Content

• UK: Growth Holds Steady as Inflation Eases

• Europe: Steady Growth Despite Inflation Pressures

• US: Inflation Creeps Up, Growth Contracts, but Markets Rebound

• Asia: Deflation Persists in China, While Markets See Strong Gains

• How This Affects Your Investments

• Looking Ahead

Summary

Despite headline volatility, most global markets posted gains over the second quarter of 2025. For UK investors, this underscores the importance of diversification – holding a mix of UK and international assets helps smooth out the bumps and capture growth across regions. Key themes during the period included easing inflation pressures in the UK, steady economic expansion across Europe, and renewed momentum in global equity markets.

UK: Growth Holds Steady as Inflation Eases

Inflation in the UK edged down slightly in May, rising 3.4% over the previous 12 months compared to 3.5% in April. Falling transport costs helped ease price pressures, though increases in food, furniture, and household goods continued to affect many families¹.

At its June meeting, the Bank of England kept the base interest rate unchanged at 4.25%, but signalled rates could start to come down later in the summer if inflation continues to fall. Some analysts expect a possible rate cut in August².

The UK economy grew by 0.7% in the first quarter of 2025, in line with earlier estimates and marking the strongest quarterly growth in a year³.

After a positive start to the year, the FTSE All-Share index gained 4.4% over the second quarter. While this made it the second-weakest performer among major global indices during this period, the UK market remains up 9.1% for the year so far, reflecting a steady recovery⁴.

Europe: Steady Growth Despite Inflation Pressures

Eurozone inflation edged up to 2% in June, slightly higher than 1.9% in May. While inflation in Germany fell unexpectedly, France and Spain saw small increases, and Italy’s rate remained steady⁵.

The Eurozone economy expanded by 0.6% in the first quarter of 2025, doubling earlier estimates of 0.3%. This was the region's strongest growth since late 2022, largely thanks to Ireland’s rapid 9.7% rise. Among the larger economies, Spain and Germany led with growth of 0.6% and 0.4%, respectively, followed by Italy at 0.3%. France and the Netherlands each grew by 0.1%⁶.

Despite these positive economic signals, European markets lagged behind other regions. The MSCI Europe ex-UK Index – which measures the performance of major European shares excluding the UK – delivered a 3.6% gain over the second quarter, making it the weakest performer for the period. Even so, it remains the third-strongest performer so far this year, up 10.2%⁷.

US: Inflation Creeps Up, Growth Contracts, but Markets Rebound

In May, US inflation rose slightly to 2.4%, up from 2.3% in April – the lowest rate since 2021. Although still below expectations of 2.5%, the increase was driven by higher prices for food, transportation services, and vehicles⁸.

Despite this uptick in inflation, the Federal Reserve (Fed) – the US central bank – kept interest rates steady at 4.25% - 4.5%. However, the Fed chair, Jerome Powell, has not ruled out the possibility of rate cuts later in July if the economic conditions worsen⁹.

The economy contracted by an annualised rate of 0.5% in the first quarter of 2025 – a bigger decline than the earlier estimate of 0.2% and the first quarterly drop in three years. The slowdown was mainly due to weaker consumer spending and lower exports¹⁰.

After a volatile April, with the introduction of Liberation Day trade tariffs, US stocks rallied towards the end of the second quarter. The S&P 500 index, which tracks the performance of the largest 500 companies in the US, gained 10.9% gain over the quarter, making it the third-best performer. Despite this recovery, the index remains the second-weakest major market so far this year, with a modest 6.2% rise¹¹.

Asia: Deflation Persists in China, While Markets See Strong Gains

Inflation in China fell by 0.1% in May, the same decline seen over the previous two months. This was the fourth month in a row of consumer deflation, highlighting ongoing challenges including trade tensions with the US, weaker domestic demand, and concerns about job security¹².

In Japan, annual inflation eased slightly to 3.5% in May, down from 3.6% in March and April, which was the lowest level since November 2024¹³.

In stock markets, Japan’s TOPIX index – which tracks shares of companies listed on the Tokyo Stock Exchange – rose 7.5% over the second quarter. However, it remains the weakest performer so far this year, with only a 3.8% gain.

Meanwhile, the MSCI Asia ex-Japan index, which measures the performance of major Asian markets excluding Japan, gained 12.7% over the same period. This made it the best performer for the quarter and the second strongest for the year-to-date, with growth of 14.8%¹⁴.

How This Affects Your Investments

Despite uncertainty from US trade tariffs and wider geopolitical tensions, most major markets delivered positive returns over the second quarter. This underlines why it’s always recommended to stay invested rather than making hasty changes when headlines look worrying.

With Asian and emerging markets leading the way this quarter, holding a mix of global investments continues to be a valuable strategy. By spreading your portfolio across different regions, sectors, and asset types, you can help smooth out the ups and downs and improve your chances of achieving steady, long-term growth.

Looking Ahead

The months ahead are likely to bring more mixed signals for investors. While inflation has started to ease in the UK and parts of Europe, central banks are cautious and could adjust interest rates depending on how price pressures evolve. In the US, economic growth remains uncertain as trade tensions and consumer spending patterns continue to shift.

At the same time, global markets have shown resilience in the face of recent challenges. Strong performances in Asian markets and steady gains in many sectors suggest that opportunities remain for diversified investors who can look beyond short-term headlines.

As always, maintaining a long-term view and spreading investments across different regions and asset classes can help reduce the impact of market ups and downs. If you have any questions about your portfolio, it may be a good time to review your plans with your financial adviser and check that you remain on track to meet your goals.

¹ 18.06.2025 Consumer price inflation, UK: May 2025 ONS² 19.06.2025 Bank holds interest rates but hints at future cuts BBC³ 03.07.2025 United Kingdom GDP Growth Rate Trading Economics⁴ 01.07.2025 Review of Markets JP Morgan⁵ 03.07.2025 Euro Area Inflation Rate Trading Economics⁶ 03.07.2025 Euro Area GDP Growth Rate Trading Economics⁷ 01.07.2025 Review of Markets JP Morgan⁸ 03.07.2025 US Inflation Rate Trading Economics⁹ 01.07.2025 Fed rate cut bets rise after Powell doesn't rule out July Reuters¹⁰ 03.07.2025 United States GDP Growth Rate Trading Economics¹¹ 01.07.2025 Review of Markets JP Morgan¹² 03.07.2025 China Inflation Rate Trading Economics¹³ 03.07.2025 Japan Inflation Rate Trading Economics¹⁴ 01.07.2025 Review of Markets JP Morgan

Please note: This guide is for general information only and does not constitute advice. The information is aimed at retail clients only. The value of your investment(s) and the income derived from it, can go down as well as up and you may not get back the full amount you invested. The content of this guide was accurate at the time of writing. While information is considered to be true and correct at the date of publication, changes in circumstances, regulation, and legislation after the time of publication may affect the accuracy of the guide. Succession Wealth Management Limited is authorised and regulated by the Financial Conduct Authority. Financial Services Register number 588378. Succession Wealth Management Ltd is registered in England and Wales at The Apex, Brest Road, Derriford Business Park, Derriford, Plymouth PL6 5FL. Registered Number 07882611.

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