Market overview – Richard Carter, Head of Fixed Interest Research
The UK economy recorded no growth in July and after a strong start to the year it seems like positive momentum in the GDP figures has fizzled out. After beginning the year with a 0.7% expansion in the first quarter, there has been a clear slowdown. A 0.0% reading for July followed a 0.4% expansion in June, a -0.1% reading in May and a -0.3% print for April. This leaves the three months to July reading at 0.2%.
US President Donald Trump’s tariff announcements at the start of the second quarter could be seen as one macroeconomic factor that has dampened global growth. The announcement also appears to have boosted growth beforehand, as the expectation of the levies led to a surge in exports to the US to avoid the higher taxes. In the UK, higher domestic taxes, such as the national insurance increases, have also weighed on activity.
The forthcoming UK Budget, scheduled for 26 November, is expected by many economists to see further increases on domestic taxes, with forecasts in the region of £20bn-£50bn required to plug the hole in public finances. Labour’s manifesto pledge to not raise income tax, employees’ national insurance and VAT mean that the levers which raise the majority of taxes are seemingly off limits.
Weekly economic announcements:
Last week the MSCI All Country World Index gained 1.7% (17.2% YTD), extending its recent winning streak.
United States:
US equities traded broadly in line with global benchmarks last week, rising 1.6% (13.0% YTD). Major benchmarks reached new record highs. Inflation data showed a rise in price pressures with the US consumer price index (CPI) coming in at 2.9% for the 12 months through August. This was above the 2.7% reading for July. Core CPI, ex food and energy, showed a 3.1% print. There was a notable contrast between inflationary pressures for consumers and producers, with the latter seeing an unexpected deceleration. The producer price index (PPI) fell 0.1% on a monthly basis, taking the annual reading to 2.6%, down from 3.1% prior.
Overall, the inflation readings were seen as providing little reason for the Federal Reserve to further hold off on lowering rates. While inflation has generally increased in recent months since the tariff announcements, it remains seemingly under control. Of greater concern for rate setters seems to be the softening labour market. This notion gained further credence last week as the initial jobless claims figure reached its highest level in nearly four years at 263k.
United Kingdom:
UK stocks were a bit of a laggard last week, adding 0.8% 16.8% YTD). Mid-caps gained 0.3% (7.6% YTD). Heightened expectations of future US rate cuts helped to lift the pound against the US dollar, with the pair closing the week at US$1.36. It was a fairly uneventful week for UK government bond markets, with the 10-year gilt yield rising three basis points (0.03%) to close at 4.67% (up 11 basis points YTD).
Europe ex UK:
European stocks gained last week, with the MSCI Europe ex UK adding 0.9% (11.6% YTD). German equities were notable underperformers, rising 0.4% (19.0% YTD). Meanwhile, French stocks shrugged off recent political instability to gain 2.0% (9.1% YTD) as Italian bourses rose 2.3% (29.2% YTD).
Approver Quilter Cheviot 15/09/25
