Let’s take a look at the October 2025 Market Commentary.

The period from mid-September to the end of October 2025 was characterised by a cautiously optimistic tone in global equity markets, primarily driven by a further deceleration in inflation, which bolstered expectations for a more accommodative central bank policy path.

Click here to read the commentary in more detail

Key economic data points provided the main direction:

• UK Inflation & Policy: UK CPI inflation held steady at a high level in September, though below the Bank of England’s (BoE) forecast, which has intensified the debate about the future course of UK interest rates.2 The BoE’s decision to maintain rates at its September meeting was largely expected but the dissenting votes for a cut signalled the shifting consensus.
• US Momentum: US equity markets continued to show strength, buoyed by signs of cooling inflation and expectations of further Federal Reserve (Fed) rate cuts later in the year, despite ongoing US political uncertainty (e.g., a government shutdown) that complicated data releases.
• Corporate Earnings: In the UK and US, third-quarter corporate earnings reports provided a mixed, yet generally resilient, picture, helping to sustain stock market levels, particularly in the large-cap growth sectors.
• Energy Prices & Fiscal Uncertainty: Coordinated US-EU sanctions on Russian oil in mid-October led to a surge in Brent crude prices, injecting a new element of volatility and cost pressure. Furthermore, pre-Budget speculation in the UK created widespread uncertainty for domestic savers and investors.

Overall, the prevailing sentiment is one of guarded optimism, with markets balancing positive disinflationary trends against persistent, high interest rates and renewed geopolitical and domestic fiscal risks.

UK

Market and Sector Performance

The FTSE 100 showed robust performance through late September and October, reaching new highs in the middle of the month. As of late October, the index was trading around the 9,578 mark. This upward trend was significantly supported by strong momentum in commodity-related sectors, particularly Oil & Gas majors, whose share prices climbed on the back of rising Brent crude prices following the new sanctions (AJ Bell, October 2025).

The domestically-focused FTSE 250 also advanced, though with greater volatility. Notable corporate news provided stock-specific momentum. For example, the London Stock Exchange Group saw its shares jump after raising margin guidance, while pest-control and hygiene firm Rentokil Initial surged following improved trading results in North America (AJ Bell, October 2025). This highlights the continued importance of fundamental corporate performance, even amidst broader macroeconomic concerns.

Monetary Policy and Economic Data

The Bank of England’s (BoE) Monetary Policy Committee (MPC) voted in September to maintain Bank Rate at 4.0%, a decision largely anticipated by the market, following a rate cut in August (Bank of England, September 2025). Crucially, the vote was split 7-2, with two members favouring a 0.25 percentage-point cut, indicating an emerging division within the MPC regarding the necessity of maintaining the current restrictive stance.

• Inflation: UK CPI inflation remained unchanged at 3.8% in September (Office for National Statistics, October 2025), remaining stubbornly high—nearly double the 2% target.3 While below the BoE’s own expectations, the persistent level underscores ongoing inflationary pressures, especially in services, which the BoE watches closely as a proxy for domestic cost pressures (House of Commons Library, October 2025).
• Wages: Average weekly earnings (including bonuses) rose by 5.0% year-on-year in the three months to August 2025 (Trading Economics, October 2025). Although regular pay growth (excluding bonuses) slowed slightly to 4.7%, wage growth remains robust, supporting household income but adding pressure to the services inflation component.

United States

Market Performance

US equities displayed strong performance, with the S&P 500 index moving to a new all-time high in October, following its strong September close at 6,688.46 (Macrotrends/YCharts, October 2025). The Nasdaq Composite, reflecting the technology-heavy nature of the market, was a key driver, alongside the Dow Jones Industrial Average, which also contributed to the upward momentum. The overall mood was bullish, driven by better-than-expected corporate earnings and the prospect of an end to the Fed’s rate-hiking cycle.

Federal Reserve and Economic Data

The Federal Reserve (Fed) cut interest rates by 25 basis points (bp) at its September meeting, bringing the target range for the federal funds rate to 4.0–4.25% (J.P. Morgan Research, September 2025). This move was seen as a “risk management cut” to prevent a deeper slowdown in the labour market. Subsequent softer US inflation data (Consumer Inflation rising 3% year-on-year to September) has increased speculation about a further rate cut before the end of the year, despite the complication of a US government shutdown delaying the release of other key economic indicators (Times of India, October 2025).

Impact on UK Portfolios: The continued resilience and outperformance of US markets, especially in the technology sector, is highly significant for UK investors. Given that many UK-based global funds and portfolios have substantial exposure to the US, this performance has been a net positive contributor to overall UK portfolio returns. However, the strength of the US dollar against the pound has fluctuated, impacting currency-hedged versus unhedged allocations.

Europe

Market and Central Bank Action

European equities, as measured by the Euro Stoxx 50, also climbed, having advanced 3.4% in September (STOXX, September 2025), largely following the positive global sentiment.

