September monthly market update - Reflections on August 2025

Steady inflation, trade optimism and strong earnings lift global stock markets to record highs, reinforcing hopes that lower US interest rates are on the way.

US Federal Reserve (Fed) Chair, Jerome Powell, pointed to a possible rate cut at September’s meeting, while arguing that the inflationary impact of President Donald Trump’s tariffs could prove temporary.

Global equities climbed to record highs as steady US inflation strengthened expectations of monetary easing, while the extension of the US–China trade truce added support. A robust corporate earnings season has also helped, with most companies beating forecasts.

US consumer price inflation held steady at 2.7% in July, with prices up 0.4% since April. Core inflation, excluding food and energy, rose to 3.1% – the fastest pace in six months. Producer prices, which track wholesale costs, increased 3.3% over the year, suggesting tariffs are weighing on the economy.

Many economists expect the Fed to cut rates in September, with another move before year end. Tensions with Trump deepened after he ordered the removal of governor Lisa Cook, giving him the chance to nominate a replacement and increase his influence.

The US labour market also softened. Just 73,000 jobs were added in July, while unemployment rose to 4.2% from 4.1%. Consumer confidence fell for the first time since April, with households bracing for higher prices from tariffs.

UK inflation picks up

UK inflation rose unexpectedly in July as summer travel drove up air fares. Prices increased 3.8%, up from 3.6% in June and the highest in 18 months. At the same time, the Bank of England cut interest rates for the fifth time this year, lowering them by 0.25 percentage points to 4%. It warned that rising food costs could push inflation higher.

The move brings borrowing costs to their lowest since March 2023 amid mounting economic concerns. The Bank now expects inflation to reach 4% in September, up from a previous estimate of 3.75%, and highlighted evidence that higher employer national insurance contributions are discouraging firms from hiring.

Most economists believe Chancellor Rachel Reeves will need to raise taxes in the Autumn Budget, as weak growth and higher borrowing costs make fiscal targets harder to achieve. Growth slowed to 0.3% in the second quarter, down from 0.7% in the first, though still slightly above forecasts.

The labour market continued to cool. Unemployment reached a four-year high of 4.7% in the three months to June, while vacancies fell by 44,000. Average wage growth held steady at 5%, though openings declined by 5.8% to 718,000 between May and July.

Trade truce boosts Asia

Asian equities rose after President Trump signed an order delaying higher tariffs on Chinese imports for 90 days. The US will maintain a 30% tariff on Chinese goods, while China will keep a 10% tariff on US exports.

China’s economy showed further signs of slowing in July. Industrial output rose 5.7%, the weakest pace since November, down from June’s 6.8%. Retail sales grew 3.7%, the slowest since December 2024. Exports were stronger, climbing 7.2% year-on-year, while imports grew at the fastest pace in a year as businesses rushed to benefit from the tariff pause.

Even so, Chinese manufacturers remain under pressure from weak demand, falling factory prices and a prolonged housing slump. Property prices and construction both declined, while unemployment edged higher as millions of graduates entered a weak job market.

Eurozone steadies

Eurozone inflation stayed at 2% in July, with lower energy costs and a stronger euro keeping prices contained. It was the second consecutive month at the European Central Bank’s (ECB) target. The ECB cut rates in July for the eighth time in a year to 2%, but signalled a likely pause in September amid trade uncertainty.

The eurozone economy slowed after a strong start to the year, with GDP rising just 0.1% between April and June, compared with 0.6% in the first quarter. Still, demand has held up. Retail sales were stronger than expected in the second quarter, supported by consumer confidence, while employment levels remain high across member states.

Trade tensions with the US eased after a deal to apply 15% tariffs on most eurozone exports, averting a broader trade war between two of the world’s largest economies.