Cliff Notes: Growth Headwinds

Commodity

Summary:

Key insights from the week that was.

Australia’s Q3 National Accounts disappointed expectations with GDP up just 0.3% (0.8%yr) as the gap between public and private demand widened – the latter now stalled for six months. While partly explained by the ‘reallocation’ of electricity spending by households to the government through energy rebates, the majority of the divergence comes as a consequence of prolonged weakness in real incomes, elevated interest rates and a historically-high tax burden. Highlighting the cumulative impact on the economy, Q3 marked the sixth consecutive quarterly decline in per capita GDP, the longest (but not deepest) contraction since the 1950s, when official records begin. In this week’s essay, Chief Economist Luci Ellis considers the consequences for productivity and monetary policy.

Looking into the detail of the National Accounts, it is hardly surprising that the primary contributor to the Q3 surprise was household consumption, flatlining in Q3 to be up just 0.4% over the year. The underlying picture for real household disposable incomes was more constructive owing to the stage 3 tax cuts and disinflation, but the 0.8% gain was saved not spent – a result foreshadowed by the Westpac Consumer Panel. On current data, the latest updates on retail sales and experimental measures of household spending point to a solid lift in consumption in October, but our measure of card activity cautions that shifting seasonal patterns around end-of-year discounting are likely to distort affected monthly reads, as occurred last year. Looking to 2025, income and saving dynamics stand as significant headwinds for the recovery in consumption growth.

The external sector also provided little support for GDP in Q3, the current account deficit narrowing slightly from a materially downwardly revised figure of –$16.4bn to –$14.1bn in Q3. The terms of trade are still elevated but have fallen back over the past year; export volumes are also struggling as import volumes gain steadily, albeit recently at a slower pace. While net exports have added 0.1ppts to growth in both Q2 and Q3, prior weakness saw the external account subtract a percentage point from GDP growth over the year.

Before moving offshore, it is worth noting that the latest CoreLogic data highlighted a broadening in the nascent slowdown in Australian house price growth. Affordability is increasingly a concern across the capitals – price growth slowing in Perth, Adelaide and Brisbane, as buyers lower their expectations, and in outright decline in Sydney and Melbourne, where many would be buyers have been priced out. Supply remains critical for the affordability outlook; encouragingly, the firming uptrend in dwelling approvals is coinciding with tentative evidence of easing supply constraints for construction, balancing the risks around the pipeline. For more detail on our views around the housing market, see our latest Housing Pulse on Westpac IQ.

Ahead of tonight’s employment report, data received for the US continued to support a 25bp cut at the FOMC’s December meeting.

JOLTS job openings rose from 7.4mn to 7.7mn in October, reversing September’s decline. Looking through the monthly volatility, the trend remains consistent with a labour market that is slowly decelerating from a starting point broadly consistent with the pre-pandemic experience – when both wages and inflation were benign. The FOMC’s December Beige Book provided further evidence of labour market balance with some glimpses of downside risks, employment characterised as “flat or up only slightly across Districts” and wage growth having “softened to a modest pace”. Unsurprisingly, on inflation, prices were said to have risen “only at a modest pace… [and] Both consumer-oriented and business-oriented contacts reported greater difficulty passing costs on to customers”.

The ISM services survey corroborated the above view, the headline PMI falling from 56.0 to 52.1 in November and employment weakening from 53.0 to 51.5, both outcomes well below their five-year pre-COVID averages but still expansionary. The ISM manufacturing survey in contrast shone the spotlight on downside risks, the headline and employment indexes well below average at outright contractionary levels. The prices paid measures meanwhile remained consistent with consumer inflation at target. Altogether, this week’s data supports our expectation of a 25bp cut from the FOMC at their 17-18 December policy meeting. Tonight’s employment report and the upcoming November CPI report will inform on the risks to this view and the outlook for policy in 2025. Chair Powell and other recent FOMC speakers have made clear their policy decisions will be made meeting-by-meeting in a data and risk dependent manner.

Source: ACTIONFOREX

Risk Warnings and Disclaimers

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SAXO

Economic

Stocks

The market's obsession with AI is evolving. After fueling a massive rally in semiconductor stocks like NVIDIA and AMD, the enthusiasm is now shifting toward software companies, with names like Marvell, Snowflake and Palantir leading the charge. This pivot underscores the growing realization that AI's true potential lies in its application across industries, not just in the hardware powering it.

