Market Commentary 19th January 2026 – from Naigil Johnson

The UK economy grew by 0.3% month-on-month in November 2025, rebounding from a 0.1% contraction in October and exceeding market expectations of 0.1% growth. On an annual basis, the economy grew by 1.4% year-on-year in November, up from 1.1% in October and above market forecasts of 1.1% growth, signalling a more resilient economic performance than anticipated.

The UK’s trade deficit narrowed in November 2025, reflecting a pick-up in exports while imports remained broadly unchanged. Exports reached a three-month high, supported by higher shipments of goods, particularly to EU countries. Strong demand for medicinal and pharmaceutical products to Germany and France contributed notably to the rise.

France’s annual inflation rate eased to 0.8% in December 2025, its lowest level in seven months, down from 0.9% in each of the previous two months and in line with the preliminary estimate. The slowdown was largely driven by a sharper year-on-year decline in energy prices. In comparison, the annual inflation rate in Germany fell to 1.8% in December, matching flash estimates and down from 2.3% in November. The reading dipped below the European Central Bank’s 2% target midpoint for the first time since September 2024, representing the lowest inflation rate in 15 months.

The German economy expanded by 0.2% in 2025, rebounding from a 0.5% contraction in 2024, according to preliminary estimates. This marks the end to a two-year period of economic contraction, underpinned by stronger household consumption and government spending. However, exports appeared to continue to face headwinds from higher US tariffs, a strong euro, and rising competition from China.

US consumer prices rose by 0.3% month-on-month in December 2025, in line with market expectations and matching the increase seen in September. The annual inflation rate held steady at 2.7% in December, unchanged from November and broadly in line with forecasts. Core consumer prices, which exclude the more volatile food and energy components, rose by 0.2% month-on-month in December, slightly below market expectations of 0.3%. The annual core inflation rate remained at 2.6% in December, the lowest since March 2021, and unchanged from November.

US producer prices continued to rise in November, accelerating from the modest increase seen in October and meeting market expectations. The increase was largely driven by higher costs for goods, particularly energy, which appeared to suggest that input costs for businesses are climbing and could feed through into consumer prices in the months ahead.

Retail sales in the US showed a solid rebound in November, marking the strongest increase since July and reversing the slowdown seen in October. The improvement was supported by a recovery in car sales following the expiry of federal tax incentives on electric vehicles, as well as strong holiday shopping. The data points to resilient consumer demand heading into the end of the year, providing a boost to the broader economy.

China recorded a record trade surplus in 2025, reflecting strong export growth while imports remained largely unchanged. The expansion in exports was supported by a strategic shift in production away from the US in response to tariffs, towards alternative markets, notably the EU and Southeast Asia. The monthly trade surplus exceeded $100 billion on seven occasions last year, highlighting the resilience of Chinese exports despite ongoing global trade tensions.

Japan’s producer prices rose 2.4% year-on-year in December 2025, easing from a 2.7% increase in November and in line with market expectations. This marked the slowest annual rise since May 2024, reflecting a moderation in input costs across a range of sectors.

GBP / EUR – Current 1.1536 Previous 1.1519

Sterling fell by 0.18% against the dollar last week but gained 0.15% versus the euro. The pound remained volatile, briefly strengthening after data showed the UK economy expanded in November, but gains were short-lived as analysts noted the headline figure masked underlying economic weakness.