Market Commentary 23rd June 2025 – from Charlie Hancock

Inflation data showed that the headline rate of consumer price inflation slowed to 3.4% in May from the 3.5% recorded for April. Services inflation saw a relatively sharp decline, slowing to 4.7% from 5.4% in April. Meanwhile, Purchasing Managers’ Index (PMI) data showed that business activity in the UK economy accelerated during June, with growth in the services sector offsetting weakness in the manufacturing sector.

The Bank of England (BoE)’s monetary policy committee voted to keep interest rates on hold at 4.25% following its policy meeting last week. Policymakers were divided, with 3 voting members favouring an interest rate cut. The BoE’s governor, Andrew Bailey, stated that interest rates remain on a “gradual downward path”, but ongoing global uncertainty will mean the central bank is cautious regarding future rate cuts.

PMI data for the Eurozone indicated that the bloc saw marginal growth during June. The services sector saw activity rise during the month, while the manufacturing sector continued to experience declining activity. Meanwhile, a closely watched economic sentiment indicator in Germany recorded a significant improvement in June, with recent government stimulus efforts improving the mood amongst businesses.

The Swiss National Bank unexpectedly cut interest rates to 0% last week, with the central bank citing low inflation and currency strength as factors driving the decision. The Norwegian central bank cut its key deposit rate by 0.25% to 4.25%, marking the first rate cut the Norges Bank has implemented since 2020.

Ongoing developments in the Middle East appeared to impact investor sentiment throughout the week, with markets weighing up the potential impact of the US intervening to support Israel in the conflict with Iran. Economic data was weaker than expected. Retail sales data for May showed a decline of 0.9%, while property market data showed new home construction fell sharply.

The Federal Reserve’s Open Market Committee voted to keep interest rates on hold last week, which marked the fourth consecutive vote for a pause in rate cuts. The central bank’s Chair, Jerome Powell, stated that the central bank remained “well positioned” to respond to economic developments. The Fed now expects economic growth to slow during the remainder of 2025, while inflation is predicted to rise.

Economic data in China was mixed. Retail sales rose by 6.4% year-on-year in May, which was the fastest growth recorded since December 2023. Analysts cited a temporary government incentive programme for appliances as a driver for the strong increase in retail sales. Industrial production and fixed asset investment data came in weaker than expected, while the property market remained in the doldrums as new home prices in major cities saw a relatively sharp decline.

Inflation data in Japan showed that core consumer price inflation rose by 3.7% year-on-year last month, which was higher than expected. The Bank of Japan (BoJ) kept interest rates unchanged at 0.5%, while signalling that the size of the central bank’s quantitative easing programme will be reduced from April 2026. The BoJ appeared to be taking a cautious approach regarding the outlook for the economy. Meanwhile, trade representatives from Japan and the US failed to reach an agreement on tariffs at the G7 summit in Canada. Japanese officials stressed that the nation’s automotive industry must be protected within any revised trade deal.

GBP / EUR – Current 1.1681 Previous 1.1748

The Pound declined by 0.88% against the US Dollar and 0.57% against the Euro last week. The ‘safe haven’ US Dollar strengthened against most major currencies last week amidst rising tensions in the Middle East.