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Introduction
Global equity markets showed mixed results in June, with gains in the US, Asia, and Emerging Markets, but declines in the UK (FTSE 100) and Europe. Market movements were influenced by regional economic conditions and ongoing geopolitical tensions, particularly in the Middle East. Fixed income markets benefited from optimism over US interest rate cuts later in the year.
Economic Overview
UK
Bank of England & Interest Rates
The Bank of England kept interest rates unchanged at 4.25%, with a divided committee vote (6-3) as some members preferred a 0.25% cut. The Bank’s Governor emphasised that future rate changes are uncertain given global unpredictability, although they remain on a gradual downward path. Inflation forecasts remain largely steady, peaking at 3.7% in September and averaging just under 3.5% for the rest of 2025.
Economic Growth
The UK economy grew by 0.7% in the first quarter of the year, supported by steady services growth, a 1.3% rise in industrial production, and an increase in household spending. However, the month of April saw the sharpest monthly decline in 18 months, with GDP falling by a more than expected 0.3%. This drop was primarily due to a 0.4% contraction in services and a 0.9% drop in manufacturing, though construction posted growth of 0.9%. The downturn was also attributed to pressures such as higher energy bills, increased employer National Insurance contributions, and rising Stamp Duty Land Tax rates.
Unemployment & Labour Market Statistics
The UK labour market showed further signs of weakening, with unemployment rising in the three months to April to 4.6%—its highest since mid-2021—and wage growth slowing. Job vacancies continued to decline, and early estimates of payroll numbers dropped sharply. This data was the first to be released following increases to employer National Insurance and the National Living Wage.
Annual wage growth in the UK slowed, with regular pay rising by 5.2% over the three months to April—the weakest pace since September 2024. Adjusted for inflation, regular pay increased by 2.1%. Private sector wage growth also moderated, and total pay growth, including bonuses, slowed to 5.3%, whilst in real terms it rose 2.3%.
Inflation
UK annual inflation slowed as expected in May, with CPI dropping to 3.4% from 3.5%. Food prices rose by 4.4%, while transport costs—especially air fares—fell following large increases this time last year, helping to offset increases elsewhere. Housing and household service costs also grew more slowly than in the previous month.
Core inflation, which excludes food, energy, alcohol and tobacco prices, fell from 3.8% to 3.5% in May, just below the forecasted 3.6%. Services inflation, which the Bank of England (BoE) views as a key measure of domestically-generated inflation, was driver of the decline as it dropped from 5.4% to 4.7%, matching the Bank of England’s forecast. However, goods inflation rose from 1.7% to 2%, the largest increase since November 2023.
US
Federal Reserve & Interest Rates
The Federal Reserve kept interest rates steady, signalling potential rate cuts later in 2025 but emphasising these decisions depend on economic data. Chair Jerome Powell highlighted ongoing inflation risks and suggested tariffs might delay rate cuts that would otherwise be warranted by low inflation.
In addition, the Fed’s new projections showed economic growth slowing to 1.4% from 1.7% in 2025, unemployment increasing slightly to 4.5% and inflation ending the year at 3%. Policymakers still expect to cut interest rates by 0.5% this year, in line with previous projections, but the pace slows to 0.25% in each of 2026 and 2027. There was also a split among the 19 policymakers, with seven believing no rate cuts will be needed this year.
Economic Growth
The US economy shrank by 0.2% in the first quarter, revised up from the previous estimate of a 0.5% fall, marking its first quarterly contraction in three years and follows a 2.4% expansion in the prior quarter. The decline was driven by a sharp slowdown in consumer spending, which rose just 0.5% instead of the previously estimated 1.2%—the slowest pace since 2020’s pandemic downturn. Imports surged by 37.9% ahead of forthcoming tariffs, though this was revised down from 42.6%, while exports grew by only 0.4%, down from 2.4%. Government spending fell 4.6%, and fixed investment was up 7.6%, slightly below the earlier estimate of 7.8%, but still the strongest since mid-2023.
Inflation
US consumer prices rose modestly in May, with the Consumer Price Index increasing by just 0.1% as falling gasoline costs partially offset higher rents. Food prices also rebounded having declined in April. Over the past year, inflation stood at 2.4%, slightly above April’s rate.
