Market Commentary 1st July 2025 – from Naigil Johnson

The British economy grew by 0.7% in Q1 2025, matching the preliminary estimate and marking the strongest quarterly growth in a year. This was driven by a 0.7% rise in the services sector, led by administrative and support services (up 3.7%) and wholesale and retail trade (up 1.6%).

The UK Nationwide House Price Index dropped 0.8% in June 2025, reversing May’s 0.4% rise and going against predictions of a 0.2% increase. The building society said the weaker demand in prices could be attributed to the changes to Stamp Duty in April but remained optimistic expecting the housing market to pick up in the months ahead.

With the autumn Budget approaching, leading economists warn that Sir Keir Starmer’s reversal on benefit cuts and winter fuel payments have created a £4.5bn shortfall in public finances. The Resolution Foundation says protecting existing disability and health benefit claimants will cost much more than expected. The combined reversal of benefit cuts and winter fuel payments will mean nearly £5bn must now be found before Chancellor Rachel Reeves presents the Budget in Autumn.

According to preliminary estimates, Germany’s annual consumer price inflation eased to 2.0% in June 2025, down from 2.1% in May and below market expectations of 2.2%. This marks the lowest level since October 2024 and brings inflation back in line with the European Central Bank’s target for the first time since then. In contrast, France’s annual inflation rate rose to 0.9% in June, defying forecasts that it would remain at May’s four-year low of 0.7%.

Germany’s cabinet approved a draft budget for 2025 and a financial framework for 2026, featuring record investment plans aimed at reviving the economy and reaffirming its commitment to defence ahead of a key NATO summit. To help stimulate growth after two consecutive years of economic contraction, the proposals include investments of €115.7 billion in 2025 and €123.6 billion in 2026, up significantly from €74.5 billion in 2024.

The US economy contracted by 0.5% in Q1 of 2025, a sharper decline than the second estimate of a 0.2% drop and the first quarterly contraction in three years. The weaker GDP figure was largely attributed to significant downward revisions in consumer spending and exports. Consumer spending increased by 0.5%, the slowest pace since the sharp declines of 2020 and down from the earlier estimate of 1.2%.

US Consumer Confidence declined in June as indicated by the Conference Board Consumer Confidence Index, which fell from 98.4 in May to 93.0 in June. Stephanie Guichard, a senior economist at the conference board, highlighted the significance of the decline, outlining that “Consumer confidence weakened in June, erasing almost half of May’s sharp gains”. Consumers appeared to have a less positive outlook about current business conditions in the US compared to the previous month.

The US ISM Manufacturing Purchasing Managers’ Index (PMI) dropped to 48.5 in May 2025 from 48.7 in April and below the expected 49.5. This marks the third straight month of contraction and the steepest decline since November 2024, reflecting rising economic uncertainty and ongoing cost pressures, partly due to volatile trade policies under the Trump administration.

The US reached an agreement with China to speed up supply of magnets and rare earth minerals from Beijing to the US, while the US would allow Chinese students in its colleges and universities. Although the agreement showed potential progress following months of trade uncertainty and disruption, investors assessed the long-term goal of a definitive trade deal between the two economic rivals.

Profits at China’s industrial firms fell by 1.1% year-on-year, reversing a 1.4% increase recorded in the January–April period. The decline highlights the persistent deflationary pressures and rising trade uncertainty caused by steep US tariffs.

Japan’s unemployment rate remained steady for the third consecutive month, remaining at 2.5% in May 2025, in line with market expectations. The number of unemployed fell by 40,000 to a three-month low of 1.72 million, while employment increased by 33,000 to a record high of 68.37 million.

GBP / EUR – Current 1.1705 Previous 1.1681

The Pound saw a notable increase of 1.97% against the US Dollar. The rally appeared to have been driven by a dramatic weakening of the dollar as the US President’s trade war unsettled financial markets. Against the Euro, the Pound registered a more modest gain of 0.21%.