Market Commentary 8th September 2025 – from Matt Taylor

Angela Rayner resigned as housing secretary and Deputy Prime Minister, after admitting she underpaid £40,000 in stamp duty on a second home. An ethics review found she breached conduct standards by failing to seek proper tax advice. Her departure intensifies scrutiny on the Government’s housing and tax agenda and raises fresh concerns over the stability of the Labour leadership.

UK economic indicators showed mixed momentum in July and August. Consumer credit borrowing rose to £1.6 billion, the highest in three months, driven by increases in both credit card and personal loan activity. The S&P Global Composite Purchasing Managers’ Index (PMI) was revised slightly higher in August, marking the fastest expansion in a year, led by strong services growth despite continued manufacturing contraction and job shedding. Retail sales rose 0.6% month-on-month in July, boosted by seasonal factors and the UEFA Women’s EURO 2025, though annual growth of 1.1% fell short of expectations.

The HCOB France Manufacturing PMI signalled the first expansion in the sector last month, since early 2023, driven by easing contractions in output and new orders. Employment grew at the fastest pace in over three years, supported by improved business confidence, although supply chain pressures persisted. The broader economy also showed modest improvement, with the Composite PMI edging closer to growth territory. Meanwhile, France’s budget deficit narrowed to €142 billion in the first seven months of 2025, helped by a 6% rise in revenues and a slight drop in government spending.

The HCOB Germany Composite PMI pointed to marginal growth for a third consecutive month, with manufacturing activity stabilising and output improving. However, the services sector slipped back into contraction and employment fell at the fastest rate in six months, mainly in manufacturing, with business confidence weakening.

The S&P Global US Manufacturing PMI showed solid improvement in August, with production and new orders growing strongly. In contrast, the ISM Manufacturing PMI, which is skewed towards larger companies, continued to show weakness, with falling production and employment, and many businesses blaming tariffs for higher costs and reduced competitiveness. On the services side, activity remained strong, with the ISM Services PMI showing its best performance in six months, although employment continued to decline.

Signs of a cooling labour market continued to build. Job growth slowed sharply, with nonfarm payrolls rising by just 22,000 in August and job losses seen in government, manufacturing, and wholesale trade. The unemployment rate ticked up to 4.3%, and job openings fell to their lowest level in nearly a year. Consumer sentiment weakened again, with the Economic Optimism Index falling back into negative territory, reflecting growing concerns about personal finances and confidence in government policy.

The US trade deficit widened in July, driven by a sharp rise in imports, while export growth remained modest. Businesses continued to adjust to tariff-related cost pressures, with many front-loading purchases ahead of expected price increases. Despite these challenges, business confidence in future output improved, suggesting cautious optimism amid ongoing economic uncertainty.

President Trump’s tariff policy faces a pivotal legal challenge after a federal appeals court ruled his “reciprocal tariffs” exceeded presidential authority last month, with the Supreme Court now set to decide their fate. A reversal could force the government to refund billions in collected duties.

China’s manufacturing sector showed mixed signals in August. The official NBS Manufacturing PMI remained in contraction, though output grew at its fastest pace in months, helped by a temporary extension of the US-China tariff truce. Employment stayed soft, and input costs rose sharply, driven by higher wages and raw material prices. The broader economy saw modest growth, with the Composite PMI rising as services rebounded, though challenges persist from weak household confidence and a prolonged property slump.

Japan’s economy continued to expand in August, with the S&P Global Composite PMI showing the strongest pace of growth since February, driven by robust services activity. Factory output declined slightly, but new business rose at the fastest rate in six months. Household spending increased for a third straight month, however inflation remained elevated, despite government efforts to ease the burden. The Coincident Economic Index, measuring economic activity, fell to its lowest level since early 2024, reflecting concerns over slowing momentum. The Bank of Japan held interest rates steady but raised its inflation forecast, highlighting ongoing risks to the recovery.

GBP / EUR – Current 1.1528 Previous 1.1555

The Pound slipped by 0.23% against the Euro last week due to stronger investor confidence in the Eurozone. Meanwhile, the Pound edged up by 0.04% against the US Dollar as weak US labour data raised expectations for Fed rate cuts, making the Dollar less attractive.