Market Commentary 6th October 2025 – from Matt Taylor

UK consumer credit data signalled continued demand for unsecured lending in August. Net borrowing rose to £1.69 billion, slightly above expectations and marking the strongest monthly increase in four months. Growth was driven by a modest rise in personal loans and car dealership finance. The annual growth rate for overall consumer credit edged up to 7.1%, with credit card borrowing accelerating to 10.5%, reflecting resilient consumer activity despite elevated borrowing costs and cautious lending.

UK economic growth remained resilient in Q2, though external imbalances widened. Gross Domestic Product (GDP) rose by 1.4% year-on-year, revised up from 1.2%, supported by steady household spending and stronger-than-expected government expenditure. However, the current account deficit widened significantly to £28.9 billion (3.8% of GDP), the largest shortfall since Q2 2023. The deterioration was driven by a sharp decline in the primary income balance, as payments to foreign investors increased and income receipts fell.

Housing data offered encouraging signs, as the Nationwide House Price Index rose 2.2% year-on-year in September, beating forecasts, with monthly prices rebounding by 0.5%. Nationwide’s Chief Economist noted that stable mortgage approvals and supportive conditions, such as low unemployment and healthy earnings, are helping sustain housing market activity, with expectations for further improvement if monetary policy eases in the coming quarters.

In France, inflation picked up while business activity continued to contract. The annual inflation rate rose to 1.2% in September, its highest level since January, driven by stronger services inflation. However, the HCOB France Composite Purchasing Managers’ Index PMI fell further, marking the 13th consecutive month of private sector contraction and the steepest decline since April. Both manufacturing and services sectors saw faster output declines, although the pace of new business contraction eased slightly.

Germany showed signs of economic divergence, with rising inflation and improving business activity but persistent labour market weakness. Inflation accelerated to 2.4% in September, the highest rate this year, with price pressures broadening across goods and services. The unemployment rate remained at 6.3%, as joblessness rose more than expected. Meanwhile, the HCOB Germany Composite PMI was revised down slightly, but still indicated the strongest private sector growth since May 2024, led by a rebound in services, while manufacturing hovered near stagnation.

US labour market data remained broadly stable in August, while sectoral trends diverged. Job openings edged up, in line with expectations, with notable increases in healthcare, leisure, and retail. However, construction and federal government openings declined. Regional trends were mixed, with gains in the South and Midwest offset by declines in the Northeast and West. Hiring and separations were little changed, suggesting a steady labour market backdrop.

Other indicators pointed to softening demand and persistent cost pressures. The ISM Manufacturing PMI edged up in September, signalling continued contraction but at a slower pace. While production rebounded, new orders and employment weakened, and inventory levels and backlogs continued to decline. Meanwhile, the ISM Services PMI fell, indicating a stall in activity. Business activity and new orders slowed, employment remained in contraction territory, and price pressures intensified, with the prices index reaching its second-highest level since late 2022. Supplier delays and a slower contraction in backlogs offered limited signs of resilience.

China’s manufacturing sector showed signs of stabilisation in September, with PMI data showing improvement from the previous month and exceeding expectations. While factory activity remained in contraction territory, improvements in output, new orders and business sentiment, driven by hopes of policy support and trade clarity, suggest a more optimistic outlook heading into Q4.

Japan’s economic data for Q3 2025 painted a mixed picture. Business sentiment among large manufacturers improved for a second consecutive quarter, supported by a trade deal with the U.S., while capital expenditure plans rose at the fastest pace in seven quarters. Consumer confidence also reached a nine-month high, and the Composite PMI signalled continued private sector growth despite a slowdown in factory output. However, the data showed that inflationary pressures remained a concern.

On the labour front, Japan’s unemployment rate rose to 2.6% in August, the highest in over a year, as employment declined and the jobs-to-applicants ratio fell to its lowest since early 2022. While labour force participation edged higher year-on-year, foreign demand continued to weaken, and new business growth remained subdued. Despite a pickup in service sector hiring, overall economic momentum appears to be softening, with inflation and external risks weighing on the outlook.

GBP / EUR – Current 1.1478 Previous 1.1455

The Pound strengthened against both the Dollar and the Euro last week, rising by 0.58% and 0.20% respectively, supported by resilient UK economic data. Strong consumer credit figures, upwardly revised GDP growth, and a rebound in house prices all signalled underlying economic stability, while expectations for easing monetary policy added to positive sentiment.