The week that was …
Economic round-up
UK consumers curb spending
UK consumers have curbed spending since the pandemic more than anywhere else in the G7 group of richest nations, with household spending rising just 1% in real terms. In contrast, per-capita spending rose 12.7% in the US, 5% in Japan and 3.2% in Italy over the same period. Read more from the FT here
ONS revises borrowing data
The Office for National Statistics has shaved £2bn off UK government borrowing for the current fiscal year, explaining HM Revenue & Customs had alerted it to inaccuracies in VAT receipt numbers. Borrowing for the April to August period was £81.8bn – down from the £83.8bn initially reported. Read more from the FT here
Fed split on future rate cuts
Officials at the Federal Reserve were strongly inclined to lower US interest rates in September, but there was a debate over future cuts, meeting minutes released on Wednesday showed. The ‘dot plot’ of individual members’ expectations showed a small majority expecting two more cuts this year. Read more from CNBC here
US consumer confidence
The University of Michigan’s preliminary sentiment index reading for this month showed US consumer sentiment dipping in October, sinking to a five-month low as Americans worried over a stalling job market and stubbornly high inflation. Read more from CBS here
BoE’s Mann cautious on inflation
Catherine Mann, a member of the Bank of England’s Monetary Policy Committee, has said “we are not there yet” on inflation, with consumer behaviour a particular concern. In a speech last week, she highlighted the “consumption gap”, which is the “persistent” deviation of real consumption volumes from trend growth. Read more from the Bank of England here
Markets round-up
US stocks suffer major falls
US stocks suffered their biggest one-day drop since April, after Donald Trump threatened to impose “massive” tariffs on China. The president accused Beijing of becoming “very hostile”, citing particular concerns over export controls on critical minerals. Read more from the FT here
Sterling weakens
The UK currency is on track for its worst week since January. A near-stagnation in UK salaries, revealed by KPMG and REC data, has created new anxiety over the UK economic outlook and the looming autumn Budget. Read more from the Guardian here
Gold pares back gains
Gold briefly tipped above $4,000 (£3,000) an ounce last week before falling back. President Trump’s warning of possible fresh tariffs on China created a flight to safe-haven assets. Read more from Reuters here
Bitcoin falls
The price of Bitcoin extended its declines on Friday in response to president Trump’s threats over China tariffs. The move dented risk appetite and the cryptocurrency fell 8.2% on the day. Read more from Reuters here
“If she does come to power, it seems instructive that Takaichi has been a long-term supporter of former prime minister Shinzo Abe’s ‘Abenomics’ policies and worked closely with him in government.
Selected equity and bond markets: 03/10/25 to 10/10/25
| Market | 03/10/25 (Close) |
10/10/25 (Close) |
Gain/loss |
|---|---|---|---|
| FTSE All-Share | 5133 | 5092 | -0.8% |
| S&P500 | 6716 | 6552 | -2.4% |
| MSCI World | 4337 | 4238 | -2.3% |
| CNBC Magnificent Seven | 407 | 386 | -2.6% |
| US 10-year treasury (yield) | 4.12% | 4.04% | |
| UK 10-year gilt (yield) | 4.69% | 4.64% |
Investment round-up
UK investors re-embrace active funds
UK investors have been moving back into active strategies over the past 18 months, particularly in equities. Investors allocated 57% of their portfolios to equities and 33.5% to fixed income, on average, as of August 2025, according to Janus Henderson’s latest Portfolio Panorama report.
UK IPO market revives
UK stockmarkets are expected to witness an uptick in public listings over the next six to 12 months. Research from consultancy EY-Parthenon said strong momentum was expected in the real estate, hospitality, construction, industrials, consumer and energy sectors.
FCA aims to make CCI work for ITs
The Financial Conduct Authority has said it will “make allowances for the unique properties of investment trusts” in its new regulatory framework, the Consumer Composite Investments (CCI) regime.
IFAs enjoy surge in demand
IFAs have reported a surge in enquiries, with clients increasingly concerned about potential tax changes in the Budget. Some two-thirds (68%) said this was clients’ biggest challenge. Nine out of 10 (91%) advisers have experienced an increase in client queries.
Cash ISA holders receptive to equities
Three in five (60%) cash Isa holders could be persuaded to invest in a stocks-and-shares Isa, according to research by Royal London. The group’s data suggested two-thirds of adults in the UK have an Isa but there is still widespread confusion about how these work.
