Market Commentary 1st December 2025 – from Naigil Johnson

Chancellor Rachel Reeves delivered the Autumn Budget last week, although the Office for Budget Responsibility (OBR) inadvertently published its budget forecast ahead of schedule. The leaked documents outlined the key fiscal measures, including a front-loaded £9 billion spending increase and £26 billion in tax rises, setting the framework for the government’s economic strategy over the next five years.

Chancellor Reeves defended the budget, emphasising that the £26 billion in additional tax revenue would fund increased welfare spending, resulting in the highest overall tax burden since the Second World War. Market participants appeared to respond positively to the commitment to more disciplined public finances, contributing to a modest decline in government bond yields.

The report also projected that borrowing would fall below 2% of GDP by the decade’s end, providing the Treasury with more than double the anticipated headroom compared with earlier forecasts. Approximately two-thirds of the expected reduction in borrowing over the next five years is attributable to higher tax receipts, including the freezing of personal tax thresholds for an additional three years beyond 2028.

Germany’s economy stagnated in Q3 2025, recording zero growth quarter on quarter (QoQ), following a slight contraction in Q2. Modest improvements in investment, stronger government spending, and positive inventory contributions helped offset weakness elsewhere.

France’s economy in comparison expanded by 0.5% QoQ in Q3, up from 0.3% in the previous quarter, marking the fastest quarterly growth since Q2 2023. The expansion was supported by resilient domestic demand and a rebound in exports.

Germany’s annual inflation rate stood at 2.3% in November, unchanged from October and slightly below expectations. Price pressures across services remained steady, while goods inflation eased further. Food prices rose at a slower pace than in the previous month and energy costs continued to decline, albeit more gradually than before.

France’s annual inflation rate held at 0.9% in November, matching the previous month and coming in just below forecasts. Service inflation softened, driven mainly by lower communication related costs, while prices for manufactured goods fell more sharply, reflecting weaker demand and continued discounting of goods.

US producer prices increased by 0.3% in September, reversing the decline seen in the previous month and broadly matching market expectations, according to a delayed report from the Bureau of Labor Statistics (BLS). Factory gate costs were driven higher largely by stronger food prices, with rising meat costs offsetting declines elsewhere in the category.

US retail sales posted a modest gain of 0.2% in September, marking the smallest rise in several months and falling short of expectations. Activity was supported by stronger spending in discretionary retail categories and higher turnover at fuel stations.

Initial jobless claims declined for a third consecutive week, returning to their lowest levels since early in the year and defying expectations for an increase. The continued resilience in labour market indicators underscores the ongoing strength of the broader US economy.

Profits at China’s industrial firms continued to rise in the first ten months of 2025, increasing by 1.9% year on year (YoY), though growth slowed compared with earlier in the year as demand softened and pricing pressures persisted. Earnings in the private sector weakened noticeably, while state-owned enterprises remained largely flat.

Japan’s unemployment rate held steady at 2.6% in October, slightly above market expectations, reflecting a small increase in the number of unemployed. It remains at its highest level since mid-2024, highlighting ongoing pressures in the labour market.

Core consumer prices in Tokyo’s Ku area rose to 2.8% YoY in November, unchanged from the previous month and slightly above expectations. Inflation remains above the Bank of Japan’s 2% target, which appeared to reinforce expectations of a gradual shift toward tighter monetary policy.

GBP / EUR – Current 1.1411 Previous 1.1377

The pound gained both against the euro (+0.30%) and the dollar (+1.04%) following the Chancellor’s statement last week, which was interpreted as easing worst-case fears without offering a significant improvement to the long-term outlook.