently apply to those with qualifying income above £50,000, and from April 2027 will also apply to those earning more than £30,000.
Tax treatment depends on individual circumstances and may change over time. The value of any tax benefits or reliefs will therefore vary from person to person and cannot be guaranteed.
Source
1. HMRC, Making Tax Digital for Income Tax business population statistics: commentary – August 2025
In The Picture
As the fifth heatwave of the summer subsides, farmers and supermarkets are warning that the extreme weather conditions are likely to lead to higher food costs.
England and Wales recorded the driest July on record, with a reported two-thirds of England and all of Wales in drought (see chart).
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