UK
What’s in the red box? During September, investors became increasingly preoccupied by possible measures in the forthcoming Autumn Budget. Concerns over the state of the UK’s public finances and worries over the possibility of tax increases pushed up the yield on the 30-year gilt to its highest level since 1998. Having grown by 0.4% in June, the UK economy stagnated in July as growth in the services and construction sectors was more than offset by a sharp contraction in the manufacturing sector. Meanwhile, the Office for National Statistics revealed that government borrowing had hit £18 billion – its highest August level since 2020.
All that glitters record gold prices drove up share prices in the mining sector during September, propelling the FTSE 100 Index to a new high. Over the month, the FTSE 100 Index rose by 1.8%, while the FTSE 250 Index climbed by 1.9%. In the quarterly review of FTSE 100 Index constituents, luxury design house Burberry and Metlen Energy & Metals were promoted to the blue-chip index, replacing housebuilders Taylor Wimpey and student accommodation provider Unite Group.
Inflation remains the key to lower rates: the Bank of England (BoE) maintained its key base rate at 4% in September. In an interview with West Midlands Life, BoE Governor Andrew Bailey commented: “I think there is still some further journey down in interest rates to go. But exactly when that will be and how much it will be will depend on the path of inflation going down.” The annualised rate of inflation remained at 3.8% in August. Although food price inflation rose by 5.1% - its fastest pace since January 2024 – this was mitigated by slower growth in prices for clothing, footwear, and transport.
Lacklustre forecast from OECD: the Organisation for Economic Cooperation & Development (OECD) predicted that a tighter fiscal stance, higher trade costs, and uncertainty are set to hamper external and domestic demand, causing UK growth to slow from 1.4% this year to 1% next year. The OECD also raised its forecast for average UK inflation during 2025 from 3.1% to 3.5%, representing the highest rate of any of the G7 countries. Elsewhere, having improved slightly in August, UK consumer confidence deteriorated once again in September, according to a survey by GfK that highlighted the impact of high day-to-day costs on UK households.
Global
First US rate cut since 2024: interest rates took centre stage in September as the US Federal Reserve (Fed) finally delivered a much-anticipated cut of 25 basis points, taking the key federal funds rate to a range of 4% to 4.25% – its lowest level2 since December 2022. Policymakers expect4 rates to ease to an average of 3.6% at the end of this year, 3.4% at the end of 2027, and 3.1% at the end of 2027. Fed Chair Jerome Powell commented: “It’s not a bad economy … we’ve seen much more challenging times” but also warned: “There are no risk-free paths now.”
US hits new highs: second-quarter US corporate earnings proved stronger than expected, providing a boost for investors. The Dow Jones Industrial Average Index rose by 1.9% during September and registered six new closing highs over the month. As September ended, however, the prospect of a US government shutdown loomed, sending the price of the price of gold to a fresh record.
More rate cuts to come? The rate of US economic growth in the second quarter was revised up from 3.3% to 3.8%, representing its fastest pace since the third quarter of 2023. The Organisation for Economic Cooperation & Development (OECD) expects the US economy to expand by 1.8% in 2025 and 1.5% in 2026, following growth of 2.8% in 2024. Annualised consumer price inflation10 reached 2.9% in August, while the core personal consumption expenditure (PCE) index remained steady at 2.9% in August, stoking hopes of further monetary easing.
France and Italy set to drag on European growth: having expanded by 0.6% in the first quarter of 2025, the eurozone’s economy expanded by 0.1% in the second quarter. The OECD expects the euro area’s economy to grow by 1.2% this year, slowing to 1% next year. Although fiscal expansion is predicted to provide a boost for Germany’s economy, consolidation is likely to curb growth in France and Italy. The Dax Index edged 0.1% lower over the month.
Stronger growth in Japan: following the resignation of Japan’s Prime Minister Shigeru Ishiba, the yield on the 30-year Japanese government bond (JGB) hit a new all-time high. Japan’s second-quarter economic growth was revised up from 1% to 2% year on year, lifted partly by a stronger contribution from private consumption. The Nikkei 225 Index rose by 5.2% during September.
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.