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In our Market Insights, Prosperity Investment Management examines the latest developments across the globe's biggest financial markets - providing you with all the latest information you need to know.
UK economic growth slows with budget fears at the forefront of blame
The UK economy showed minimal growth from July to September, with concerns surrounding the Budget cited as a primary factor for this weak performance.
The economy expanded by only 0.1% during the quarter and contracted in September.
Economic growth has been a key focus since Labour came to power, but Chancellor Rachel Reeves expressed dissatisfaction with these initial results covering the new government’s first three months.
Many businesses, however, have raised concerns about the Budget’s tax increases, warning these could lead to higher prices and reduced hiring. Major retailers such as Marks & Spencer, Sainsbury’s, and JD Sports have indicated that price hikes may be necessary in response to these changes.
The 0.1% growth rate was below expectations and significantly lower than the 0.5% growth seen from April to June. Economists believe that uncertainty about the contents of October’s Budget influenced the behavior of both businesses and consumers during this period.
According to the Office for National Statistics (ONS), growth was "subdued across most industries" in the latest quarter.
A notable factor was the slowdown in the services sector, which represents a significant portion of the UK economy, including businesses like shops, bars, and restaurants. This sector grew by only 0.1% over the quarter and did not grow at all in September.
Additionally, UK growth could face further obstacles if US President-elect Donald Trump enacts his proposed 20% tariff on all imports into the US.
Analysis from the University of Sussex's Centre for Inclusive Trade Policy suggests this measure could reduce UK exports by £22 billion.
US Inflation progress stalls in October
Inflation in the U.S. increased last month, suggesting a possible slowdown in efforts to stabilise prices.
Consumer prices rose by 2.6% in the year leading up to October, largely due to higher costs for housing and food, according to the Labor Department. This marked a slight rise from the 2.4% recorded the previous month.
These latest numbers have fueled speculation that the U.S. central bank may not reduce interest rates as much as previously anticipated in the near future.
The Federal Reserve aims to bring inflation, or the rate of price increases, closer to its target of around 2%. The bank began lowering rates in September, acknowledging notable progress since June 2022, when inflation had soared above 9%.
However, analysts caution that new risks may lie ahead as President-elect Donald Trump has proposed a blend of tax cuts, tariffs, and immigration restrictions that some believe could maintain upward pressure on costs for businesses and consumers.
Prices increased by 0.2% from September to October, mirroring the pace of the previous three months. The steady rise in prices over recent years has been a significant public concern, contributing to Trump’s recent election victory.
Over the past year, housing costs, including rents, rose by 4.9%, the Labor Department reported. Given the substantial weight of housing in the U.S. price index, these costs accounted for the largest portion of annual inflation.
Other significant contributors included car insurance, which climbed more than 14% year-over-year, as well as medical care and education. Gasoline prices, however, stood out as a major exception, having fallen by 12% over the past year amidst the general rise in living costs.
Eurozone growth lags behind the US in the latest observations
The Eurozone economy is projected to continue lagging behind the U.S., according to the European Commission, which lowered its 2025 growth forecast for the region to 1.3%.
This revised figure is slightly below its previous May forecast of 1.4%, underscoring a pessimistic outlook as the region struggles to keep pace with U.S. economic growth.
The European Commission’s forecast remains more optimistic than private sector predictions. Consensus Economics, which aggregates forecasts, expects the Eurozone to grow by just 1.1% next year, while projecting a 2% expansion for the U.S. in the same period.
Carsten Brzeski, chief Eurozone economist at ING Bank, believes the commission’s outlook is still overly optimistic, pointing out that the projections don’t fully account for structural challenges within the Eurozone economy.
The U.S. economy, in contrast, is anticipated to grow more robustly, with the European Commission forecasting a 2.1% increase in 2025 and 2.2% in 2026.
Germany, the Eurozone’s largest economy, has stagnated over the last two years, with its manufacturing sector struggling to remain competitive. The commission now expects Germany’s economy to contract by 0.1% this year, a downgrade from its previous forecast of 0.1% growth.
The re-election of Donald Trump is likely to add further pressure on Eurozone exporters, as he has proposed tariffs of 10-20% on all exports and has been critical of Europe’s trade surplus with the U.S.
