Market Commentary 30th September 2025 – from Naigil Johnson

The UK economy showed renewed signs of weakness in September, as both manufacturing and services activity fell. The latest Purchasing Managers’ Index (PMI) figures showed the UK manufacturing sector experienced its steepest downturn since April, with activity contracting further in September. Output declined at the sharpest rate since March, reflecting continued pressure on producers amid weak demand, rising input costs, and persistent uncertainty. The latest figures marked the third consecutive month of contraction, reinforcing concerns over the sector’s ability to recover in the near term.

Growth in the services sector also lost significant momentum in September. After hitting a high point in August, the pace of expansion cooled notably. While service providers noted stronger consumer and business spending, overall growth remained subdued, hampered by broader economic fragility and elevated geopolitical uncertainty.

The UK economic outlook appeared to remain weak, weighed down by persistent inflationary pressures and ongoing global and domestic uncertainties. With Chancellor Rachel Reeves due to deliver her second Autumn Budget in November, she faces a tough balancing act in funding spending plans, avoiding tax hikes on working people, and adhering to borrowing rules.

Germany’s manufacturing sector weakened in September, with the latest PMI figures showing the steepest contraction in four months. Although production continued to grow, the pace of expansion slowed, and new orders declined sharply. This was the first fall in four months and the most pronounced since January. The data appeared to surprise markets, which had expected a stabilisation in activity.

Germany’s services sector, however, returned to growth, expanding at the fastest pace so far this year. Following several months of decline, the sector saw a notable improvement, supported by resilient domestic demand. Consumer confidence also rose, with the GfK Consumer Climate Indicator improving for a second consecutive month as households grew more optimistic about future earnings.

In contrast, France’s manufacturing sector slipped back into contraction in September, with output falling at its fastest pace since February. The decline was driven by weak domestic demand and subdued export performance, highlighting renewed fragility in the private sector. The services sector also remained under pressure, recording a thirteenth consecutive month of contraction.

The US economy expanded at an annualised rate of 3.8% Quarter on Quarter (QoQ) in Q2 2025, well above the previous estimate of 3.3% and marking the strongest pace of growth in Gross Domestic Product (GDP) since Q3 2023. The upward revision was largely driven by stronger consumer spending, particularly on services, while goods consumption also remained strong.

The S&P Global US Composite PMI fell in September, indicating a second consecutive month of slower expansion. Growth in the services sector slowed to its weakest pace since June, while manufacturing output eased after reaching a multi-year high in August. Despite this, Q3 still looks set to be the strongest quarter since late 2024.

In comparison, the labour market data remained encouraging with Initial jobless claims falling by 14,000 in the third week of September, reaching the lowest level in two months and defying expectations of an increase. Continuing claims also edged lower to their lowest since May. The figures helped to ease concerns raised by recent weak jobs reports, which had prompted the Federal Reserve to resume rate cuts despite lingering inflationary pressures.

Core inflation in Tokyo’s Ku-area held steady at 2.5% year-on-year in September, below expectations for a modest rise. While the reading missed forecasts, it remained above the Bank of Japan’s 2% target, keeping the door open for another rate hike later this year as policymakers weigh inflationary persistence against sluggish growth.

Japan’s latest PMI showed a deeper contraction in factory activity. Manufacturing declined for the 14th time in 15 months, with September marking the sharpest drop since March. In comparison, the services sector remained in expansion but lost some momentum, posting its lowest reading since June. The slowdown suggests that domestic consumption is softening, despite still registering growth for the sixth consecutive month.

In China, official data showed a modest improvement in manufacturing activity. The NBS Manufacturing PMI rose for the second consecutive month, though the sector remained in contraction for the sixth straight month. The slower pace of decline may reflect expectations of further government support ahead of October’s key policy meetings.

In comparison, services activity in China softened, with the Non-Manufacturing PMI slipping to the neutral 50 mark, the lowest since November 2024. Despite recent consumer loan subsidies, the government has yet to announce broader stimulus measures, leaving investors uncertain about the near-term policy trajectory.

GBP / EUR – Current 1.1455 Previous 1.1470

The Pound weakened against the Dollar, falling by 0.52% in the previous week. Stronger-than-expected US economic data boosted demand for the Dollar, lifting its value relative to the Pound. Against the Euro, the Pound fell 0.13%.