The Semiconductor Surge

Semiconductors were the initial winners of the AI boom, driven by the race to develop the processing power needed for advanced AI models. NVIDIA's leadership in GPUs and AMD's innovations positioned them as the flagship names of the rally. While these "shovels" remain essential tools in the ongoing AI gold rush, the spotlight is shifting. As the focus moves to delivering real-world AI applications, investor enthusiasm is increasingly turning toward software companies that bring AI to life.

Why Software Is the Next Frontier

Data Utilization: Snowflake specializes in data storage and analytics, providing the critical infrastructure to harness and deploy AI effectively. Its strong position in the data space enables companies to leverage AI for business intelligence and analytics at scale.

AI Monetization Success: Salesforce’s AgentForce, launched in October, is an early success in AI monetization, enhancing sales processes with AI-driven automation and personalization capabilities.

AI Integration: Palantir has established itself as a leader in operational AI and decision-making tools, helping enterprises integrate AI seamlessly into their workflows. With its stock up 300% YTD, Palantir's AI platform is gaining traction in government, defense, and enterprise sectors, positioning it as a standout in the AI ecosystem.

Broader Applications: Unlike semis, whose primary growth is tied to hardware sales, software companies benefit from recurring revenues and diverse use cases across sectors.

As adoption deepens, the focus will likely move toward companies offering scalable AI solutions for enterprises. Investors looking to ride this wave should consider a barbell strategy—balancing exposure between the hardware providers (semiconductors) and the enablers (software companies).

The Evolving AI Narrative: From Semis to Software_1

Who Could Be the Next Winners in the AI Revolution?

The next wave of AI winners will likely span industries that incorporate AI into their operations and products. Cloud computing, cybersecurity, healthcare, and generative AI remain key areas of focus.

1. Cloud Providers

Cloud infrastructure is critical for storing, processing, and deploying AI solutions. These giants stand to benefit as AI adoption grows.

Microsoft (MSFT): Integrating OpenAI’s models into Azure, driving enterprise AI adoption.

Amazon (AMZN): AWS’s suite of AI and machine learning tools like SageMaker continues to lead.

Oracle (ORCL): Positioned well with its AI-powered cloud solutions and strong focus on enterprise clients.

Alphabet (GOOGL): Google Cloud leverages its deep AI expertise and market-leading research.

2. AI-Powered Cybersecurity

The surge in AI adoption raises the stakes for protecting systems and data, making AI-driven cybersecurity solutions a critical growth area.

CrowdStrike (CRWD): Pioneering predictive threat detection with AI.

Palo Alto Networks (PANW): Expanding its use of AI to enhance network security and threat prevention.

3. Generative AI Applications

Generative AI is transforming industries, from content creation to drug discovery, offering immense growth potential for enabling platforms.

Adobe (ADBE): Its Firefly tools cater to the growing demand for generative content creation.

ServiceNow (NOW): Using generative AI to automate workflows and enhance productivity.

4. AI-Oriented SaaS and Data Companies

As AI adoption scales, SaaS and data companies providing the foundation for AI solutions are becoming indispensable.

Snowflake (SNOW): Enabling data-driven AI applications with its robust platform.

Palantir (PLTR): Operational AI and decision-making tools make it a standout in enterprise markets.

5. AI-Powered Healthcare

The healthcare sector is poised for disruption as AI transforms diagnostics, drug discovery, and personalized medicine.

Intuitive Surgical (ISRG): AI-powered robotics enhance surgical precision.

Moderna (MRNA): Using AI to accelerate vaccine development and mRNA innovations.

6. Hardware Beyond Semiconductors

AI requires a broader ecosystem of specialized hardware beyond semiconductors, creating new opportunities.

Arista Networks (ANET): Providing networking solutions tailored for AI-scale workloads.

Pure Storage (PSTG): Gaining traction for its AI-optimized storage solutions.

7. AI-Powered Consumer Products

As AI integrates into consumer technologies, companies leveraging AI in smart devices, AR/VR, and autonomous vehicles stand to gain.

Apple (AAPL): Innovating AI-driven features in its ecosystem and exploring AR/VR.

Tesla (TSLA): Advancing AI in autonomous driving and energy solutions.

