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Introduction
Global equity markets rose in September, with notably strong performance from Japan, Asia and Global Emerging Markets. Investor sentiment was supported by resilient company earnings updates, as well as optimism over easing monetary policy, particularly in the US where the Federal Reserve reduced its interest rate for the first time this year. Fixed income markets also recorded gains, also supported by the US rate cut.
Economic Overview
UK
Bank of England
As widely expected, the Bank of England held its interest rate at 4%, although two out of nine policymakers favoured a 0.25% cut. Governor Andrew Bailey stated that while inflation is expected to eventually hit the 2% target, future rate cuts will be gradual whilst the scale and timing remains uncertain. The Monetary Policy Committee voted 7-2 to slow gilt sales, focusing on short- and medium-term bonds, aiming to reduce the balance sheet while minimising gilt market disruption.
Economic Growth
Official data shows UK GDP growth slowed to 0.3% in Q2, down from 0.7% in Q1. Growth was driven mainly by a 0.4% rise in services and a 1% increase in construction, while production fell by a more than expected 0.8%. Household spending edged up 0.1%, government spending rose 1.3%, business investment fell 1.1% (less than initially estimated), exports declined, and imports were unchanged. Year-on-year growth reached 1.4%.
In July, the economy stagnated as expected, with services up 0.1%, construction up 0.2%, and production down 0.9%, led by a 1.3% drop in manufacturing output. The three months to July saw 0.2% growth, slowing from Q2’s 0.3% pace.
Unemployment & Labour Market Statistics
Labour data show that payrolls fell for the seventh month in a row, indicating a slowdown in the jobs market. Unemployment held steady at 4.7%, its highest since mid-2021, but the Office for National Statistics (ONS) advised interpreting this data cautiously. Job vacancies increased to 728,000 from their lowest level since early 2021, marking the first uptick since February 2024. Annual growth in regular pay rose by 4.8% in the three months to July and when adjusted for inflation, it grew 1.2%. Private sector wage growth, which is closely monitored by the Bank of England, dipped slightly to 4.7%. Total pay including bonuses rose 4.7%, with real terms growth at 1.0%.
Inflation
UK inflation held steady at 3.8% in August, the highest among major economies, with motor fuels driving the increase. Food and non-alcoholic drink prices rose by 5.1%, the strongest pace since January 2024, while restaurants and hotels, and household goods prices also climbed. Transport costs tempered overall inflation, largely due to a 3.5% drop in air fares. Inflation slowed for recreation, culture, clothing, and footwear. Core inflation dropped to 3.6%, services inflation (which the Bank of England views as a key measure of domestically-generated inflation) to 4.7% from 5%, and goods inflation edged up to 2.8%.
US
Federal Reserve & Interest Rates
The Federal Reserve cut its interest rate by 0.25% to a range of 4%-4.25%, with only one dissent from Governor Stephen Miran, who favoured a larger cut. Chair Jerome Powell signalled possible further reductions at upcoming meetings, citing a weakening job market but noting ongoing inflation risks. Powell emphasised the Fed’s cautious approach, balancing inflation control with employment goals. New forecasts project 2025 inflation holding at 3% and unemployment at 4.5%.
Economic Growth
The Commerce Department raised its estimate of Q2 annualised growth from 3.3% to 3.8%, the highest in nearly two years and above forecasts. Q1 contraction was revised from -0.5% to -0.6%. Upgrades in consumer spending (from 1.6% to 2.5%) and fixed investment supported the revision, while government spending fell less than expected. Residential investment declined more than previously estimated. Net trade contributed less, as exports dropped faster and imports improved slightly. Private inventories made a larger negative impact than earlier reported.
Inflation
US consumer prices saw their largest rise in seven months this August, with the Consumer Price Index increasing 0.4%, driven by higher housing and food costs. Year-over-year, CPI rose 2.9%. Core CPI, which excludes food and energy, climbed 0.3% in August and 3.1% over the past year, with notable increases in tariff-related goods like vehicles and apparel, whilst services prices rose 0.3%, amid a sharp rise in airline fares.
