Market Commentary 13th October 2025 – from Naigil Johnson

UK construction activity remained in contraction territory in September, according to the latest S&P Global UK Construction Purchasing Managers’ Index (PMI). Although the pace of decline slowed slightly, the sector continues to face headwinds, particularly in civil engineering and commercial building. Residential activity showed some resilience, contracting at a slower rate.

In the housing market, the Halifax House Price Index reported a further slowdown in annual growth, marking the weakest rate since April 2024. Average property prices also fell month-on-month for the second consecutive time, reflecting ongoing affordability pressures and softer demand.

The continued weakness across both construction and housing may factor into policy considerations ahead of the Autumn Budget, particularly around support for housing and infrastructure investment. With the Labour government confirming economic growth is a key priority, the recent slowdown in UK economic activity presents a significant challenge and may prompt targeted measures to stimulate demand and unlock investment across key sectors.

In Germany, the HCOB Construction PMI edged slightly higher but remained firmly in contraction territory, pointing to ongoing weakness in the sector. The housing sector continued to act as the main drag, posting its steepest decline in three months. In comparison, the construction PMI in France fell sharply, marking the fastest pace of decline since June and extending the sector’s downturn to a 40-month sequence. Residential activity led the fall, while commercial construction deteriorated further and civil engineering slipped back into contraction.

On the trade front, Germany’s surplus widened to its highest level since May, driven by a smaller-than-expected drop in exports and a sharper fall in imports. Meanwhile, France’s trade deficit narrowed slightly, reaching its smallest level in nine months, though it remained above market expectations.

Global equity markets retreated on Friday, weighed down by escalating trade tensions between the US and China. US President Donald Trump announced plans to impose an additional 100% tariff on Chinese imports starting next month, in response to Beijing’s move to tighten export controls on rare earth elements. He accused China of becoming “very hostile” and attempting to hold the world “captive” through its dominance in critical materials. Although he later softened his stance on a planned meeting with President Xi Jinping, uncertainty around US-China relations remains elevated.

The economic data illustrated that Consumer credit growth slowed sharply in August, rising by only $0.36 billion, the weakest pace in six months. The figure came in well below both the previous month and market expectations, which appeared to indicate cautious household spending habits.

Meanwhile, preliminary data from the University of Michigan showed US consumer sentiment held steady in October, remaining broadly unchanged from September. Improvements in current financial conditions and near-term business outlook were offset by weaker expectations around future personal finances and durable goods purchases.

Chinese authorities imposed a ban on defence-related exports of rare earth minerals and associated technologies, in what is seen as a strategic move ahead of a potential meeting between Presidents Donald Trump and Xi Jinping later this month. China, which dominates global rare earth production, also introduced new port fees on ships linked to the US, which appeared to be a further sign of deteriorating relations between the world’s two largest economies. These developments come amid an uneasy trade truce established in May, with high tariffs still in place on both sides and threats of further increases.

The election of Sanae Takaichi as leader of Japan’s ruling party appeared to improve investor sentiment, due to rising expectations of increased fiscal stimulus. Markets are anticipating a more proactive policy stance under her leadership, particularly around infrastructure spending and household support measures. This shift in outlook contributed to the strong rally in Japanese equities last week, with the Nikkei 225 posting its best weekly performance in months.

Meanwhile, Japan’s economic data provided additional support to market sentiment. Household spending rose more than expected in August, marking its fastest annual growth since May, underpinned by government support measures. Producer price inflation rose 2.7% year-on-year in September 2025, suggesting persistent cost pressures in the supply chain.

GBP / EUR – Current 1.1498 Previous 1.1478

The Pound slipped 0.89% against the US Dollar last week, as investors appeared to grow cautious ahead of the Autumn Budget due in late November. In contrast, the Pound saw an increase of 0.17% against the Euro.