22 Oct 2025
UK inflation in September unexpectedly stabilized due to falling food prices, increasing expectations for a Bank of England interest rate cut. India and the United States are nearing a significant trade agreement, while Japan introduced a new economic package to combat inflation and bolster strategic industries; precious metals, gold and silver, experienced their sharpest declines in twelve years, although their long-term fundamental drivers remain strong.
UK inflation unexpectedly remained stable at 3.8% in September, primarily due to the first decline in food prices in 16 months, which helped offset rising car fuel costs. This figure was below economists' 4% forecast, with the core services inflation, a key indicator for the Bank of England (BoE), holding at 4.7%.
Although the 3.8% inflation rate is still above the BoE's target, concerns about persistent price pressures, especially for food, have eased following weaker economic and labor market data. This surprising inflation data has significantly increased market expectations for a BoE interest rate cut, with traders now assigning a 70% probability to a quarter-point reduction in December, up from 30-40% previously.
The Chancellor of the Exchequer expressed satisfaction with the data and promised new budget measures on November 26 to control inflation and alleviate pressures from regulated prices like energy and public services, which could also reduce public spending. Households, who have been under pressure from rising food and energy costs, welcomed the moderation in price increases, viewing September as a potential peak for inflation, which is now expected to gradually decline from its 3.8% current level. Bond markets reacted positively, with yields on UK two-year bonds falling by approximately 10 basis points to 3.725%, their lowest since August 2024, while the pound weakened 0.14% against the dollar. However, separate data indicates that inflationary pressure in the early production chain, particularly for food, continues to rise, with output producer prices increasing 3.4% year-over-year in September.
India and the United States are reportedly close to finalizing a trade agreement that could reduce US tariffs on Indian exports from 50% to 15-16%. This deal might involve India gradually reducing its imports of Russian oil and allowing increased US exports of sorghum and non-GMO soybean meal. The agreement is expected to be announced at the ASEAN leaders' summit in Malaysia (October 26-28), where a meeting between Prime Minister Modi and President Trump is anticipated.
President Trump confirmed a phone call with Prime Minister Modi, during which Modi assured a reduction in Russian oil purchases, a move that could enhance India's eligibility for certain tariff benefits. Since the invasion of Ukraine, India has been a major importer of discounted Russian oil, which constitutes about one-third of its total oil imports, despite Washington's pressure to reduce financial support for Russia's war effort.
Japanese Prime Minister Takaiishi has ordered a new economic package designed to alleviate inflationary pressures on households and businesses, prioritizing the rising cost of living. While refraining from monetary policy interference, the package includes financial measures such as winter subsidies for electricity and gas, reasonable aid to mitigate price increases, and incentives for small companies to raise wages and investments. The strategy focuses on targeted and limited interventions rather than large-scale initiatives.
The economic package also aims to strengthen Japan's economic and defense security through investments in strategic industries like AI, semiconductors, and vital supply chain infrastructure. It includes provisions to address potential US tariffs, such as executing a previously announced joint investment plan with Washington, involving Japan's $150 billion investment in key US economic sectors in exchange for tariff reductions. Further discussions on this are expected during PM Takaiishi's upcoming meeting with President Trump.
Gold and silver experienced their most severe single-day declines in twelve years, as investors engaged in profit-taking amid concerns that the recent historic price increases had led to overvaluation. Spot gold plummeted 6.13%, marking its largest drop in 12 years, while spot silver fell 8.17%. A daily decline exceeding 5% for these precious metals is statistically rare, occurring perhaps once in several thousand trading days, thus halting the previous week's bullish trend that had seen them reach record highs.
The previous surge in gold prices was primarily attributed to expectations of Federal Reserve interest rate cuts and currency depreciation, prompting some investors to shift from government bonds and official currencies to safe-haven assets like gold and silver. Central bank purchases, particularly from India as the second-largest global gold buyer, significantly influence gold prices and market liquidity. For silver, its traditional industrial applications are as critical as its store-of-value function.
The recent rally in silver prices was also influenced by historic pressure in the London market, where spot prices surpassed 1980 records—a period when the Hunt brothers attempted to corner the market—leading to London spot prices exceeding New York futures and necessitating metal shipments from the US to London. Recent gold inflows were further linked to concerns about US economic credit quality, driving approximately $8 billion into physical gold ETFs in one week, the largest inflow since 2018, which naturally leads to profit-taking.
Option trading volume in the largest gold ETF reached an all-time high, indicating increased market volatility and speculative activity. The US government shutdown, however, has prevented commodity traders from accessing crucial weekly CFTC reports on hedge fund and money manager positions in gold and silver futures. This lack of data and oversight raises the possibility of speculators establishing unusually large positions in specific directions, potentially exacerbating market movements.
Despite the recent correction, gold's fundamental long-term drivers, such as continued purchases by central banks, remain robust. Analysts largely maintain a bullish outlook, expecting higher gold prices in the coming months, acknowledging that healthy and inevitable periodic corrections are a natural part of any upward market trend.
Despite a significant correction in gold and silver, their long-term fundamental drivers remain robust, leading analysts to anticipate higher prices in the future, as market corrections are normal and inevitable.
| Key_Development | Significance |
|---|---|
| UK September Inflation | Unexpected stability at 3.8% due to food price drops, increasing Bank of England interest rate cut expectations to 70% for a 0.25% cut in December. |
| India-United States Trade Agreement | Nearing finalization to cut US tariffs on Indian exports (from 50% to 15-16%); India commits to gradually reducing Russian oil imports. |
| Japan's New Economic Package | Prime Minister Takaiishi orders measures to alleviate inflationary pressure on households and businesses, including strategic investments in AI and semiconductors. |
| Gold and Silver Market Correction | Sharpest decline in twelve years (gold -6.13%, silver -8.17%) driven by profit-taking and concerns about overvaluation after historical price highs. |
| Long-term Gold Outlook | Despite the correction, fundamental drivers like central bank purchases remain strong, leading analysts to anticipate continued upward price trends with normal periodic corrections. |
