Market Commentary 15th September 2025 – from Naigil Johnson

Gross Domestic Product (GDP) figures showed that the British economy stalled in July 2025, after the previous month’s 0.4% growth, in line with economists’ expectations. On a year-on-year basis, the economy grew by 1.4%, matching June’s pace and marking the fastest rate since February, albeit slightly below forecasts of an expansion of 1.5%.

Manufacturing data was notably weaker, with output contracting by 1.3% month-on-month in July. This was the sharpest decline since July 2024. The downturn reversed June’s 0.5% gain and fell short of market expectations for flat growth. Nine out of thirteen manufacturing subsectors recorded declines, which appeared to underline the persistent fragility within the sector.

With wage and inflation figures due this week, the data will likely be scrutinised by the Bank of England ahead of its monetary policy decision on Thursday. Persistent inflationary pressures, combined with stagnating growth, present a challenging backdrop for policymakers as they weigh the timing and extent of any future rate adjustments. Attention is also turning towards fiscal policy, with the Chancellor, Rachel Reeves, expected to deliver the Autumn Budget on 26 November, which could be a key moment in shaping market expectations for fiscal and economic policy going into 2026.

In Germany, the trade surplus narrowed to €14.9 billion in July, down from an upwardly revised €15.4 billion in June and falling short of market expectations for an unchanged reading. This marked the smallest surplus since October 2024, as exports contracted more sharply than imports, underscoring ongoing weakness in external demand.

Inflation trends were mixed across the eurozone’s two largest economies. In Germany, Consumer Price Inflation (CPI) rose to a five-month high of 2.2% in August, in line with preliminary estimates. The increase was primarily driven by higher food prices, indicating ongoing cost pressures for households.

In contrast, France experienced a modest slowdown in inflation, with the annual rate easing to 0.9% in August from 1.0% in July. The decline was mainly due to weaker growth in services prices, a deeper drop in manufactured goods prices, and a more moderate pace of energy deflation. The contrasting inflationary dynamics between Germany and France appear to pose a challenge for the European Central Bank, as it assesses the appropriate policy path in the coming months.

The Bureau of Labor Statistics (BLS) released its preliminary benchmark revision, revealing that the US economy added 911,000 fewer jobs in the 12 months through March 2025 than previously reported. This marked the largest downward revision since at least 2000. This substantial revision suggests that labour market conditions were weaker in 2024 and early 2025 than initially thought, potentially reinforcing the Federal Reserve’s case for easing policy at its upcoming meeting this Wednesday.

Producer prices unexpectedly declined by 0.1% month-on-month in August, marking the first drop in four months. This followed a downwardly revised 0.7% rise in July and came in well below consensus expectations for a 0.3% increase.

Core consumer price inflation, which excludes volatile food and energy components, remained steady at 3.1% year-on-year in August, in line with forecasts. The stabilisation in core inflation may provide further support for the Fed to consider a more accommodative stance as economic momentum shows signs of slowing.

The University of Michigan Consumer Sentiment for the US dropped to 55.4 in September 2025, down from 58.2 in August and well below market expectations of 58, according to preliminary estimates. The decline appeared to signal growing pessimism among US consumers about the state of the economy. Weaker consumer confidence often translates into reduced spending, which could weigh on overall economic growth given that consumer expenditure accounts for a significant portion of the overall economy.

Japan’s economy expanded in the second quarter of 2025, with GDP increasing by 0.5% quarter-on-quarter, exceeding the initial flash estimate of 0.3%. This marked the fifth consecutive quarter of growth and reflected a rebound in domestic demand. This appeared to suggest a more resilient recovery in household spending despite ongoing global uncertainties.

In China, the trade surplus widened to $102.33 billion in August, surpassing both expectations and higher than the $91.29 billion recorded in the same month a year earlier. This was due to the continued outperformance of exports relative to imports. However, export growth slowed to 4.4% year-on-year, as the temporary lift from Beijing’s tariff truce began to fade.

China saw renewed deflationary pressures, with consumer prices falling by 0.4% year-on-year in August, worse than market expectations for a 0.2% decline and the steepest drop since February. This marked the fifth occurrence of consumer deflation in 2025, driven primarily by a sharp 4.3% fall in food prices.

GBP / EUR – Current 1.1558 Previous 1.1528

The Pound strengthened against both the Dollar (+0.35%) and the Euro (+0.26%) over the past week. The Dollar appeared to remain under selling pressure, as investors looked ahead to key monetary policy announcements this week from the Federal Reserve (Wednesday) and the Bank of England (Thursday).