ETF Opportunities

For Semis Exposure: Consider ETFs like SOXX(iShares Semiconductor ETF) or SMH (VanEck Semiconductor ETF).

For AI Software: Look at funds like AIQ(Global X Artificial Intelligence & Technology ETF) or BOTZ(Global X Robotics & Artificial Intelligence ETF).

For Cloud Growth: Consider CLOU (Global X Cloud Computing ETF)

For AI-driven Cybersecurity: HACK (ETFMG Prime Cyber Security ETF)

For Automation and Robotics Exposure: ROBO (Global X Robotics & AI ETF)By focusing on these next-wave beneficiaries, investors can position themselves to capitalize on AI’s transformative potential across the economy.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Justin

Economic

Forex

(Dec 6): President-elect Donald Trump has promised to impose 10% tariffs on all imports from China as soon as he takes office next month.

But that might be difficult to achieve fully because tens of billions of dollars worth of goods will probably escape those import taxes due to loopholes and undercounting of how much is actually arriving from China.

In recent years, some experts have pointed out a widening gap between US and Chinese trade data that they believe is driven by three factors: the “de minimis” tariff loophole, an underreporting of the value of imports by US importers eager to reduce the cost of tariffs and over-reporting by Chinese exporters eager to maximise tax rebates.

The anomaly has appeared in global trade data from early 2020, when China started to say it was selling more goods to the US than America reported buying from the Asian manufacturing behemoth. The gap has grown steadily since and at US$64 billion (RM282.83 billion) in the first 10 months of this year it’s on track to exceed the record set last year.

The upshot: Not only will tens of billions of dollars worth of shipments likely avoid Trump’s tariffs, but the US data also downplays just how dependent US businesses and consumers remain on trade with China.

“Distorted trade data may prevent US policymakers from designing effective trade and supply chain policies,” according to the most recent report to Congress from the US-China Economic and Security Review Commission.

The US under-reported imports from China by about 20%-25% last year, according to Adam Wolfe of Absolute Strategy Research, who gave testimony to the Commission. He estimates that up to US$160 billion of imports from China didn’t get counted last year, mostly due to US importers avoiding tariffs by under-reporting or misreporting their purchases.

De-minimis loophole

Another factor causing the data gap is the “de minimis” rule, which means that small packages valued at less than US$800 don’t get counted or tariffed by the US. American shoppers and companies imported about US$48 billion worth of shipments from the world under that loophole in the first nine months of this year, according to US Customs and Border Patrol estimates.

Much of that is likely from China, with low-cost shopping apps like Shein and Temu seeing strong growth in the US in the past two years.

Chinese data shows more than US$17 billion worth of shipments to the US of ‘articles of low value in simplified customs procedures’ in the first 10 months of this year, above the total for the whole of 2023. That’s set to rise, with both Shein and Temu seeing US sales and customers reaching record highs in November, a month powered by the Black Friday shopping spree.

Sales on the Temu platform in the US in November jumped 31% from a year ago, while Shein had a 20% year-on-year expansion in US sales, according to data from Bloomberg Second Measure, which analyses consumers’ card transactions.

The administration of President Joe Biden said in September that it would narrow that loophole, but hasn’t released any details as to how or when, and it is unclear if that will continue under Trump.

De minimis shipments account for 11% of China’s exports to the US, according to research from economists at Nomura Holdings Inc, who this week estimated a 1.3 percentage point hit to export growth and a small reduction in China’s gross domestic product expansion if these were totally banned.

Another explanation of part of the trade data gap comes from the other side of the Pacific. Federal Reserve economists noted in a 2021 report that Chinese companies have over-reported exports to get larger tax rebates.

Between March 2020 and the end of 2021, more than 90,000 companies in the nation enjoyed almost 38 billion yuan (US$5.2 billion or RM23.13 billion) in export tax rebates, according to state media. Beijing moved to limit that last month, cancelling rebates for copper and aluminium and lowering them for some refined oil, solar, battery and non-metallic mineral products.

It’s difficult to pin down the precise contribution of each of these factors, but “the growing, sizeable gap between US and China trade data has important implications for our understanding of what Trump’s first trade war accomplished when it comes to reducing US dependence on China,” said Nicole Gorton-Caratelli of Bloomberg Economics.

Trade diversion

The Trump administration will also have to deal with the increase in Chinese goods making their way indirectly to the US via other manufacturing hubs such as Vietnam or Mexico.

