Market Commentary November 2025

October delivered a mix of strong market performance and significant political and economic tension. Equity markets reached new highs, inflation figures were better than forecast, and UK retail sales surprised on the upside. At the same time, pressure is building on Chancellor Rachel Reeves ahead of the Autumn Statement on 26 November, where she may face further criticism and potentially challenge Labour’s own manifesto tax commitments.

United Kingdom

Inflation held at 3.8% in September, beating expectations that it would peak at 4%. The Bank of England still expects inflation to fall back to 2% by Q2 2027. Easing food prices offered welcome relief for households and offset rising fuel and travel costs.

UK retail sales rose 0.5% in September, marking a fourth consecutive month of growth and suggesting more resilience in consumer spending than anticipated.

At its 6 November meeting, the Bank of England held interest rates at 4% after five rate cuts since August 2024. Governor Andrew Bailey noted that inflation has fallen sharply from its peak three years ago but remains above target. With weakening demand in parts of the economy, the Bank signalled that further gradual cuts may follow if inflation continues to ease — offering some cautious optimism ahead of the Autumn Statement.

Speculation surrounding the Statement is intense. Many expect a mix of tax rises and spending cuts, which could help bring down inflation but may frustrate voters. Labour’s core tax pledge — to keep income tax, VAT and National Insurance “for working people” unchanged — appears increasingly difficult to maintain.

Reeves has already increased employer National Insurance, arguing that it does not breach the manifesto promise. Critics argue that the Government is “taxing around the edges” while avoiding an honest debate about broader tax rises. Some commentators have even suggested adding 1p to income tax as a simple solution to balance the books, though the political risks are significant.

Economic forecasting remains a major point of debate. As Shadow Chancellor, Reeves criticised the previous government for sidelining the Office for Budget Responsibility (OBR). Now in power, she is bound by strict fiscal rules that rely heavily on OBR projections. If long-term OBR forecasts worsen, her room for manoeuvre tightens dramatically.

Economists continue to offer competing analyses — each shaped by different assumptions. For example, when rumours emerged about a possible winter VAT cut on energy, Deutsche Bank’s Chief Economist Sanjay Raja warned such changes could “materially impact near-term forecasts.”

For now, we avoid reacting to speculation. We’ll analyse the Autumn Statement closely and share our full financial planning insights in our special Budget Newsletter.

UK equity markets performed strongly, with the FTSE 100 breaking through the 9,700 level in October.

United States

The Federal Reserve cut interest rates by 0.25% in October, following a cut in September. Borrowing costs are now at their lowest level since 2022. A cooling labour market has strengthened the argument for supporting the economy despite tariff-driven inflation risks.

Headline US inflation rose slightly, with CPI increasing 0.3% in September and reaching 3% year-on-year, up from 2.9% in August. Food and energy costs continued to rise, and tariffs are a likely contributor.

The US government shutdown, which began on 1 October, is on track to become the longest in history. Around 900,000 employees have been furloughed and 2 million are working without pay. Benefits and subsidies may be suspended, and major flight delays are expected. The shutdown also means delays to key economic data, including the October CPI report.

Despite political uncertainty, markets ended October strongly — helped by Amazon’s better-than-expected results. Nvidia became the first $5 trillion company.

Trade tensions remain volatile. Talks with China have stabilised slightly, but negotiations with Canada collapsed after an anti-tariff social media post prompted President Trump to raise Canadian tariffs by 10%.

Europe

The European Central Bank held interest rates at 2% in October. Inflation edged up to 2.2% in September, still close to target.

European economies continue to face challenges, particularly Germany. While the Eurozone showed some Q3 growth, Germany recorded zero growth, with manufacturing contracting due to tariffs, a stronger euro, and weak export demand. AI, IT infrastructure, and tourism supported growth in the services sector.

Germany’s automotive industry faces significant headwinds, including a 15% US tariff, the shift to electric vehicles, and pricing pressure from China.

The EU is attempting to protect its steel industry by halving imports, responding to a 50% US tariff and rising imports from China, Turkey, and India. This poses challenges for the UK steel industry, which exports around 75% of its steel to the EU.

Employment remains stable, but the absolute number of unemployed people in the Eurozone continues to rise.

In France, political instability persists. President Macron reappointed Sébastien Lecornu as Prime Minister just days after he resigned from the role, and Lecornu must now secure parliamentary approval for the 2026 budget.

Far East

China’s manufacturing sector contracted for the seventh consecutive month in October, with the PMI falling to 49.0, its lowest level since April. Non-manufacturing activity has shown modest improvement but not enough to counter wider economic concerns.

Consumer demand remains weak, and a prolonged domestic property downturn is weighing on growth. China’s GDP grew 4.8% in Q3, down from 5.2% in Q2. Global exports hit a six-month high, but shipments to the US fell 27% year-on-year in September. Electric vehicles remain a bright spot, with exports doubling compared to last year.

A short but significant meeting between President Trump and President Xi in South Korea led to a temporary pause in the US-China trade war. The agreement outlines US tariff reductions in exchange for Chinese commitments on fentanyl, rare earths, and annual soybean purchases. However, any long-term resolution remains uncertain.

In Japan, the Bank of Japan held rates steady. Japan also welcomed a new Prime Minister, Takaichi Sanae, who has announced a large fiscal stimulus programme.

Emerging Markets

The International Monetary Fund (IMF) delivered a positive assessment of emerging markets. It forecasts growth of 4.2% in 2025 and 4% in 2026, highlighting improved policy frameworks and greater resilience to global shocks.

While emerging markets are diverse, many have benefited from stronger institutional credibility and less reliance on currency interventions. However, the extent of progress varies widely across countries.

One notable development is the planned upgrade of Vietnam from frontier market to emerging market status by FTSE Russell in 2026, reflecting regulatory improvements and economic maturity.

Conclusion

October delivered exceptional equity performance, which will have boosted many portfolios. As we said during April’s sharp downturn, the same approach applies now: keep a calm head.

While global political tensions may ease slightly towards the end of the year, the UK faces domestic challenges. The Autumn Statement on 26 November will be critical, and we will analyse the details thoroughly to identify all relevant financial planning opportunities.

If you would like to discuss any of the issues raised, please contact your Aetas Wealth adviser.