… and the week that will be
US shutdown impact
Updated inflation numbers and economic activity data for the US are expected this week but the prolonged government shutdown could mean these releases are deferred. In turn, this could create more uncertainty in the markets and heighten growth worries. The US tariff impact will be monitored via industrial production numbers for the US as well as trade numbers out of mainland China and the eurozone. Read more from S&P here
Q3 earnings watch A raft of major banks, including Citigroup, Goldman Sachs, JP Morgan and Wells Fargo are set to announce their results this week. Investors will be looking for hints on the health of the US economy as the federal government shutdown has interrupted the flow of new data. A strong third-quarter earnings season could be critical for equities maintaining their momentum. Read more from Reuters here
The week in numbers
UK GDP growth: Consensus expectations are that UK gross domestic product (GDP) growth in August will rise to 0.1% from 0%, and hold at 0.2% for the three months to August.
US inflation: Consensus forecasts have headline consumer price index (CPI) inflation for August rising 0.4% month-on-month and 3% year-on-year, from respectively 0.4% and 2.9% the previous month. Core CPI inflation is expected to be 0.3% month-on-month and 3% year on year, from 0.3% and 3.1%.
UK jobs data: The UK’s unemployment rate for August is expected to hold at 4.7% while average earnings are expected to have risen 4.4% for the three months to August, down from 4.7% a month earlier.
US sales data: Consensus expectations are that retail sales in the US will rise 0.2% while the producer price index will rise to 0.5% from -0.1%, month on month. Jobless claims may not be released due to the government shutdown.
German economic sentiment: The October reading of Germany’s leading ZEW index of economic sentiment is expected to fall to 30 from 37.3 the previous month.
China trade: Consensus expectations are that exports from China for September will rise 5.2% year-on-year. China inflation: Consensus forecasts have CPI inflation for September falling 0.2% year-on-year and rising 0.1% month-on-month.
In focus: Abenomics 2.0
Japanese politics took a new and surprising twist when hardline conservative Sanae Takaichi was elected as head of the ruling Liberal Democratic Party (LDP). Some hurdles remain to be cleared before she becomes prime minister but markets have already reacted to her election, with the Nikkei hitting new highs, bond yields rising and the yen falling. So what could this all mean for market leadership in Japan?
The prime ministerial appointment still needs to be confirmed by parliament and, problematically, the LDP has been governing in coalition with the smaller Komeito party, whose leader has said it will not work with Takaichi. Nevertheless, there may be other parties willing to bridge the gap.
If she does in due course come to power, it seems instructive that Takaichi has been a long-term supporter of former prime minister Shinzo Abe’s ‘Abenomics’ policies and worked closely with him in government.
Certainly, the initial reaction of markets shows they expect fiscal stimulus and looser monetary policy. According to Anthony Willis, investment manager at Columbia Threadneedle, markets should be careful of expecting too much – not least because this is a different environment to the one that greeted Abe. “Takaichi already softened her tone on stimulative spending during the campaign and monetary easing is not necessary given the inflation backdrop,” he observes.
He points out, however, that work remains to be done on Abe’s ‘third arrow’ of reform, adding: “There is still plenty of scope to carry on unfinished business from the Abe era, including labour market reform and encouraging female workforce participation; deregulation in agriculture, healthcare and energy; and corporate governance improvements. Provided Takaichi can find a level of support in parliament to avoid policy gridlock, then she can potentially make some progress with Abenomics 2.0.”
The fragility of the bond market combined with internal party divisions and the need to co-operate with opposition parties will likely tame any fiscal excesses.”
For her part, Sree Kochugovindan, senior research economist at Aberdeen, notes Takaichi is proposing targeted fiscal measures to help ease inflation pressure on households, but continues: “She has also acknowledged the need for fiscal constraint given Japan’s high debt ratio.
“Indeed, the fragility of the bond market combined with internal party divisions and the need to co-operate with opposition parties will likely tame any fiscal excesses. Takaichi has also tempered her previous strong stance on monetary policy, saying that rates should be decided by the Bank of Japan.”
Domestic companies favoured
While a lot of the early revival in the Japanese market has come from the exporters, driven by a weaker yen, the focus for investors more recently is on domestic companies that can benefit from a revival in local demand and companies that are delivering reform. Takaichi’s election seems likely to continue this trend.
“Domestic Japanese companies that are dominant in their market share, where they have pricing power, are the companies that have been doing well,” says Pinakin Patel, investment director on the Schroder Japan Trust. “Companies where we have seen initiatives by the management teams to restructure or do M&A have also done well. The market has been more domestically driven and has rewarded the moves management have taken.”
He gives the example of Marubeni, which launched a progressive dividend policy. “The market has only just started to pick up on this,” he adds. “There has been a high level of scepticism from both domestic and international investors. There’s a continued view that ‘we want to see what’s happening’.”
Merger and acquisition activity is becoming an important feature of the market and is likely to drive share prices from here. Hitachi, for example, has been buying up engineering businesses in western countries while the brewer Asahi acquired Fullers and the old Fosters brewery business based in Melbourne. “The corporates are buying into it,” says Patel. “They are seeing the benefits in terms of profitability.”
