July 2025
It’s been rather warm in the UK’s south-east and London in the past few days with high weather temperatures. A bit too much for many, and this view may also apply to the recent geo-political positions, it feels across the globe, with some regions significantly ‘warmed-up’!.
The last period of June saw some nations strategically bombing each other, with many equity markets rising, and indeed commodity market prices (namely Oil) falling back because of the ‘controlled’ responses of various nations and ceasefires (at least for now) holding. It’s certainly been an interesting period.
Having anticipated some market volatility (and as we know past performance is not an indication of future performance), we should remember that the 90-day anniversary of the introduction of, and subsequent majority postponement, of US tariffs ends around the 08 July. It will be noteworthy if the full extent of these will be applied, if they are, how markets will react. You may remember the volatility experienced in April of this year.
As indicated at the start of this July 2025 page, there is much to consider globally. Russia and Ukraine are still firmly in the news having reached well into the third year of what appears to be increasing hostilities, and the real start of negotiations being started with the aim of bringing the conflict to an end. Increased spending on (national and collective) defence has been agreed over the next years and it almost has a feel of returning to the ‘cold-war’ of decades ago.
Changing of debt parameters
The objective of the now not so new Chancellor is to effectively redefine the way the UK's debt rules work going forward. The planned effect is to allow the Chancellor to borrow more money for the next five years. We are talking about up to £50bn extra to help pay for the planned spending ahead, such as infrastructure spending. The risk is that interest rates remain higher than expected, costing us more over time. Subsequently, borrowing costs have elevated further and have not deviated downwards, putting more cost and pressure on the UK's already squeezed budgets.
More can be found on our late 2024 blog here: 30-october-2024-budget-the-headline-changes
Economic data from home and abroad
Mid-June saw the Office for National Statistics (ONS) confirm that the Consumer Prices Index (CPI) held at 3.4% in the year to May 2025. The maintained increase was expected, mainly due to cost increases in household goods, furniture and food, but the level is still high. The Bank of England target for UK inflation remains unchanged at 2.0%, and inflation is remaining above this level.
As a note, US inflation has fallen slightly - consumer prices (before seasonal adjustment) reduced to 2.4% over the 12 months to March 2025, a decrease from the February 2025 figure of 2.8%. However, the application of tariffs has seen some predict that US inflation will rise again.
The Bank of England reduced its base interest rate in early May 2025 to 4.25% (from 4.5%). The US Federal Reserve maintained their base rate (no change from April) to a range of 4.25-4.5% in May 2025. It has been noted in recent times that even with a currently strong (but slowing) US economy, further rate reductions over 2025 may be slower to come through than first anticipated, with some economic factors (inflation) remaining stubborn.
It should be noted that higher interest rates are good news for savers, and some savings accounts are offering 4.0% - 4.5% pa gross plus. Look out for the AER rate pa (Annual Equivalent Rate) which show the real rate of interest being provided. Of course, higher interest rates are not so good for variable rate borrowers, and the days of cheap borrowing for individuals and nations are over, certainly in the shorter term.
As you might anticipate, many financial thoughts will be UK focused; however, the world is now a small place and many of these economic factors are occurring globally, as we enter a new era of higher costs, inflation, interest rates and the like. Increasing numbers of global conflicts remain constant at this time.
We have looked at some of these points below.
GBP / US dollar
Many readers will know that exchange rates can vary for many economic reasons. For some, it may only become apparent when purchasing foreign currency for a holiday or visit abroad. The current indicated exchange rate is $1.35 at the time of writing (18 June 2025), still an elevated rate in recent times.
UK Net Public Sector Gross Domestic Debt v GDP
It is noteworthy that net public sector debt has consistently run for some time at approximately 95%-100% of UK monthly GDP (gross domestic product) (source: Office for National Statistics / ONS). The May 2025 figure has continued in a similar way with the statistics showing the provisional estimate as 96.4% and remains at levels last seen in the early 1960s. Some will not want to see this level (and its associated interest costs) rise.
The ONS notes that GDP growth in the UK to March 2025 for the prior three months was 0.7%, with GDP growth in February 2025 alone standing at 0.5%. Many global trading areas have seen their short-term growth forecasts reduced by the OECD (Organisation for Economic Co-operation and Development) in early June for 2025 and 2026 because of the recent trade wars.
Markets factor in most things
Turning to the recent market position, many individuals may refer to the value of their pension or ISA arrangements as a reference point to how markets are moving. We all know that the value of funds can fall as well as rise, and we have seen some volatility this year, although alongside positive returns from some global equity markets. Volatility is not uncommon, and this can be triggered by global economic events, or their continued effects.
The key point here is that if we think something is happening (such as the ongoing cost-of-living issues), the markets have usually factored in the effects. Looking at the markets on 05 June 2025, in comparison to a year ago, we find the following (approximate) for a range of market indices:
FTSE 100:
FTSE All Share:
Dow Jones (US):
CAC 40 (France):
Dax 30 (Germany):
Market values can fall as well as rise and this is only a snapshot in time. As you can see, and as anticipated, some markets in this snapshot have performed better than others, although this is not a guarantee of future performance.
The tax year 2025 is moving on and there is much to consider
There is, and will be, much to consider over the summer months, as stages of the journey leading to the UK Budget 2025, anticipated in late October, begin to be revealed. UK Inflation rates have remained elevated, and to some extent stubborn, with bank base rates and borrowing costs remaining higher than some anticipated. This, I am sure, will have a bearing on future fiscal announcements.
There continues to be much political and economic change and jostling globally. Being ready with your overall financial planning and household budgeting is likely to be a far better position than addressing financial issues at hand later.
We hope that you enjoy your summer and don’t forget to use annual tax allowances where available and appropriate. We also hope that you have the opportunity for some rest and relaxation, and we look forward to working with you over the balance of the year.
Keith Churchouse FPFS
Director
CFP Chartered FCSI
Chartered Financial Planner
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