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Introduction
Global equity markets rose in July, with investor sentiment supported by greater clarify on US trade tariffs ahead of the 1 August deadline. Market performance was also helped by some positive corporate earnings announcements and continued enthusiasm for AI-related stocks. Government bonds finished slightly lower amid further concerns over the debt issues in developed countries, particularly the UK and the US.
Economic Overview
UK
Economic Growth
The UK economy unexpectedly contracted by 0.1% in May, improving on the 0.3% decline in April but missing the forecasted 0.1% gain. There was a 0.6% fall in construction output, which had risen 0.8% in April, as well as sharper decline of 0.9% in production, driven by the 1% drop in manufacturing. Services rose 0.1%, rebounding from its 0.3% decline in April. For the three months to May, the economy grew 0.5%.
Unemployment & Labour Market Statistics
Unemployment in the UK rose from 4.6% to 4.7% in the three months to May 2025, reaching its highest point since the second quarter of 2021 and surpassing expectations of an unchanged reading. The ONS advised interpreting these numbers with caution. Job vacancies continued to fall, declining by 56,000 to their lowest level since April 2021. Wage growth weakened, with annual regular pay rising 5%—slightly above forecasts but the slowest rate since 2022—while real pay was up 1.8%. Private sector wages excluding bonuses, a measure closely watched by the Bank of England, rose by 4.9%.
Inflation
UK annual inflation, measured by CPI, rose from 3.4% to 3.6% in June—its highest since January 2024—and exceeding the expected 3.4%. Main contributors were higher air fares, train ticket prices, and smaller drops in annual fuel costs. Food & non-alcoholic drinks-which rose by the most since February 2024-, clothing, and alcoholic beverages also saw price increases. Core inflation, which excludes food, energy, alcohol and tobacco prices, climbed to 3.7% from 3.5%. Services inflation, which the Bank of England (BoE) views as a key measure of domestically-generated inflation, held at 4.7%, whilst core goods inflation increased from 2% to 2.4%.
US
Federal Reserve & Interest Rates
The Federal Reserve kept interest rates at 4.25%-4.50%, with a 9-2 vote—the first dissent from two governors in over three decades. Chair Jerome Powell said more data was needed to assess the impact of President Trump’s tariffs and other policies on inflation, employment, and growth. The Fed stated that while unemployment remains low and labour market conditions are solid, plus inflation remaining somewhat high, suggesting rate cuts are unlikely soon. Mr Powell also suggested that upcoming data will need to convince policymakers that lower rates were warranted.
Economic Growth
An advance estimate showed the US economy grew at an annualised rate of 3% in the second quarter, beating forecasts and rebounding from a 0.5% contraction that was caused by a pre-tariff surge in imports. The GDP boost was mainly due to a 30.3% drop in imports and stronger consumer spending, which rose 1.4%. Government spending also increased by 0.4%, but growth in fixed investment slowed, exports fell 1.8%-the largest decline since the second quarter of 2023-. Private inventories, which along with trade are the most volatile components of GD, reduced growth by 3.17%.
Inflation
US consumer prices rose 0.3% in June, the fastest pace since January, driven by higher rents, rebounding gasoline, and increases in food and grocery store costs. Annual CPI was up 2.7%, exceeding both May’s rate and forecasts. Core CPI, excluding food and energy, climbed 0.2% in June from 0.1%, with notable gains in some tariff-sensitive goods and appliances, though used car prices fell 0.7%. Overall services costs increased 0.3%, despite hotel rates dropping and airline fares edging down. For the 12 months through June, core CPI rose 2.9% having increased 2.8% for three consecutive months.
Europe
European Central Bank and Interest Rates
As expected, the European Central Bank (ECB) left its interest rate unchanged at 2%, whilst providing a modestly positive assessment of the Eurozone economy. The ECB President Christine Lagarde said the economy was now in a “good place” and growth is in line with projections or a “little bit better”. With regard to future interest rate movements, Ms Lagarde said “We are in this wait-and-watch situation”, whilst noting that current projections point to inflation stabilising at target in the medium term.