Japanese companies cannot be 'fluffy' any more – when you are competing with China, you need to bring your ‘A game’.”
For his part, Zennor Japan fund manager David Mitchinson points out share prices have been rising as companies have divested of non-core businesses and their cashflows and margins have improved. “The country’s earnings per share growth is better than the US,” he continues.
“Some of that is FX – but a lot is that balance sheets have got bigger and how companies are spending their money. Japanese companies cannot be ‘fluffy’ any more – when you are competing with China, you need to bring your ‘A game’.”
As part of this trend, smaller companies have caught up, with the MSCI Japan Small Cap index up some 24% over the year to date. For it’s part, MSCI Japan is up 20.6% over 12 months but the gains have slowed notably in 2025, with the index up 13.8% to the end of September in yen terms. That puts it ahead of the MSCI World, but means smallcaps have led the day. Furthermore, growth has started to catch up with value.
Industrial strategy?
Takaichi has also promised an industrial strategy to encourage investment in key areas such as AI, chips, quantum computing and cyber defence. Even with Japan’s technical might, however, it is difficult to see how it will build up a competitive position in these areas when China, Taiwan and the US are already all so far ahead.
Nevertheless, there are areas where Japan is leading the way, such as robotics and high-end sensors. “These are areas where the Japanese don’t compete with the Koreans or with the Chinese and where they have pricing power,” says Schroders’ Patel. “These are also areas where they don’t get impacted by tariffs because those are the areas where there aren’t tariff discussions. The US still has an issue with labour and needs robotics.”
Mitchinson meanwhile says there is still some scope for domestic investors to come back to the market in great numbers. Many have been scarred by previous losses so, for the time being, he says: “The biggest buyer of Japan is the Japanese corporate sector – it’s not driven by foreign money. The buying from Japan’s corporate sector is utterly relentless.” He also believes the yen is undervalued, adding: “Japan is noticeably cheap.” Both trends support a more domestic focus for investors, rather than the index-heavy exporters.
Whether Takaichi is confirmed or not as Japan’s new prime minister, the outlook for domestic Japanese businesses and companies that are beneficiaries of reform remains strong. The outlook for the country’s major exporters looks less clear, however, with pressure on the yen and tariffs looming. Fund managers are clear which camp they are backing.
Read more on this in What does a Takaichi presidency mean for Japan and its markets?
In focus: Duty calls
The Conservatives’ big reveal at their party conference last week was the abolition of stamp duty on the purchase of main homes. Tory leader Kemi Badenoch called it a “bad tax” and that abolishing it would “help achieve the dream of home ownership for millions”. Still, by targeting stamp duty on housing rather than shares, did she miss a trick?
A lot of economists agree with the Conservatives’ policy. “Taxes on transactions are among the most economically damaging,” argues the Institute for Government thinktank, for example. “They mean assets that are traded more often attract a higher tax bill and so disincentivise transactions that would otherwise be desirable to both parties.
“In the case of housing, this reduces labour mobility. By making it harder for people to move to areas where jobs are located, it is also a major disincentive to downsizing, meaning more older people stay in larger homes, unable to access the equity held within them or to free up larger properties for younger families.”
There is, however, a question mark over whether targeting housing is the most economically productive option. Those involved in financial markets have long argued policymakers need to look at stamp duty on shares, which disincentivises investment in the stockmarket at a time when UK capital markets are struggling.
Formally referred to as Stamp Duty Reserve Tax, the charge is levied at a rate of 0.5% on the purchase of most UK-listed company shares – meaning that, for most UK investors, it is more tax-efficient to buy outside their domestic market.
Indeed, it may be an active disincentive for institutional investors such as pension funds to invest in the UK as, for example, a £20m allocation to UK equities would incur an extra £100,000 cost. Although small in relative terms, perhaps, cumulatively it becomes a persistent drag on returns – particularly if funds rebalance frequently. A recent survey of 800 UK retail investors by trading platform Tradu found 88% would allocate more to UK equities if the government scrapped stamp duty on shares.
“There were no new suggestions from the conference hall on changes to stamp duty on shares, which is a needless drag on investors who support the UK market,” says Sarah Coles, head of personal finance at Hargreaves Lansdown. “Given that the government is said to be considering a stamp duty exemption on shares newly listed on the London Stock Exchange in the Budget, this was a missed opportunity to get in ahead of any announcement.”
Abolishing stamp duty on share prices is arguably a more productive way to deliver growth in the economy, rather than relying on housing wealth. It would shore up the UK’s flagging capital markets and help erase the UK stockmarket’s persistent discount. Yes, it probably would have grabbed fewer headlines but there is a strong case it would have proved a smarter option in the longer term.
Read more on this from the Times here