New research from Bloomberg Economics shows that while both the US and China report having diversified their trade from each other, the US continues to be the largest single destination for Chinese manufacturing value-added.

“Chinese value-added is still entering the US — it’s just entering via other countries,” Gorton-Caratelli and Gerard DiPippo of Bloomberg Economics write.

Taken together, the data show that claims the US has lowered its trade dependence on China are premature at best.

“The US has not de-coupled from China in any significant way,” according to Absolute Strategy Research’s Wolfe. “Higher tariffs are likely to lead to more tariff avoidance, not de-coupling.”

Source: Theedgemarkets

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Risk Warnings and Disclaimers

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NIESR

Economic

When it comes to economic inequality, what do we already know about the challenges faced by Pakistani and Bangladeshi men and women, and how does it differ from the story we hear about White British men and women?

In the UK, economic inequalities among ethnic groups remain significant, with disparities evident in employment rates, wages, the division of unpaid labour, and financial responsibility. These inequalities are further exacerbated when ethnicity intersects with other dimensions of inequality, such as gender. For example, the experiences of a White British man in the UK may differ substantially from those of a Pakistani woman. What is striking is that Indian, Pakistani, and Bangladeshi ethnic groups, despite migrating around the same time, exhibit very different economic outcomes. In fact, the differences among ethnic minority groups are often just as pronounced as those between minority and White British groups.

It is equally important to emphasise the inequalities within ethnic minority groups themselves. In fact, examining the variations within these groups often reveals more than simply focusing on group averages. For example, first-generation and second-generation Pakistani women may experience vastly different economic outcomes due to factors such as immigration status, and education. A central part of my work focuses on understanding the disparities within specific minority groups, particularly when gender is considered.

It is well known that minority women have high rates of unemployment and are amongst the lowest earners. Pakistani and Bangladeshi women are particularly disadvantaged, with unemployment rates far exceeding those of both their male counterparts and White British women. These employment challenges among ethnic minorities are also reflected in wage disparities. These disparities are not merely a result of working fewer hours or being in lower-paying jobs, they also stem from unequal access to opportunities. Many Pakistani and Bangladeshi women juggle multiple roles, caregiver, homemaker, and sometimes breadwinner further compounding their challenges.

Why is “who does the dishes” important when it comes to achieving economic equality?

It might seem like a small thing—who washes up after dinner—but these everyday tasks often serve as the building blocks of much larger issues. In many ethnic minority households, there is a strong expectation that women will take on most, if not all, domestic responsibilities. This includes everything from cooking and cleaning to caring for children and elderly family members.

Why does this matter? Because time is finite. If a woman spends several hours a day managing the home, that is time she cannot dedicate to building her career, pursuing further education, or even resting. This dynamic directly impacts women’s employment rates, career progression, and overall financial independence. The issue is particularly pronounced in ethnic minority households, where traditional gender roles and cultural expectations often have a stronger influence. Many of these households also tend to have lower incomes compared to the White British majority, adding another layer of complexity.

Interestingly among ethnic minority couples, particularly Pakistani and Bangladeshi families, traditional gender roles are often more rigid. My research shows that Pakistani, Bangladeshi, and Indian women take on a significantly higher share of housework compared to men in their own ethnic groups and White British women. The division of housework is deeply gendered, with women typically handling tasks like cooking and cleaning, while men are more likely to take on less frequent tasks such as DIY projects. However, when men participate more in housework, women are more likely to work outside the home. This pattern holds true across both White British and ethnic minority groups.

This shift benefits not only the individual but also the household, boosting income and challenging entrenched stereotypes. In many households, the division of labour is not just about chores, but about power dynamics, especially when it comes to financial contributions. So yes, who does the dishes absolutely matters — it is about far more than clean plates, it is about equal opportunities.

When it comes to financial decisions, does earning the pay slip determine who holds the purse strings?

A pay slip represents far more than just money, it symbolises independence, agency, and empowerment.

In many Pakistani and Bangladeshi households, men are often regarded as the primary breadwinners. This role can bring a sense of pride and responsibility but also immense pressure. Conversely, when women earn an income, it is often viewed as secondary or supplementary. Yet, their earnings frequently play a crucial role in ensuring household stability.

