29 Sept 2025
The market maintains a green trajectory, albeit with diminished exuberance compared to previous days, as broader economic conditions suggest a challenging second half of the year marked by potential consumption decreases and persistent inflation. The UK, however, reported stronger-than-expected Q2 GDP growth, indicating resilience despite ongoing export challenges and an uncertain monetary policy outlook from the Bank of England.
The market continues its green, upward trend, though its exuberance decreased following the CPI data release. While most sectors remained green, essential consumer goods (raw materials and non-essentials), and healthcare showed distinct performance due to earnings and sector-specific trends.
Numerous economic events are unfolding, with the full impact of factors like tariffs yet to be realized, potentially leading to reduced consumer spending and corporate revenue in the second half of the year. Wage growth is slowing, and large AI-driven tech companies, despite past profitability, are sensitive to recessionary indicators.
Both CPI and PCE data indicate that inflation remains high, with services inflation showing particular stickiness. This persistent inflation, coupled with potentially stagnant wage growth and a cooling labor market, suggests a difficult second half of the year for both stock markets and overall economic profitability.
The UK's Q2 GDP performed better than anticipated, with a monthly growth of 0.3% against a 0.1% forecast and a production growth of 0.4%, doubling expectations. This performance contributes to the UK's fastest H1 growth among G7 nations, fulfilling a government pledge, even as the economy faces expected constraints.
Key sectors driving the UK's economic expansion include information technology and communications, consulting activities, and health and social care. Manufacturing also showed suitable growth despite increased barriers to selling in the US market due to tariffs.
The UK faces a notable decrease in precious metals exports to the US, falling by £700 million to its lowest level since 2022. Furthermore, businesses and households anticipate potential tax increases in the autumn budget and rising employment costs from new regulations, leading to reduced investment in non-essential goods.
The Bank of England is in a predicament regarding further interest rate cuts, despite signs of stabilized inflation and satisfactory growth, as underlying economic activity shows weakening. Concerns over recent inflation increases led to a divided committee during the last meeting, resulting in two votes and adjusted outcomes, complicating future policy decisions given the uncertainty surrounding inflation's trajectory.
Critical economic data releases are scheduled, including industrial production and GDP figures from Europe, and the US Producer Price Index (PPI), which is a significant inflation indicator that will provide further insights for forecasting the Personal Consumption Expenditures (PCE) index.
The second half of the year presents challenging conditions for both stock markets and the economy, with potential for reduced corporate profitability, stagnant wage growth, and persistent high inflation.
| category | insight | impact |
|---|---|---|
| Market Performance | Market remains green but less exuberant due to CPI data; varied sector performance noted. | Reduced investor 'feel-good' factor, slower index growth. |
| US Economic Outlook | Potential for decreased H2 consumption and corporate revenue; wage growth slowing. | Increased pressure on business profitability and household income; tech companies sensitive to recession. |
| Inflationary Environment | CPI and PCE indicate persistently high and sticky inflation, especially in services. | Challenging H2 for markets and economy, dilemma for central bank policy. |
| UK GDP (Q2) | Better-than-expected growth (0.3% monthly, 0.4% production), fastest H1 G7 growth. | Boosted confidence for Chancellor; resilience in key sectors like IT and manufacturing. |
| UK Economic Challenges | £700M drop in precious metal exports to US; fear of new taxes and employment cost increases. | Reduced investment in non-essential goods; potential for slowed overall economic momentum. |
| Bank of England Stance | Divided committee on rate cuts due to inflation concerns despite overall economic stabilization. | Uncertainty in future monetary policy; first-ever repeat voting for rate decisions. |
