November market update - Reflections on October 2025

Despite the record-length US government shutdown, global markets have stayed steady as investors look past short-term disruption, focusing on the broader economic outlook.

What does the US government shutdown mean for markets?

The US government shutdown is now the longest in history, with the Senate deadlocked in a standoff between Republicans and Democrats over spending plans. The shutdown has blacked out crucial data — from jobs to overall growth — making the US Federal Reserve’s (Fed) job more difficult. Millions of unpaid federal employees have curtailed their spending, while there are concerns that business and consumer confidence could weaken.

Normally, each week of a shutdown trims about 0.2 percentage points from GDP. The good news is that these losses are quickly reversed once the government reopens. While a shutdown can create short-term headwinds, most analysts agree that even a prolonged hiatus is likely to have only a limited impact on overall growth. Following previous shutdowns, the economy has typically bounced back quickly once operations resumed.

So far, the impact on equities has been largely muted. History also shows that shutdowns have had little lasting effect on equity performance. While there are concerns they could weigh on growth, stock markets have generally done well afterwards. Following the 2018/19 shutdown, the market rose by more than 25% over the next 12 months; after the 2013 shutdown, the broad market gained 20% in the following year.

Why is UK inflation so high?

While UK inflation has fallen since the pandemic, price growth remains much higher than in other Western countries. After reaching a low of 1.7% in September 2024, inflation has been driven higher by rising household utility bills, particularly for energy and food.

The UK depends more heavily on imported gas than most other major economies. Gas prices surged in 2022 and have yet to return to pre-pandemic levels. Because of the UK’s marginal pricing system, gas sets electricity prices more than 90% of the time, as the most expensive energy source determines the final cost.

Food prices have also continued to climb. Rising labour costs from National Insurance increases and weak harvests have pushed up expenses for retailers and suppliers, which have been passed on to consumers through higher supermarket prices.

Regular pay growth has also outpaced inflation this year, with the government adding to price pressures through an increase in the National Living Wage.

UK inflation unexpectedly held steady at 3.8% in September for the third consecutive month. Following the recent resurgence, the Bank of England believes inflation may now have peaked and could fall in the coming months. The central bank held interest rates at 4% at its November meeting amid signs of easing inflation and a slowing economy, opening the door to a possible rate cut in December.

Why is China’s economy showing signs of cooling?

China’s economy is showing further signs of slowing as trade tensions, a struggling property sector and subdued consumer demand weigh on growth. GDP rose by 4.8% year on year between July and September, down from 5.2% in the second quarter, its weakest pace in a year.

The property sector remains under pressure, with real-estate investment declining 13.9% in the year to September. The housing market faces a sharp downturn, characterised by falling home prices, weaker sales and developers abandoning projects.

Consumer spending also remained subdued in September, with real retail sales growth slowing to 3.5% from 4.1% previously. Industrial production provided some relief, rising 6.5% in September, ahead of expectations.

Despite trade tensions, China’s exports rebounded in September, boosted by global demand. Overall exports rose 8.3% in the year to September, up from 4.4% the previous month. However, exports to the US fell by 27% year on year, while shipments to the EU, South-East Asia and Africa grew by 14%, 15.6% and 56.4% respectively, as China diversified away from the American market.

Although the US and China have now reached a trade deal, tensions could flare up again. Analysts believe the deal is unlikely to have a major impact on China’s longstanding domestic challenges.

Looking forward

All eyes will be on Chancellor Rachel Reeves’s second Budget on 26 November, where she is widely expected to raise taxes and cut spending as she attempts to plug a hole in the public finances. Markets will also be watching closely for signals on how the government plans to strengthen the public finances while promoting growth.

As expected, the Fed cut rates by a quarter percentage point for the second time this year at its October meeting. Markets are pricing in another quarter-point cut in December, although Fed Governor Lisa Cook has signalled that a further reduction is far from assured.

Despite the threat of a trade war and weakening employment data, the US economy continues to show resilience. Earnings season has started well, with around 85% of S&P 500 companies reporting results above expectations. Consumer spending remains robust, and equity markets are supported by strength in the technology sector. However, inflation remains elevated, and the full impact of tariffs has yet to filter through.