What is particularly fascinating is how earnings influence financial decision-making. In households where both partners contribute financially, decisions tend to be more collaborative. In contrast, when only one partner earns, an unspoken hierarchy often shapes decision-making. This dynamic is especially pronounced in South Asian families, where cultural norms heavily influence gender roles. For instance, White British women are more likely to take an active role in financial decision-making compared to their Indian, Pakistani, and Bangladeshi counterparts, where men typically hold greater authority. Notably, as women’s working hours increase, so does their financial decision-making responsibility. However, traditional attitudes toward gender roles play a significant role. When both men and women hold more traditional views, women’s decision-making responsibility diminishes. Interestingly, women’s attitudes toward gender roles are a stronger predictor of financial decision-making responsibility than those of men.

By starting conversations about wage disparities, employment opportunities, the division of household responsibilities, and what pay slips symbolise in terms of financial agency, inclusion, and empowerment, we take an important step toward building a more equitable future.

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MarketPulse by OANDA Group

Commodity

Economic

Market participants are waiting on today’s jobs report from the US in a week that has seen a lot of choppy price action and uncertainty. The exception being a US equity and Crypto rally which has given markets a wee bit of optimism as the Festive season approaches.

NFP Preview: What to Expect

Heading into the jobs report and market expectations over US monetary policy have seen a significant shift over the past ten days. The probability of a 25 bps rate cut on December 18 has risen from 56% to a high yesterday of 78%, currently at 71%. Will the jobs data later today finally settle the matter?

US Jobs Report Preview: Implications for DXY and Gold_1

Source: CME FedWatch Tool

The expected Non-farm payroll figure is 200k which would be a significant step up from last month’s disappointing print. Last month’s print was the worst in nearly four years, however it is key to remember the impact of hurricane Milton and the Boeing strikes. These all had a negative impact on job numbers and are all expected to reverse.

A job print above the 200k mark may prove to be less important than the unemployment rate which may be key. Markets are looking at a 4.1% print but I believe we could get a slight uptick toward 4.2%. Either way, should we get a print in the 4.1-4.2% range and a jobs number of 200k plus, I expect any immediate reaction by the US Dollar to prove short-lived. Similar to what we saw last month.

For interest’s sake I thought we could see what Goldman Sachs analysts are looking at from today’s report. Goldman’s analyst gives a scenario analysis for the NFP. The “sweet spot” he says is 150k-200k which he expects will see a 0.5-1% rally. Worst case is >275k which may lead to a Dec FOMC rate cut skip. Notably every other scenario he sees less than a 1% move.

Impact on the US Dollar Index (DXY)

Such a print should keep the Fed on track for a 25 bps cut at the upcoming meeting and thus should not have any lasting impact on market moves. This could lead to steady US Dollar weakness heading into next week.

The US Dollar is historically weak in December, usually weighed down by portfolio rebalancing and a pivot to more risky assets. The recent rise in US Equities and slight US Dollar weakness may be a sign that this has already begun.

Yesterday saw the DXY print a bearish daily candle close which is a maubozu candlestick. No wick on either side suggests significant bearish pressure as the DXY is back at last week’s lows around 105.63.

A break lower brings the 105.00 handle into focus before the 104.50 handle.

The DXY needs to gain acceptance above the 107.00 handle if bulls are to continue their impressive run from the beginning of October.

Technical Analysis Gold (XAU/USD)

Looking at the Gold chart below, the range continues to hold between the $2600-$2660 area. The Asian session brought wild price swings for the precious metal with a low of 2612 before rallying toward the 2644 handle.

The one thing that has piqued my interest is the amount of rejections we have had in the 2655-2660 range suggesting this zone remains a key area. For not it appears that risks are tilted to the downside.

If the nobs data comes out largely in line with expectations and rate cut bets increase, I wonder whether bulls will be able to facilitate a breakout and acceptance above the 2660 handle.

A significant increase in the average hourly earnings and a jobs number closer to 300k could result in significant USD strength which could push Gold below the 2600 handle and beyond.

Gold (XAU/USD)

Support

2624

2612

2600

Resistance

2660

2675

2700

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Risk Warnings and Disclaimers

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IFS

Economic

The Budget announced a range of changes to inheritance tax, curtailing reliefs for agricultural and business assets, bringing pensions into the scope of inheritance tax and freezing tax-free allowances until 2029–30. Together, the changes are expected to raise around £2.3 billion per year by 2029–30, £520 million of which comes from reducing business and agricultural reliefs.

