UK
Sentiment picks up: after a torrid April, UK equity markets rose during May as investor sentiment improved, boosted by hopes of a continued moderation in global trade tensions. The UK and US reached a one-year tariff agreement that will include a baseline 10% tariff on UK imports to the US and cuts to vehicle import tariffs. The UK and EU also agreed a partial “reset” on their trading relationship. Over May, the FTSE 100 Index rose by 3.3%, while the more domestically focused FTSE 250 Index climbed by 5.8%.
UK rates fall: policymakers at the Bank of England (BoE) voted by five to four in favour of cutting the key base rate2 from 4.5% to 4.25% in May, taking UK rates to their lowest level4 for two years. However, BoE chief economist Huw Pill also cautioned against policymakers cutting too quickly, observing: “The MPC started cutting … slightly too early in 2024.”
Risks to growth: the BoE9 warned that US trade policy had created “a new source of risk for the global economy” although the impact on the UK’s growth outlook is expected to be relatively small. Elsewhere, the International Monetary Fund (IMF) warned that “persistent uncertainty” caused by global trade tensions will reduce UK economic growth by 0.3% by 2026. Nevertheless, having cut its forecast for UK economic growth for this year from 1.6% to 1.1% in April, the IMF upgraded its 2025 prediction to 1.2% and maintained its 2026 forecast at 1.4%, urging the UK government to “stay the course” on its fiscal plans.
Inflationary pressures intensify: the annualised rate of consumer price inflation rose sharply in April from 2.6% in March to 3.5%, stoked by in part by an increase in domestic energy prices; meanwhile, service price inflation rose from 4.7% to 5.4% year on year. The UK economy expanded by a better-than-expected 0.7% during the first quarter of 2025, boosted by activity in the services sector.
Backing Britain: seventeen of the UK’s biggest workplace pension providers intend to allocate at least 10% of their defined contribution default funds into private markets by 2030, with at least 5% of the total to be invested in the UK. The pledge forms part of the new Mansion House Accord and is designed to secure better financial outcomes for DC savers through the higher potential net returns available in private markets.
Global
Tariffs remain in the spotlight: share prices recovered during May as fears of a tariff-induced global recession receded. Nevertheless, markets remained jittery as the trade saga continued to unfold. Although President Trump announced a “reset” for the US/China relationship, relations between the two nations soured when the US announced plans to revoke Chinese students’ visas. He also revealed plans to impose 50% tariffs on imports from Europe but subsequently suspended this measure until 9 July.
… but are the tariffs legal? President Trump’s trade policy was thrown into fresh disarray as the Court of International Trade ruled that the tariffs were illegal; nevertheless, they will remain in place while the Trump administration appeals the ruling. The Dow Jones Industrial Average Index rose by 3.9% in May, while the technology-rich Nasdaq Index climbed by 9.6%.
Not so beautiful? The US House of Representatives passed President Trump’s “One Big Beautiful Bill”, raising concerns about the potential impact on US national debt. The yield on the ten-year US Treasury bond yield rose from 4.18% to 4.4% over the month, while the 30-year Treasury bond yield increased from 4.69% to 4.92%.
Fed leaves rates unchanged: the US Federal Reserve maintained its key federal funds rate at a range of 4.25% to 4.5%, commenting that the uncertainty created by President Trump’s tariffs had made it “not at all clear what … (it) should do” with regard to monetary policy.
US loses its last perfect rating: credit ratings agency Moody’s downgraded the US’s top triple-A rating to “Aa1” and changed the outlook from “stable” to “negative”, citing the impact of rising government debt and interest costs. Fitch downgraded the US in 2023, while S&P Global Ratings downgraded it in 2011.
Better-than-expected growth for Germany: Germany’s economy expanded by a revised 0.4% over the first three months of 2025, compared with a contraction of 0.2% in the final quarter of 2024. Overall growth was boosted by activity in manufacturing and exports. The Dax Index rose by 6.7% over May.
Bank of Japan to cut again? Japan’s annualised rate of consumer price inflation remained unchanged at 3.6% in April. However, core inflation – which strips out the impact of fresh food – rose to 3.5%, stoking speculation that the Bank of Japan might seek to tighten rates again. During May, the Nikkei 225 Index rose by 5.3%.
As ever, if you have any questions regarding your investments, please do not hesitate to contact us by calling +44 (0) 7917 390 344 or emailing me at richardbrazier@culverfinancial.co.uk and we will be happy to talk to you.