The week that was …
Economic round-up
Slowing global growth
The global economy will grow at its slowest pace since the 1960s, as the impact of US tariffs takes hold, the World Bank has predicted. Nearly two-thirds of countries in the world have seen their growth forecasts cut from the last set six months ago. The bank predicts global growth of just 2.3% in 2025. Read more from the BBC here
UK GDP
The UK economy shrank more than expected in April as US tariffs took a toll on growth. GDP contracted by 0.3% in April, according to the Office for National Statistics. Read more from Sky here
UK Spending Review
The big winners from the UK’s Spending Review were defence and health. There were also significant boosts to capital spending in areas such as nuclear energy, school rebuilding, rail and super-computers. Read more in ‘In focus’ below and from the Guardian here
US inflation
May’s Consumer Prices Index reading for the US showed increases in the prices of toys, car parts and major appliances, but the overall impact of Donald Trump’s new tariffs on consumers remained relatively muted. Prices were up 2.4% in May compared with a year ago; and up from a rate of 2.3% in April. Read more from the BBC here
UK employment
UK employment data weakened, as companies held back on hiring or did not replace exiting workers. Job vacancies fell by 63,000 between March and May while the unemployment rate ticked higher. The rise in average wages slowed to 5.2% between February and April, easing from a 5.6% increase. Read more from the BBC here
China inflation
The Chinese monthly inflation reading for May 2025 was -0.1% compared with the same month in the previous year. Inflation has been on a downward path, with the annual average inflation rate in China standing at 0.2% in 2024. Read more from Statista here
US consumer confidence
The University of Michigan’s consumer sentiment index for the US rose more than expected to 60.5 in June 2025, up from a near-record low of 52.2 in both May and April. Consensus estimates had been for a reading of 53.5. This marks the first increase in sentiment in six months. Read more from Trading Economics here
Markets round-up
Middle East tensions weigh on markets
The escalation of the war in the Middle East and renewed tariff threats in the US kept investors on edge. Israel launched strikes on Iran on Friday and Saturday, attacking nuclear facilities and missile factories. Read more from Reuters here
Investors flock to safe-haven assets
US investors sought refuge in traditionally ‘safe-haven’ assets, such as the dollar and gold, after a surge in oil prices followed the escalation of Iran/Israeli tensions. Read more from Reuters here
Dollar hits three-year low
Further threats over trade tariffs pushed the dollar to its lowest level in three years. The dollar was dragged lower after the president Trump told reporters he would outline new tariff rates in the next couple of weeks, as the 90-day ‘pause’ draws to a close. Read more from the FT here
Precious metals surge
Investors are turning to silver and platinum as alternatives to gold and hedges against the US dollar, sending prices for both metals soaring. There are concerns that gold may now be overvalued and other precious metals are starting to catch up. Silver prices have surged to a 13-year high while platinum prices are at their highest levels in four years. Read more from the FT here
Gold as reserve asset
Gold has overtaken the euro as the world’s second-most important reserve asset for central banks, according to the European Central Bank. Bullion now accounts for 20% of global official reserves, compared to 16% for the euro and 46% for the dollar. Read more from the FT here
“The process of international investors shifting their asset allocation to other equity markets could take many years to run its course but, with such wide valuation differentials, the UK opportunity is clear.
Selected equity and bond markets: 06/06/25 to 13/06/25
| Market | 06/06/25 (Close) |
13/06/25 (Close) |
Gain/loss |
|---|---|---|---|
| FTSE All-Share | 4795 | 4801 | +0.1% |
| S&P500 | 6000 | 5976 | -0.4% |
| MSCI World | 3915 | 3901 | -0.4% |
| CNBC Magnificent Seven | 331 | 334 | +1.0% |
| US 10-year treasury (yield) | 4.5% | 4.4% | |
| UK 10-year gilt (yield) | 4.65% | 4.56% |
Investment round-up
Ninety One completes Sanlam UK deal
Ninety One will complete its acquisition of Sanlam’s UK asset management arm on 16 June. The deal creates a long-term active asset management relationship between Ninety One and Sanlam.
Short-term gilt option from Vanguard
Vanguard has launched a UK short-term gilt fund, tracking the Bloomberg UK Gilt 1-5Yr Float Adjusted index. It aims to provide a contrast with the uncommonly long debt maturity in Britain. Gilts have an average maturity debt of 14.4 years – one of the longest in the developed world.
Regulators under fire from Lords
The Financial Conduct Authority and Prudential Regulation Authority have a “deeply entrenched culture of risk aversion” that limits their ability to drive UK growth and competitiveness, according to a report by the House of Lords’ Financial Services Regulation Committee. Senior leadership at both regulators “must do more to drive cultural change” to achieve their international competitive and growth objectives, the report added.