While accounting for only a small part of the higher inheritance tax revenue, the changes to agricultural and business reliefs and specifically their effects on farms and farmers have received significant attention. What are the changes? Who will be affected? And are these measures a good idea?

How is inheritance tax for farms and businesses changing?

Currently, full relief from inheritance tax is available for most agricultural property and business assets held for two years before death. In the case of agricultural property, relief applies in full to property held for more than two years, if farmed by the owner, but for property rented out the minimum holding period to get inheritance tax relief is seven years. HMRC recorded that, in 2021–22, 1,730 estates claimed agricultural relief, and £550 million of inheritance tax was relieved under agricultural relief, an average tax saving of over £300,000 per estate (with some benefiting from business relief on top of this). The largest 117 claims (7% of claims) accounted for 40% of the total value of agricultural relief (£219 million) and just 37 (2%) accounted for 22% of the total value (£119 million, or £3.2 million each).

The Budget announced that, from April 2026, business and agricultural reliefs will be restricted. Estates will be eligible for 100% inheritance tax relief on the first £1 million of combined business and agricultural assets and 50% relief on amounts over £1 million (i.e. 40% tax will apply to only 50% of the value of business and agricultural property in excess of £1 million). Shares designated as ‘not listed’ (notably AIM shares) will in all circumstances receive only 50% relief, i.e. they are not covered by the £1 million of 100% relief.

The 100% and 50% reliefs are in addition to the nil-rate band, which allows £325,000 of assets to be passed on free of inheritance tax, and the residence nil-rate band which allows a further £175,000 to be passed on if bequeathing a home to a direct descendant. This means that, in many cases, an individual could pass on £1.5 million free of tax and a couple could pass on £3 million free of tax. To take an example, consider a married couple with a farm worth £3 million, including a family home worth at least £350,000. The couple could pass on their wealth as follows:

The first member of the couple to die passes on a £1 million share of the farm tax-free to their children using the new £1 million allowance. They leave any remaining assets to their spouse (which is always tax-free), who also inherits their unused nil-rate band and residence nil-rate band.The second member of the couple to die passes on the remaining £2 million, including the home, to their children tax-free. £1 million is covered by the new allowance, and the other £1 million is covered by the combination of their own nil-rate band and residence nil-rate band and those they inherited from their spouse.

Couples will not always be able to pass on this much tax-free, but often they will be able to pass on even more, and in certain (unusual) circumstances it will be possible for couples to pass on as much as £4 million combined before any inheritance tax is paid. With large amounts bequeathable tax-free, where tax is payable it will often only be a small percentage of the total value of the estate. The inheritance tax liabilities will be heavily concentrated on the very largest estates.

Inheritance tax due on business and agricultural property will be able to be spread over a 10-year period interest-free.

While the reform scales back business and agricultural reliefs, it is far from removing them completely: the government estimates that the change will raise £520 million a year but still leave these reliefs costing £1.8 billion a year.

How many farms will be affected?

Based on HMRC tax data, the government forecasts that out of the 1,800 estates per year claiming agricultural relief (including those which claim business relief as well), around 500 – 29% – could potentially pay more inheritance tax as a result of curtailing agricultural and business reliefs. However, these figures do not account for any change in behaviour that happens as a result of the Budget policy measures. The number of farming estates actually paying more tax due to the Budget policies could be much lower than 500 per year if, in response to these changes, some people change their behaviour to avoid inheritance tax. That might happen if, for example, more farm-owning couples split the transfer of assets to the next generation across their two estates (to take full advantage of both spouses’ allowances), or if there is increased gifting of assets more than seven years before death.

There has been public exchange of figures on the proportion of farms that will be affected by the tax changes. The National Farmers’ Union has claimed, citing figures from the Department for Environment, Food and Rural Affairs (Defra), that around two-thirds of farms are worth over £1 million and are therefore potentially affected by the Budget measures. It is claimed that this contradicts the government figures above showing that 29% of estates claiming agricultural relief could face higher tax because of the Budget measures.