Economic Growth
A preliminary estimate showed the Eurozone economy grew by 0.1% in the second quarter, slightly better than expected but much slower than last quarter’s 0.6%, which had been boosted by US businesses front-loading imports ahead of new tariffs. Spain produced strong growth whilst France’s more modest rate was ahead of expectations, but Germany and Italy had small contractions. Year-on-year, the Eurozone expanded by 1.4%, beating forecasts but still less than the previous quarter’s 1.5%.
Inflation
Annual inflation in the Eurozone rose from 1.9% in May to 2% in June, in line with the European Central Bank’s official target as well as forecasts. A key driver of the increase was the rise in services inflation from May’s three-month low of 3.2% to 3.3%. In addition, the pace of decline in energy prices eased from 3.6% to 2.7%. However, inflation slowed for non-energy industrial goods from 0.6% to 0.5% and from 3.2% to 3.1% for food, alcohol and tobacco. In line with expectations, annual core inflation, which excludes prices for energy, food, alcohol and tobacco, was unchanged at 2.3%.
Asia and Emerging Markets
Japan
The Bank of Japan (BOJ) kept its interest rate at 0.5%, raised its inflation forecast for this fiscal year to 2.7%, and offered a more optimistic economic outlook. The BOJ maintained its commitment to adjust rates if necessary and expects rising wages and prices to move inflation toward its 2% target. The bank also highlighted some positive developments in trade, including a recent tariff deal with the US, and sees price risks as “roughly balanced.”
China
The National Bureau of Statistics (NBS) said the Chinese economy expanded by 5.2% year-on-year in the second quarter, slowing from the 5.4% pace in the previous period but ahead above the forecasted 5.1%. Economic growth was partly supported by Beijing’s policy measures and the temporary pause in US trade tariffs. On a quarter-on-quarter basis, the economy grew 1.1% in the second quarter, ahead of the expected 0.9% increase although slightly below the 1.2% pace in the previous period.
Market Overview
CR = Capital return; LC = Local currency
Source: Lipper for Investment Management
Past performance is not a reliable indicator of future performance
UK equities rose in July, with the FTSE 100 outperforming the mid cap FTSE 250. The FTSE 100 passed 9,000 points as the index benefited from strong earnings updates, notably from the healthcare sector and its large pharmaceutical constituents. There was also good performance from the energy, consumer staples and telecommunications sectors. The more domestically focussed FTSE 250 also rose despite some weak economic data, which contributed to expectations of an interest rate cut in August, as well as some positive earnings updates.
US equities (S&P 500), rose in July, helped by positive performance from technology stocks and emerging clarity over the US tariff position, Technology stocks benefited from some well received earnings updates and AI optimism. Investor sentiment was also supported on optimism from tax reform, with the passing of President Trump’s ‘Big Beautiful Bill’ at the beginning of July. European markets, as demonstrated by the FTSE World Europe ex UK Index, finished July higher though they lagged the returns in the US. European indices were supported by relief on tariffs, as well as some positive corporate earnings numbers, notably from healthcare and financials stocks. The Japanese Nikkei 225 Index also rose despite concerns over the Upper House election, where the outcome was better than feared, whilst Japan reached a favourable trade deal with the US during the month.
Asian markets posted a strong gain, as shown by the performance of the MSCI Asia ex Japan Index. Whilst US-China trade talks continued, other deals were agreed that were better than expected, boosting investor sentiment. China rose as Beijing indicated a tougher approach to curbing excessive price competition, whilst Thailand, Taiwan, Hong Kong and South Korea were also among the better performers. India was a notable underperformer due to uncertainty around US tariffs. The broad MSCI Emerging Markets Index also produced a positive return amid news of the trade deals, with performance led by emerging Asia, but Brazil came under pressure from escalating tensions with the US.
UK government bonds (FTSE Actuaries UK Conventional Gilts Index) finished July slightly lower, with investor sentiment negatively impacted by political developments, including the government’s concessions on welfare cuts that caused doubts over fiscal discipline. US treasuries also faced concerns over fiscal policy, particularly following the signing of the ‘Big Beautiful Bill’ into law. Government bonds also suffered from a reduced expectation of interest rate cuts in the US and Eurozone following comments from the respective central banks Investment grade corporate bonds outperformed as they suffered a smaller fall, helped by an improvement in economic sentiment.
This update is intended to be for information only and should not be taken as financial advice.
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CA 13076 Exp:08/2026