Nordea launches European fund
Nordea has launched a high-conviction European fund, saying high fiscal spending across Europe this year is creating opportunities. Europe should be a beneficiary of waning appetite for US equities, the firm believes.
Square Mile suspends three ratings
Square Mile Investment Consulting & Research has suspended the ratings of three funds: Baillie Gifford Shin Nippon, Baillie Gifford Japanese Smaller Companies and BNY Mellon Real Return. The first two suspensions follow the departure of Praveen Kumar, the lead manager of both funds, from Baillie Gifford.
… and the week that will be
Central bank meetings
The US Federal Reserve’s two-day monetary policy meeting this week will be closely watched. Despite pressure from the White House, there is little expectation of a rate cut – although inflation has been better behaved of late. As such, investors will be watching for signs a cut may be on the cards later this year. The Bank of England also meets this week but is unlikely to garner the same level of attention. Read more from Reuters here
UK inflation
Inflation is expected to tick higher in the UK this month but investors will be watching especially for any signs of overshoot. The Bank of England acknowledges the next few months will be tricky, but is expecting inflation to start to fall in the second half of the year. A Bank of England survey last week showed inflation expectations remain high. Read more from Reuters here
The week in numbers
UK rate decision: Consensus has the Bank of England holding UK interest rates at 4.25%.
US rate decision: Consensus expectations are for no change in rates from 4.5%. A new ‘dot plot’, forecasting expected rate levels, and economic projections, will be published at the Federal Reserve’s meeting.
Japan rate decision: The Bank of Japan is expected to hold rates steady at 0.5%.
UK inflation: Consensus forecasts are that prices will rise 3.6% year-on-year from April’s 3.5%; and 0.4% month-on-month from 1.2%. Core CPI is set to hold steady at 3.8%, year on year.
China industrial and retail data: Consensus expectations are for industrial production to rise 5.5% year-on-year and retail sales to rise 4.7% year-on-year.
US retail sales: Retail sales forecast to rise 0.2% from 0.1%. UK retail sales: Retail sales are expected to fall 1%, month on month.
Eurozone consumer confidence: Consensus expectations are that the index will to rise to -14 from -15.2.
Company news: Full-year earnings numbers expected from AO World, Ashtead, Berkeley, Telecom Plus and Urban Logistics
In focus: Reaping the dividend
UK equity income funds used to sit firmly at the heart of investor portfolios, providing a reliable combination of income and capital growth. In recent years, however, the sector has been hurt by the unpopularity of the UK in general and, more specifically, the travails of key income-generating sectors such as financials and resources. Last week, though, Clive Beagles, long-time manager of JOHCM UK Equity Income, announced he had found more opportunities in the past three months than in the past five years. Could the sector be on the cusp of a revival?
Given the broader weakness of UK markets – and helped by its skew to larger, international businesses – the UK Equity Income sector has actually delivered some creditable performance over the past three years. The average fund is up 30% in that time – in line with the average Global Equity Income fund and some way ahead of the average UK All Companies or Smaller Companies fund.
This can be seen in the top performers over the last three years. It has, for example, been a good moment for Artemis Income, the granddaddy of the sector, which invests predominantly in large-cap stocks. A value approach has also helped, with Redwheel UK Equity income, managed by Ian Lance and Nick Purves, also among the top performers. Schroder Income, and Jupiter UK income have also been strong. The other notable feature is these are all the largest players in the sector – the majority of the top-performers are £1bn-plus funds.
Looking ahead, there should be plenty of supportive factors for UK equity income – not least that the UK’s dividend payouts look reasonable in aggregate. While the Computershare Dividend Monitor shows dividends down 20 basis points year-on-year, the weakness has come from a handful of companies. Overall, dividend growth was better than expected, with sectors such as pharmaceuticals performing particularly well.
As might be expected, of course, UK equity managers are also notably enthusiastic about the asset class – for example, the Artemis UK income team believe many of their portfolio companies are enjoying their best competitive environment for more than a decade.
As the cost of capital has normalised, long-term owners are now in a position to use public equity to enhance value.”
The rotation away from the US is also seen as a positive. “The other clear consequence of Trump’s actions for markets is that they offer some oxygen for non-US listed equities,” notes Beagles. “The domination of global stockmarket performance by US mega-cap growth stocks has been unhelpful for other markets and, as they settle down from the weekly volatility, we would expect international investors to begin to shift their asset allocation to other equity markets. This process could take many years to run its course but, with such wide valuation differentials, the opportunity is clear.”
For his part, Artemis UK Income manager Adrian Frost says that while buybacks in the UK market have been helpful, the team are looking beyond them for companies that are using capital for wealth creation.