The European Central Bank (ECB), at its September meeting, held its key interest rates steady for the second consecutive time, with the Deposit facility rate at 2.00% (Morningstar/ECB, September 2025). This pause followed a series of eight rate cuts that began in June 2024. The ECB’s minutes from the meeting indicated a consensus that rates were now “in a good place” and likely near the end of the easing cycle, suggesting a reluctance to cut further in 2025 unless warranted by a significant economic shock (ECB, October 2025).

Key Themes

• German Economy: The German economy, the Eurozone’s largest, showed a mixed outlook. While the pan-European STOXX Europe 600 advanced, the German DAX index retreated slightly by 0.1% in September, highlighting continued weakness in its industrial and manufacturing sectors (STOXX, September 2025).
• Geopolitics: Energy concerns were rekindled regionally following the US-EU sanctions on Russian oil, potentially creating new volatility for energy prices and a modest headwind for industrial economies in the region.

Asia / Far East

China’s Slowing Momentum

The major headline from Asia was the continued slowdown in China’s economy, with third-quarter GDP growth easing to 4.8% year-on-year (YoY), its slowest pace in a year (Times of India/ING Think, October 2025). While this was slightly better than some forecasts, underlying data painted a picture of sluggish domestic demand:

• Retail Sales rose only 3.0% in September, reflecting weak consumer confidence.
• Fixed-Asset Investment contracted by 0.5% year-to-date, its first contraction since 2020.
• The troubled property sector remains a significant drag, with investment falling 13.9% YoY year-to-date.

A notable bright spot was Industrial Production, which surged to 6.5% YoY in September, largely benefiting from resilient external demand—particularly in high-tech manufacturing, indicating a successful shift of exports towards markets outside the US tariffs (ING Think, October 2025).

Other Major Economies

Trends from other major Asian economies:

• Japan: Continued to wrestle with structural reform, with investor focus remaining on corporate governance improvements and the impact of the Yen’s exchange rate on multinational exporters.
• South Korea (as a proxy for Asia): Data on exports remained strong, consistent with China’s industrial production figures, reflecting strong global demand for electronics and manufactured goods.

These regional trends are critical for global supply chains and commodities. China’s domestic weakness signals lower long-term demand for industrial commodities, while strong export performance underpins manufacturing supply chains globally, maintaining stability in key industrial input costs (excluding energy).

Emerging Markets

The overall mood in Emerging Markets (EM) was positive, with the STOXX Emerging Markets index gaining 6.8% in September (STOXX, September 2025).

• Interest-Rate Actions: Several EM central banks continued their cautious easing cycles, capitalising on earlier aggressive hikes that helped bring domestic inflation under control.
• Currency Moves: Currency movements were generally mixed, with some currencies strengthening against the dollar, benefitting from local investors’ higher domestic real rates.
• Relevance: For UK investors with globally diversified portfolios, Emerging Markets provided attractive returns during this period. The sector continues to offer diversification benefits and exposure to economies that are less correlated with the US and European interest rate cycles, though they carry higher growth and political risk.

Global Overview / Final Thoughts

The dominant narrative from mid-September to the end of October 2025 is the tug-of-war between the persistent force of high interest rates and the alleviating signs of cooling inflation.

Global markets are showing remarkable resilience, largely due to strong US corporate earnings and the prospect of central banks, particularly the Fed, being close to pivoting toward further rate cuts. The UK market, supported by its heavy weighting in energy and financial stocks, has performed well, but domestic economic indicators (high inflation, sluggish business confidence) suggest underlying vulnerabilities.

Headwinds heading into the end of 2025 include:

1. UK Fiscal Risk: The major domestic concern is the high level of pre-Budget uncertainty regarding potential tax rises, which encourages short-term caution among savers and investors.
2. Energy Volatility: The recent spike in oil prices introduces a new cost push that could temporarily reverse the disinflationary trend.
3. China’s Property Crisis: China’s continued domestic slump is a global growth risk, even if industrial exports remain strong for now.

For a balanced portfolio, the past six weeks confirm the importance of global diversification. The strength of US technology and UK commodity-heavy sectors has offset weaker performance in other areas. Sentiment remains highly sensitive to central bank rhetoric, incoming inflation data, and the forthcoming UK fiscal statement.

What Should You Do? / Client Takeaway

• Keep a Balanced, Diversified Portfolio: The disparity in regional and sector performance (e.g., US tech vs. China property) highlights the value of not being overly reliant on any single market.
• Review Tax-Efficient Wrappers: Given the heightened speculation around CGT and pensions in the run-up to the Budget, ensure you are maximising your ISA and pension contributions to protect gains and income.9
• Avoid Reacting to Short-Term Volatility: Market swings driven by Budget rumours or energy price spikes are normal. Focus on your long-term investment strategy rather than short-term noise.
• Revisit Goals and Risk Tolerance as the Year Closes: Use the final quarter to ensure your portfolio’s current risk level still aligns with your financial objectives for 2026 and beyond, especially considering potential changes to personal taxation.

Sources / References

Call to Action / Contact Section

For a detailed review of how these market developments and the forthcoming Budget might affect your personal financial plan and portfolio positioning, please contact your Questa Financial Adviser.

Click here to read the commentary in more detail

Disclaimer

This content is for general information only and does not constitute personal financial advice.