These two figures measure two different things and there are many reasons the two proportions being cited could differ without this implying that either is incorrect. The government figures based on inheritance tax returns reported to HMRC relate to all estates claiming agricultural relief, while the Defra figures from the Farm Business Survey relate to farms with at least a minimum level of output. One reason the two proportions could differ is that some estates claiming agricultural relief may do so on property that is not producing enough output to be included in Defra’s Farm Business Survey. A second reason for differences is that one estate could include only a share of a farm and/or could include multiple farms. A third reason is that some farms will be gifted well before death and therefore not attract inheritance tax. There may be other reasons for differences too. The share of ‘farms’ or ‘farmers’ affected by the Budget measures depends on how exactly terms are defined.

Will farms have to be sold?

However defined – and therefore whatever the proportions – it is clear that some farms will be able to be passed on tax-free, while others will attract inheritance tax. Those farm owners who do not have a (surviving) spouse or civil partner, or who face a higher chance of dying within seven years, have less ability to manage their affairs so as not to pay inheritance tax.

Where inheritance tax is due, will it lead to farms’ being sold?

As noted above, the tax can be spread over 10 years interest-free. And in principle, the burden of the tax can be spread over longer than 10 years by saving up beforehand or by borrowing (perhaps with the farm as collateral) to pay the tax and paying back the loan more gradually.

Nevertheless, in some cases the farm will simply yield too little income (and the inheritor will have too few other resources) to pay the tax. The owners might choose, or be forced, to sell part or all of the farm. This is a feature of inheritance tax: the same applies to those inheriting a family home, for example.

But it matters when and why farmland is sold and what happens when it is sold. To understand that, it is worth reflecting on why a farm that yields little income might have a high enough market value to attract inheritance tax.

There are several possible (not mutually exclusive) reasons.

One is that the market price of farmland has been pushed up by demand to buy it as a vehicle to avoid inheritance tax. By reducing (though not eliminating) the tax advantages of agricultural property, the Budget reform should reduce its price – softening the inheritance tax hit and the impetus to sell farms, and indeed making farmland more affordable for those who want to buy it for non-tax reasons. That is, the reform will make it easier to get into farming.

A second possibility is that land that currently yields little income has a high market value because potential buyers think they could use the land more profitably – whether by farming more efficiently or by using it for other purposes, such as housing development. Other things equal, reallocation of land for more profitable use should be welcomed. If other things are not equal, and the government wants land to be used in certain ways rather than others – for food security or environmental reasons, for example – then it should directly support the desired activities, making them more financially viable irrespective of inheritance tax.

A third possibility is that the land is already being used as productively as allowed, and the high market value reflects the speculative hope that planning permission might be granted in future for more profitable uses (such as housing development) which are not currently allowed. Pending such permission, continuing the current use of the land might be the most efficient outcome, yet not yield the income needed to cover any inheritance tax liability when it is bequeathed. In such cases, the farm might be sold (in part or whole) but still used for farming – indeed, the existing owners could potentially stay on as tenant farmers.

Should farms be subject to inheritance tax?

There is room for reasonable disagreement about whether we should have an inheritance tax at all. But if we have this tax, it should apply equally across all types of assets. Inheritance tax relief for agricultural and business assets unfairly favours those whose wealth is held in these forms rather than others: those who inherit a (multi-)million-pound farm are wealthy, even if the farm yields little income and they choose not to monetise the asset (around 3% of all estates requiring probate or confirmation have a net estate worth more than £1.5 million, and around 1% of estates requiring probate or confirmation have a net estate worth more than £3 million). And the relief provides a tax incentive for land to be used for agriculture (rather than more profitable but less tax-privileged purposes) and for agricultural property to be owned by those looking to pass on wealth to their heirs tax-efficiently (rather than those who value ownership for other reasons). The changes set out in the Budget reduce but do not eliminate these effects.

If the government wishes to promote certain uses of land – such as producing food, planting trees or encouraging biodiversity – it would be fairer and more efficient to explicitly target support towards the activities it seeks to promote. This would support any farm or business carrying out the desired activity, not only those that are passed on in estates (and not those used for other things), and would not leave open a channel for inheritance tax avoidance. Likewise, if the government wishes to redistribute to certain groups in society, it should do so directly: inheritance tax relief is not a well-targeted tool for doing these things. The government should clearly set out whether it has such aims and its view on the type and level of support required to achieve them.

As with all tax changes, the exact design of the policy and the transition to the new regime are important.