Pointing to M&A, through which skilled management teams can enhance value, he adds: “When debt capital was abundant and priced off zero-rate government bonds, private equity – thanks to high degrees of leverage – had a strong advantage over publicly listed companies using share capital. As the cost of capital has normalised, this situation has reversed, with long-term owners now in a position to use public equity to enhance value.”
Inflection point
The sector could even be at something of an inflection point, with UK domestic exposure starting to be a help rather than a hindrance. In his latest update on JOHCM UK Equity Income, Beagles says: “The key theme of the month was the outperformance of domestic earnings, which should continue given low valuations and the economic trends. Our retailers were, in aggregate, up strongly – Currys and Wickes both had positive trading updates that led to upgrades. DFS was up 15% relative. Our transport names were also strong.”
Elsewhere, Simon Murphy, manager of VT Tyndall Unconstrained UK Income, says his portfolio is particularly geared to the UK economy at the moment. “This is not because I’m a massive bull on the economic outlook,” he continues, “but we have been conditioned by negative shocks over the last few years.
We have had a big and sustained underperformance in mid and smallcap over the last four or five years but the longer-term trend is not broken.”
“The outlook for the UK economy may not be great – but neither is it as bad as most of the pessimistic forecasters suggest. That pessimism is reflected in valuations for the most cyclical areas in the market.” He holds companies such as Wickes, DFS and Bodycote and points out that corporate and consumer balance sheets are in good health.
Murphy invests predominately in mid-sized businesses – £500m to £10bn market capitalisation – where he sees real value today. “Most people understand that, over time, mid and smallcap companies tend to outperform. We have had a big and sustained underperformance in mid and smallcap over the last four or five years but the longer-term trend is not broken.
“The outperformance comes from the relative immaturity of the companies, their faster-growing nature and new industries.” For the first time in his career, he notes, the FTSE 250 index is yielding more than the FTSE 100 – 3.5% versus 3.4%.
And there are other advantages to looking further down the market capitalisation scale for income too – for example, it gets over the problem of income being concentrated in a handful of sectors and stocks and can deliver a broader pool of opportunities.
The FTSE 250 has ticked ahead of the FTSE 100 over the past three months. Valuations still look compelling in this part of the market – plus it has that edge on dividend payouts. As the UK domestic economy moves to a more stable footing, smaller companies may build momentum. It is a good moment for UK equity income, but a focus on more domestic sectors may become a particular positive.
Read more on this from Computershare here and from Trustnet here
In focus: Review reviewed
In last week’s Spending Review, Rachel Reeves unveiled her financial plans for the UK. Capital spending was the priority for the government, alongside health and defence. There was little short-term juice for the UK economy, however, while April’s GDP data showed it going backwards. The UK’s finances remain precarious.
“As expected, the NHS and defence were the two winners in cash terms, with both areas prioritised versus other spending,” commented Ben Zaranko, senior research economist at the Institute for Fiscal Studies. “Some areas are facing cuts to spending, or plateauing budgets. The other big factor was the emphasis on capital investment.”
As Anthony Willis, senior economist at Columbia Threadneedle, notes, this is unlikely to deliver any short-term reprieve for the UK economy. “The government remains committed to long-term infrastructure and housing plans but neither will deliver short-term growth,” he says. “That means expectations are rising of yet another ‘black hole’ in the public finances come the Autumn Budget- when growth and productivity estimates are likely to be revised lower.”
In its recent analysis of the UK economy, the IMF noted the ‘Liz Truss effect’, which is leading to an over-emphasis on small movements in public finances. The focus on fiscal headroom is leading to poor decision-making, it added. “The Liz Truss era – if 49 days can be called an era – still appears to weigh heavily on the government’s thinking and its determination to look credible on the public finances,” says Willis.
The UK economy had to contend with a range of one-off factors in April, including increased employer National Insurance contributions, minimum wage increases, higher energy prices and the initial effects of president Trump’s tariffs. Nevertheless, the contraction in UK GDP is expected to be short-lived with the economy likely to return to growth in the second quarter. Consumer spending has remained relatively robust and savings levels are high.
There was certainly little to excite the stockmarket in the Spending Review. Housebuilders gained on the day and construction companies were strong too. The renewables sector also received a boost, as the government reaffirmed its energy-security and clean-energy ambitions. The greater effects seem likely to be longer-term, however.
While Reeves appears to have navigated this round of spending without upsetting the bond market, the fear remains that her sums do not add up. As the Jupiter Merlin team put it: “Reeves is hoping that economic growth will bail her out. It is not impossible, but it is a tall order. Self-evidently – as illustrated perfectly this week – her problem on that score is that she does not control growth.”
Read more on this from the IFS here and from Jupiter here