Europe
European Central Bank and Interest Rates
As widely expected, the European Central Bank (ECB) maintained its interest rate at 2%, whilst retaining a positive view on growth and inflation. The ECB President Christine Lagarde said “We continue to be in a good place”, adding that inflation was where the central bank wanted it to be whilst the domestic economy was solid.
Economic Growth
Eurostat confirmed the Eurozone grew 0.1% in Q2, slowing from 0.6% in Q1. Household spending edged up 0.1%, while investment and exports contracted. Government spending rose 0.5%, having contracted in the first quarter, and inventories contributed positively. Among the large economies, Spain led with 0.7% growth; France expanded 0.3%. Germany and Italy contracted by 0.3% and 0.1% respectively. Year-on-year, the economy grew 1.5%, slightly higher than earlier estimates.
Inflation
Annual inflation in the Eurozone was unchanged at 2% in August, slightly below the preliminary estimate of 2.1% but in line with the original forecasts. Unprocessed food inflation rose to 5.5% from 5.4%, whilst energy prices fell by 2% compared with their 2.4% decline in July. Processed food, alcohol and tobacco prices increased by 2.6%, slightly below the previous 2.7% pace. Annual core inflation, which excludes prices for energy, food, alcohol and tobacco, was unchanged at 2.3%, slightly above the forecasted small decline to 2.3%, with services inflation easing lower from 3.2% to 3.1%.
Asia and Emerging Markets
Japan
The Bank of Japan (BOJ) held its interest rate at 0.5%, though two members proposed an increase to 0.75%. Governor Kazuo Ueda noted future rate decisions would reflect ongoing data review, especially regarding potential impacts from US tariffs and political changes as the Prime Minister steps down. The BOJ plans to sell exchange-traded funds at roughly 330 billion yen and real-estate trusts at about 5 billion yen annually, with the pace subject to future review—it could take over a century to divest all holdings.
Japan’s second quarter economic growth was revised up from 1% to 2.2% annualised—the fastest since Q3 2024—driven by higher private consumption, increased capital spending, and strong export recovery. Quarter-on-quarter growth reached 0.5%, surpassing the earlier estimate of 0.3%.
Market Overview
CR = Capital return; LC = Local currency
Source: Lipper for Investment Management
Past performance is not a reliable indicator of future performance
UK equities recorded gains in September, with the mid cap FTSE 250 slightly ahead of the FTSE 100. The stronger global economic outlook supported investor sentiment, despite some mixed domestic data. The FTSE 100 benefited from its exposure to overseas earners, whilst commodity and mining stocks performed well. The FTSE 250 was supported by positive corporate updates.
US equities, as shown by the S&P 500, provided a good positive return, supported by the Federal Reserve reducing its interest rate, as well as optimism over further cuts later this year, with IT and communication services among the strongest performing sectors. The gains came despite renewed tariff concerns and the prospects of a US government shutdown. European markets, as demonstrated by the FTSE World Europe ex UK Index, also rose although it lagged other developed markets amid mixed regional performances, with Germany a notable underperformer as it suffered a small loss. Otherwise, broadly strong corporate earnings helped offset some mixed economic data. The Japanese Nikkei 225 Index produced a strong gain despite political uncertainty, including a new record high with sentiment supported by the weaker yen and good returns from technology-related stocks.
Asian markets performed well, as shown by the rise in the MSCI Asia ex Japan Index. Easing US-China trade tensions was supportive, contributing to gains in the Chinese market, whilst Taiwan and South Korea produced strong performance. The broad MSCI Emerging Markets Index also produced a robust positive return, led by emerging Asian markets whilst there were also gains for Latin American equities. The weaker US dollar was also supportive for Emerging Markets, as was signs of policy support amid easing inflation.
UK government bonds (FTSE Actuaries UK Conventional Gilts Index) rose in September, supported by the Bank of England’s decision to slow the pace of its gilt sales as well as selling less long-dated bonds. Investment grade bonds also rose, although by slightly less than gilts. There were also gains for US treasuries amid a first cut in US interest rates this year with the expectation of more to follow later in 2025.
This update is intended to be for information only and should not be taken as financial advice.
CA13166 Exp:10/2026
