Market Commentary October 2025
Markets in Focus: Inflation, Growth, and Global Policy Challenges
Inflation and economic growth were the key themes for global markets in September, as politicians, economists, and central bankers continued to wrestle with the balance between stability and growth.
In 2025, economic indicators are being watched more closely than ever — not least due to the uncertainty created by President Trump’s trade policies and their global ripple effects. Yet, while data shifts from week to week, the fundamentals of investing remain the same: patience and diversification reward the disciplined investor, and a well-balanced global portfolio remains the best defence against volatility.
United Kingdom
Persistent inflation has reduced expectations of another interest rate cut in 2025.
At its September meeting, the Bank of England’s Monetary Policy Committee voted 7–2 to hold rates at 4%, with two members favouring a 0.25% reduction. Inflation remained at 3.8% in August and is expected to edge up towards 4% in September — double the Bank’s 2% target. Forecasts suggest inflation will gradually return to 2% by Q2 2027.
Markets had previously priced in a further rate cut for November, but that now appears unlikely given the inflation picture.
Wage growth slowed in August, with the Office for National Statistics (ONS) reporting a fall of 8,000 payrolled employees, part of a 127,000 decline over the past year. Unemployment remained steady at 4.7%, while slower earnings growth offered some relief to inflationary pressures but further strain for households already struggling with higher living costs.
There is some optimism that inflation may cool later in the year, but the broader outlook remains challenging. If Chancellor Rachel Reeves seeks to raise taxes in November’s Budget, doing so in an environment of rising inflation, weak wage growth, and rate uncertainty would be politically difficult. Following recent turmoil and a Cabinet reshuffle, Reeves risks becoming the next senior figure under pressure.
United States
The US economy is showing signs of slower growth. EY forecasts GDP growth of 1.7% for 2025, 1.6% for 2026, and 1.4% for 2027.
Tariffs remain a key factor. Whether absorbed by businesses (reducing profits) or passed on to consumers (raising inflation), both outcomes weigh on growth. The labour market is also softening, while inflation is expected to rise modestly — a situation now familiar in the UK. The Federal Reserve’s policy committee is increasingly divided, adding further uncertainty.
There are still positives: retail sales rose again in August, suggesting resilient consumer spending, though analysts question how long that will last given the broader headwinds.
The US government shutdown, the first since 2018, stems from a deadlock in the Senate over spending on Trump’s Big Beautiful Act. Democrats are using the standoff to demand continued health insurance subsidies for low-income households and a reversal of cuts to Medicaid. With Republicans holding 53 of the 60 votes required, Democrats have forced negotiations through a shutdown, affecting around 800,000 federal workers — 40% of the workforce. Markets remain relatively calm for now, viewing the disruption as temporary, but prolonged inaction could change that. President Trump has threatened mass dismissals if progress stalls.
Meanwhile, Fed Governor Lisa Cook remains in post after the US Supreme Court ruled she can continue until January, when it will hear her case following Trump’s attempt to dismiss her over unproven mortgage fraud allegations. She will vote on interest rates at least twice more before then.
Europe
The European Central Bank (ECB) updated its forecasts in September, expecting Eurozone growth of 1.2% in 2025, falling to 1% in 2026 before rising to 1.3% in 2027 — a slightly improved outlook on stronger-than-expected first-half data.
The ECB believes recent strength is not solely due to pre-tariff stockpiling but still anticipates stagnation in Q3 and a return to modest growth in Q4.
Inflation remains relatively well-controlled at 2.2%, close to the 2% target, and could fall below that in 2026. Accordingly, the ECB has kept rates unchanged.
However, manufacturing activity continues to slow. The Purchasing Managers’ Index fell to 49.8 in September, down from 50.7, signalling contraction, with export orders also weaker.
Like the Bank of England and the Fed, the ECB faces the same balancing act — controlling inflation while supporting growth. A collective pause in rate movements across major central banks in September was prudent, but speculation will persist about the next steps. In France, the resignation of Prime Minister Lecornu has heightened the likelihood of early elections, adding further instability.
Far East
China’s manufacturing sector contracted for the sixth consecutive month in September, with the official PMI rising slightly to 49.8 from 49.4 — still below the 50 threshold for expansion. Weak domestic demand and export uncertainty from tariffs continue to weigh on growth.
In response, Beijing announced a $70 billion financing programme to support investment in areas such as AI, infrastructure, transportation, and logistics. While the stimulus may stabilise short-term activity, analysts view it as a sign of declining confidence in meeting the 5% growth target.
In Japan, core inflation held at 2.5% in Tokyo, maintaining expectations of another 0.25% rate rise either later this month or in January. The Bank of Japan, which raised rates to 0.5% in January — its first hike in years — continues to tread cautiously as it monitors inflation persistence.
Emerging Markets
Several emerging economies — including Kenya, Sri Lanka, Panama, and Colombia — are seeking to reduce borrowing costs by shifting debt issuance away from the US dollar and towards currencies such as the Chinese renminbi and Swiss franc. This aligns with the strategic ambitions of China, India, and Russia to reduce global reliance on the dollar.
In India, foreign investors withdrew $2.7 billion from equities in September, contributing to a record $17.6 billion outflow for the year to date. The combination of tariffs, a new $100,000 H-1B visa fee, and disappointing corporate results has weakened sentiment and hit both India’s tech industry and its US clients.
Argentina received a boost with news of potential US financial support, including discussions around a $20 billion swap line with its central bank and the possible purchase of government debt. Meanwhile, Ecuador announced plans to rewrite its constitution through referendums — part of President Daniel Noboa’s re-election platform alongside controversial plans to remove fuel subsidies.
Conclusion
September underscored the fine line central banks are walking: controlling inflation without stifling growth. The combined effects of tariffs, political tension, and global policy divergence have made that balance even harder to maintain.
Across the UK, Europe, and beyond, political instability continues to complicate economic management, especially as governments approach key budget announcements. For investors, the message remains familiar — stay diversified, stay patient, and look beyond the short-term noise.
Whether you need to write or update your will, protect your assets, or simply gain peace of mind, sometimes all it takes is a fresh pair of eyes – Book a meeting or request a callback today.
Aetas Wealth is a trading style of Insight Financial Associates Ltd, which is authorised and regulated by the Financial Conduct Authority (FCA No. 458421).
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