As discussed above, a typical couple might expect to be able to use both of their £1 million allowances. But people will not inherit any unused part of the £1 million allowance from a deceased spouse or civil partner, like they do with the nil-rate band and residence nil-rate band. So, to use both partners’ allowances, each must separately bequeath at least £1 million of the property to others (e.g. children). That means splitting ownership of the property between family members on or before the death of the first partner, rather than bequeathing the whole thing when one of them dies. It will also disadvantage families where one member of the couple has already passed away. There is a good case for making unused portions of the £1 million allowance inheritable by a spouse or civil partner. This would clearly reduce the revenue raised by the policy (and, as with the existing transferability of nil-rate bands, would not help couples who are not married or in a civil partnership).

Gifts made more than seven years before death are not subject to inheritance tax. Yet current farm owners passing away in the next seven years (but after the new regime comes into force in April 2026) will not have had that opportunity to avoid inheritance tax by making lifetime gifts. If the government wished to give current farm (or business) owners the same opportunity to avoid inheritance tax that owners of other assets have, it could do so by transitioning to the new regime more slowly. For example, lifetime gifts of agricultural property made before a certain future date could be made inheritance tax free, regardless of the timing of the death of the giver, so that those farm owners who pass away in the next seven years have an opportunity to make tax-avoiding gifts in light of the Budget changes. This would reduce the revenue raised from the policy, but this would be one-off, rather than permanent, reduction in the revenue raised.

Conclusion

The reforms to taxation of agricultural property proposed in the Budget would reduce the inheritance tax advantages enjoyed by owners of farmland but would still leave that land much more lightly taxed than most other assets. The exact number that will be affected is uncertain but government figures imply it will be significantly less than 500 estates per year. Some relatively simple tax planning will ensure that many farms worth considerably more than £2 million will not be liable for tax. And it is important to remember that most of the inheritance tax payable will be on very valuable estates. Overall, this moves our inheritance tax in the right direction. We should treat similar assets similarly for the purposes of inheritance tax, or any other tax, unless there are very good reasons not to. It is not obvious that such reasons exist in this case, and if the concern is about food production or protection of the environment then much better tools exist to support those activities.

It is not surprising that those who might lose from any tax change will feel aggrieved. That is their right and to be expected. One specific feature that may leave farm owners feeling unfairly treated is that those passing away in the next seven years (but after the new regime comes into force in April 2026) will not have had the opportunity to avoid inheritance tax by making lifetime gifts. If the government wished to give current farm owners the same opportunity to avoid inheritance tax as owners of other assets, it could, for example, make lifetime gifts of agricultural property made before a certain future date inheritance tax free, regardless of the timing of the death.

Whether or not the government wishes to make that tweak to the policy, there is certainly a good case for making unused portions of the £1 million allowance inheritable by a spouse or civil partner, like the other main inheritance tax allowances are.

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Cryptocurrency

The crypto market has risen by more than 3% on December 5 to reach $3.69 trillion, this time thanks to the euphoria surrounding Bitcoin.

The price of the first cryptocurrency surpassed $100,000, a psychologically important milestone. The price then stabilised at $102.4K. It took almost two weeks from approaching this level to crossing it, during which time altcoins became the market driver. Perhaps the pendulum of interest will swing back to bitcoin for a while.

Powell, the Fed chairman, once again referred to Bitcoin as the digital analogue of gold, which was seen as a bullish signal to overcome resistance. While we believe Powell was the reason for the recent momentum, we attribute it to his upbeat comments on the economy, which supported risk appetite. Next, automatic stop orders came into play, pulling the market higher in thin Asian trading.

Ethereum’s next important level for the cryptocurrency markets could be $4,000, which it failed to consolidate above earlier this year.

News Background

Grayscale Investments has filed with the SEC to convert the GSOL Trust into a Solana Spot ETF. Canary, VanEck, 21Shares, and Bitwise are also pending applications to launch Solana ETFs.

Paul Atkins, whom the media have touted as a leading candidate for the position of SEC chairman, has been interviewed by President-elect Donald Trump. However, according to CoinDesk, the position is not attractive to Atkins due to the amount of work involved.

BNB hit a new all-time high above $790 after DEX PancakeSwap unveiled Springboard, a platform for issuing meme coins on the BNB chain.

According to QCP Capital, the main driver of altcoin growth was the proposal to abolish the capital gains tax on cryptocurrencies, which representatives of US companies drafted. The market expects this will create a more favourable regulatory environment for the crypto industry.

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