Market Commentary 25th November 2025 – from Naigil Johnson

UK inflation eased in October to 3.6%, its lowest level in four months and broadly in line with Bank of England expectations. The decline was driven mainly by lower housing and utility costs following Ofgem’s energy price cap adjustment. Core inflation also eased to a six-month low of 3.4%, signalling moderating underlying pressures. Monthly price growth matched forecasts, though food and non-alcoholic beverages saw a small uptick, which appeared to indicate continued strain on household essentials.

Retail sales weakened as consumers appeared to delay spending ahead of Black Friday offers. Annual sales growth was minimal, underscoring cautious household behaviour. This was mirrored in sentiment data, where the GfK Consumer Confidence Index fell further as households prepared for possible fiscal tightening in the upcoming Autumn Budget this Wednesday.

The manufacturing sector showed signs of recovering with the latest Purchasing Managers’ Index (PMI) figures, showing manufacturing returning to expansion as domestic demand improved and input costs eased. The services sector, however, moved closer to stagnation amid client caution and staffing adjustments. With cost pressures still present but output prices softening, business confidence has moderated, suggesting a challenging backdrop as uncertainty and subdued demand persist.

German producer prices fell by 1.8% year on year in October, marking an eighth consecutive monthly decline. The drop was driven largely by sharply lower energy costs, particularly natural gas and electricity. Excluding energy, however, producer prices rose by 0.8%, suggesting potential underlying inflationary pressures.

The HCOB Manufacturing PMI in Germany showed manufacturing slipped deeper into contraction as output growth softened, new orders continued to fall, and export demand remained weak. Employment also declined, while factory gate prices fell for the first time in four months. The Composite PMI eased as services growth slowed, leaving Germany facing subdued growth prospects into the final quarter of the year. Although confidence has improved marginally in manufacturing, softer sentiment in services appeared to continue having an impact on the overall outlook.

In France, business conditions showed early signs of stabilisation in November. The Composite PMI moved close to the expansion threshold, helped by a rebound in services that offset a deeper contraction in manufacturing. While manufacturers continued to report deteriorating order books and weaker foreign demand, export orders registered a rare improvement.

The Federal Reserve lowered its target range for the federal funds rate by 25 basis points to 3.75%–4.00% in October. Minutes from the meeting revealed a notably divided Committee, with some officials pushing for an additional cut while others preferred to pause. This division appeared to suggest considerable uncertainty around the December decision. Sentiment shifted later in the week after New York Fed President John Williams suggested there is scope for near-term easing without jeopardising the inflation objective. His remarks boosted expectations of another cut in December and fuelled a rally across global bond markets.

September’s US nonfarm payrolls report, which is a crucial indicator of the US labour markets health and economic activity, rebounded after August’s decline. The rebound was supported by gains in healthcare and hospitality services, while manufacturing and transportation continued to shed jobs. The unemployment rate edged up to its highest level since 2021, reinforcing signs of a softening labour backdrop. With October’s jobs report cancelled due to the government shutdown, the September figures now serve as the final labour update before the next Fed meeting, complicating the policy outlook.

The S&P Global Composite PMI rose to its strongest level since July, driven by robust services activity and steady expansion in manufacturing, suggesting that business activity remained resilient. New orders increased at the fastest pace in nearly a year, though employment growth slowed and firms reported rising input costs, contributing to renewed selling price pressures.

The housing market also showed signs of improvement. Existing home sales rose in October, reaching an eight-month high as easing mortgage rates and expectations of further Fed cuts supported demand. Inventory tightened and median prices held firm, which appeared to suggest that underlying demand is holding up even as affordability challenges persist.

Japan’s economy contracted in the third quarter, shrinking by 0.4% quarter-on-quarter and reversing the growth seen in Q2. Although the decline was smaller than expected, it marked the first quarterly fall since early 2024. Weak private consumption and a negative contribution from net trade weighed on output, with US tariffs contributing to a 1.2% drop in exports. Offsetting this, government spending and business investment recorded their strongest increases in five quarters.

Inflation in Japan increased to 3.0% in October, its highest level in three months. The increase was driven by higher electricity costs following the expiration of subsidies, as well as ongoing food price pressures, despite some easing in rice prices.

Producer prices in Japan continued to rise, with the current account surplus widening to a record level, underpinned by strong goods trade and robust investment income. Overall, while Japan faces near-term headwinds to growth, it appears to continue to benefit from external surpluses and robust capital spending.

GBP / EUR – Current 1.1377 Previous 1.1335

The pound moved 0.37% higher against the euro last week, as softer eurozone PMI readings and renewed growth concerns appeared to put pressure on the euro. In contrast, the pound slipped 0.55% against the US dollar, with the dollar strengthening on rising expectations of a Federal Reserve rate cut in December.