UK
UK outperforms US over H1: despite a turbulent start to 2025 – compounded by an escalation of ongoing conflict in the Middle East – UK equity markets performed strongly over the first half of the year. The FTSE 100 Index rose by 7.2% on a six-month basis, outperforming the US Dow Jones Industrial Average Index and the S&P 500 Index, which rose by 3.6% and 5.5%, respectively. During June, defence stocks were boosted by the news that the UK had agreed to spend 5% of GDP on national security by 2035. Over the month, the FTSE 100 Index edged 0.1% lower, while the FTSE 250 Index rose by 2.8%.
Trade tensions: the Bank of England’s (BoE’s) Monetary Policy Committee held interest rates at 4.25% at its June meeting. Giving evidence to the House of Commons Treasury Select Committee, BoE Governor Andrew Bailey said that the path for UK rates remains downwards, although ongoing tariff-related uncertainties means that the pace of future cuts is shrouded in much more uncertainty. He called for countries to return to the multilateral table but commented: “The US-China relationship is the centre of this whole thing, really.”
Elevated uncertainty: the Organisation for Economic Cooperation & Development (OECD) warned that the UK’s “very thin fiscal buffers” might not provide sufficient support without breaching fiscal rules in the event of an adverse shock to growth. The OECD expects the UK economy to grow by 1.3% this year, slowing to 1% next year, citing “heightened trade tensions, tighter financial conditions and elevated uncertainty.” Elsewhere, the Confederation of British Industry (CBI) predicted that UK growth will slow as companies struggle with higher labour costs, inflationary pressures, and global uncertainty. The CBI cut its forecast for UK economic growth this year from 1.6% to 1.2%, and next year from 1.5% to 1%.
Worsening outlook for living standards? Real household disposable income per head posted its first quarterly decline since early 2023, indicating that the outlook for UK living standards may be deteriorating. Meanwhile, having risen by 1.3% in April, UK retail sales volumes dropped by 2.7% in May, representing their fastest monthly decline since December 2023. The annualised rate of consumer price inflation eased from 3.5% to 3.4% in May as lower prices for transport were offset by higher food costs.
Global
Gloomy outlook: geopolitical events took a new turn in June as Iran and Israel engaged in a short but intense ‘12-day war’ that also included a US military attack on three Iranian nuclear facilities. Meanwhile, trade-related uncertainty dampened the outlook for the global economy: the World Bank warned that it could be heading for its worst decade since the 1960s, saying: “Economic cooperation is better than any of the alternatives – for all parties.”
Trump intensifies pressure on the Fed: imports of goods to the US dropped by 20% during April in response to President Trump’s tariffs, cutting the US trade deficit in goods by 43%. Although the annualised rate of US inflation edged up to 2.4% in May, the tariffs appear to have had a limited impact on US consumers so far. The Federal Reserve (Fed) left interest rates unchanged, triggering fresh criticism of Fed Chair Jerome Powell from President Trump, who warned that he would select a new Chair to replace Chair Powell at the end of his term. The US dollar dropped to its lowest level against the pound since mid-2021.
Big, Beautiful Bill: as June ended, the US Senate was preparing to vote on President Trump’s “Big, Beautiful Bill.” The Congressional Budget Office calculated that the controversial bill would increase the budget deficit by US$2.4 trillion from 2025-2034. Over June, the Dow Jones Industrial Average Index rose by 4.3%.
ECB cuts again: the eurozone’s economy expanded by 0.6% over the first three months of 2025 compared with 0.3% in the previous quarter, underpinned by expansion of 9.7% in Ireland, reflecting its exposure to US multinationals. Inflation in the eurozone dropped below the European Central Bank’s (ECB’s) 2% target during May, falling from 2.2% in April to 1.9%, curbed by declines in the services sector. The ECB cut its key interest rate from 2.25% to 2% but warned that trade-related uncertainty was set to weigh on business investment and exports. The Dax Index fell by 0.3% in June.
Inflationary pressures: in Japan, industrial production slowed by 1.8% year on year during May, reflecting the impact of US tariffs. Although the rate of core consumer price inflation slowed to 3.1% in June, it remained well above its 2% target. The Nikkei Index rose by 6.6% over the month, underpinned by yen weakness.
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.