Core CPI, which excludes food and energy, rose by just 0.1% in May, mainly due to higher shelter costs. Overall services costs increased modestly, while goods prices remained flat. Year-on-year, core CPI was up 2.8%, unchanged from April.
Europe
European Central Bank and Interest Rates
The European Central Bank lowered its interest rate by 0.25% to 2% and signalled a likely pause in the easing cycle. President Christine Lagarde indicated the current policy would remain in place for now, noting the bank was in a good position. Ms Lagarde also said there was a higher degree of uncertainty, with falling energy prices and a stronger euro potentially applying further downward pressure on inflation, whilst the outcome of US trade talks could mean inflation and growth significantly differ from projections.
Economic Growth
The Eurozone economy expanded by 0.6% in the first quarter, mainly driven by very strong growth in Ireland, due to activity among big foreign companies based there for tax reasons, and good performances from Germany and Spain. Italy and France expanded as well, but at slower rates. Fixed investment rose versus the previous quarter. Household consumption slowed, government spending was flat, and net trade made a small positive impact, while inventory changes slightly reduced growth. On an annual basis, the economy grew by 1.5%, marking its fastest rate since late 2022.
Inflation
Eurozone annual inflation dropped to 1.9% in May from 2.2%, falling below the ECB’s 2% target for the first time since September 2024. The slowdown was mainly due to a bigger than expected decrease in services prices, while energy prices continued to decline. However, food inflation accelerated slightly, whilst prices for non-energy industrial goods were unchanged. Core inflation also fell, from 2.7% to 2.3%, its lowest level since January 2022.
Asia and Emerging Markets
Japan
The Bank of Japan kept its interest rate at 0.5%, but it would slow the pace of its balance sheet drawdown next year, although there would be no change in the current fiscal year to March 2026. Governor Ueda noted that persistent oil price increases could push inflation higher and require action, but also highlighted the larger downside risks from US tariff uncertainty, implying no immediate rush to raise rates. Further data will be needed before any policy changes are made.
Japan’s economy saw zero growth in the first quarter after an initial estimate of a 0.2% contraction, with private consumption and business investment revised higher, but government spending was lower. Net exports dragged down growth, and although the annual decline was revised to -0.2%, this still marked a sharp slowdown from late last year’s strong growth.
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 produced mixed performance in June, with the FTSE 100 recording a marginal loss but the mid cap FTSE 250 posted a gain. Investor sentiment was helped by easing geopolitical tensions, particularly the revived US-China trade talks. The FTSE 100 was supported by energy and materials/mining stocks, but there was underperformance from the personal goods and healthcare sectors. The more domestically focussed FTSE 250 benefited from being more insulated from US tariff uncertainty, as well as positive economic data.
US equities, as shown by the S&P 500, posted a robust gain in June, with sentiment boosted progress in US-China trade negotiations, with the increase arising despite heightened Middle East tensions in the second half of the month, including the involvement of the US in the Israel-Iran conflict. The S&P rose above its previous February high, with resilient economic data also helpful. Following a period of outperformance, European markets, as demonstrated by the FTSE World Europe ex UK Index, underperformed as it suffered a small fall, led by the consumer staples and consumer discretionary sectors. The Japanese Nikkei 225 Index recorded a very strong positive return amid optimism over flexibility around US tariff deadlines, whilst the weaker yen boosted exporters.
Asian markets finished June with a decent positive return, as shown by the gain in the MSCI Asia ex Japan Index. Investor sentiment was supported by the announcement of trade framework between Beijing and the US, whilst South Korea performed well amid policy momentum under the new government and Taiwan benefited from improved global risk appetite and better performance from the US tech sector. The broad MSCI Emerging Markets Index also recorded a robust gain, again boosted by optimism US-China talks, whilst there was outperformance from Latin America.
UK fixed income assets rose in June, boosted by optimism over the Bank of England potentially reducing interest rates at its June meeting. Corporate bonds marginally outperformed UK government bonds (FTSE Actuaries UK Conventional Gilts Index), supported by a narrowing in credit spreads (the difference in yields between government bonds and corporate bonds). US treasuries also rose on growing expectations that the Federal Reserve will cut its interest rate later this year.
This update is intended to be for information only and should not be taken as financial advice.
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CA13033 Exp 07/2025.
